On September 10, 2007, in response to vocal taxpayers, the Department of Treasury and the Internal Revenue Service issued Notice 2007-78 (the “Notice”) regarding compliance with Section 409A of the Internal Revenue of Code of 1986, as amended (the “Code”). As you are no doubt aware, Section 409A is a new Code provision that comprehensively regulates deferred compensation arrangements.

The Good News… The Notice extends the time that employers will have to comply with the plan document requirements under Section 409A of the Code. Under the final regulations, employers are required to bring their plan documents into compliance with Section 409A no later than December 31, 2007. The IRS has extended this deadline to December 31, 2008. The amendment, or restated plan, will need to be retroactively effective January 1, 2008, and must reflect the operation of the plan during 2008.

The Not so Good News… The deadline for being operationally compliant with Section 409A has not been extended - - operational compliance is effective January 1, 2008. The good faith standard of compliance with Section 409A no longer applies after December 31, 2007. The IRS also did not extend the transition relief that many employers have relied upon this year regarding payment elections. This means that participants will only be able to change the timing and form of payment as prescribed under Section 409A. Plan participants will need to elect a Section 409A compliant time and form of payment before December 31, 2007, unless the plan document does not offer a choice as to the time and form of payment.

Correction Program… The IRS indicated that it intends to issue a compliance program under which employers will be able to correct certain operational failures under Section 409A.

Additional Guidance… The Notice also discussed the application of the definition of good reason in employment agreements and the cash-out of small deferred compensation balances.

Throughout this year and the next, we will issue additional Alerts regarding compliance with specific provisions under Section 409A, including the short-term deferral rule, distribution of deferred compensation, re-deferral rule and severance arrangements.

A Further Extension Possible…Finally, taxpayers are continuing to pressure the IRS regarding a full extension of Section 409A compliance through the end of the 2008. However, the IRS has not publicly responded yet, which may be a good sign.