[Federal Register: March 4, 2008 (Volume 73, Number 43)]
[Proposed Rules]
[Page 11753-11801]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr08-32]
[[Page 11753]]
-----------------------------------------------------------------------
Part III
Department of Labor
-----------------------------------------------------------------------
Office of Labor-Management Standards
-----------------------------------------------------------------------
29 CFR Part 403
Labor Organization Annual Financial Reports; Proposed Rule
[[Page 11754]]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Office of Labor-Management Standards
29 CFR Part 403
RIN 1215-AB64
Labor Organization Annual Financial Reports
AGENCY: Office of Labor-Management Standards, Employment Standards
Administration, Department of Labor.
ACTION: Notice of proposed rulemaking; request for comments.
-----------------------------------------------------------------------
SUMMARY: The Department of Labor's Employment Standards Administration
(``ESA'') proposes to promulgate a rule that establishes a form to be
used by labor organizations to file trust annual financial reports with
ESA's Office of Labor-Management Standards (``OLMS''), provides
appropriate instructions, and revises relevant sections of 29 CFR Part
403 relating to such reports. The proposed changes are made pursuant to
section 208 of the Labor-Management Reporting and Disclosure Act
(``LMRDA''), 29 U.S.C. 438. The proposed rule will apply prospectively.
DATES: Comments must be received on or before April 18, 2008.
ADDRESSES: You may submit comments, identified by RIN 1215-AB64, only
by the following methods:
Internet--Federal eRulemaking Portal. Electronic comments may be
submitted through www.regulations.gov. To locate the proposed rule, use
key words such as ``Labor-Management Standards'' or ``Labor
Organization Annual Financial Reports'' to search documents accepting
comments. Follow the instructions for submitting comments. Please be
advised that comments received will be posted without change to
www.regulations.gov, including any personal information provided.
Mail: Mailed comments should be sent to: Kay H. Oshel, Director of
the Office of Policy, Reports and Disclosure, Office of Labor-
Management Standards, U.S. Department of Labor, 200 Constitution
Avenue, NW., Room N-5609, Washington, DC 20210.
Because of security precautions the Department continues to
experience delays in U.S. mail delivery. You should take this into
consideration when preparing to meet the deadline for submitting
comments.
OLMS recommends that you confirm receipt of your mailed comments by
contacting (202) 693-0123 (this is not a toll-free number). Individuals
with hearing impairments may call (800) 877-8339 (TTY/TDD).
Only those comments submitted through www.regulations.gov, hand-
delivered, or mailed will be accepted.
Comments will be available for public inspection during normal
business hours at the above address.
FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director of the Office
of Policy, Reports and Disclosure, at: Kay H. Oshel, U.S. Department of
Labor, Employment Standards Administration, Office of Labor-Management
Standards, 200 Constitution Avenue, NW., Room N-5609, Washington, DC
20210, (202) 693-1233 (this is not a toll-free number), (800) 877-8339
(TTY/TDD).
SUPPLEMENTARY INFORMATION:
I. Statutory Authority
This proposed rule is issued pursuant to section 208 of the LMRDA,
29 U.S.C. 438. Section 208 authorizes the Secretary of Labor to issue,
amend, and rescind rules and regulations to implement the LMRDA's
reporting provisions. Secretary's Order 4-2007, issued May 2, 2007, and
published in the Federal Register on May 8, 2007 (72 FR 26159),
contains the delegation of authority and assignment of responsibility
for the Secretary's functions under the LMRDA to the Assistant
Secretary for Employment Standards and permits re-delegation of such
authority. The proposal implements section 201 of the LMRDA, which
requires covered labor organizations to file annual, public reports
with the Department, detailing the labor organization's cash flow
during the reporting period, and identifying its assets and
liabilities, receipts, salaries and other direct or indirect
disbursements to each officer and all employees receiving $10,000 or
more in aggregate from the labor organization, direct or indirect loans
(in excess of $250 aggregate) to any officer, employee, or member,
loans (of any amount) to any business enterprise, and other
disbursements. 29 U.S.C. 431(b). The statute requires that such
information shall be filed ``in such detail as may be necessary to
disclose [a labor organization's] financial conditions and
operations.'' Id.
Section 208 directs the Secretary to issue rules ``prescribing
reports concerning trusts in which a labor organization is interested''
as she ``may find necessary to prevent the circumvention or evasion of
[the LMRDA's] reporting requirements.'' 29 U.S.C. 438. Section 3(l) of
the LMRDA provides:
``Trust in which a labor organization is interested''
means a trust or other fund or organization (1) which was created or
established by a labor organization, or one or more of the trustees
or one or more members of the governing body of which is selected or
appointed by a labor organization, and (2) a primary purpose of
which is to provide benefits for the members of such labor
organization or their beneficiaries.
29 U.S.C. 402(l).
II. Background
A. Introduction
The Department proposes to establish a Form T-1 to capture
financial information pertinent to ``trusts in which a labor
organization is interested'' (``section 3(l) trusts''), information
that historically has largely gone unreported despite the trusts'
significant effect on labor organization financial operations and their
members' own interests. This proposal is part of the Department's
continuing effort to better effectuate the reporting requirements of
the LMRDA. The LMRDA's various reporting provisions are designed to
empower labor organization members by providing them the means to
maintain democratic control over their labor organizations and ensure a
proper accounting of labor organization funds. Labor organization
members are better able to monitor their labor organization's financial
affairs and to make informed choices about the leadership of their
labor organization and its direction when labor organizations provide
financial information required by the LMRDA. By reviewing the reports,
a member may ascertain the labor organization's priorities and whether
they are in accord with the member's own priorities and those of fellow
members. At the same time, this transparency promotes both the labor
organization's own interests as a democratic institution and the
interests of the public and the government. Furthermore, the LMRDA's
reporting and disclosure provisions, together with the fiduciary duty
provision, 29 U.S.C. 501, which directly regulates the primary conduct
of labor organization officials, operate to safeguard a labor
organization's funds from depletion by improper or illegal means.
Timely and complete reporting also helps deter labor organization
officers or employees from embezzling or otherwise making improper use
of such funds.
The proposed rule helps brings the reporting requirements for labor
organizations and section 3(l) trusts in line with contemporary
expectations for the disclosure of financial information. Today labor
organizations are more like
[[Page 11755]]
modern corporations in their structure, scope, and complexity than the
labor organizations of 1959.\1\ The balance between wages/salaries paid
to workers and their ``other compensation'' has changed significantly
during this time. For example, in 1966, over 80 percent of total
compensation consisted of wages and salaries, with less than 20 percent
representing benefits. U.S. Department of Labor, Report on the American
Workforce (2001) 76, 87. By 2007, wages dropped to 71.8 percent of
total compensation and benefits grew to 29.2 percent of the
compensation package. U.S. Department of Labor, Bureau of Labor
Statistics Chart on Total Benefits, available at http://data.bls.gov/
cgi-bin/surveymost. Moreover, labor organization members today are
better educated, more empowered, and more familiar with financial data
and transactions than ever before. Labor organization members, no less
than consumers, citizens, or creditors, expect access to relevant and
useful information in order to make fundamental investment, career, and
retirement decisions, evaluate options, and exercise legally guaranteed
rights.
In August and September of 2007, Department officials met with
representatives of the community that would be affected by the proposed
Form T-1, including officials of labor organizations and their legal
counsel, to hear their views on the need for reform and the likely
impact of changes that might be made. The Department developed its
proposal with these discussions in mind and it requests comments from
this community and other members of the public on any and all aspects
of the proposal.
---------------------------------------------------------------------------
\1\ There are now more large labor organizations affiliated with
a national or international body then ever before. In 2006, 4,452
labor organizations, including 95 national and international labor
organizations, reported $250,000 or more in total annual receipts.
---------------------------------------------------------------------------
B. The LMRDA's Reporting and Other Requirements
In enacting the LMRDA in 1959, a bipartisan Congress made the
legislative finding that in the labor and management fields ``there
have been a number of instances of breach of trust, corruption,
disregard of the rights of individual employees, and other failures to
observe high standards of responsibility and ethical conduct which
require further and supplementary legislation that will afford
necessary protection of the rights and interests of employees and the
public generally as they relate to the activities of labor
organizations, employers, labor relations consultants, and their
officers and representatives.'' 29 U.S.C. 401(a). The statute was
designed to remedy these various ills through a set of integrated
provisions aimed at labor organization governance and management. These
include a ``bill of rights'' for labor organization members, which
provides for equal voting rights, freedom of speech and assembly, and
other basic safeguards for labor organization democracy, see 29 U.S.C.
411-415; financial reporting and disclosure requirements for labor
organizations, their officers and employees, employers, labor relations
consultants, and surety companies, see 29 U.S.C. 431-436, 441; detailed
procedural, substantive, and reporting requirements relating to labor
organization trusteeships, see 29 U.S.C. 461-466; detailed procedural
requirements for the conduct of elections of labor organization
officers, see 29 U.S.C. 481-483; safeguards for labor organizations,
including bonding requirements, the establishment of fiduciary
responsibilities for labor organization officials and other
representatives, criminal penalties for embezzlement from a labor
organization, a prohibition on certain loans by a labor organization to
officers or employees, prohibitions on employment by a labor
organization of certain convicted felons, and prohibitions on payments
to employees, labor organizations, and labor organization officers and
employees for prohibited purposes by an employer or labor relations
consultant, see 29 U.S.C. 501-505; and prohibitions against
extortionate picketing, retaliation for exercising protected rights,
and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529,
530.
The LMRDA was the direct outgrowth of a Congressional investigation
conducted by the Select Committee on Improper Activities in the Labor
or Management Field, commonly known as the McClellan Committee, chaired
by Senator John McClellan of Arkansas. In 1957, the committee began a
highly publicized investigation of labor organization racketeering and
corruption; and its findings of financial abuse, mismanagement of labor
organization funds, and unethical conduct provided much of the impetus
for enactment of the LMRDA's remedial provisions. See generally
Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of
1959, 73 Harv. L. Rev. 851, 851-55 (1960). During the investigation,
the committee uncovered a host of improper financial arrangements
between officials of several international and local labor
organizations and employers (and labor consultants aligned with the
employers) whose employees were represented by the labor organizations
in question or might be organized by them. Similar arrangements were
also found to exist between labor organization officials and the
companies that handled matters relating to the administration of labor
organization benefit funds. See generally Interim Report of the Select
Committee on Improper Activities in the Labor or Management Field, S.
Report No. 85-1417 (1957); see also William J. Isaacson, Employee
Welfare and Benefit Plans: Regulation and Protection of Employee
Rights, 59 Colum. L. Rev. 96 (1959).
Financial reporting and disclosure were conceived as partial
remedies for these improper practices. As noted in a key Senate Report
on the legislation, disclosure would discourage questionable practices
(``The searchlight of publicity is a strong deterrent.''); aid labor
organization governance (Labor organizations will be able ``to better
regulate their own affairs. The members may vote out of office any
individual whose personal financial interests conflict with his duties
to members''); facilitate legal action by members against ``officers
who violate their duty of loyalty to the members''; and create a record
(The reports will furnish a ``sound factual basis for further action in
the event that other legislation is required''). S. Rep. No. 187 (1959)
16 reprinted in 1 NLRB Legislative History of the Labor-Management
Reporting and Disclosure Act of 1959 412.
The Department has developed several forms for implementing the
LMRDA's financial reporting requirements. The annual reports required
by section 202(b) of the Act, 29 U.S.C. 432(b) (Form LM-2, Form LM-3,
and Form LM-4), contain information about a labor organization's
assets, liabilities, receipts, disbursements, loans to officers and
employees and business enterprises, payments to each officer, and
payments to each employee of the labor organization paid more than
$10,000 during the fiscal year. The reporting detail required of labor
organizations, as the Secretary has established by rule, varies
depending on the amount of the labor organization's annual receipts. 29
CFR 403.4.
Labor organizations with annual receipts of at least $250,000 and
all labor organizations in trusteeship (without regard to the amount of
their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4.
This form may be filed voluntarily by any other labor organization. The
Form LM-2 now requires receipts and disbursements to
[[Page 11756]]
be reported by functional categories, such as representational
activities; political activities and lobbying; contributions, gifts,
and grants; union administration; and benefits. Further, the form
requires filers to allocate the time their officers and employees spend
according to functional categories, as well as the payments that each
of these officers and employees receive, and it compels the itemization
of certain transactions totaling $5,000 or more. This form must be
electronically signed and filed with the Department.\2\
---------------------------------------------------------------------------
\2\ The Form LM-2 and its instructions are published at 68 FR
58449-523 (Oct. 9, 2003) and are available at http://
www.olms.dol.gov. Copies of the Form LM-3 and Form LM-4 are also
available at http://www.olms.dol.gov.
---------------------------------------------------------------------------
The labor organization's president and treasurer (or its
corresponding officers) are personally responsible for filing the
reports and for any statement in the reports known by them to be false.
29 CFR 403.6. These officers are also responsible for maintaining
records in sufficient detail to verify, explain, or clarify the
accuracy and completeness of the reports for not less than five years
after the filing of the forms. 29 CFR 403.7. A labor organization
``shall make available to all its members the information required to
be contained in such reports'' and ``shall * * * permit such member[s]
for just cause to examine any books, records, and accounts necessary to
verify such report[s].'' 29 CFR 403.8(a).
The reports are public information. 29 U.S.C. 435(a). The Secretary
is charged with providing for the inspection and examination of the
financial reports, 29 U.S.C. 435(b); for this purpose, OLMS maintains:
(1) A public disclosure room where copies of such reports filed with
OLMS may be reviewed and; (2) an online public disclosure site, where
copies of such reports filed since the year 2000 are available for the
public's review.
III. Proposal
A. Introduction
Labor organization members need to be provided with information
about the finances and operation of section 3(l) trusts, which, by
statutory definition are established and maintained primarily to
provide benefits to the members and/or their beneficiaries. 29 U.S.C.
402(l). Section 3(l) trusts are created for a myriad of purposes;
common examples include credit unions, strike funds, redevelopment or
investment groups, training funds, apprenticeship programs, pension and
welfare plans, building funds, and educational funds. These trusts are
funded in a number of different ways. Some may be funded with employer
contributions and jointly administered by trustees appointed by labor
organizations and employers. By requiring that labor organizations file
the Form T-1, labor organization members and the public will receive
the same benefit of transparency they now receive under the Form LM-2.
Under this proposal, any labor organization or trust official who
places their own personal financial interests above their duty to the
labor organization and the trust--and third parties complicit with
these officials--will find it more difficult to circumvent and evade
their legal obligations.
The Department proposes to require a labor organization with total
annual receipts of $250,000 or more to file a Form T-1 for each trust
of the type defined by section 3(l) of the LMRDA, 29 U.S.C. 402(l)
(defining ``trust in which a labor organization is interested'') where
the labor organization during the reporting period, either alone or in
combination with other labor organizations, (1) selects or appoints the
majority of the members of the trust's governing board, or (2)
contributes more than 50 percent of the trust's revenue; contributions
made on behalf of the labor organization or its members shall be
considered the labor organization's contribution.
The proposed Form T-1 uses the same basic template as prescribed
for the Form LM-2. Both forms require the labor organization to provide
specified aggregated and disaggregated information relating to the
financial operations of the labor organization and the trust.
Typically, a labor organization will be required to provide information
on the Form T-1 explaining certain transactions by the trust (such as
disposition of property by other than market sale, liquidation of
debts, loans or credit extended on favorable terms to officers and
employees of the trust); and identifying major receipts and
disbursements by the trust during the reporting period. The proposed
Form T-1, however, is shorter and requires less information than the
Form LM-2. As proposed, the Form T-1, unlike the Form LM-2, does not
require that receipts and disbursements be identified by functional
category. The proposed Form T-1 includes: 14 questions that identify
the trust, six yes/no questions covering issues such as whether any
loss or shortage of funds was discovered during the reporting year and
whether the trust had made any loans to officers or employees of the
labor organizations at terms below market rates, statements regarding
the total amount of assets, liabilities, receipts and disbursements of
the trust; a schedule that separately identifies any individual or
entity from which the trust receives $10,000 or more, individually or
in the aggregate, during the reporting period; a schedule that
separately identifies any entity or individual that received
disbursements that aggregate to $10,000 or more, individually or in the
aggregate, from the trust during the reporting period and the purpose
of disbursement; and a schedule of disbursements of $10,000 or more to
officers and employees of the trust. Under the proposal, exceptions are
provided for labor organizations with section 3(l) trusts where the
trust, as a political action committee (``PAC'') or a political
organization (the latter within the meaning of 26 U.S.C. 527), submits
timely, complete and publicly available reports required of them by
federal or state law with government agencies. A partial exception is
provided for a trust for which an audit was conducted in accordance
with prescribed standards and the audit is made publicly available. As
proposed, a labor organization choosing to use this option must
complete and file the first page of the Form T-1 and a copy of the
audit.
The Department specifically invites comments on whether the trust's
``employer identification number'' (``EIN'') should be reported on the
first page of the Form T-1. This number could be used by members of
labor organizations to cross-check the information on the Form T-1 with
other reports submitted by the trust, such as its filings with the
Internal Revenue Service (``IRS'').
This proposal contains many of the same features proposed by the
Department in 2002 and incorporates some changes in the 2003 and 2006
final rules, which are discussed below. The proposal limits the
reporting obligation to those labor organizations that alone or in
combination with other labor organizations maintain management control
or financial domination over a section 3(l) trust. For purposes of
measuring a labor organization's financial dominance, as discussed
below, funds paid into the trust by an employer on behalf of the labor
organization or its members are treated the same as contributions made
from the labor organization's own funds.
Two threshold requirements that were contained in the 2003 and 2006
rules relating to the amount of a labor organization's contributions to
a trust ($10,000 per annum) and the amount of the contributions
received by a trust ($250,000 per annum) are not included in the
proposal. The Department believes that the labor organization's
[[Page 11757]]
control over the trust either alone or with other labor organizations,
measured by its selection of a majority of the trust's governing body
or its majority share of receipts during the reporting period, provides
the appropriate gauge for determining whether a Form T-1 must be filed
by the participating labor organization. In contrast to the 2003 and
2006 rules, the Department's proposal does not include an exemption for
section 3(l) trusts that are part of employee benefit plans that file a
Form 5500 Annual Return/Report under the Employee Retirement Income
Security Act (``ERISA'').
B. Judicial Review of Earlier Form T-1 Rulemaking
This proposal follows the Department's earlier efforts to implement
a Form T-1 reporting obligation. The proposal is an outgrowth of these
earlier efforts and takes into account the guidance provided by the
United States Court of Appeals for the District of Columbia Circuit in
its 2005 review of the 2003 Form T-1 rule, 68 FR 58374 (American
Federation of Labor and Congress of Industrial Organizations v. Chao,
409 F.3d 377 (2005)).
In November 2003, the American Federation of Labor and Congress of
Industrial Organizations (``AFL-CIO'') filed a complaint against the
Department, challenging the combined Form LM-2 and Form T-1 rule. The
suit was filed with the U.S. District Court for the District of
Columbia; through this action, the AFL-CIO asked the court to order
temporary, preliminary, and permanent relief to enjoin and vacate the
Department's rule. The rule was upheld on its merits by the district
court (AFL-CIO v. Chao, 298 F.Supp.2d 104 (D.D.C. 2004). On appeal, the
D.C. Circuit in its 2005 opinion unanimously upheld the Form LM-2 rule
as a reasonable exercise of the Department of Labor's LMRDA rulemaking
authority. In a divided decision, however, the court vacated the Form
T-1 rule because, in its view, the Department exceeded its authority by
``requiring general trust reporting.'' 409 F.3d at 378-79, 391. The
court framed the issue before it as ``whether Form T-1 comports with
the statutory requirements that the Department `find [such rule is]
necessary to prevent' evasion of LMRDA Title II reporting
requirements.'' Id. at 386 (quoting section 208 of the LMRDA, 29 U.S.C.
438).
Given what it viewed as the ambiguity inherent in the word
``necessary'' as used in section 208 (authorizing reports ``necessary
to prevent circumvention or evasion of * * * reporting requirements''),
the court examined the Form T-1 portion of the rule to determine
whether the Department's interpretation of the statute was permissible.
Id. at 386-87; see also Chevron U.S.A., Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837, 843 (1984). The AFL-CIO argued
that the Department's Form T-1 rule was impermissible, in part, because
it encompassed joint trusts, which by operation of statute were
independent of a labor organization's control. 409 F.3d at 388; see 29
U.S.C. 186(c). In rejecting this argument, the court noted that the
statutory definition of ``trust in which a union is interested,'' 29
U.S.C. 402(l), included joint trusts, such as Taft-Hartley employer-
funded benefit plans, and agreed with the Department's interpretation
that such trusts could be used to evade the reporting requirements. 409
F.3d at 387-88. The court agreed with the Department's reasoning that
``[s]ince the money an employer contributes to such a `trust' * * *
might otherwise have been paid directly to the workers in the form of
increased wages and benefits, the members * * * have a right to know
what funds were contributed, how the money is managed and how it is
being spent.'' Id. at 387. The court held that ``[s]ection 208 does not
limit the [Department] to requiring reporting only in order to disclose
transactions involving the misuse of labor organization members' funds
because leaving the decision about disclosure to such trusts * * *
would allow unions to circumvent or evade reporting on the use of
members' funds diverted to the trust.'' Id. at 388-89.
The court recognized that reports on trusts that reflect a labor
organization's financial condition and operations are within the
Department's rulemaking authority, including trusts ``established by
one or more unions or through collective bargaining agreements calling
for employer contributions, [where] the union has retained a
controlling management role in the organization,'' and also those
``established by one or more unions with union members' funds because
such establishment is a reasonable indicium of union control of that
trust.'' Id. The court acknowledged that the Department's findings in
support of its rule were based on particular situations where reporting
about trusts would be necessary to prevent evasion of the related labor
organizations' own reporting obligations. Id. at 387-88. One example
included a situation where ``trusts [are] funded by union members'
funds from one or more unions and employers, and although the unions
retain a controlling management role, no individual union wholly owns
or dominates the trust, and therefore the use of the funds is not
reported by the related union.'' Id. at 389 (emphasis added). In citing
these examples, the court explained that ``absent circumstances
involving dominant control over the trust's use of union members' funds
or union members' funds constituting the trust's predominant revenues,
a report on the trust's financial condition and operations would not
reflect on the related union's financial condition and operations.''
Id. at 390. For this reason, while acknowledging that there are
circumstances under which the Secretary may require a report, the court
disapproved of a broader application of the rule to require reports by
any labor organization simply because the labor organization satisfied
a reporting threshold (a labor organization with annual receipts of at
least $250,000 that contributes at least $10,000 to a section 3(l)
trust with annual receipts of at least $250,000). Id.
In reaching its conclusion, the court rejected an underlying
premise of the rule that a labor organization's appointment of a single
member to a trust's governing board could trigger a reporting
obligation, even though the labor organization's contribution to the
trust constituted a fraction of the trust's total revenues. Id. The
court explained that ``[w]here a union has minimal control over trust
fund spending and a union's contribution is so small a part of the
trust's revenues, and the trust is not otherwise controlled by unions
or dominated by union members' funds, the trust lacks the
characteristics of the unreported transactions in the examples on which
the [Department] based the final rule.'' Id. at 391. In these
circumstances, in contrast to the examples relied upon by the
Department, the element of management control or financial dominance is
missing. Id.
In light of the decision by the D.C. Circuit and guided by its
opinion, the Department again reviewed the proposal as it related to
the Form T-1 and the comments received on the proposal. The Department
then issued a final rule on September 29, 2006, but the rule was
vacated on procedural grounds by the U.S. District Court for the
District of Columbia in AFL-CIO v. Chao, 496 F.Supp.2d 76 (D.D.C.
2007). In light of this court decision, the Department provides this
new proposal for notice and comment.
[[Page 11758]]
C. Reasons for the Form T-1
The proposed Form T-1 closes a reporting gap under the
Department's former rule whereby labor organizations were only required
to report on ``subsidiary organizations.'' This proposal is designed to
provide labor organization members a proper accounting of how their
labor organization's funds are invested or otherwise expended by the
trust. Labor organization members have an interest in obtaining
information about funds provided to a trust for the member's particular
or collective benefit whether solely administered by the labor
organization or a separate, jointly administered governing board.
Because the money an employer contributes to such a trust for the labor
organization members' benefit might otherwise have been paid directly
to a labor organization's members in the form of increased wages and
benefits, the members on whose behalf the financial transaction was
negotiated have a right to know what funds were contributed, how the
money is managed, and how it is being spent. By reviewing the Form T-1,
labor organization members will receive information on funds that would
be accounted for on Form LM-2 but for their management through the
section 3(l) trust.
The proposed rule will make it more difficult for a labor
organization, its officials, or other parties with influence over the
labor organization to avoid, simply by transferring money from the
labor organization's books to the trust's books, the basic reporting
obligation that would apply if the funds had been retained by the labor
organization. Although the proposal will not require a Form T-1 to be
filed for all section 3(l) trusts in which a labor organization
participates, it will be required where a labor organization, alone or
in combination with other labor organizations, appoints or selects a
majority of the members of the trust's governing board or where
contributions by or on behalf of labor organizations or their members
represent greater than 50 percent of the revenue of the trust. Thus,
the rule follows the instruction in AFL-CIO v. Chao, where the D.C.
Circuit concluded that the Secretary had shown that trust reporting was
necessary to prevent evasion or circumvention where ``trusts [are]
established by one or more unions with union members' funds because
such establishment is a reasonable indicium of union control of the
trust,'' as well as where there are characteristics of ``dominant union
control over the trust's use of union members' funds or union members'
funds constituting the trust's predominant revenues.'' 409 F.3d at 389,
390.
Labor organization officials and trustees both owe a fiduciary duty
to their labor organization and the trust, respectively, but the
Department's case files reveal numerous examples of embezzlement of
funds held by both labor organizations and their section 3(l)
trusts.\3\ The Form T-1, by disclosing information to labor
organization members, the true beneficiaries of such trusts, will
increase the likelihood that wrongdoing is detected and may deter
individuals who might otherwise be tempted to divert funds from the
trusts. See Archibald Cox, Internal Affairs of Labor Organizations
Under the Labor Reform Act of 1959, 58 Mich. L. Rev. 819, 827 (1960)
(``The official whose fingers itch for a `fast buck' but who is not a
criminal will be deterred by the fear of prosecution if he files no
report and by fear of reprisal from the members if he does'').
---------------------------------------------------------------------------
\3\ The fiduciary duty of the trustees to refrain from taking a
proscribed action has never been thought to be sufficient by itself
to protect the interests of a trust's beneficiaries. Although a
fiduciary's own duty to the trust's grantors and beneficiaries
include disclosure and accounting components (see Restatement
(Third) of Agency Sec. 8.01 (T.D. No. 6, 2005) et seq.; see also 1
American Law Institute, Principles of Corporate Governance Sec.
1.14 (1994)), public disclosure requirements, government regulation,
and the availability of civil and criminal process, complement these
obligations and help ensure a trustee's observance of his or her
fiduciary duty.
---------------------------------------------------------------------------
Because the labor organization's obligation to submit a Form T-1
overlaps with the responsibility of labor organization officials to
disclose payments received from the trust, the prospect that one party
may report the payment increases the likelihood that a failure by the
other party to report the payment will be detected. Moreover, given the
increased transparency that results from the Form T-1 reporting, in
some instances the proposed rule may cause the parties to reconsider
the primary conduct that would trigger the reporting requirement. As
discussed above, the LMRDA's primary reporting obligation (Forms LM-2,
LM-3, and LM-4) applies to labor organizations as institutions; other
important reporting obligations under the LMRDA apply to officers and
employees of labor organizations (Form LM-30), requiring them to report
any conflicts between their personal financial interests (and the duty
they owe to the labor organization they serve) and to employers and
labor relations consultants who must report payments to labor
organizations and their representatives (Form LM-10). See 29 U.S.C.
432; 29 U.S.C. 433. Thus, requiring labor organizations to report the
information requested by the Form T-1 rule provides an essential check
for labor organization members and the Department to ensure that labor
organizations, their officials, and employers are accurately and
completely fulfilling their reporting duties under the Act, obligations
that can easily be ignored without fear of detection if reports related
to trusts are not required.
As an illustration of how this check will work, consider an
instance in which a trust identifies a $15,000 payment to a company for
duplicating services. Under the proposal, the labor organization must
identify the company and the purpose of the payment. With this
information, coupled with information about a labor organization
official's ``personal business'' interests in the company, a labor
organization member or the Department may discover whether the official
has reported this payment on a Form LM-30. Additional information from
the labor organization's Form LM-2 might allow a labor organization
member to ascertain whether the trust and the labor organization have
used the same printing company and whether there was a pattern of
payments by the trust and the labor organization from which an
inference could be drawn that duplicate payments were being made for
the same services. Upon further inquiry into the details of the
transactions, a member or the government might be able to determine
whether the payments masked a kickback or other conflict-of-interest
payment, and, as such, reveal an instance where the labor organization,
a labor organization official, or an employer may have failed to comply
with their reporting obligations under the Act. Furthermore, the
proposal will provide a missing piece to one part of the Department's
crosscheck system that correlates reported holdings and transactions by
party, description, and reporting period and thereby helps identify any
deviations in the reported details, including instances where the
reporting obligation appears reciprocal, but one or more parties have
not reported the matter.
Under the instructions in effect prior to the 2003 rule, a labor
organization was obliged to provide financial information about a
section 3(l) trust only if the trust was a ``subsidiary'' of the
reporting labor organization, i.e., an entity, as defined by the
Department, that is wholly owned, wholly controlled, and wholly
financed by the labor organization. Thus, the former rule, which was
crafted shortly after the
[[Page 11759]]
LMRDA's enactment, required reporting by only a portion of the labor
organizations that contributed to section 3(l) trusts, and, in many
cases, no reporting at all. Currently, there is no enforceable form for
trust reporting and the largest labor organizations, Form LM-2 filers,
report only very limited and opaque information concerning trusts. This
proposal will better effectuate the full disclosure intended under the
LMRDA.
Many labor organizations now manage benefit plans for their
members, maintain close business relationships with financial service
providers such as insurance companies and investment firms, operate
revenue-producing subsidiaries, and participate in foundations and
charitable activities. As more labor organizations conduct their
financial activities through sophisticated trusts, increased numbers of
businesses have commercial relationships with such trusts, creating
financial opportunities for labor organization officers and employees
who may operate, receive income from, or hold an interest in, such
businesses. The labor organizations' business relationships with
outside firms and vendors that provide benefits and financial services
to the labor organization and its members also increase the possibility
that labor organization officers and employees may have financial
interests in these businesses that might conflict with fiduciary
obligations they owe to the labor organization and its members. In
addition, employers also have fostered multi-faceted business
interests, creating further opportunities for financial relationships
between labor organizations, labor organization officials, employers,
and other entities, including section 3(l) trusts.
Both historical and recent examples demonstrate the vulnerability
of trust funds to misuse and misappropriation by labor organization
officials and others. The McClellan Committee, as discussed above,
provided several examples of labor organization officials using funds
held in trust for their own purposes rather than for their labor
organization and its members. Additional examples of the misuse of
labor organization benefit funds and trust funds for personal gain may
be found in the 1956 report of the Senate's investigation of welfare
and pension plans, completed as the McClellan Committee was beginning
its investigation. See Welfare and Pension Plans Investigation, Final
Report of the Comm. of Labor and Public Welfare, S. Rep. No. 1734
(1956); see also Note: Protection of Beneficiaries Under Employee
Benefit Plans, 58 Colum. L. Rev. 78, 85-89, 96, 107-08 (1958). Such
problems continued, even after the passage of the LMRDA and ERISA. In
the most comprehensive report concerning the influence of organized
crime in some labor organizations, a presidential commission concluded
that ``the plunder of labor organization resources remains an
attractive end in itself.* * * The most successful devices are the
payment of excessive salaries and benefits to organized crime-connected
labor organization officials and the plunder of workers' health and
pension funds.'' President's Commission on Organized Crime, Report to
the President and Attorney General, The Edge: Organized Crime,
Business, and Labor Unions 12 (1986).
The enactment of ERISA has ameliorated many of the historical
problems, but many section 3(l) trusts are not covered by ERISA and
even those that are covered do not file financial reports that provide
transparency for LMRDA disclosures comparable to what will be provided
by the proposed Form T-1. The Department has discovered numerous
situations, as illustrated by the following examples, where funds held
in section 3(l) trusts have been used in a manner that, if reported,
would have been scrutinized by the members of the labor organization
and this Department:
A case in which no information was publicly disclosed
about the disposition of tens of thousands of dollars (over $60,000 on
average per month) by participating locals into a trust established to
provide statewide strike benefits. No information was disclosed because
the trust was established by a group of labor organization locals and
not wholly controlled by any single labor organization.
A case in which a credit union trust largely financed by a
local labor organization had made large loans to labor organization
officials but had not been required to report them because the trust
was not wholly owned by any single local. (One local accounted for 97
percent of the credit union's funds on deposit). Membership in the
credit union was limited to members of three locals; all of the credit
union directors were local officials and employees. Four loan officers,
three of whom were officers of the Local, received 61 percent of the
credit union's loans.
Under the proposed rule, each labor organization in these examples
would have been required to file a Form T-1 because each of these funds
is a 3(l) trust. In each instance, the labor organization's
contribution to the trust, including contributions made on behalf of
the organization or its members, made alone or in combination with
other labor organizations, represented greater than 50 percent of the
trust's revenue in the one-year reporting period. The labor
organizations would have been required to annually disclose for each
trust the total value of its assets, liabilities, receipts, and
disbursements. For each receipt or disbursement of $10,000 or more
(whether singly or in the aggregate), the labor organization would have
been required to provide: the name and business address of the
individual or entity involved in the transaction(s), the type of
business or job classification of the individual or entity; the purpose
of the receipt or disbursement; its date, and amount. Further, the
labor organization would have been required to provide additional
information concerning any trust losses or shortages, the acquisition
or disposition of any goods or property other than by purchase or sale;
the liquidation, reduction, or write off of any liabilities without
full payment of principal and interest, and the extension of any loans
or credit to any employee or officer of the labor organization at terms
below market rates, and any disbursements to officers and employees of
the trust.
In developing this proposal, the Department also relies, in part,
on information it received from the public on the 2002 proposal. In its
comments on that proposal, a labor policy group identified multiple
instances where labor organization officials were charged, convicted,
or both, for embezzling or otherwise improperly diverting labor
organization trust funds for their own gain, including the following:
(1) Five individuals were charged with conspiring to steal over $70,000
from a local's severance fund; (2) two local labor organization
officials confessed to stealing about $120,000 from the local's job
training funds; (3) an administrator of a local's retirement plan was
convicted of embezzling about $300,000 from the fund; (4) a local labor
organization president embezzled an undisclosed amount from the local's
disaster relief fund; (5) an employee of an international labor
organization embezzled over $350,000 from a job training fund; (6) a
former international officer, who had also been a director and trustee
of a labor organization benefit fund, was convicted of embezzling about
$100,000 from the labor organization's apprenticeship and training
fund; (7) a former officer of a national labor organization was
convicted of embezzling about $15,000 from the labor organization and
about
[[Page 11760]]
$20,000 from the labor organization's welfare benefit fund; and (8) a
former training director of a labor organization's pension and welfare
fund was charged and convicted of receiving gifts and kickbacks from a
vendor that provided training for labor organization members.
The comments received from labor organizations and their members on
the 2002 proposal generally opposed any reporting obligation concerning
trusts (beyond the requirement then applicable to the ``wholly-owned''
subset of section 3(l) trusts). Labor organization members, however,
recommended generally greater scrutiny of labor organization trust
funds. These commenters included several members of a single
international labor organization. They explained that under the labor
organization's collective bargaining agreements, the employer sets
aside at least $.20 for each hour worked by a member and that this
amount was paid into a benefit fund known as a ``joint committee.'' The
commenters asserted that some of the funds were ``lavished on junkets
and parties'' and that the labor organization used the joint committees
to reward political supporters of the labor organization's officials.
They stated that the labor organization refused to provide information
about the funds, including amounts paid to ``union staff.'' From the
perspective of one member, the labor organization did not want ``this
conflict of interest'' to be exposed.
The need for this proposal is also demonstrated by additional
examples of improper administration and diversion of funds from section
3(l) trusts. Labor organization officials in New York were convicted in
a ``pension-fund fraud/kickback scheme'' where labor organization
officials were bribed by members of organized crime to invest pension
fund assets in corrupt investment vehicles. The majority of the funds
were to be invested in legitimate securities, but millions of dollars
were placed into a sham investment, the body of which was to be used to
fund kickbacks to the labor organization officers with the hope that
the return on investment from the majority of the legitimately invested
assets would cover the amounts lost as kickbacks. U.S. v. Reifler, 446
F.3d 65 (2d Cir. 2006); see The Final Report of the New York State
Organized Crime Task Force: Corruption and Racketeering in the New York
City Construction Industry (1990) 27-29, 91-92, 182-84 (describing
devices typically used by labor organization officials and third
parties to divert trust funds for their own enrichment). In another
case, nepotism and no-bid contracts depleted a labor organization's
health and welfare funds of several million dollars. The problems
associated with the fund included, among others, paying the son-in-law
of a board member, a local labor organization official, a salary of
$119,000 to manage a scholarship program that gave out $28,000 per
year; paying a daughter of this board member $111,799 a year as a
receptionist; and paying $123,000 for claims review work that required
only a few hours of effort a week. See Steven Greenhouse, Laborers'
Union Tries to Oust Officials of Benefits Funds, N.Y. Times, June 13,
2005, at B5.\4\ If the Department's proposed rule had been in place,
the members of the affected labor organizations, aided by the
information disclosed in the labor organizations' Form T-1s, would have
been in a much better position to discover the improper use of the
trust funds and thereby minimize the injury to their stake in the
trust. Further, the fear of discovery may have deterred the wrongdoers
from engaging in the offending conduct in the first place.
---------------------------------------------------------------------------
\4\ Various concerns about the administration of joint trusts
are addressed in legal periodicals such as Note: Conflict of
Interest Problems Arising from Union Pension Fund Loans, 67 Colum.
L. Rev. 162 (1967), 162-63; and Stephen Fogdall, Exclusive Union
Control of Pension Funds: Taft-Hartley's Ill-considered Prohibition,
4 U. Pa. J. Lab. & Emp. L. 215 (2001-2002), 228-31 (providing
examples of misuse and exemplary use of trust funds). See also
Stephen Brill, The Teamsters, 151, 201-16, 221-60 (discussing
problems with administration of Teamster funds, especially the
Central States Pension Fund); James B. Jacobs, Mobsters, Unions, and
Feds (2006) 181 (describing the looting of Teamster Local 560's
benefit funds); Robert Fitch, Solidarity for Sale (2006), 149-52
(misuse of New York Mason Tenders pension fund).
---------------------------------------------------------------------------
As the foregoing discussion makes clear, the proposed Form T-1 rule
will add necessary safeguards to deter circumvention and evasion of the
LMRDA's reporting requirements.
Under the proposal, it will be more difficult for labor
organizations and complicit trusts to avoid the disclosure required by
the LMRDA. Labor organization members will be able to review financial
information they may not otherwise have had, empowering them to better
oversee their labor organization's officials and finances as
contemplated by Congress.
D. Specific Aspects of the Proposed Form T-1
1. Determining Management Control or Financial Domination
In 2002, the Department proposed to require that any labor
organization, regardless of its size or the proportion of the trust's
receipts represented by its payments, file a Form T-1 if, among other
conditions, it contributed $10,000 or more to a section 3(l) trust
during the reporting period. The proposal, however, invited comment on
whether adequate disclosure could be achieved instead by expanding the
definition of ``subsidiary'' to include trusts that were closely
related to the labor organization but not ``100% owned, controlled and
financed by the [union].'' 67 FR 79285. The Department suggested that
this alternative would borrow from the test, used in other contexts, to
determine whether multiple companies constitute a ``single entity.''
The Department explained that this approach would be based on various
factors, including an assessment as to the integration of the
companies' operations and their common management.
In the 2003 rule, the Department explained that it had received
only a few comments on the ``single entity'' test. After considering
the comments, the Department determined that the test would be less
effective than other approaches, because it could be easily evaded by
labor organizations seeking to conceal their relationship with a trust.
The Department further explained that even if information concerning
the relationship between the trust and the labor organization was
readily available, the test could prove difficult to apply and thus was
a poor substitute for a ``bright line'' standard pegged to a specified
dollar threshold. Several comments received by the Department suggested
that the labor organization's control over, not merely its
participation in, a trust should fix any reporting obligation, and thus
objected to the Department's proposal imposing a general reporting
obligation on all large labor organizations. The AFL-CIO's objection to
the proposal was twofold: ``If the union does not control the trust,
the trust cannot be used to circumvent the reporting requirements; and
if the union does not control the trust it cannot compel the trust to
divulge the detailed financial information [required].'' It explained:
``[T]he Department's proposal does not require that the union have
effective control over the trust. Without de facto, or actual, control
over a trust's financial management, a labor organization has no
mechanism by which it can circumvent or evade the Act's reporting
requirements.'' Further, even though the AFL-CIO did not embrace the
``single entity'' approach, it viewed this approach as ``a helpful
starting point.'' While disagreeing with the mechanisms suggested by
the Department, it acknowledged that the Department
[[Page 11761]]
possessed the authority ``for developing an analytical framework for
identifying 'significant trusts'' as to which financial disclosure
should be required.'' A local labor organization, while generally
opposed to the Form T-1, stated that ``it seems reasonable that
ownership or control can only be attributed to parties holding over 50%
ownership of an organization.''
The ``single entity'' alternative was mentioned in the D.C.
Circuit's opinion in AFL-CIO v. Chao, but the court did not approve or
disapprove of this approach. 409 F.3d at 390-91. Instead, the court
focused its inquiry on the extent of the labor organizations'
relationship with section 3(l) trusts and indicia of their management
control or financial domination of the trusts. Id. at 388-89. As
discussed previously, the appeals court found that the Secretary had
not demonstrated how a labor organization's contribution of $10,000, an
amount that could be infinitesimal given the trust's other
contributions, could be indicative of the labor organization's ability
to exercise any effective control over the trust.
The court indicated that the Secretary could require a labor
organizations to file a Form T-1 where labor organizations exercise
management control or financial domination over a trust. The court did
not establish a control test, leaving the Department to fashion a test
consistent with the LMRDA and its policy preferences. After considering
various alternatives, including a case-by-case determination, or one
based on whether a labor organization or labor organizations hold the
largest but not predominant share of the trust's interests (or the
contributions to the trust during a reporting period), the Department
is proposing a bright line approach. Under the proposal, a labor
organization is required to file a report only where it alone or in
combination with other labor organizations (1) selects or appoints the
majority of the members of the trust's governing board, or (2)
contributes more than 50 percent of the trust's revenue during the
annual reporting period; contributions made on behalf of the
organization or its members shall be considered contributions by the
labor organization.\5\ The test is responsive to the concerns expressed
by the D.C. Circuit in that the test looks to the relationship between
the labor organization or labor organizations and the trust and relies
on principles of management control and financial domination.
---------------------------------------------------------------------------
\5\ As a result, multiple unions may be required to report on a
single trust. This aspect of the rule is discussed in detail below
in section II D.7.
---------------------------------------------------------------------------
Under this proposal, Form T-1 reports would be required on Taft-
Hartley trusts where the contributions by or on behalf of the labor
organization or its members comprise a majority of the trust's
receipts.\6\ Taft-Hartley trusts are statutorily defined trusts,
established by a labor organization for the sole and exclusive benefit
of the contributing employer's employees, their families, and
dependents that meet several prescribed conditions, including a written
agreement with the employer(s) concerning the basis on which such
payments are to be made and joint administration by an equal number of
employee and employer representatives. See section 302(c) of the Labor
Management Relations Act, 29 U.S.C. 186(c); see Steven J. Sacher, James
S. Singer, et al., editors, Employee Benefits Law (2d ed. BNA 2001)
179-83, 642-43, 1177-03. Typically the establishment of such trusts and
their funding is set through collective bargaining. Such payments
comprise a portion of the employer's labor expenses, along with
salaries, wages, and employer administered benefits. Thus, the money
paid into the trusts reflects payments that otherwise could be made
directly to employees as wages, benefits, or both, but for their
assignment to the trusts.
---------------------------------------------------------------------------
\6\ A labor organization's obligation to report on section 3(l)
trusts is based on the majority control and financial domination
tests embodied in the proposed rule. Thus, the designation of a
trust as a ``Taft-Hartley Trust,'' a ``welfare benefit trust,'' or
other designation will not control the coverage question. Examples
of trusts for which a Form T-1 may be required include training or
educational funds, strike funds, and redevelopment or investment
funds. Other examples, depending upon their particular
characteristics, would include trusts such as Multiple Employer
Welfare Arrangements, Multi-Employer Plans, Voluntary Employees'
Beneficiary Associations, or other similar plans. This is not an
exhaustive list. At the same time, a labor organization should also
be mindful that a designation of an entity as something other than a
trust or its description as a particular kind of trust does not
except the labor organization from filing a Form T-1 for the entity
if it meets the filing standards. Again, the coverage question is to
be based on the majority control and financial domination tests
embodied in the proposed rule.
---------------------------------------------------------------------------
The administration of a Taft-Hartley fund is under the control of
the labor organization and employer trustees, not the employees or
their beneficiaries. While the disbursements from the funds often
represent individual payments to employees or their beneficiaries by
reason of health or other claims, payments also often reflect more
collective interests of employees such as developing apprenticeship or
vocational training programs or operating job targeting programs,
payments that serve the interests of the labor organization. In such
instances, the funds cover expenses that otherwise would be paid from
the labor organization's general treasury and reported on the Form LM-
2.
Under this proposal, management domination or financial control is
determined by looking at the involvement of all labor organizations
contributing to or managing the trust. As discussed above, the
Department's experience, as noted by the D.C. Circuit in its 2005
opinion, demonstrates that participating labor organizations may
``retain a controlling management role, [even though] no individual
union wholly owns or dominates the trust.'' 409 F.3d at 389. This
occurs, for example, where a trust is created from the participation of
several labor organizations with common affiliation, industry, or
location, but none alone holds predominant management control over or
financial stake in the trust. Absent the Form T-1, the contributing
labor organizations, if so inclined, would be able to use the trust as
a vehicle to expend pooled labor organization funds without the
disclosure required by Form LM-2 and the members of these labor
organizations would continue to be denied information vital to their
interests. If a single labor organization may circumvent its reporting
obligations when it retains a controlling management role or
financially dominates a trust, then a group of labor organizations may
also be capable of doing so. A rule directed to preventing a single
labor organization from circumventing the law must, in all logic, be
similarly directed to preventing multiple labor organizations from also
evading their legal obligations.
Because labor organizations filing the Form LM-2 already are
required to identify section 3(l) trusts on the Form LM-2, the proposed
rule will not add any significant reporting burden with respect to
identifying the section 3(l) trusts. The Form LM-2 requires labor
organizations to provide the full name, address, and purpose of each
section 3(l) trust in which it participates. The Form T-1 will be filed
for only a subset of the labor organization's section 3(l) trusts. No
Form T-1 will be required for any trust not required to be listed on
the Form LM-2.
In most cases labor organizations already possess information to
determine whether a Form T-1 is required for a particular section 3(l)
trust. If a labor organization selects or appoints a member of the
trust's governing board, it will know how the other members are
selected and whether
[[Page 11762]]
the majority control prong of the reporting test is satisfied. In other
situations, the section 3(l) trust in question will consist entirely of
units of the same national or international labor organization. Here
too, each labor organization participating in the trust will know
whether the majority control prong of the test is satisfied and likely
will possess information to determine whether the alternative financial
domination prong of the test is met.
In some situations, the Department expects that labor organizations
will have to contact the trusts to obtain information about whether the
trust's ``pooled receipts'' from labor organizations constitute a
majority of the trust's receipts during a reporting period. The trust
can easily determine whether labor organizations have financial
dominance by examining their accounting records. Finally, no specific
information as to voting or contributions need be disclosed by the
trust at this phase. Therefore, the trust will not be required to
release any confidential information pertaining to financial
contributions or control. The Department expects that labor
organizations that do not already possess the information to determine
whether they need to file a Form T-1 will be able to obtain this
information simply by calling the trust. The Department invites
comments on its assumptions concerning the information already
possessed by labor organizations that will enable them to readily
determine whether they must file a Form T-1 for their section 3(l)
trusts and the relative ease by which they may obtain additional
information from the section 3(l) trusts.
By tying the proposed reporting obligation to instances in which a
labor organization (or labor organizations) selects (or select) a
majority of the members on the trust's governing board or contributes a
majority of its receipts during the reporting period, the Department
has stayed well within the bounds established by the appeals court. At
the same time, the Department recognizes that in other contexts,
effective, de facto, or practical control is an appropriate measure of
control and one that also would be consistent with the court's opinion.
The Department is aware that some legal writers have suggested that
labor organizations exercise effective control over many Taft-Hartley
trusts notwithstanding the legal requirement that there be equal
representation by labor organizations and employers on their governing
boards. See Ronald H. Malone, Criminal Abuses in the Administration of
Private Welfare and Pension Plans: A Proposal for a National
Enforcement Plan, 1 S. Ill. U. L.J. (1976) 400, 406 (``An * * * alleged
benefit of the Taft-Hartley plan is that joint control of the trust
assets makes misappropriation less likely. However, experience
indicates that the labor organization trustees will often functionally
wrest control of such a fund from the employer trustees and destroy the
theoretical benefits of joint-administration.''); Fogdall, Exclusive
Union Control of Pension Funds: Taft-Hartley's Ill-considered
Prohibition, 4 U. Pa. J. Lab. & Emp. L. at 221 (``A [multi-employer]
fund * * * is easier for a union to dominate [than a joint plan with a
single employer] because `it puts the union in a position of having
more trustees on a board than any single employer, creating de facto
control of the fund by the union.' ''); Protection of Beneficiaries, 58
Colum. L. Rev. at 86 (``A significant contributing cause of many * * *
irregularities is management's abdication of responsibility in jointly
administered plans. Employer representatives all too often have taken
the position that since payments to an employee fund are in lieu of
wages, the money is the property of the employees to deal with as they
will. Thus, the theoretical safeguard of joint control is dissipated,
allowing those union administrators who may be unscrupulous or
incompetent greater freedom to divert or mismanage funds.''). The
Department invites comment on whether the observations made by these
authors are accurate and, if so, for this reason or other independent
reasons, whether the Department should establish a reporting threshold
that is based on less than predominant union control over a section
3(l) trust.
2. Form T-1 Reporting Requirement Only Applies to the Largest Labor
Organizations
The Department's proposal to require only labor organizations with
annual receipts of at least $250,000 to file a Form T-1 tracks the
mandatory filing threshold for the Form LM-2. This proposal is
consistent with the 2003 and 2006 vacated rules. In 2002, however, the
Department proposed that all labor organizations that contributed
$10,000 or more to a ``significant'' section 3(l) trust file a Form T-
1. A ``significant trust'' was defined as one having annual receipts of
at least $200,000. Thus, under the 2002 proposal it was the size of the
trust, not the size of the labor organization, that triggered the
reporting obligation. In this regard, the 2002 proposal departed from
the model proposed for the Form LM-2, where only labor organizations
with annual receipts of at least $200,000 ($250,000 in the final rule)
would be obliged to provide the kind of detailed reporting comparable
to the Form T-1.
Many of the comments on the 2002 proposal expressed the view that
the Form T-1 would impose a substantial burden on small labor
organizations because they are usually staffed with part-time
volunteers, with little computer or accounting experience and limited
resources to hire professional services. In the 2003 rule, the
Department explained that it had been persuaded by the comments that
the relative size of a labor organization, as measured by its overall
finances, would affect its ability to comply with the proposed Form T-1
reporting requirements. For this reason in the 2003 final rule, the
Department excused from the Form T-1 reporting obligation any labor
organization with annual receipts of less than $250,000. And, for the
same reasons, this proposal establishes $250,000 in annual receipts for
the labor organization as the mandatory filing threshold for the Form
T-1.
The Department acknowledges that because the section 3(l) trust,
not the reporting labor organization, will undertake the bulk of the
recordkeeping burden, the size of the reporting labor organization may
be less significant than it is in the Form LM-2 context. However,
because only labor organizations with annual receipts of $250,000 or
greater, as a general rule, will have had any direct experience with
the recordkeeping and reporting software utilized in preparing the Form
LM-2, the Department believes it appropriate to limit this particular
reporting obligation to organizations with annual receipts of $250,000
or greater.
3. Elimination of Threshold Requirements In Prior Rules
This proposal does not include the requirement in the earlier
rulemaking efforts that limited the mandatory Form T-1 filing to labor
organizations that contributed $10,000 or more to the trust in a
reporting year. As discussed below, given the structure of this
proposal, this requirement has become superfluous and transparency will
be improved by its removal. This requirement had been based on the
Department's concern that labor organizations might have difficulty
persuading trusts to provide a detailed accounting of the trust's
financial activities if their stake in the trust was insubstantial in
comparison with other contributions. However, under this proposal, no
labor organization will need to file a Form T-
[[Page 11763]]
1 unless it alone or together with other labor organizations holds
management control or financial domination over a trust. Thus, under
these circumstances it is unlikely that any participating labor
organization should have difficulty in obtaining from the trust the
information needed to complete the Form T-1.
Additionally, OLMS's review of section 3(l) trusts has found that a
number of such trusts do not receive any yearly contributions from a
labor organization during a reporting period but still hold large
amounts of labor organization-derived money. For example, one building
trust had less than $200 in receipts other than investment income but
held $802,323 in assets, in this case investments. The trust and the
labor organization the trust was created to benefit had many of the
same individuals serving as officers (five officers of the labor
organization are among the seven individuals identified as officers and
directors of the trust). Although this trust was reported on an IRS
Form 990, it does not appear on any report filed with the Department.
But for a Form T-1 reporting obligation, many of the labor
organization's members would not even be aware of such a trust or its
Form 990, and likely would remain uninformed if the Form T-1 reporting
obligation was contingent on the labor organization's $10,000
contribution to the trust.
In the vacated rules, the Department limited the Form T-1 reporting
obligation to only a subset of section 3(l) trusts: only those trusts
that received $250,000 or more in annual receipts. Based on the
Department's recent experience with section 3(l) trusts, however, it
has determined that the retention of this requirement could operate to
deny information about trusts to labor organization members whose labor
organizations have a substantial investment in the trust
notwithstanding the absence of significant contributions by the labor
organization during the reporting period. For example, one section 3(l)
trust reported on its IRS Form 990 assets of $434,501, but its only
source of receipts was rent, $46,285, which was more than offset by its
rental expenses of $75,483, i.e., its net receipts were -$29,198.
Another trust, on its Form 990, reported $123,573,716 in assets, and
$1,354,258 in annual receipts only because it sold a single asset worth
over $1.1 million. This trust's sole source of annual receipts is rent
in the amount of $203,858. It is assumed that the labor organization
has managerial control over the trusts in the above examples. These
trusts would not be reported on a Form T-1 if the reporting obligation
was tied solely to the labor organization's contributions to the trust
during the reporting period. For this reason, the Department's
proposal, in a departure from earlier rulemakings, does not tie a labor
organization's reporting obligation to the level of the contributions
made to a trust during the reporting period.
The elimination of this condition from the Department's proposal
may require a labor organization to report on some trusts that contain
only insubstantial amounts of money. However, a labor organization will
be required to report very little for a trust with insubstantial
receipts and therefore will only be subject to a slight burden. This
slight drawback is countered by the transparency gained by members in
those situations where the value of the trust is substantial. The
Department, however, invites comments on whether the alternatives
considered or others should be established to eliminate a reporting
obligation where a trust, in effect, is so small or insignificant that
the burden of preparing a Form T-1 plainly outweighs any benefit that
transparency would provide to the union's members. In this connection,
it would be helpful to receive comments about whether it would be
appropriate to establish a threshold based on the amount of assets held
by a trust and, if so, the amount that would be appropriate for this
purpose and any problems that would be posed by such an approach.
4. Itemization of Receipts and Disbursements
The Department proposes that itemization should be required for
``major disbursements'' and ``major receipts'' of the section 3(l)
trust. The Department defines ``major disbursements'' and ``major
receipts'' for Form T-1 purposes as $10,000 or more. Thus, under the
proposal a labor organization would report payments of $10,000 or more
from any individual or entity to the trust and payments of $10,000 or
more to any individual or entity from the trust. In completing the Form
T-1, the labor organization would specify the amount of the receipt or
disbursement, its purpose, and other information pertinent to the
transaction, including the name and address of the entity or individual
involved. Itemization is an essential component of Form LM-2 and also
is integral to Form T-1 as a means to prevent circumvention or evasion
of the reporting obligations imposed on labor organizations and labor
organization officials. Itemization not only provides members with
information pertinent to the trusts, but allows them to better monitor
the other reporting obligations of their labor organization and its
officials under the LMRDA and to detect and thereby help prevent
circumvention or evasion of the LMRDA's reporting requirements. Among
other requirements under this proposal, Form T-1 requires a labor
organization to identify:
The names of all the trust's officers and all employees
making more than $10,000 in salary and allowances and all direct and
indirect disbursements to them;
Disbursements to any individual or entity that aggregate
to $10,000 or more during a reporting period and provide for each
individual or entity their name, business address, type of business or
job classification, and the purpose and date of each individual
disbursement of $10,000 or more; and
Any loans made at favorable terms by the trust to the
labor organization's officers or employees, the amount of the loan, and
the terms of repayment.
Where certain payments from a business that buys, sells or
otherwise deals with a trust in which a labor organization is
interested are made to a labor organization officer or employee or his
or her spouse, or minor child, the LMRDA imposes on the labor
organization officer or employee a separate obligation to report such
payments (Form LM-30, as required by 29 U.S.C. 432). Thus, the Form T-1
operates to deter a labor organization official from evading this
reporting obligation.
The proposed $10,000 figure is an outgrowth of the earlier
rulemaking efforts and is shaped by the concerns there expressed and
the Department's accommodation to those concerns. This amount is a
higher amount than the itemization threshold provided for the Form LM-2
($5,000). As the Department has stated in the past, ``The Department
will continue to monitor this threshold, as well as all other
thresholds established by this rule, and may make future adjustments if
economic conditions warrant such a change.'' 68 FR 58374, 58421. In
proposing the $10,000 threshold, the Department considered but rejected
alternative approaches to triggering itemization. A threshold tied to a
particular percentage of a trust's assets or other benchmark could deny
members information about substantial transactions where a trust holds
substantial assets. Furthermore, a percentage-based threshold that is
subject to annual fluctuation lacks predictability and would complicate
a year-to-year comparison of reports. If a percentage test was used,
information
[[Page 11764]]
concerning large trusts would be disclosed in much higher dollar
amounts and information from smaller trusts would be reported in
smaller amounts. For example, if you have two trusts, one with $100,000
in disbursements and the other with $10,000,000 and the itemization
threshold was 1 percent then the first trust would report any
disbursements that aggregate to $1,000 or more while the second trust
would only report disbursements that aggregate to $100,000 or more. To
ensure a uniform level of disclosure regardless of the size of the
trust, the Department is proposing a flat dollar threshold of $10,000
for itemization purposes. The Department seeks comments on the
appropriateness of using a dollar value threshold in general, and a
$10,000 threshold in particular.
The Department's proposal requires that a labor organization
aggregates the trust's receipts from, or disbursements to, a particular
entity or individual during the reporting period. Aggregation provides
a more accurate picture of a labor organization's disbursements because
it focuses on the total amount of money the labor organization pays a
particular entity or individual, rather than only on ``major''
individual receipts or disbursements. It is the Department's opinion
that insofar as such payments are of interest to a labor organization
member, there is no difference between a single $10,000 (or more)
receipt or disbursement from one source and several receipts or
disbursements from one source totaling $10,000 or more. Furthermore,
aggregation reduces the incentive to break up a ``major'' disbursement
to a single entity or individual in order to avoid itemizing the
payment and thereby circumvent the Form T-1 reporting requirements.
The Department recognizes that tracking multiple payments from a
specific source throughout the fiscal year imposes some additional
burden on a reporting labor organization and a section 3(l) trust.
Modern developments in electronic recordkeeping, however, minimize
these demands. Electronic recordkeeping is now relatively simple and
used routinely even by very small organizations and by individuals.
Moreover, given the nature of their day-to-day operations, section 3(l)
trusts are likely to already possess the technology and expertise to
provide relevant information without undue burden. The recent Form LM-2
filing experience demonstrates the ability of labor organizations,
often without the same level of recordkeeping sophistication possessed
by most trusts, to satisfy the requirements posed by the Form LM-2,
requirements generally more demanding than those posed by the Form T-1.
Comments on the 2002 proposal suggested that itemization could
``bury'' members in unnecessary detail, forcing them to plow through
hundreds of pages to review a labor organization's finances. The
Department's proposal is based on its belief that this concern is
overstated. Labor organization members will be able to utilize the
advantages of computer technology to review Form T-1s (and other
documents required to be filed under the LMRDA). Electronic filing
permits the reviewer to focus his or her review using a search engine
to guide the inquiry, allowing review of a potentially large number of
itemization reports with relative ease compared to review of the same
documents in hard copy. However, the Department seeks comments from the
public on this issue.
The Department specifically invites comments on whether reported
loans should be limited to those which were made to union officers and
employees at a favorable term. The Department seeks comments on whether
to expand trust reporting requirements to include all loans to officer
and employee regardless of the terms.
5. Protection of Sensitive Information
This proposal protects the disclosure of personal information about
members of labor organizations and the disclosure of sensitive
information about a labor organization's negotiating or bargaining
strategies. In the earlier rulemaking, several labor organizations
raised privacy concerns about the itemization requirements of the
proposed Form T-1; specifically, they expressed the concern that the
disclosure of the name and address of individuals receiving trust funds
(as well as the date, purpose, and amount of the transfer)might be
unlawful under federal privacy laws or might pose risk to the
individuals' health or safety. The Department took those concerns into
account in fashioning the Form LM-2 and the approach there taken is
embodied in this proposal. These confidentiality provisions, as
described herein and in greater detail in the accompanying
instructions, are also contained in the regulatory provision applicable
to Form LM-2, section 403.8(b)(1). The only difference between the
provisions relating to the Form LM-2 and this proposal for the Form T-1
is that each addresses the distinct itemization thresholds for the two
reports ($5,000 for Form LM-2 and $10,000 for Form T-1).
The Department also proposes to provide labor organizations the
same reporting option available under the Form LM-2 for reporting
certain major transactions in situations where a labor organization,
acting in good faith and on reasonable grounds, believes that reporting
the details of the transaction would divulge information relating to
the labor organization's prospective organizing strategy, the
identification of individuals working as ``salts,'' or its prospective
negotiation strategy. Reporting labor organizations may withhold such
information provided they do so in the manner prescribed by the
instructions. Thus this information may be reported without
itemization; however, as discussed below, this information must be
available for inspection by labor organization members with ``just
cause.''
Under the proposal, a labor organization that elects to file only
aggregated information about a particular receipt or disbursement,
whether to protect an individual's privacy or to avoid the disclosure
of sensitive negotiating or organizing activities, must so indicate on
the Form T-1. A labor organization member has the statutory right ``to
examine any books, records, and accounts necessary to verify'' the
labor organization's financial report if the member can establish
``just cause'' for access to the information. 29 U.S.C. 431(c); 29 CFR
403.8. Information reported only in aggregated form remains subject to
a labor organization's member's just cause right. Such aggregation will
constitute a per se demonstration of ``just cause,'' and thus the
information must be available to a member for inspection. By invoking
the option to withhold such information, the labor organization is
required to undertake reasonable, good faith actions to obtain the
requested information from the trust and facilitate its review by the
requesting member. Payments that are aggregated because of risk to an
individual's health or safety or where federal or state laws forbid the
disclosure of the information are not subject to the per se disclosure
rule.
The Department specifically invites comments on this approach,
including whether transactions involving a section 3(l) trust would
pose a genuine risk to a labor organization's organizing or negotiating
strategy. The Department seeks comments on whether to narrow, clarify,
or remove the confidentiality exception from the Form T-1 instructions.
For example, comments are requested on whether all transactions greater
than $10,000 should be identified by amount and date on the report,
permitting, however, labor organizations, where acting in good faith
and on reasonable grounds, to
[[Page 11765]]
withhold information that otherwise would be reported, in order to
prevent the divulging of information relating to the labor
organization's prospective organizing or negotiation strategy.
6. Exemptions and Alternative Means of Compliance
The Department proposes to except from the labor organization's
Form T-1 reporting requirement a trust that is established as a PAC or
an organization exempt under Internal Revenue Code section 527 (section
527 political organization) if the trust files timely, complete and
publicly available reports with federal or state agencies, as required
by federal or state law. The Department also proposes a partial
exception where an independent audit of the trust has been conducted in
accordance with proposed standards discussed below and the audit is
filed with OLMS along with page 1 of Form T-1. The purpose of limiting
the filing requirements in this way is to minimize any overlapping
reporting obligations that exist under certain other laws where such
reports are publicly available and provide information roughly
comparable to that required by the Form T-1. Additionally, an audit
that satisfies the proposed standards and that is submitted along with
page 1 of the Form T-1 similarly would be an acceptable substitute.
Each of these alternative methods for meeting the labor organization's
Form T-1 obligation provides significant, timely financial information
about the trust that is updated on a regular basis (for PAC and section
527 reports, typically more frequently than the Form T-1) and requires
the itemization of receipts and expenditures.\7\ These reports provide
a level of transparency similar to the proposed Form T-1.
---------------------------------------------------------------------------
\7\ Significantly, these forms set the itemization threshold
below the $10,000 amount proposed for the Form T-1. They require
aggregation of receipts and disbursements; itemization is required
for any receipts from or disbursements to an individual or entity
that total $200 or more during prescribed reporting cycles. See
Federal Election Commission, Instructions for FEC Form 3X and
Related Schedules, available at http://www.fec.gov/pdf/forms/
fecfrm3xi_06.pdf (last visited Nov. 8, 2007); IRS, Instructions for
Form 8872, available at http://www.irs.gov/pub/irs-pdf/i8872.pdf
(last visited Nov. 8, 2007).
---------------------------------------------------------------------------
The Department proposes that the audit must meet the requirements
(modeled on section 103 of ERISA, 29 U.S.C. 1023, and 29 CFR 2520.103-1
(relating to annual reports and financial statements required to be
filed under ERISA)) described in the Form T-1 instructions. The
Department recognizes that the audit option may not provide the same
detail as required by the Form T-1, but it believes that this approach
is an acceptable trade-off for reducing the overall reporting burden on
the labor organization and the section 3(l) trust. The Department
invites comments on this proposed alternative. Under the audit
alternative, a labor organization need only complete the first page of
the Form T-1 (Items 1-15 and the signatures of the organizations'
officers) and submit a copy of an audit of the trust that meets all the
following standards:
The audit is performed by an independent qualified public
accountant, who after examining the financial statements and other
books and records of the trust, as the accountant deems necessary,
certifies that the trust's financial statements are presented fairly in
conformity with Generally Accepted Accounting Principles or Other
Comprehensive Basis of Accounting.
The audit includes notes to the financial statements that
disclose, for the preceding twelve-month period:
Losses, shortages, or other discrepancies in the trust's
finances;
The acquisition or disposition of assets, other than by
purchase or sale;
Liabilities and loans liquidated, reduced, or written off
without the disbursement of cash;
Loans made to labor organization officers or employees
that were granted at more favorable terms than were available to
others; and
Loans made to officers and employees that were liquidated,
reduced, or written off.
The audit is accompanied by schedules that disclose, for
the preceding twelve-month period:
A statement of the assets and liabilities of the trust,
aggregated by categories and valued at current value, and the same data
displayed in comparative form for the end of the previous fiscal year
of the trust; and
A statement of trust receipts and disbursements aggregated
by general sources and applications, which must include the names of
the parties with which the trust engaged in $10,000 or more of commerce
and the total of the transactions with each party.
Under the earlier proposal and rules, a labor organization was not
required to file a Form T-1 for a section 3(l) trust if the trust was
part of an employee benefit plan required under ERISA to file a Form
5500. Although the Department acknowledged that this option would not
provide labor organization members and the public with all the
information required by the Form T-1, it appeared that the disclosure
purposes of the LMRDA could be satisfied under this approach. After
further consideration, the Department has determined that the use of
the Form 5500 as a substitute for the Form T-1 would not meet these
purposes, and thus this proposal does not include the filing of the
Form 5500 covering the section 3(1) trust as an exemption to the Form
T-1 filing requirement.
The Form 5500 Annual Return/Report is a system of forms and
schedules filed by employee benefit plans subject to ERISA. A common
misconception is that Form 5500 reports are filed for all section 3(l)
trusts. They are not. Since there is no uniform filing obligation under
ERISA for section 3(1) trusts, labor organization members, the public,
and OLMS investigators would have to expend considerable time and
resources to determine whether a section 3(l) trust has filed the Form
5500 and, if so, whether it filed all the information and schedules
required of it under ERISA.
Although a section 3(1) trust may form part of an ``employee
pension benefit plan'' or ``employee welfare benefit plan'' subject to
ERISA, the ERISA statute does not apply to all section 3(1) trusts.
Strike funds, recreational plans, and hiring hall arrangements are
examples of funds in which labor organizations participate that fall
outside ERISA coverage. See 29 CFR 2510.3-1. Further, under the
Department's ERISA regulations, some section 3(l) trusts that are part
of employee benefit plans subject to ERISA are not required to file the
Form 5500 or are allowed to file abbreviated financial schedules. See
29 CFR 2520.104-20 (simplified reporting for plans with fewer than 100
participants) and 29 CFR 2520.104-22 (conditional exemption for
apprenticeship and training plans). For general information on ERISA's
Form 5500 annual reporting requirements, see U.S. Department of Labor,
Reporting and Disclosure Guide for Employee Benefit Plans, (reprinted
2004) available at http://www.dol.gov/ebsa/pdf/rdguide.pdf (last
visited Nov, 8. 2007).
Moreover, the focus of the financial reporting required on the Form
T-1 and the Form 5500 are not identical. As noted above, the Form T-1
implements section 201 of the LMRDA, which requires covered labor
organizations to file annual, public reports with the Department,
detailing the labor organization's cash flow during the reporting
period, and identifying its assets and liabilities, receipts, salaries
and other direct or indirect disbursements to each officer and all
employees receiving $10,000 or more in aggregate from the labor
organization;
[[Page 11766]]
direct or indirect loans (in excess of $250 aggregate) to any officer,
employee, or member; loans (of any amount) to any business enterprise;
and other disbursements. Although there may be some overlap with the
Form T-1 in cases where a section 3(1) trust is part of an employee
benefit plan required to file a Form 5500 with detailed financial
schedules a Form 5500 filing would not include the itemization of
disbursements or receipts required by the Form T-1.
Further, the Form T-1 must be filed within 90 days of the end of
the labor organization's fiscal year and must cover the section 3(1)
trust's most recent fiscal year, i.e., the fiscal year ending on or
before the closing date of the labor organization's own fiscal year.
This requirement is mandated by the LMRDA's requirement that a labor
organization file its financial reports within 90 days of the close of
the labor organization's fiscal year. 29 U.S.C. 437(b). The Form 5500
is not due, by comparison, until the end of the seventh month following
the end of the plan's fiscal year, with an available extension of up to
an additional two and one half months. In the case of a labor
organization and a section 3(1) trust that have the same fiscal year,
the Form T-1 would be due well in advance of the Form 5500 due date. On
the other hand, if a trust's fiscal year ends three months after the
labor organization's fiscal year, the Form T-1 will not be due until
twelve months after the end of the trust's fiscal year. It should be
noted, however, that the trust's fiscal year is established by the
trust and will be the same for both Form T-1 and Form 5500 reporting
purposes.
The persons required to sign the Form T-1 and Form 5500 also are
not identical. Under the proposed Form T-1, the form must be signed by
the president and treasurer, or corresponding principal officers, of
the labor organization. By comparison, the Form 5500 filed for an
employee benefit plan that includes a section 3(1) trust is signed by
the plan's ``administrator,'' as defined in section 3(16) of ERISA.\8\
For these reasons, the Form 5500 does not appear to be an adequate
substitute for the Form T-1.
---------------------------------------------------------------------------
\8\ Section 3(16)(A) of ERISA, 29 U.S.C. 1002 (3)(16)(A),
defines the term ``administrator'' to mean: ``(i) the person
specifically so designated by the terms of the instrument under
which the plan is operated; (ii) if an administrator is not so
designated, the plan sponsor; or (iii) in the case of a plan for
which an administrator is not designated and a plan sponsor cannot
be identified, such other person as the Secretary may by regulation
prescribe.''
---------------------------------------------------------------------------
The Department invites comments on
Whether any labor organizations now require section 3(l)
trusts to provide reports to the labor organization, on a regular
basis, at least annually and in comparable or greater detail to the
Form T-1, including an itemization of receipts and disbursements, and,
if so
[cir] Whether the itemization threshold is higher or lower than
$10,000; and
[cir] Whether the report is mailed to each member or made publicly
available to members by other means;
Whether documents provided for internal use by the
trustees of a section 3(l) trust, if publicly disclosed, would
adequately meet the disclosure requirements of the LMRDA;
Whether the proposed rule enables labor organizations and
section 3(l) trusts sufficient time to compile and report on
information needed to complete the Form T-1 in those instances where
the labor organization and the trust have the same fiscal year, i.e.,
where the Form T-1 must be filed within 90 days of the close of the
trust's fiscal year; and
If the proposed rule will impose substantial difficulties
for labor organizations and trusts in the instances discussed in the
preceding bullet point, and, if so, how these difficulties may be
ameliorated in a way that ensures the timely receipt of information
about such trusts by members of labor organizations and the public.
Labor organizations or other members of the public are encouraged
to submit representative copies of any such reports or other documents
of the type described.
7. Each Labor Organization With Annual Receipts of at Least $250,000
Participating in a Section 3(L) Trust With Other Labor Organizations
Must File a Form T-1
The proposal does not differentiate among the reporting obligations
of labor organizations contributing to the same trust. Any labor
organization that satisfies the reporting threshold will have to submit
the Form T-1, even though the labor organization's share may only
represent a relatively small portion of the total contributions made to
the trust by labor organizations.
In response to the Department's 2002 proposal, an international
labor organization explained that it was not uncommon for several
locals to participate in an apprenticeship and training fund that would
be funded by payments from employers pursuant to negotiated agreements
providing for ``a cents per hour'' contribution for hours worked by
each of their employees. As an example, the labor organization
discussed a fund with annual contributions over $300,000 in which seven
locals participated. The contributions from, or on behalf of, each
local ranged from about $10,000 to about $100,000. The fund had four
management and four labor trustees; three from different locals
contributing to the trust and a fourth from the labor organizations'
parent organization. The labor organization also explained that it is
common for local labor organizations in different crafts (affiliated
with different parent bodies) to participate in a fund. It explained
that in these instances, it would be unusual for a single craft or
local to represent a majority of the labor organization trustees. It
stated that in such circumstances it is unrealistic to suggest that any
single labor organization or craft controls the trust.
As suggested by the Department's proposal and the apprenticeship
and training fund just discussed, it is not uncommon for multiple labor
organizations to participate in a section 3(l) trust without any single
labor organization contributing a majority of the trust's revenues. In
some trusts, such as strike funds, labor organizations may be the sole
contributors to the fund; in others, such as Taft-Hartley trusts, the
trust will be funded by employers, but such funds are established
through collective bargaining agreements and the employer contributions
are made for the benefit of the members of the participating labor
organizations or their beneficiaries.
Trusts in which several labor organizations participate typically
will consist solely of funds that are contributed on behalf of their
members. In many instances, none of the participating labor
organizations contributes a majority of the trust's revenues. Thus,
unless a reporting obligation is imposed on one or more of the labor
organizations on some basis other than majority contributions, no labor
organization members will receive any information on the trust's
finances. In its 2002 proposal, the Department illustrated the need for
reporting on section 3(l) trusts with four examples in which labor
organizations had evaded their reporting obligations through their
involvement with such trusts. (These same examples are discussed in
this proposal.) One of these examples involved the improper diversion
of funds from a strike fund in which no single labor organization held
a controlling interest. The absence of any labor organization reporting
obligations facilitated the improper disposition of thousands of
dollars (over $60,000 per month) from the strike fund. As
[[Page 11767]]
discussed above, a single labor organization may circumvent its Form
LM-2 reporting obligations when it retains a controlling management
role or financially dominates a trust; there is no basis to conclude
that a group of labor organizations is not equally capable of doing so.
Disbursements from a trust of pooled labor organization money reflect
the contributing labor organizations' financial conditions and
operations as clearly as the disbursements from a trust funded by a
single labor organization. A rule directed to preventing a single labor
organization from circumventing or evading the law should not permit
the same conduct when it is undertaken by more than one labor
organization.
Under the proposal, multiple labor organizations may be required to
report on a single trust. In fashioning this proposal, the Department
considered two alternatives: fixing the obligation on the labor
organization with the greatest stake in the trust; or allowing one of
the participating labor organizations to voluntarily take on this
responsibility. While these alternatives may provide an appropriate
basis for fairly and roughly allocating the reporting burden, each
suffers from the same basic infirmity--labor organization members are
not likely to view reports filed by other labor organizations when
searching for information on the financial activities of their own
labor organization and its trusts. Members of other labor organizations
participating in the trust would have more difficulty obtaining
information no less vital to their interests than the information
provided to members of the reporting labor organization. Furthermore,
this reporting gap could allow some labor organizations and individuals
to evade their reporting obligations under the LMRDA.
Improper payments would be much easier to conceal if the Form T-1
were filed only by some of the participating labor organizations (some
vendors or contributors to the section 3(l) trust may only be known by
members of a particular labor organization). For these reasons, the
Department has determined that where multiple labor organizations
appoint a majority of the members of the trust's governing board, or
their contributions constitute greater than 50 percent of the trust's
annual revenues, each will be required to file a Form T-1. In making
this determination, the Department recognizes that the section 3(l)
trust, not the reporting labor organizations, will compile most of the
necessary information and that this information, in large part, will be
identical for each participating labor organization. This will operate
to allocate the reporting costs among the labor organizations, as
determined by the trust, and will keep their total costs only
marginally higher than if a Form T-1 was required to be filed by only
one of the participating labor organizations.
In earlier rulemaking efforts, several commenters expressed concern
that a section 3(l) trust could refuse to provide the information
needed to complete the Form T-1. Several commenters expressed concern
about a labor organization's liability for failure to file a timely
report, given that the trust might refuse to provide the information
and the labor organization may be unable to compel production. The
Department acknowledges that this may remain a possibility under this
proposal. However, given that the reporting obligation under the
proposal only arises where a labor organization, alone or in
combination with other labor organizations, maintains management
control or financial domination over a trust, the possibility of such
intransigence appears remote. The Department's view is supported by the
public comments received about the 2002 proposal. No comment suggested
that any administrator of a section 3(l) trust had expressed an
intention to withhold from a labor organization information required to
complete the Form T-1. Further, although there were some statements
that a trust would be bound by its own fiduciary obligations in
determining whether to make the information available, there was no
suggestion that any trust held the view that it would violate such duty
by providing the information required by the form. Thus, the Department
expects that trusts will routinely and voluntarily comply in providing
such information to reporting labor organizations. Nevertheless, in
those rare instances where a trust balks at providing the necessary
information, the labor organization may request that the Department use
its available investigatory authority to assist the reporting labor
organization to obtain information necessary to complete the Form T-1.
The Department expects that labor organizations and labor organization
officials will take timely, reasonable, and good faith actions to
obtain the necessary information from section 3(l) trusts and, where
they have done so, the Department will not assert a willful and knowing
violation of the filing requirement against the labor organization, its
president, or secretary-treasurer.
8. Requirement of Electronic Filing
For several years, and with Congressional urging and financial
assistance, the Department has pursued the development and
implementation of electronic filing of annual reports required by the
LMRDA, along with an indexed and easily searchable computer database of
the information submitted, accessible by the public over the Internet.
See H.R. Conf. Rep. 105-390, 1997 U.S.C.C.A.N. 2061; H.R. Conf. Rep.
105-825; H.R. Conf. Rep. 106-419; H.R. Conf. Rep. 106-479; H.R. Conf.
Rep. 106-1033; H.R. Conf. Rep. 107-342, 2002 U.S.C.C.A.N. 1690; H.R.
Conf. Rep. 108-10, 2003 U.S.C.C.A.N. 4.
The Department has had in place systems for electronic submission
and disclosure since 2001 (the systems were later augmented for
submissions under the 2003 final rule). There have been no significant
problems with the system. Where minor problems have arisen, the
Department has taken steps to successfully resolve the problems.
Moreover, the existing system was originally designed for the
submission of both Form LM-2 and Form T-1.
This proposal will utilize this existing system for electronic
submissions, minimizing any difficulty by labor organizations in
submitting the reports electronically. This system will allow the
Department to make the reports available for electronic disclosure, and
enable labor organization members and others to search and otherwise
utilize data in the Department's Form T-1 database. Despite the
familiarity of users with the existing system, the Department
recognizes that some labor organizations nonetheless may encounter some
temporary problems in electronically submitting the Form T-1. Thus,
under the proposal, a labor organization that must file a Form T-1 may
assert a temporary hardship exemption or apply for a continuing
hardship exemption to prepare and submit the report in paper format. If
a labor organization files both Form LM-2 and Form T-1, the exemption
must be separately asserted for each report, although in appropriate
circumstances the same reasons may be used to support both exemptions.
As proposed, if it is possible to file Form LM-2, or one or more Form
T-1s, electronically, no exemption should be claimed for those reports,
even though an exemption is warranted for a related report. The key
aspects of the proposed hardship exemption follow:
Temporary Hardship Exemption:
If a labor organization experiences unanticipated
technical difficulties that prevent the timely preparation and
submission of an electronic Form T-1, it may be filed in paper format
by the required due date. An electronic format copy of the filed paper
format document
[[Page 11768]]
shall be submitted to the Department within 10 business days after the
required due date. Unanticipated technical difficulties that may result
in additional delays should be brought to the attention of the OLMS
Division of Interpretations and Standards.
The applicant must comply with special instructions for
submitting the Form T-1 in paper format.
If neither the paper filing nor the electronic filing is
received in the timeframe specified, the report will be considered
delinquent.
Continuing Hardship Exemption:
A labor organization may apply in writing for a continuing
hardship exemption if Form T-1 cannot be filed electronically without
undue burden or expense. Such written application shall be received at
least thirty days prior to the required due date of the report(s). The
written application shall include, but not be limited to, the
following: (1) The justification for the requested time period of the
exemption; (2) the estimated burden and expense that the labor
organization would incur if it was required to make an electronic
submission; and (3) the reasons for not submitting the report(s)
electronically. The applicant must specify a time period not to exceed
one year.
The continuing hardship exemption shall not be deemed
granted until the Department notifies the applicant in writing. If the
Department denies the application for an exemption, the labor
organization shall file the report(s) in electronic format by the
required due date.
If the request is granted, the labor organization shall
submit the report(s) in paper format by the date prescribed by OLMS.
The applicant must comply with special instructions for submitting the
Form T-1 in paper format.
The filer may be required to submit Form T-1 in electronic
format upon the expiration of the period for which the exemption is
granted.
If neither the paper filing nor the electronic filing is
received in the timeframe specified, the report will be considered
delinquent.
9. Effective Date
The Department proposes to provide labor organizations significant
lead time to prepare for submitting the initial Form T-1. Under the
proposal, the final rule will take effect no less than 30 days after
its publication in the Federal Register. Furthermore, at the earliest,
no report will be due until 15 months after the rule's effective date.
Thus, labor organizations whose fiscal years begin after the rule's
effective date will have more than 15 months before their initial Form
T-1 is due. As stated in the proposal:
Form T-1 must be filed within 90 days of the end of the labor
organization's fiscal year. The Form T-1 shall cover the trust's
most recent fiscal year, i.e., the fiscal year ending on or before
the closing date of the labor organization's own fiscal year.
Under the proposal, labor organizations will file a Form T-1 and
Form LM-2 together. The filing will be due 90 days after the labor
organization's fiscal year ends. The Form T-1 will be based on the
latest available information for the trust's most recent fiscal year
reported to the labor organization by the trust or from a qualifying
audit. The Department's intention in permitting a labor organization to
file Form T-1 within ninety days after the labor organization's fiscal
year ending date, rather than requiring it to be filed within ninety
days after the trust's fiscal year ending date, is to ease the burden
for both the trust and the labor organization. The Department
anticipates that a trust will be able to more readily provide necessary
information to the reporting labor organization at the conclusion of
the trust's fiscal year and that a labor organization will have
correspondingly less difficulty in obtaining information at that time.
The Department intends to include in the instructions that are
published as part of the final rule examples of the rule's application
to trusts and labor organizations that have the same or different
fiscal years.
IV. Regulatory Procedures
Executive Order 12866
This proposed rule has been drafted and reviewed in accordance with
Executive Order 12866, section 1(b), Principles of Regulation. The
Department has determined that this proposed rule is not an
``economically significant'' regulatory action under section 3(f)(1) of
Executive Order 12866. Based on a preliminary analysis of the data, the
rule is not likely to: (1) Have an annual effect on the economy of $100
million or more or adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or state, local, or tribal
governments or communities; (2) create a serious inconsistency or
otherwise interfere with an action taken or planned by another agency;
(3) materially alter the budgetary impact of entitlements, grants, user
fees, or loan programs or the rights and obligations of recipients
thereof, or (4) raise novel legal or policy issues. As a result, the
Department has concluded that a full economic impact and cost/benefit
analysis is not required for the rule under Section 6(a)(3) of the
Order. However, because of its importance to the public, the rule was
treated as a significant regulatory action and was reviewed by the
Office of Management and Budget.
Unfunded Mandates Reform
For purposes of the Unfunded Mandates Reform Act of 1995, this
proposed rule does not include a federal mandate that might result in
increased expenditures by state, local, and tribal governments, or
increased expenditures by the private sector of more than $100 million
in any one year.
Executive Order 13132 (Federalism)
The Department has reviewed this proposed rule in accordance with
Executive Order 13132 regarding federalism and has determined that the
proposed rule does not have federalism implications. Because the
economic effects under the rule will not be substantial for the reasons
noted above and because the rule has no direct effect on states or
their relationship to the federal government, the rule does not have
``substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.''
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act of 1980 (``RFA''), 5 U.S.C. 601 et
seq., requires agencies to prepare an initial regulatory flexibility
analyses in drafting regulations that will have a significant economic
impact on a substantial number of small entities.
In the 2003 and 2006 Form T-1 rules, the Department undertook
regulatory flexibility analyses, utilizing the Small Business
Administration's (``SBA'') ``small business'' standard for ``Labor
Unions and Similar Labor Organizations.''. Specifically, the Department
used the $5 million standard established in 2000 (as updated in 2005 to
$6.5 million) for purposes of its regulatory flexibility analyses. See
65 FR 30836 (May 15, 2000); 70 FR 72577 (Dec. 6, 2005). This same
standard has been used for the Department's initial regulatory
flexibility analysis in this proposed rule.
The Department recognizes that the SBA has not established fixed,
financial thresholds for ``organizations,'' as distinct from other
entities. See A Guide for Federal Agencies: How to Comply with the
Regulatory Flexibility Act,
[[Page 11769]]
Office of Advocacy, U.S. Small Business Administration at 12-13,
available at http://www.sba.gov. The Department further recognizes that
under SBA guidelines, the relationship of an entity to a larger entity
with greater receipts is a factor to be considered in determining the
necessity of conducting a regulatory flexibility analysis. In this
regard, the affiliation between a local labor organization and a
national or international labor organization, a widespread practice
among labor organizations subject to the LMRDA, presents a unique
circumstance in determining whether and, if so, how, receipts of labor
organizations should be aggregated, if at all, in assessing whether a
regulatory flexibility analysis is required and how it should be
conducted. It is the Department's view, however, that it would be
inappropriate, given the past rulemaking concerning the Form T-1 and
the Form LM-2, to depart from the $6.5 million receipts standard in
preparing this initial regulatory flexibility analysis. Comments are
invited to address this question of whether the use of the $6.5 million
figure, without aggregation among affiliated labor organizations, is
appropriate and if not, to suggest alternative approaches for this
purpose. Accordingly, the following analysis assesses the impact of
these regulations on small entities as defined by the applicable SBA
size standards.
All numbers used in this analysis are based on 2005 data taken from
the Office of Labor-Management Standards e.LORS data base, which
contains records of all labor organizations that have filed LMRDA
reports with the Department.
1. Statement of the Need for, and Objectives of, the Proposed Rule
The following is a summary of the need for and objectives of the
proposed rule. A more complete discussion is found in the preamble.
The objective of this proposed rule is to increase the transparency
of labor organization financial reporting by creating a new form for
labor organization trust reporting (Form T-1) to enable workers to be
responsible, informed, and effective participants in the governance of
their labor organizations; discourage embezzlement and financial
mismanagement; prevent the circumvention or evasion of the statutory
reporting requirements; and strengthen the effective and efficient
enforcement of the Act by the Department. The Form T-1 is designed to
close a reporting gap where labor organization finances in relation to
LMRDA section 3(l) trusts were not disclosed to members, the public, or
the Department.
One of the LMRDA's primary reporting obligations (Forms LM-2, LM-3,
and LM-4) applies to labor organizations, as institutions; other
important reporting obligations apply to officers and employees of
labor organizations (Form LM-30), requiring them to report any
conflicts between their personal financial interests and the duty they
owe to the union they serve, and to employers and labor relations
consultants who must report payments to labor organizations and their
representatives (Form LM-10). See 29 U.S.C. 432, 433. Requiring labor
organizations to report the information required by the proposed Form
T-1 provides an essential check for labor organization members and the
Department to ensure that labor organizations, labor organization
officials, and employers are accurately and completely fulfilling their
reporting duties under the Act, obligations that can easily be ignored
without fear of detection if reports relating to trusts are not
required.
Under the Department's former rule (superseded by the revised 2003
Form LM-2), a reporting obligation concerning section 3(l) trusts would
arise only if the trust was a ``subsidiary'' of the reporting labor
organization and met other requirements previously set by the
Department. See Form LM-2 instructions in effect prior to the 2003
final rule; see also 68 FR 58413. Thus, the former rule, which was
crafted shortly after the Act's enactment, required reporting by only a
portion of the labor organizations that contributed to section 3(l)
trusts. During the intervening decades, the financial activities of
individuals and organizations have increased exponentially in scope,
complexity, and interdependence. 67 FR 79280-81. For example, many
labor organizations manage benefit plans for their members, maintain
close business relationships with financial service providers such as
insurance companies and investment firms, operate revenue-producing
subsidiaries, and participate in foundations and charitable activities.
67 FR 79280. The complexity of labor organization financial practices,
including business relationships with outside firms and vendors,
increases the likelihood that labor organization officers and employees
may have interests in, or receive income from, these businesses. As
more labor organizations conduct their financial activities through
sophisticated trusts, increased numbers of businesses have commercial
relationships with such trusts, creating financial opportunities for
labor organization officers and employees who may operate, receive
income from, or hold an interest in such businesses. In addition,
employers also have fostered multi-faceted business interests, creating
further opportunities for financial relationships between labor
organizations, labor organization officials, employers, and other
entities, including section 3(l) trusts.
Such trusts ``pose the same transparency challenges as `off-the-
books' accounting procedures in the corporate setting: large scale,
potentially unattractive financial transactions can be shielded from
public disclosure and accountability through artificial structures,
classification and organizations.'' 67 FR 79282. The Department's
former rule required labor organizations to report on only a subset of
such trusts. This approach allowed a gap in the reporting of financial
information concerning these trusts. The trust funds, if they had been
retained by the labor organization, would have appeared on the labor
organization's Form LM-2. Despite the close relationship between the
labor organization and the trust and the purpose of the funds to
benefit the members of the labor organization, transparency ended once
the funds left the labor organization and thereby limited
accountability. Thus, Form T-1 would essentially follow labor
organization funds that remain in closely connected trusts, but which
would otherwise go unreported. As a result of non-disclosure of these
funds, members have long been denied important information about labor
organization funds that were being directed to other entities,
ostensibly for the members' benefit, such as joint funds administered
by a labor organization and an employer pursuant to a collective
bargaining agreement, educational or training institutions, credit
unions, and redevelopment or investment groups. See 67 FR 79285. The
Form T-1 is necessary to close this gap, prevent certain trusts from
being used to evade the Title II reporting requirements, and provide
labor organization members with information about financial
transactions involving a significant amount of money relative to the
labor organization's overall financial operations and other reportable
transactions. 68 FR 58415. The proposed Form T-1 will also identify the
trust's significant vendors and service providers. A labor organization
member who is aware that a labor organization official has a financial
relationship with one or more of these
[[Page 11770]]
businesses will be able to determine whether the business and the labor
organization official have made required reports. The purpose of the
LMRDA disclosure requirements is to prevent financial malfeasance of
labor organization money. 67 FR 79282-83. This purpose is demonstrably
frustrated when existing reporting obligations fail to disclose, for
example, opportunities for fraud. (Examples of situations where money
in section 3(l) trusts was being used to circumvent or evade the
reporting requirements can be found in the preamble and at 67 FR
79283.)
As explained in the preamble, additional trust reporting is
necessary to ensure, as intended by Congress, the full and
comprehensive reporting of a labor organization's financial condition
and operations, including a full accounting to labor organization
members from whose work the payments were earned. 67 FR 79282-83. The
proposed rule will prevent circumvention and evasion of these reporting
requirements by providing labor organization members with financial
information concerning their labor organization's trusts when the labor
organization, alone or in combination with other labor organizations,
selects the majority of the directors or provides the majority of the
funds.
2. Legal Basis for Rule
The legal authority for the notice of proposed rule-making is
section 208 of the LMRDA, 29 U.S.C. 438. Section 208 provides that the
Secretary of Labor shall have authority to issue, amend, and rescind
rules and regulations prescribing the form and publication of reports
required to be filed under title II of the Act, including rules
prescribing reports concerning trusts in which a labor organization is
interested, and such other reasonable rules and regulations as she may
find necessary to prevent the circumvention or evasion of the reporting
requirements. Section 3(l) of the Act, 29 U.S.C. 402(l), defines a
``trust in which a labor organization is interested.''
3. Number of Small Entities Covered Under the Rule
The Department estimates that of the 4,452 labor organizations
subject to this proposed rule, 4,228 of these, or 94.97 percent of the
total will have receipts less than $6.5 million, the SBA small business
size standard for ``Labor Unions and Similar Labor Organizations.''
These labor organizations have annual average receipts of $1.3 million.
The Department estimates that only some of these 4,228 labor
organizations will have to file Form T-1 reports; the Department
estimates that these organizations will file approximately 2,077
reports annually (on average about .49 reports per labor organization).
The affiliation among labor organizations may have an impact on the
number of organizations that should be counted as ``small
organizations'' under section 601(4) of the RFA, 5 U.S.C. 601(4).
Section 601(4) provides in part: ``the term `small organization' means
any not-for-profit enterprise which is independently owned and operated
and is not dominant in its field.'' However, for purposes of analysis
here and for ready comparison with the RFA analyses in its earlier Form
T-1 rulemakings, the Department has used the $6.5 million receipts test
for ``small businesses,'' rather than the ``independently owned and
operated and not dominant'' test for ``small organizations.''
Application of the latter test likely would reduce the number of labor
organizations that would be counted as small entities under the RFA. We
are seeking comment on the accuracy of this assumption.\9\
---------------------------------------------------------------------------
\9\ As discussed in greater detail in the PRA analysis, the
primary impact of this proposed rule will be on the largest labor
organizations, defined as those that have $250,000 or more in annual
receipts. Based on information in its electronic labor organization
reporting system (``e.LORS''), the Department estimates
[10] that there are approximately 4,452 labor
organizations of this size that have $250,000 or more in annual
receipts (just 18.5 percent of the 24,065 labor organizations
covered by the LMRDA).
---------------------------------------------------------------------------
4. Relevant Federal Requirements Duplicating, Overlapping or
Conflicting With the Rule
To the extent that there are federal rules that duplicate, overlap,
or conflict with this proposed rule, a specific exemption from the
requirements of this rule has been provided. It should be noted,
however, that some section 3(l) trusts, i.e., those that are part of
employee benefit plans subject to ERISA coverage and disclosure
requirements, are currently required to report some similar information
to the Employee Benefits Security Administration on an annual report
Form 5500. However, this information does not include certain
information captured by the proposed Form T-1 that is specifically
focused on disclosures under section 201 of the LMRDA.
5. Differing Compliance or Reporting Requirements for Small Entities
Under the proposal, the reporting, recordkeeping, and other
compliance requirements apply equally to all labor organizations that
are required to file a Form T-1 under the LMRDA. Only the largest
filers, those that have annual receipts in the millions, are likely to
have multiple trusts which will require substantial changes in their
accounting practices in order to report these trusts on the new form.
Labor organizations with receipts of between $250,000 and $2 million,
which account for over 3,441 of the 4,452 Form LM-2 filers, are likely
to have fewer trusts for which they will have to file a Form T-1 than
the organizations with greater annual receipts.
6. Clarification, Consolidation and Simplification of Compliance and
Reporting Requirements for Small Entities
OLMS has updated the e.LORS system to allow labor organizations to
file Form T-1 as they file the current Form LM-2. Under the proposed
rule, labor organizations are directed to use an electronic reporting
format to maintain financial information. This information can then be
electronically compiled in the proper format for electronic filing.
OLMS will provide compliance assistance for any questions or
difficulties that may arise from using the reporting software. A help
desk is staffed during normal business hours and can be reached by
telephone.
The use of electronic forms makes it possible to download
information from previously filed reports directly into the form;
enables officer and employee information to be imported onto the form;
makes it easier to enter information; and automatically performs
calculations and checks for typographical and mathematical errors and
other discrepancies, which reduces the likelihood of having to file an
amended report. The error summaries provided by the software, combined
with the speed and ease of electronic filing, will also make it easier
for both the reporting labor organization and OLMS to identify errors
in both current and previously filed reports and to file amended
reports to correct them.
7. The Use of Performance Rather Than Design Standards
The Department considered a number of alternatives to the proposed
rule that could minimize the impact on small entities. One alternative
would be not to create a Form T-1. As stated above, this alternative
was rejected because OLMS case files and experience demonstrate that
the goals of the Act are not being met insofar as the finances of labor
organizations are held in section 3(l) trusts. As explained further in
the preamble, labor organization members have no information on their
labor
[[Page 11771]]
organization's 3(l) trusts. Labor organization members need this
information to make informed decisions on labor organization
governance.
Another alternative would be to limit the proposed reporting
requirements to national and international parent labor organizations.
However, the Department has concluded that such a limitation would
eliminate the availability of meaningful information from local and
intermediate labor organizations, which may have a far greater impact
on and relevance to labor organization members, particularly since such
lower levels of labor organizations generally set and collect dues and
provide representational and other services for their members. Such a
limitation would reduce the utility of the information to a significant
number of labor organization members. Of the estimated 4,452 labor
organizations subject to Form T-1 filing requirements under the
proposal, just 101 are national and international labor organizations.
Requiring only national and international organizations to file Form T-
1 would not effectively increase labor organization transparency nor
provide any deterrent to fraud and embezzlement by local and regional
officials.
Another alternative would be to propose a phase-in of the effective
date of the Form T-1, which would provide some labor organizations
additional time to modify their recordkeeping systems in order to
comply with the new reporting requirement. The Department has
concluded, however, that the proposed rule allows all Form T-1 filers
sufficient time to adapt to the proposed disclosure requirements and
make any necessary adjustments to their recordkeeping and reporting
systems. OLMS also plans to provide compliance assistance to any labor
organization or section 3(l) trust that requests it. The Department
believes it has minimized the economic impact of the form on small
labor organizations to the extent possible while recognizing workers'
and the Department's need for information to protect the rights of
labor organization members under the LMRDA.
8. Reporting, Recording and Other Compliance Requirements of the Rule
\10 \
---------------------------------------------------------------------------
\10\ The estimated burden on labor organizations is discussed in
detail in the section concerning the Paperwork Reduction Act. The
figures discussed in the text are derived from the figures explained
in that section.
---------------------------------------------------------------------------
This analysis only considers unions within Tier I and a portion of
the unions within Tier II. There is no analysis of Tier III unions
because all unions within Tier III are outside the coverage of the
Regulatory Flexibility Act. This proposed rule is not expected to have
a significant economic impact on a substantial number of small
entities. The LMRDA is primarily a reporting and disclosure statute.
Accordingly, the primary economic impact of the proposed rule will be
the cost of obtaining and reporting required information.
The Department assumes that each Tier I labor organization (those
with between $250,000 and $499,999 in annual receipts) will spend, on
average, about .75 hours contacting all the section 3(l) trusts listed
on their Form LM-2s to determine whether a Form T-1 is required.\11\
The Department estimates that this will cost each Tier I labor
organization, on average, $11.92 a year or .003 percent of annual
receipts. Each Tier II labor organization that is a ``small entity''
(those with between $500,000 and $6.5 million in annual receipts) will
spend approximately 1.5 hours contacting all the section 3(l) trusts
listed on their LM-2 to determine whether a Form T-1 is required. This
will cost each Tier II labor organization on average $52.79 a year or
.003 percent of annual receipts. Of those trusts contacted, only some
will meet the Form T-1 filing requirements. For those that meet the
filing requirements, the labor organizations will incur the
recordkeeping and reporting burden associated with the Form T-1.
---------------------------------------------------------------------------
\11\ This assumption is premised on the following: Only some
labor organizations will have any section 3(l) trusts; some of those
labor organizations will not need additional information to
determine a particular trust's coverage under the proposed rule; the
number of inquiries will be proportional to the estimated number of
trusts for the three tiers of labor organizations based on the
amount of their annual receipts; and typically only a telephone call
or email will be needed to make the coverage inquiry with the trust.
The costs are based on the wage rates for labor organizations. See
Table 4. Comments are invited on the methodology and assumptions
underlying this assumption and other assumptions and estimates
utilized in the Department's burden analysis.
---------------------------------------------------------------------------
The first year cost of the proposed Form T-1 (including first year
non-recurring implementation costs) for the estimated 1,347 labor
organizations with annual receipts between $250,000 and $499,999 who
actually file a T-1 is $1,139.31, or 0.32 percent of average annual
receipts (see Table 1).\12\ The first year cost of the proposed Form T-
1 (including first year non-recurring implementation costs) for the
estimated 2,881 labor organizations with annual receipts between
$500,000 and $6,500,000 who actually file a Form T-1 is $2,523.12, or
0.15 percent of total annual receipts (see Table 1). Further, under the
Department's analysis, the costs fall during the second and third year
as the reporting infrastructure is completed and filers become more
familiar with the form. The Department estimates a 52.72 percent
reduction in the second year and another 10.32 percent reduction in the
third year. Filing costs in the third year for labor organizations with
between $250,000 and $499,999 in annual receipts are estimated to be
$483.06 or 0.13 percent of their average annual receipts. Filing costs
in the third year for labor organizations with between $500,000 and
$6,500,000 in annual receipts are estimated to be $1,069.78 or .06
percent of their average annual receipts.
---------------------------------------------------------------------------
\12\ The burden hours and costs are identified in the Paperwork
Reduction Act section that follows.
Table 1.--Summary of T-1 Regulatory Flexibility Analysis
------------------------------------------------------------------------
Total burden Total cost
For labor organizations that meet the hours per per
SBA small entities standard respondent respondent
------------------------------------------------------------------------
First Year Cost of Proposed Form T-1 for 71.7 $1,139.31
Labor organizations with $250,000 to
$499,999 in Annual Receipts............
Percent of Average Annual Receipts.. n.a. 0.32%
Second Year Cost of Proposed Form T-1 33.9 $538.67
for Labor organizations with $250,000
to $499,999 in Annual Receipts.........
Percent of Average Annual Receipts.. n.a. 0.15%
Percentage Reduction in Cost From n.a. 52.72%
Previous Year......................
Third Year Cost of Proposed Form T-1 for 30.4 $483.06
Labor organizations with $250,000 to
$499,999 in Annual Receipts............
Percent of Average Annual Receipts.. n.a. 0.13%
Percentage Reduction in Cost From n.a. 10.32%
Previous Year......................
[[Page 11772]]
First Year Cost of Proposed Form T-1 for 71.7 $2,523.12
Labor organizations with $500,000 to
$6,500,000 in Annual Receipts..........
Percent of Average Annual Receipts.. n.a. 0.15%
Second Year Cost of Proposed Form T-1 33.9 $1,192.94
for Labor organizations with $500,000
to $6,500,000 in Annual Receipts.......
Percent of Average Annual Receipts.. n.a. 0.07%
Percentage Reduction in Cost From n.a. 52.72%
Previous Year......................
Third Year Cost of Proposed Form T-1 for 30.4 $1,069.78
Labor organizations with $500,000 to
$6,500,000 in Annual Receipts..........
Percent of Average Annual Receipts.. n.a. 0.06%
Percentage Reduction in Cost From n.a. 10.32%
Previous Year..........................
------------------------------------------------------------------------
As noted in section 3 above, the proposed rule will apply to 4,228
labor organizations that meet the SBA standard for small entities, or
just 17.6 percent of the 24,065 labor organizations that must file an
annual financial report under the LMRDA. The proposed rule is not
expected to have a significant economic impact on these entities. For
the estimated 1,347 labor organizations with annual receipts between
$250,000 and $499,999 that actually file a Form T-1 under the proposed
rule, the first year costs (including first year non-recurring
implementation costs) are $1,139.31, or 0.32 percent of average annual
receipts (see Table 1).\13\ For the estimated 2,881 labor organizations
with annual receipts between $500,000 and $6,500,000 that actually file
a Form T-1 under the proposed rule, the first year costs (including
first year non-recurring implementation costs) are $2,523.12, or 0.15
percent of total annual receipts (see Table 1). Therefore, the
Department has decided that the proposed rule will not have a
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------
\13\ The burden hours and costs are identified in the Paperwork
Reduction Act section that follows.
---------------------------------------------------------------------------
Paperwork Reduction Act
This statement is prepared in accordance with the Paperwork
Reduction Act of 1995, 44 U.S.C. 3501 (``PRA''). See 5 CFR 1320.9. As
discussed in the preamble to this proposed rule, the analysis under the
Regulatory Flexibility Act, and the analysis that follows, the rule
implements an information collection that meets the requirements of the
PRA in that: (1) The information collection has practical utility to
labor organizations, their members, other members of the public, and
the Department; (2) the rule does not require the collection of
information that is duplicative of other reasonably accessible
information; (3) the provisions reduce to the extent practicable and
appropriate the burden on labor organizations that must provide the
information, including small labor organizations; (4) the form,
instructions, and explanatory information in the preamble are written
in plain language that will be understandable by reporting labor
organizations; (5) the disclosure requirements are implemented in ways
consistent and compatible, to the maximum extent practicable, with the
existing reporting and recordkeeping practices of labor organizations
that must comply with them; (6) this preamble informs labor
organizations of the reasons that the information will be collected,
the way in which it will be used, the Department's estimate of the
average burden of compliance, which is mandatory, the fact that all
information collected will be made public, and the fact that they need
not respond unless the form displays a currently valid OMB control
number; (7) the Department has explained its plans for the efficient
and effective management and use of the information to be collected, to
enhance its utility to the Department and the public; (8) the
Department has explained why the method of collecting information is
``appropriate to the purpose for which the information is to be
collected''; and (9) the changes implemented by this rule make
extensive, appropriate use of information technology ``to reduce burden
and improve data quality, agency efficiency and responsiveness to the
public.'' See 5 CFR 1320.9; 44 U.S.C. 3506(c).
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the PRA. This helps to ensure that the
public understands the Department's collection instructions,
respondents can provide the requested data in the desired format, the
reporting burden (time and financial resources) is minimized, and the
Department can properly assess the impact of collection requirements on
respondents.
In this proposed rulemaking, the Department has sought to improve
the usefulness and accessibility of information to members of labor
organizations subject to the LMRDA. The LMRDA reporting provisions were
devised to protect the basic rights of members of labor organizations
and to guarantee the democratic procedures and financial integrity of
labor organizations. The 1959 Senate report on the version of the bill
later enacted as the LMRDA stated clearly that ``the members who are
the real owners of the money and property of the organization are
entitled to a full accounting of all transactions involving their
property.'' A full accounting was described as ``full reporting and
public disclosure of union internal processes and financial
operations.''
As labor organizations have become more multifaceted and have
created hybrid structures for their various activities, the form used
to report financial information with respect to these activities had
until recently remained relatively unchanged and had become a barrier
to the complete and transparent reporting of labor organizations'
financial information intended by the LMRDA. Moreover, just as in the
corporate sector, there have been a number of financial failures and
irregularities involving pension funds and other member accounts
maintained by labor organizations. These failures and irregularities
result in direct financial harm to members of labor
[[Page 11773]]
organizations. If members had more complete, understandable information
about their labor organizations' financial transactions, investments,
and solvency, they would be in a much better position than they are
today to protect their personal financial interests and to exercise
their rights of self-governance. The purpose of the proposed rule is to
provide them with such information. The information collection achieved
by this proposed rule is integral to this purpose. The paperwork
requirements associated with the rule are necessary to enable workers
to be responsible, informed, and effective participants in the
governance of their labor organizations; discourage embezzlement and
financial mismanagement; prevent the circumvention or evasion of the
statutory reporting requirements; and strengthen the effective and
efficient enforcement of the LMRDA by the Department.
As discussed in the preamble, members have long been denied
important information about labor organization funds that were being
directed to other entities, ostensibly for the members' benefit, such
as joint funds administered by a labor organization and an employer
pursuant to a collective bargaining agreement, educational or training
institutions, credit unions, and redevelopment or investment groups.
The proposed Form T-1 is necessary to close this gap, prevent labor
organizations from using certain trusts to evade the Title II reporting
requirements, and provide labor organization members with information
about financial transactions involving a significant amount of money
relative to the labor organization's overall financial operations and
other reportable transactions. Trust reporting is necessary to ensure,
as intended by Congress, the full and comprehensive reporting of a
labor organization's financial condition and operations, including a
full accounting to labor organization members for payments to the
trust, payments made because of the work of these members. Trust
reporting is also necessary to prevent circumvention and evasion of the
reporting requirements imposed on officers and employees of labor
organizations and on employers.
The proposed Form T-1 is designed to take advantage of technology
that reduces the burden of providing detailed information, while at the
same time making it easier to file and publish the contents of the
reports. Members of labor organizations thus will be able to obtain a
more accurate and complete picture of their organization's financial
condition and operations without imposing an unwarranted burden on
respondents. Supporting documentation need not be submitted with the
forms, but labor organizations are required, pursuant to the LMRDA, to
maintain, assemble, and produce such documentation in the event of an
inquiry from a member of a labor organization or an audit by an OLMS
investigator.
Based upon the analysis presented below, the Department estimates
that the total first year burden to comply with the proposed Form T-1
will be 183,361 hours. The total first year compliance costs associated
with this burden is estimated to be $6,172,047. Therefore, this
proposed rule will not be a major economic rule. Both the burden hours
and the compliance costs associated with Form T-1 decline in subsequent
years. The Department estimates that the total burden averaged over the
first three years to comply with the Form T-1 to be 117,995 hours per
year. The total compliance costs associated with this burden averaged
over the first three years are estimated to be $2.6 million per year.
A. Overview of Form T-1
The Form T-1 in this proposed rule is identical to the form
promulgated at 71 FR 57116, but as discussed in the preamble the scope
of the reporting requirement has been narrowed in order to conform the
rule with the D.C. Circuit's decision in AFL-CIO v. Chao, 409 F.3d 377
(2005). The proposed rule reiterates the Department's determination
that no Form T-1 will be required if the trust files a report pursuant
to 26 U.S.C. 527, or if the organization files publicly available
reports with a Federal or state agency as a PAC. Additionally, a labor
organization may substitute an audit that meets the criteria set forth
in the Form T-1 instructions for the financial information otherwise
reported on a Form T-1.
Form T-1 consists of 14 questions that identify the labor
organization and trust; six yes/no questions covering issues such as
whether any loss or shortage of funds was discovered during the
reporting year and whether the trust had made any loans to officers or
employees of the labor organizations at terms below market rates; four
summary numbers for total assets, liabilities, receipts, and
disbursements; a schedule for itemizing all receipts of $10,000 or
more, individually or in the aggregate, from any entity or individual;
a schedule for itemizing all disbursements of $10,000 or more,
individually or in the aggregate, to any entity or individual; and a
schedule for listing all officers of the trust and payments to them and
all employees of the trust who received more than $10,000 from the
trust.
Form T-1 and its instructions, which are modified to reflect the
proposed filing criteria, are published as an appendix to this proposed
rule.
B. Methodology for the Burden Estimates
The figures used here by the Department are derived from the
Department's computations based on assumptions, rounded to the nearest
hundredth, published in the 2003 rule, 68 FR 58433, and the 2006 rule,
71 FR 57116. For this proposed rule, baselines and other estimates
(such as whether a labor organization, trust, or outside personnel will
complete the form) for the Form T-1 are assumed to parallel those of
the current Form LM-2. Filers of Form T-1 will be a subset of the Form
LM-2 filers, i.e., those Form LM-2 filers that participate in a section
3(l) trust will be required to file the Form T-1 when other criteria,
as explained above, are met. In reaching its estimates, the Department
considered both the one-time and recurring costs associated with the
proposed rule. Separate estimates are included for the initial year of
implementation as well as the second and third years. For filers, the
Department included separate estimates, based on the relative size of
labor organizations as measured by the amount of their annual receipts.
This NPRM will affect the largest labor organizations, defined as
those that have $250,000 or more in annual receipts, subject to the
Act. Such labor organizations that are interested in a section 3(l)
trust must file a Form T-1 when: The labor organization, alone or in
combination with other labor organizations, (A) appoints a majority of
the members of the trust's governing board, or (B) contributes more
than 50 percent of the trust's annual receipts. Contributions made on
behalf of the organization or its members shall be considered
contributions by the labor organization. The Department assumes that
each Form LM-2 filer will spend approximately 1.31 hours contacting all
the section 3(l) trusts listed on their Form LM-2 to determine whether
a Form T-1 is required. It should be noted that it is unlikely that
labor organizations will need to contact each trust listed on its Form
LM-2 as some obviously will or will not meet the filing threshold. For
fiscal year 2005, the Department received approximately 4,452 Form LM-2
reports. Therefore, the Department estimates that there are 4,452
reporting labor organizations with
[[Page 11774]]
receipts of $250,000 or more.\14\ The Department estimates that for
these 4,452 labor organizations, 2,476 Form T-1s will be filed. This
cohort represents 18.5 percent of all labor organizations covered by
the LMRDA. See Table 2. These figures differ from the Department's 2003
estimates where it was assumed that 2,769 Form T-1s would be filed
annually. 68 FR 58435. The differences between today's estimates and
those used in the 2003 rule reflect the narrower reach of this rule.
---------------------------------------------------------------------------
\14\ These estimates for the total number of labor organizations
and the number of labor organizations by tier are somewhat higher
than the numbers reflected in the 2006 analysis. The difference is
due to natural variations in the universe of filers. As economic
conditions change the number of labor organizations as a whole and
the number of labor organizations within each tier varies.
---------------------------------------------------------------------------
Today's estimates, like the 2002 NPRM and the 2003 and 2006 rules,
are based on a three-tier analysis of labor organizations organized by
receipt size. The Department first assumed that 10 percent of the 1,317
labor organizations with annual receipts of $250,000 to $499,999.99
(Tier I) would file one Form T-1. Second, it was assumed that 25
percent of the 3,083 labor organizations with annual receipts of
$500,000 to $49.9 million (Tier II) would file on average two Form T-
1s. Third, it was assumed that 100 percent of the 52 labor
organizations with annual receipts of $50 million or more (Tier III)
would file an average of four Form T-1 reports each. The implementation
of a tier system is based on the underlying assumption that the size of
a labor organization, as measured by the amount of its annual receipts,
will affect its recordkeeping and reporting burden for Form T-1. Larger
labor organizations have more trusts for which to account: the three
tiers are constructed to differentiate these relative burdens among
those labor organizations with $250,000 or more in receipts (68 FR
58433).\15\
---------------------------------------------------------------------------
\15\ Comments are invited on the methodology and assumptions
underlying the Department's burden analysis. Because labor
organizations have not previously been required to report on most
section 3(l) trusts, the Department particularly invites comment on
the number of section 3(l) trusts for which a particular labor
organization will have to file a Form T-1 under the proposal and
whether that number is likely to be consistent for labor
organizations within the same tier as the commenting labor
organization. Additionally, comments are requested on the
assumption, discussed in the next paragraph of the text, relating to
the burden that some labor organizations may face in obtaining
information about the need to file a Form T-1 for some section 3(l)
trusts.
Table 2
------------------------------------------------------------------------
-------------------------------------------------------------------------
Tier System Based on FY 2005 Figures and Assumptions in 2006 Rule
Total Labor Organizations with 250,000 or more in receipts: 4,452.
Tier I ($250,000-499,999 receipts): 1,317 x 10 percent = (
filers) x 1 ( reports) = 132.
Tier II ($500,000-49.9 mil receipts): 3,083 x 25 percent = (
filers) x 2 ( reports) = 1,542.
Tier III ($50 mil and higher receipts): 52 x 100 percent = (
filers) x 4 ( reports) = 208.
Estimated Annual Form T-1 Filings 1,882.
Tier System Based on FY 2005 Figures and Assumptions Based on Changes in
This Proposal
Total Labor Organizations with $250,000 or more in receipts: 4,452.
Tier I ($250,000-499,999 receipts): 1,317 x 13 percent = (
filers) x 1 ( reports) = 171.
Tier II ($500,000-49.9 mil receipts): 3,083 x 33 percent = (
filers) x 2 ( reports) = 2,035.
Tier III ($50 mil and higher receipts): 52 x 100 percent = (
filers) x 5.2 ( reports) = 270.
Estimated Annual Form T-1 Filings 2,476.
------------------------------------------------------------------------
These numbers are higher than the estimates in the 2003 and 2006
rulemaking. In the current paperwork clearance (OMB 1215-
0188), the Department estimated 1,664 Form T-1s would be filed under
the requirements published in 2006. Under the proposed requirements,
the Department estimates that 2,476 reports will have to be filed.\16\
This estimate was obtained by taking the assumptions from the 2006
final rule, adjusting these assumptions by the number of current Form
LM-2 filers and then increasing by 30 percent per tier the anticipated
number of Form T-1s that would be filed. This increase is due to the
elimination of the receipts thresholds for filing and the filing
exemption for the ERISA Form 5500 that was found in the previous
rulemakings. These changes are reflected in the estimated percentage of
filers, which are higher in the second data set in Table 2.
---------------------------------------------------------------------------
\16\ The difference between the 2003 and 2006 estimates was due
to the narrower reach of the 2006 rule, i.e., its adoption of the
majority control rule embodied in the 2006 rule and continued in
this proposal.
---------------------------------------------------------------------------
The Department's cost estimates include costs for both labor and
equipment that will be incurred by filers. The labor costs reflect the
Department's assumption that labor organizations and trusts will rely
upon the services of some or all of the following positions (president,
secretary-treasurer, accountant, bookkeeper, computer programmer,
lawyer, consultant) and the compensation costs for these positions, as
measured by wage rates and employer costs published by the Bureau of
Labor Statistics or derived from data in the Department's Electronic
Labor Organization Reporting System database (``e.LORS''), which stores
and automatically culls certain information, such as labor organization
officer and employee salaries, from annual reports submitted by labor
organizations. The Department also made assumptions relating to the
time that particular tasks or activities would take. The activities
generally involve only one of the three distinct ``operational'' phases
of the rule: first, tasks associated with modifying bookkeeping and
accounting practices, including the modification or purchase of
software, to capture data needed to prepare the required reports;
second, tasks associated with recordkeeping; and third, tasks
associated with completing the report and all appropriate levels of
review and signature. Where an estimate depends upon the number of
labor organizations subject to the LMRDA or included in one of the tier
groups, the Department has relied upon data in the e.LORS system (for
the years stated for each example in the text or tables).
The relative burden associated with the rule will correspond to the
following predictable stages: determining whether a section 3(l) trust
meets the filing requirements; review of the instructions and forms;
adjustments to or acquisition of accounting software and computer
hardware; changing accounting structures and developing, testing,
reviewing, and documenting accounting software queries as well as
designing query reports; training officers and employees involved in
bookkeeping and accounting functions; the actual recordkeeping of data;
and additional review by trust officials and the reporting labor
organization's president and secretary-treasurer. As those labor
organizations that will be required to file Form T-1 already are
required to file Form LM-2, which requires the use of digital
signatures, Form T-1 filers will not incur an additional cost or burden
associated with the need to affix a digital signature to the Form T-1.
Burden can be categorized as recurring or non-recurring, with the
latter primarily associated with the initial implementation stages.
Recordkeeping burden, as distinct from reporting burden, will
predominate during the first months of implementation. Burden can be
reasonably estimated to vary over time with the greatest burden in the
initial year, decreasing in later years as filers gain experience.
Estimates for each of the first three years and a three-year
[[Page 11775]]
average will provide useful information to assess the burden. Burden
can be usefully reported as an overall total for all filers in terms of
hours and cost. The estimated burden associated with the current LM
forms is the appropriate baseline for estimating the burden and cost
associated with the Form T-1 because only a subset of those labor
organizations which file Form LM-2 will be required to file Form T-1.
As the Form T-1 will be filed only by labor organizations with $250,000
or more in receipts, which is the dollar threshold for the Form LM-2,
it is presumed that many of the same labor organization and/or outside
personnel will be performing the recordkeeping and responding duties.
Therefore, these estimates are used as the Form T-1 baseline.
For each of the three tiers, the Department estimated burden hours
for the nonrecurring (first year) recordkeeping and reporting
requirements, the recurring recordkeeping and reporting burden hours,
and a three-year annual average for the nonrecurring and recurring
burden hours similar to the way it has previously estimated the burden
hours when updating financial disclosure forms required by the LMRDA.
The Department estimates that under the proposal, on average, each
labor organization will spend approximately 1.31 hours each year
determining whether it has any section 3(l) trusts listed on its Form
LM-2 that meet the Form T-1 filing requirements. As shown on Table 3,
the Department estimates the burden required for filing the Form T-1
for all three tiers to be 2.4 hours to provide the trust with
information about the Form T-1, 4.3 hours for reviewing the form and
instructions, and 8.0 non-recurring (first year) hours for installing,
testing, and reviewing acquired software/hardware and/or implementing
recordkeeping and/or reporting procedures. The time required to read
and review the form and instructions is estimated to decline to 2.0
hours the second year and 1.0 hour the third year as labor
organizations and trusts become more familiar with the form.
The Department estimates the average reporting burden required to
complete pages one and two of the Form T-1 for each of the three tiers
to be 6.1 hours and the average recordkeeping burden associated with
the items on pages one and two to be 1.6 hours. The Department also
estimates that trusts will spend 2.0 hours reviewing the form once it
is completed. These estimates are proportionally based on the
recordkeeping and reporting burden estimate for the first two pages of
the current Form LM-4, which are very similar to the first two pages of
the Form T-1. The first two pages of Form LM-4 have 21 items (8
questions that identify the labor organization, four yes/no questions,
seven summary numbers for: maximum amount of bonding, number of
members, total assets, liabilities, receipts, and disbursements, total
disbursements to officers, and a space for additional information). The
first two pages of Form T-1 have 25 items (14 questions that identify
the labor organization and trust, six yes/no questions, four summary
numbers for total assets, liabilities, receipts, and disbursements, and
a space for additional information).
For the receipts and disbursements schedules, the Department
estimates that on average Form T-1 respondents will take 9.8 hours (of
nonrecurring burden) to develop, test, review, and document accounting
software queries; design query reports; prepare a download methodology;
and train personnel for each of the schedules. Further, the Department
also estimates that on average Form T-1 respondents (a labor
organization is counted as a respondent for each Form T-1 it files)
will take 1.2 (recurring) hours to prepare and transmit the receipts
schedule and 1.4 hours to prepare and transmit the disbursements
schedule. The Department also estimates that on average Form T-1
respondents will take 8.3 hours (recurring) of recordkeeping burden for
each schedule to maintain the additional information required by the
rule.
For the Form T-1 disbursements to officers and employees of the
trust schedule, the Department estimates that it will take respondents
an average 2.8 hours (of nonrecurring burden) to develop, test, review,
and document accounting software queries; design query reports; prepare
a download methodology; and train personnel. Further, the Department
estimates it will take on average 0.8 hours to prepare and transmit the
schedule.
The Department also estimates that it will take 2.0 hours for the
trust to review the Form T-1 and 1.0 hours for this information to be
sent to the labor organization filer. In addition, the Department
estimates that the labor organization president and secretary-treasurer
will take 4.0 hours to review and sign the form. The time for the
president and secretary-treasurer to review and sign the form declines
to 2.0 hours the second year and 1.0 hour the third year as they become
more familiar with the form.
Table 3.--Summary of Average First Year Burden for Form T-1
----------------------------------------------------------------------------------------------------------------
Nonrecurring Reporting burden Recordkeeping
Reporting or recordkeeping requirement burden hours hours burden hours
----------------------------------------------------------------------------------------------------------------
Information on Form T-1 Provided to Trust.............. 0.0 2.4 0.0
Review Form T-1 and Instructions....................... 0.0 4.3 0.0
Install, Test, and Review Software..................... 8.0 0.0 0.0
Pages 1 and 2.......................................... 0.0 6.1 1.6
Individually Identified Receipts....................... 9.8 1.2 8.3
Individually Identified Disbursements.................. 9.8 1.4 8.3
Disbursements to Officers and Employees................ 2.8 0.8 0.0
Review by Trust........................................ 0.0 2.0 0.0
Form/Information Sent to Labor Organization............ 0.0 1.0 0.0
President Review and Sign Off.......................... 0.0 2.0 0.0
Treasurer Review and Sign Off.......................... 0.0 2.0 0.0
--------------------------------------------------------
Total First Year Burden for Form T-1................... 30.4 23.2 18.1
----------------------------------------------------------------------------------------------------------------
Note: The burden for labor organization to determine whether a
Form T-1 is required to be filed for its section 3(l) trusts is
explained in the text preceding this table. This table displays the
average burden associated with each Form T-1 that is actually filed.
Note also: Some numbers may not add due to rounding.
[[Page 11776]]
Source: U.S. Department of Labor, Employment Standards
Administration, Office of Labor-Management Standards.
The Department's cost estimates are based on wage-rate data
obtained from BLS for personnel employed in service industries (i.e.,
accountant, bookkeeper, etc.) and adjusted to be total compensation
estimates based on the BLS Employer Cost data from the 2006 NCS.
The Department estimates that, on average, the completion by a
labor organization of Form T-1 will involve an independent and/or in-
house accountant, a bookkeeper or clerk, its president, and its
secretary-treasurer. Based on the 2006 NCS,\17\ an independent
accountant/auditor earns on average $27.22 per hour (accountants
employed by labor organizations are presumed to make the same average
salary). Based on reviewed annual labor organization reports (the
latest reports on file), labor organization personnel earn on average
the amounts listed below, separated by tier.
---------------------------------------------------------------------------
\17\ National Compensation Survey: Occupational Wages in the
United States, June 2006 (BLS July 2007, p. 5.). These amounts are
higher than the estimates in the 2006 rule, which were based on 2004
NCS data.
Table 4.--Labor Organization Wage Rates
------------------------------------------------------------------------
Position Tier I Tier II Tier III
------------------------------------------------------------------------
President.............................. $15.52 $73.06 $110.98
Secretary/Treasurer.................... 15.36 58.83 94.29
Outside Accountant..................... 27.22 27.22 27.22
Bookkeeper/Clerk....................... 17.96 21.17 26.88
Weighted Average....................... 15.89 35.19 36.74
------------------------------------------------------------------------
Given the nexus between a trust and a labor organization for
purposes of Form T-1, the Department believes that the salary rates of
labor organization officers and employees are applicable to
corresponding trust positions.
The Department estimates the average reporting and recordkeeping
burden for Form T-1 to be 71.7 hours per respondent in the first year
(including non-recurring implementation costs), 33.9 hours per
respondent in the second year, and 30.4 hours per respondent in the
third year. As stated above, the Department estimates that each Form
LM-2 filer will spend, on average, approximately 1.31 hours each year
determining whether it has any section 3(l) trusts listed on its Form
LM-2 that meet the Form T-1 filing requirements. The Department
estimates the total annual burden hours on labor organizations to
determine whether they must file a Form T-1 for any section 3(l) trust
listed on their Form LM-2 to be approximately 5,832 hours. The
Department estimates that labor organizations with trusts that meet the
filing requirement, on average, will spend 71.7 hours in the first year
(including non-recurring implementation costs), 33.9 hours in the
second year, and 30.4 hours in the third year fulfilling the filing
requirements for each of its qualifying trusts. The Department
estimates the total annual burden hours for respondents who file Form
T-1 to be 177,529 hours in the first year, 83,936 hours in the second
year, and 75,270 hours in the third year (see Table 5). Under this
proposed rule, only the estimated number of filers, not the form
itself, has changed from the 2003 and 2006 rules; therefore, the
current burden hour estimates, per respondent, are identical to the
2003 and 2006 estimates. See 68 FR 58446 and 71 FR 57116.
The Department estimates the average annual cost for the Tier I
Form T-1 filers to be $1,139.31 per Tier I respondent in the first year
(including non-recurring implementation costs) (71.7 x $15.89 =
$1,139.31); $538.67 per Tier I respondent in the second year (33.9 x
$15.89 = $538.67); and $483.06 per Tier I respondent in the third year
(30.4 x $15.89 = $483.06).
The Department estimates the average annual cost for the Tier II
Form T-1 filers to be $2,523.12 per Tier II respondent in the first
year (including non-recurring implementation costs) (71.7 x $35.19 =
$2,523.12); $1,192.94 per Tier II respondent in the second year (33.9 x
$35.19 = $1,192.94); and $1,069.78 per Tier II respondent in the third
year (30.4 x $35.19 = $1,069.78).
The Department estimates the average annual cost for the Tier III
Form T-1 filers to be $2,634.26 per Tier III respondent in the first
year (including non-recurring implementation costs) (71.7 x $36.74=
$2,634.26); $1,245.49 per Tier III respondent in the second year (33.9
x $36.74= $1,245.49); and $1,116.90 per Tier III respondent in the
third year (30.4 x $36.74= $1,116.90). These per respondent figures are
also close to the 2003 and 2006 estimates (see 68 FR 58446 and 71 FR
57116).
The Department also estimates the total annual cost to respondents
associated with Form T-1 to be $6 million in the first year, $2.9
million in the second year, and $2.6 million in the third year. These
estimates are similar to costs estimated in 2003 ($5.5, $2.6, and $2.3
million), 68 FR 58466, but higher than the 2006 estimates ($3.3, $1.6,
and $1.4 million) due to the change in the trigger for filing the form.
See 71 FR 57116 for 2006 estimates.
Table 5.--Reporting and Recordkeeping Burden Hours and Costs for Form T-1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting Total Record-keeping Total burden
Form Number of hours per reporting hours per Total record- hours per Total burden
responses respondent hours respondent keeping hours respondent hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form T-1/First Year..................... 2,476 23.2 57,443 48.5 120,086 71.7 177,529
Second Year............................. 2,476 15.8 39,121 18.1 44,816 33.9 83,936
Third Year.............................. 2,476 12.3 30,455 18.1 44,816 30.4 75,270
Three-Year Average...................... 2,476 17.1 42,340 28.2 69,823 45.3 112,163
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 11777]]
Note: The burden for labor organization to determine whether a
Form T-1 is required to be filed for its section 3(l) trusts is
explained in the text preceding Table 3. Each table displays the
reporting and burden associated with each Form T-1 that is actually
filed.
Note also: Some numbers may not add due to rounding.
Source: U.S. Department of Labor, Employment Standards
Administration, Office of Labor-Management Standards
Appropriate information technology is used to reduce burden and
improve efficiency and responsiveness. The current forms can be
downloaded from the OLMS Web site. OLMS has also implemented a system
to require Form LM-2 and Form T-1 filers and permit Form LM-3 and Form
LM-4 filers to submit forms electronically with digital signatures.
Labor organizations are currently required to pay a minimal fee to
obtain electronic signature capability for the two officers who sign
the form.
The OLMS Internet Disclosure site is available for public use. The
site contains a copy of each labor organization's annual financial
report for reporting year 2000 and thereafter as well as an indexed
computer database on the information in each report that is searchable
through the Internet. Form T-1 filings will be available on the Web
site.
OLMS includes e.LORS information in its outreach program, including
compliance assistance information on the OLMS Web site, individual
guidance provided through responses to e-mail, written, or telephone
inquiries, and formal group sessions conducted for labor organization
officials regarding compliance.
Information about this system can be obtained on the OLMS Web site
at http:// www.olms.dol.gov. Digital signatures ensure the authenticity
of the reports.
C. Federal Costs Associated With Proposed Rule
The estimated annualized Federal cost of the proposed Form T-1 is
$228,682.28. This represents estimated operational expenses such as
equipment, overhead, and printing as well as salaries and benefits for
the OLMS staff in the National Office and field offices that are
involved with reporting and disclosure activities. These estimates
include time devoted to: (a) Receipt and processing of reports; (b)
disclosing reports to the public; (c) obtaining delinquent reports; (d)
obtaining amended reports if reports are determined to be deficient;
(e) auditing reports; and (f) providing compliance assistance training
on recordkeeping and reporting requirements.
Currently, the Department is soliciting comments concerning the
information collection request (``ICR'') for the information collection
requirements included in this proposed regulation at Sec. 403.2,
Annual financial report which, when implemented will revise the
existing OMB control number 1215-0188. A copy of this ICR, with
applicable supporting documentation; including among other things a
description of the likely respondents, proposed frequency of response,
and estimated total burden may be obtained from the RegInfo.gov Web
site at http://www.reginfo.gov/public/do/PRAMain or by contacting
Darrin King on 202-693-4129 (this is not a toll-free number)/e-mail:
king.darrin@dol.gov. Please note that comments submitted in response to
this notice will be made a matter of public record.
The Department hereby announces that it has submitted a copy of the
proposed regulation to the Office of Management and Budget (``OMB'') in
accordance with 44 U.S.C. 3507(d) for review of its information
collections. The Department and OMB are particularly interested in
comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., by
permitting electronic submission of responses.
Type of Review: Revision of a currently approved collection.
Agency: Employee Standards Administration.
Title: Labor Organization and Auxiliary Reports.
OMB Number: 1215-0188.
Affected Public: Private Sector: Not-for-profit institutions.
Number of Annual Responses: 33,333.
Frequency of Response: Annual for most forms.
Estimated Total Annual Burden Hours: 3,568,180.
Estimated Total Annual Burden Cost: $70,491,590.
Potential respondents are hereby duly notified that such persons
are not required to respond to a collection of information or revision
thereof unless approved by OMB under the PRA and it displays a
currently valid OMB control number. See 35 U.S.C.
3506(c)(1)(B)(iii)(V). In accordance with 5 CFR 1320.11(k), the
Department will publish a notice in the Federal Register informing the
public of OMB's decision with respect to the ICR submitted thereto
under the PRA.
Executive Order 13045 (Protection of Children from Environmental Health
Risks and Safety Risks)
In accordance with Executive Order 13045, the Department has
evaluated the environmental safety and health effects of the proposed
rule on children. The Department has determined that the proposed rule
will have no effect on children.
Executive Order 13175 (Consultation and Coordination with Indian Tribal
Governments)
The Department has reviewed this proposed rule in accordance with
Executive Order 13175, and has determined that it does not have
``tribal implications.'' The proposed rule does not ``have substantial
direct effects on one or more Indian tribes, on the relationship
between the Federal government and Indian tribes, or on the
distribution of power and responsibilities between the Federal
government and Indian tribes.''
Executive Order 12630 (Governmental Actions and Interference with
Constitutionally Protected Property Rights)
This proposed rule is not subject to Executive Order 12630,
Governmental Actions and Interference with Constitutionally Protected
Property Rights, because it does not involve implementation of a policy
with takings implications.
Executive Order 12988 (Civil Justice Reform)
This proposed rule has been drafted and reviewed in accordance with
Executive Order 12988, Civil Justice Reform, and will not unduly burden
the federal court system. The proposed rule has been written so as to
minimize litigation and provide a clear legal standard for affected
conduct, and has been reviewed carefully to eliminate drafting errors
and ambiguities.
[[Page 11778]]
Environmental Impact Assessment
The Department has reviewed the proposed rule in accordance with
the requirements of the National Environmental Policy Act (``NEPA'') of
1969 (42 U.S.C. 4321 et seq.), the regulations of the Council on
Environmental Quality (40 U.S.C. part 1500), and the Department's NEPA
procedures (29 CFR part 11). The proposed rule will not have a
significant impact on the quality of the human environment, and, thus,
the Department has not conducted an environmental assessment or an
environmental impact statement.
Executive Order 13211 (Actions Concerning Regulations that
Significantly Affect Energy Supply, Distribution, or Use)
This proposed rule is not subject to Executive Order 13211, because
it will not have a significant adverse effect on the supply,
distribution, or use of energy.
List of Subjects in 29 CFR Part 403
Labor unions, Reporting and recordkeeping requirements.
Text of Proposed Rule
Accordingly, the Department proposes to amend part 403 of 29 CFR
Chapter IV as set forth below:
PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS
1. The authority citation for Part 403 is revised to read as
follows:
Authority: Secs. 202, 207, 208, 73 Stat. 525, 529 (29 U.S.C.
432, 437, 438); Secretary's Order No. 4-2007, May 2, 2007, 72 FR
26159.
2. In Sec. 403.2, paragraph (d) is revised to read as follows:
Sec. 403.2 Annual financial report.
* * * * *
(d)(1) Every labor organization with annual receipts of $250,000 or
more shall file a report on Form T-1 for each trust that meets the
following conditions:
(i) The trust is of the type defined by section 3(l) of the LMRDA,
i.e., the trust was created or established by a labor organization or a
labor organization appoints or selects a member of the trust's
governing board; and the trust has as a primary purpose to provide
benefits to the members of the labor organization or their
beneficiaries (29 U.S.C. 402(1)); and the labor organization, alone or
with other labor organizations, either:
(A) Appoints or selects a majority of the members of the trust's
governing board; or
(B) Contributes revenues to the trust that exceed 50 percent of the
trust's revenue during the trust's fiscal year; and
(ii) None of the exceptions discussed in paragraph (d)(2) of this
section apply.
(iii) For purposes of paragraph (d)(1)(i)(B), contributions made on
behalf of the labor organization or its members shall be considered
contributions by the labor organization.
(2) A separate report shall be filed on Form T-1 for each such
trust within 90 days after the end of the labor organization's fiscal
year in the detail required by the instructions accompanying the form
and constituting a part thereof, and shall be signed by the president
and treasurer, or corresponding principal officers, of the labor
organization. No Form T-1 should be filed for any trust that meets the
statutory definition of a labor organization and already files a Form
LM-2, Form LM-3, or Form LM-4, nor should a report be filed for any
entity that the LMRDA exempts from reporting. No report need be filed
for a trust established as a Political Action Committee (``PAC'') if
timely, complete and publicly available reports on the PAC are filed
with a Federal or state agency, or for a trust established as a
political organization under 26 U.S.C. 527 if timely, complete, and
publicly available reports are filed with the Internal Revenue Service.
An audit that meets the criteria specified in the instructions for Form
T-1 may be substituted for all but page 1 of the Form T-1. If such
labor organization is in trusteeship on the date for filing the annual
financial report, the labor organization that has assumed trusteeship
over such subordinate labor organization shall file such report as
provided in Sec. 408.5 of this chapter.
3. Amend Sec. 403.5 by revising paragraph (d) to read as follows:
Sec. 403.5. Terminal financial report.
* * * * *
(d) If a labor organization filed or was required to file a report
on a trust pursuant to Sec. 403.2(d) and that trust loses its identity
during its subsequent fiscal year through merger, consolidation, or
otherwise, the labor organization shall, within 30 days after such
loss, file a terminal report on Form T-1, with the Office of Labor-
Management Standards, signed by the president and treasurer or
corresponding principal officers of the labor organization. For
purposes of the report required by this paragraph, the period covered
thereby shall be the portion of the trust's fiscal year ending on the
effective date of the loss of its reporting identity.
4. In Sec. 403.8, redesignate paragraphs (c) and (d) as paragraphs
(d) and (e), and add a new paragraph (c) to read as follows:
Sec. 403.8 Dissemination and verification of reports.
* * * * *
(c)(1) If a labor organization is required to file a report under
this part using the Form T-1 and indicates that it has failed or
refused to disclose information required by the Form T-1 concerning any
disbursement or receipt to an individual or entity in the amount of
$10,000 or more, or any two or more disbursements or receipts that, in
the aggregate, amount to $10,000 or more, because disclosure of such
information may be adverse to the organization's legitimate interests,
then the failure or refusal to disclose the information shall be deemed
``just cause'' for purposes of paragraph (a) of this section.
(2) Disclosure may be adverse to a labor organization's legitimate
interests under this paragraph if disclosure would reveal confidential
information concerning the organization's organizing or negotiating
strategy or individuals paid by the trust to work in a non-union
facility in order to assist the labor organization in organizing
employees, provided that such individuals are not employees of the
trust who receive more than $10,000 in the aggregate in the reporting
year from the trust.
(3) This provision does not apply to disclosure that is otherwise
prohibited by law or that would endanger the health or safety of an
individual.
* * * * *
Signed in Washington, DC, this 26th day of February 2008.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.
Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.
Appendix
Note: This appendix, which will not appear in the Code of
Federal Regulations, contains the proposed Form T-1 and instructions
and related charts.
BILLING CODE 4510-86-P
[[Page 11779]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.013
[[Page 11780]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.014
[[Page 11781]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.015
[[Page 11782]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.016
[[Page 11783]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.017
[[Page 11784]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.018
[[Page 11785]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.019
[[Page 11786]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.020
[[Page 11787]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.021
[[Page 11788]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.022
[[Page 11789]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.023
[[Page 11790]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.024
[[Page 11791]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.025
[[Page 11792]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.026
[[Page 11793]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.027
[[Page 11794]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.028
[[Page 11795]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.029
[[Page 11796]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.030
[[Page 11797]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.031
[[Page 11798]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.032
[[Page 11799]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.033
[[Page 11800]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.034
[[Page 11801]]
[GRAPHIC] [TIFF OMITTED] TP04MR08.035
[FR Doc. E8-3853 Filed 3-3-08; 8:45 am]
BILLING CODE 4510-86-C