The IRS and Treasury Department recently issued two Notices (Notice 2007-86 and Notice 2007-89) that (1) extended key deadlines for employers to bring nonqualified deferred compensation (“NQDC”) plans into compliance with Section 409A of the Internal Revenue Code and (2) provided guidance on the reporting and withholding of NQDC amounts. Section 409A and the regulations promulgated thereunder added stringent new requirements to NQDC arrangements. Failure to comply with these rules results in immediate taxation of the NQDC along with interest and a 20 percent excise tax. NQDC plans must be amended to be in written compliance with Section 409A by December 31, 2008. In the interim, employers must continue to operate their NQDC arrangements in compliance with Section 409A (as specified in Notice 2007-86). This alert summarizes the recent IRS guidance and explains the actions that employers should take by December 31, 2007 and December 31, 2008.

I. Action to Consider by December 31, 2007

1. Payment Elections. Employers have the ability to allow participants to make an election by December 31, 2007, to change the time and form of payment of amounts subject to Section 409A that otherwise are payable in 2008 (or later years if desired) so long as they do not cause such amounts to be paid in 2007.

2. Begin Review of NQDC Plans. Employers will need to review all NQDC plans. Be aware that Section 409A applies to arrangements not traditionally considered NQDC plans. These arrangements include employment agreements, severance and change-in-control arrangements, and equity compensation plans.

II. Action Required by December 31, 2008

1. Documentary Compliance Deadline Extension. The deadline for amending plan documents to comply with Section 409A has been extended until December 31, 2008.

2. Payment Elections. Employers have the ability to allow participants to make an election by December 31, 2008, to change the time and form of payment of amounts subject to Section 409A that otherwise are payable in 2009 (or later years) so long as they do not cause such amounts to be paid in 2008.

3. Equity Compensation. Except in the case of certain backdated options, Notice 2007-86 extends the period for which the cancellation of non-exempt stock rights may be replaced with exempt stock rights until December 31, 2008. Accordingly, companies with discounted stock rights may adjust the exercise price of the stock rights to fair market value as of the original grant date to avoid having the stock rights treated as NQDC.

4. Payments Linked to Qualified Plans. Payment elections under a NQDC plan that are linked to elections under a qualified plan must be de-linked by December 31, 2008.

III. Employer Reporting and Withholding Obligations

1. Reporting of Section 409A-Compliant Deferrals. Notice 2007-89 suspends the reporting requirements for amounts deferred in the 2007 calendar year under an NQDC plan that has been operated in compliance with the requirements of Section 409A.

2. Reporting of Non-Compliant Deferrals. Amounts includible in gross income in 2007 due to failure to comply with Section 409A must be reported in on Form W-2 for employees or Form 1099- MISC for non-employees.

3. Withholding Obligations. Withholding is required on amounts that must be included in income due to failure to comply with Section 409A. Such amounts are treated as supplemental wages for purposes of income tax withholding. Employers are not required, however, to withhold the 20 percent penalty tax. Further, the IRS has warned employees who are subject to the penalty tax that estimated tax payments may be required.