Counties that were declared Presidential Disaster Areas include:

Those that qualify were granted an extension until September 5, 2006, for certain tax-related deadlines, including depositing rollovers, making plan loan payments, Form 5500 filing, and other time-sensitive acts described in Treas. Reg. Sec. 301.7508A-1(c)(1).

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers who need them to apply for benefits or file amended returns claiming casualty losses.

For further information, or to download forms and publications, access the IRS web site: www.irs.gov.

The IRS has extended the deadline to file 2004 tax returns to October 15, 2006, for those individuals affected by hurricane Katrina and who applied for an extension to file 2004 returns prior to the hurricane Katrina events. This extension does not include making 2004 IRA contributions.

In addition, Notice 2006-56 extends the 2005 tax return filing deadline to October 15, 2006, to those affected individuals who were granted a filing extension to August 15, 2006, under hurricane Katrina relief Notice 2006-20. This extension does extend the 2005 IRA contribution deadline to October 15, 2006, for these same individuals.

Note: Notice 2006-56 does not extend other time-sensitive acts such as rollover deadlines or taking required minimum distributions, which were granted relief under Notice 2006-20.

For further information, access the IRS web site: www.irs.gov.

year. There is a requirement that within a 60-day period preceding the plan year, the employer must allow eligible employees to make deferral elections (IRC Sec. 408(p)(5)(C)). For the plan year 2006, the 60-day election period must begin by October 1 for new plans to include 2006 deferrals. For existing plans, employers should furnish the 60-day election notice by November 1 each year. This notice allows newly eligible employees to make elections, or existing employees to modify elections for the next year.

October 1 is quickly approaching, and employers wishing to establish a SIMPLE plan for 2006 should do so immediately.

that it violates local payroll withholding laws. Because of this perception, the Act explicitly protects automatic enrollment plans from state and local interference.

The Act does require that the plan sponsor provides a notice explaining the participant�s right to opt out of the plan or to change the rate of contribution, the time periods for making elections, and how the contributions will be invested if no investment instructions are provided to the plan. Plans that give automatic enrollees proper notice are treated as complying with Section 404(c) of ERISA, which provides limited protection against fiduciary liability.

The Act requires that the Department of Labor issue guidelines for choosing a default investment for automatic enrollees who have not elected an investment option within six months after enactment.

The Act provides automatic enrollment plans with an optional safe harbor for satisfying the nondiscrimination rules for elective deferrals and matching contributions. The plan would be deemed to satisfy nondiscrimination rules if it provides a minimum match of 100% of elective deferrals up to 1% of compensation, plus 50% of elective deferrals between 1% and 6% of compensation. The current-law safe harbor provision continues to be available for all 401K plans, including those with automatic enrollment. However, the government has sought to encourage automatic enrollment by making the automatic enrollment safe harbor less expensive than the current safe harbor provision.

In order to qualify for the automatic enrollment safe harbor, the automatic contribution rate must be set at a minimum of 3% during the first year of participation, 4% during the second year, 5% during the third year, and 6% thereafter. The plan may specify a higher percentage, up to 10%.

An automatic enrollee will have 90 days to opt out of the plan and withdraw contributions and the earnings related to those contributions. The distribution will be taxed but is not subject to the 10% early withdrawal penalty that ordinarily applies to distributions prior to age 59 �. This rule also applies to 403(b) plans and 457(b) plans that have automatic enrollment.

The automatic enrollment provisions are effective for plan years beginning after December 31, 2007.

Defined contribution plans that hold publicly traded employer securities must allow all of their participants to diversify the investment of their elective deferrals and after-tax contributions. The plan must also allow participants to diversify their employer matching and nonelective contributions after three years of service. The employer is required to provide 30 days� advance notice of the diversification right. This provision is effective in 2007; however, for existing plans, the provision can be phased in over a three-year period.

The Act contains an ERISA prohibited transaction exemption for investment advice provided by a "fiduciary adviser" under an "eligible investment advice arrangement." A "fiduciary adviser" is defined as a registered investment company, bank, insurance company,

or registered broker-dealer. An "eligible investment advice arrangement" must meet one of two criteria: (1) provide that the fees received by the fiduciary adviser do not vary on the basis of which investment options are chosen, or (2) recommendations are based on a computer model meeting certain Department of Labor criteria and the model is approved by an independent third party. An annual audit of either approach is required by the Act. The exemption applies to advice rendered after December 31, 2006.

The Act allows companies up to 500 employees to establish a combined Defined Benefit and 401K plan beginning in 2010. The plans would operate under a single plan document and trust fund, and will be required to file only one Form 5500 annually. Each component will be subject to its respective rules and regulations under the tax code and ERISA.

In order to constitute a single plan and trust, the Defined Benefit and 401K must utilize the following safe harbor provisions.

� The Defined Benefit component will have to be either a 1% of final average pay formula for up to 20 years of service, or a cash balance formula that increases with the participant�s age.

� The 401K component must include an automatic enrollment feature using 4% as the automatic contribution rate. The plan must provide for a fully vested match of 50% on the first 4% deferred.

� All benefits under the Defined Benefit component and nonelective contributions under the 401K component must be fully vested after no more than three years of service.

Combined Defined Benefit and 401K plans would be deemed not to be top heavy, although they are still subject to nondiscrimination and coverage testing.

Starting in 2007, owner-only plans will be exempt from Form 5500-EZ filing if plan assets do not exceed $250,000 and plans with 25 or fewer participants will have a simplified Form 5500.

Also starting in 2007, the Act requires companies that have an intranet web site to display their Form 5500 on that web site, in accordance with DOL regulations.

Most plans will be required to amend by the end of the 2009 plan year.

The information contained in this newsletter has been carefully compiled from sources believed to be reliable, but the accuracy of the information is not guaranteed. This newsletter is distributed with the understanding that the publisher is not engaging in any legal or accounting type of work such as practicing law or CPA services.

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