safe harbor plan start-up and 3-month rule

Employer has no 401(k) plan but has a 457b plan covering only the one key employee.   This key employee makes elective deferrals to this plan.  The employer wants to start a safe harbor 401(k) plan.  I assume the 457 is considered a deferral plan and thus the Oct 1 start up of 401(k) would not be possible for 2018 but instead they would have to wait until 1-1-2019.  I realize the answer seems obvious but I'm asking in case there is an exception to non-profit 457b plans not counting as true deferral plans for this purpose.

I do not believe there is a restriction to 10/1 for a new 401(k) safe harbor as the 457(b) Plan is a non qualified top hat plan.  

my recollection is conversion of an existing 401(k) to a safe harbor is not permitted but other qualified plans could be converted up to 10/1 which is the minimum period for a new 401k safe harbor plan. Since the 457b is not a qualified plan I do no think there is any formation impact.

Same answer, but cites included.

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1.401(k)-3(e)(2) Initial plan year. A newly established plan (other than a successor plan within the meaning of §1.401(k)-2(c)(2)(iii)) will not be treated as violating the requirements of this paragraph (e) merely because the plan year is less than 12 months, provided that the plan year is at least 3 months long (or, in the case of a newly established employer that establishes the plan as soon as administratively feasible after the employer comes into existence, a shorter period). Similarly, a cash or deferred arrangement will not fail to satisfy the requirement of this paragraph (e) if it is added to an existing profit sharing, stock bonus, or pre-ERISA money purchase pension plan for the first time during that year provided that—

(i) The plan is not a successor plan; and

(ii) The cash or deferred arrangement is made effective no later than 3 months prior to the end of the plan year.

 

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1.401(k)-2(c)(2)(iii) Successor plans. A plan is a successor plan if 50% or more of the eligible employees for the first plan year were eligible employees under a qualified cash or deferred arrangement maintained by the employer in the prior year. If a plan that is a successor plan uses the prior year testing method for its first plan year, the ADP for the group of NHCEs for the applicable year must be determined under paragraph (c)(4) of this section.

The definition of a qualified cash or deferred arrangement is in 1.401(k)-1(a)(4).  If you go through it, you will see that a 457(b) plan sponsored by a non-profit does not meet the definition of a qualified cash or deferred arrangement, so it would not cause the new plan to be a successor plan.