Compliance May 5, 2006

Higher Ed Early Withdrawal Exception only Applies to IRAs

May 5, 2006 (PLANSPONSOR.com) - A participant in a qualified plan for public employees of Texas failed to convince the US Tax Court that she should not pay the 10% early withdrawal penalty on a distribution she obtained to pay for her husband's higher education expenses.
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The court pointed out that the higher education exception in section 72(t) of the code only applies to individual retirement accounts (IRAs) and not to qualified plans such as the defined benefit plan from which the participant withdrew.

According to the court opinion, the code section states that the 10% early withdrawal penalty does not apply to distributions from an individual retirement plan used for higher education expenses.   According to the court “individual retirement plan” is defined as an IRA.

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The participant, Stephanie Barbee, pled to the court that she was told by agents and employees of the IRS that the distribution would not be subject to the additional tax.   The court said the “law was well settled” that it was not bound by erroneous representations of agents or employees.

Additionally, Barbee told the court that she had IRAs from which she could have withdrawn the money and asked that the court apply the distribution to one of these accounts.   The court said it did not have the authority to do that and Barbee was bound by the action she had already taken.

The summary opinion is  here .

Benefits May 4, 2006

Carnival Cruise Line to Settle Overtime Lawsuit

May 4, 2006 (PLANSPONSOR.com) - Carnival Cruise Lines will pay $6.25 million to thousands of current and former employees that sued the company for allegedly not paying enough overtime, according to the plaintiffs' lawyer.
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According to the Associated Press, the settlement – if approved by US District Court Judge Marcia Cooke – would force the cruise liner to cough up payouts of between $100 and $150 for the nine plaintiffs leading the suit, and various amounts to as many as 39,500 people who worked on the ship starting November 2001, the newswire reported.

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Carnival has not admitted any fault in the settlement, but will setup the arbitration process to pay the disputes, the attorney representing the plaintiffs said, according to the AP.

Crew members working for the cruise line are often required to work more than 70-hour work weeks, and the workers filing the suit said Carnival failed to pay them for working the additional hours. Many cruise lines are not governed by the wage laws required by the US because they operate offshore under foreign banners, the AP reported.

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