Undocumented SARSEP maintained by Governmental Agency

[Guest Nixdad]

Just got in the best (worst) VCP problem I've ever handled. A governmental agency has maintained a "plan" since 1992 but has never had or cannot find a plan document. The mutual fund company that holds the assets says that each participant's contributions are held in two IRAs - one for the employer's contributions (sounds like a SEP) and one for the employee's contributions. The client says that the participant contributions are pre-tax (sounds like a SARSEP). The real problem (leaving aside the absence of a plan document) is that governmental agencies are not eligible to maintain a SARSEP. So, I look at 2006-27 and find "Employer Eligibility Failure" (see 5.01(2)(d)). The permitted correction of an EEF under 6.03 is pretty easy - stop making contributions to the plan. Unfortunately, an EEF is limited to employers not eligible to adopt a 401(k) plan. I can't find a similar provision for employers who can't adopt a SARSEP. Any ideas about how to approach the IRS about correcting a defect in a plan (some combination of non-amender/non-adopter) that the client wasn't even eligible to maintain? Thanks.