ESA
Final Rules
Labor Organization Annual Financial Reports for Trusts in Which a Labor Organization Is Interested, Form T-1
[ 9/29/2006]
[ PDF]
FR Doc 06-8339
[Federal Register: September 29, 2006 (Volume 71, Number 189)]
[Rules and Regulations]
[Page 57715-57762]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29se06-24]
[[Page 57715]]
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Part V
Department of Labor
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Office of Labor-Management Standards
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29 CFR Part 403
Labor Organization Annual Financial Reports for Trusts in Which a Labor
Organization Is Interested, Form T-1; Final Rule
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DEPARTMENT OF LABOR
Office of Labor-Management Standards
29 CFR Part 403
RIN 1215-AB54
Labor Organization Annual Financial Reports for Trusts in Which a
Labor Organization Is Interested, Form T-1
AGENCY: Office of Labor-Management Standards, Employment Standards
Administration, Department of Labor.
ACTION: Final rule.
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SUMMARY: The Department proposed to revise the forms used by labor
organizations to file the annual financial reports required by the
Labor-Management Reporting and Disclosure Act (``LMRDA'' or ``Act''),
29 U.S.C. 431(b). Under the proposal, specified labor organizations
would file annual reports about particular trusts to which they
contributed money or otherwise provided financial assistance (Form T-
1). This document sets forth the Department's review of and response to
comments on the proposal; this review was undertaken by the Department
after the decision by the United States Court of Appeals for the
District of Columbia Circuit in American Federation of Labor and
Congress of Industrial Organizations v. Chao, 409 F.3d 377 (2005).
Under this rule, the Department will require that a labor organization
(``union'') with total annual receipts of $250,000 or more file a Form
T-1 for each trust provided that the trust is of the type defined by
section 3(l) of the LMRDA (defining ``trust in which a labor
organization is interested'') and a number of conditions are met: The
union's financial contribution to the trust was $10,000 or more during
the year; the trust had $250,000 or more in annual receipts; and the
union, acting either alone or with other unions, selects a majority of
the members of the trust's governing board or the union's contribution
to the trust, made independently or in combination with other unions,
represents greater than 50% of the trust's revenue in the one-year
reporting period. The Department will provide four exceptions to the
Form T-1 requirements, and unions will not, therefore, be required to
file a Form T-1 for: A Political Action Committee fund, if publicly
available reports on the fund are filed with federal or state agencies;
a political organization for which reports are filed with the Internal
Revenue Service under 26 U.S.C. 527; an employee benefit plan filing a
complete and timely report under the Employee Retirement Income
Security Act (``ERISA''); and a trust or trust fund for which an
independent audit has been conducted, in accordance with the standard
set forth in this final rule, if the audit is made publicly available.
Under this exception the labor organization must submit the first page
of the Form T-1 and a copy of the audit.
DATES: Effective Date: This rule will be effective on January 1, 2007;
however, no labor organization is required to file a Form T-1 until 90
days after the conclusion of its first fiscal year that begins on or
after January 1, 2007. A Form T-1 covers a trust's most recently
concluded fiscal year, and a Form T-1 is required only for trusts whose
fiscal year begins on or after January 1, 2007.
FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director, Office of
Policy, Reports, and Disclosure, Office of Labor-Management Standards
(OLMS), U.S. Department of Labor, 200 Constitution Avenue, NW., Room N-
5605, Washington, DC, olms-public@dol.gov, (202) 693-1233 (this is not
a toll-free number). Individuals with hearing impairments may call 1-
800-877-8339 (TTY/TDD).
SUPPLEMENTARY INFORMATION: The following is the outline of this
discussion.
I. Background
A. Introduction
B. Judicial Review of the 2003 Rule
C. LMRDA: Reporting Provisions and Their Enforcement
1. History and Summary of the LMRDA
2. Statutory Authority
D. The Rationale Underlying the Rule
1. Should unions be required to report on section 3(l) trusts?
2. Should some labor organizations be excepted from filing based
on their size?
3. Should there be an initial dollar threshold that a union's
financial contribution to a union must exceed before the union may
be required to file a Form T-1?
4. When should a union that has met the initial dollar threshold
be required to report on a trust in which it is interested?
5. Where multiple unions participate in a single trust, which
unions should be required to file the Form LM-2?
6. Should itemization of substantial receipts and disbursements
of the trust be required and, if so, what aggregate dollar value
should trigger itemization?
7. Should some unions be excepted from filing, if the trust
already files a publicly-disclosed report, such as required by ERISA
or other federal or state law, or the union submits an audit of the
trust's finances?
8. What if a section 3(l) trust refuses to provide the reporting
union with the information required to complete the Form T-1?
9. What concerns about privacy or sensitive information are
implicated by requiring the disclosure of information about the
trust and how are these interests balanced with the right of members
to obtain relevant financial information about their union?
10. When should the rule take effect?
11. What assistance will the Department provide unions to assist
them with their section 3(l) reporting obligation?
II. Changes to the Form T-1 Proposal
III. Regulatory Procedures
A. Executive Order 12866
B. Small Business Regulatory Enforcement Fairness Act
C. Executive Order 13132: Federalism
D. Regulatory Flexibility Act
E. Unfunded Mandates Reform
F. Paperwork Reduction Act
G. Executive Order 13045 (Protection of Children From
Environmental Health Risks and Safety Risks)
H. Executive Order 13175 (Consultation and Coordination With
Indian Tribal Governments)
I. Executive Order 12630 (Governmental Actions and Interference
With Constitutionally Protected Property Rights)
J. Executive Order 12988 (Civil Justice Reform)
K. Environmental Impact Assessment
L. Executive Order 13211 (Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use)
I. Background
A. Introduction
In December 2002, the Department proposed to revise its rules
establishing the details of the annual union financial reports required
under section 201(b) of the LMRDA, 29 U.S.C. 431(b) (``proposal''). See
67 FR 79280 (Dec. 27, 2002). The LMRDA requires a union to file an
annual report reflecting its assets, liabilities, and cash flow during
the reporting period. Under the Department's rules, the detail of the
reports varied depending upon the size of a reporting organization, as
measured by the amount of its annual financial receipts. The report
filed by the largest labor organizations, Form LM-2, required the
greatest detail. The proposed rule also addressed other aspects of
financial reporting, including an expansion of the obligation to report
information on trusts in which a union held an interest. Such trusts
are created for a myriad of purposes; common examples include training
funds, apprenticeship programs, pension and welfare plans, building
funds, and educational funds. Some of these trusts may be funded with
employer contributions and jointly administered by trustees appointed
by the unions and the employers. The Department proposed that large
unions would
[[Page 57717]]
submit this trust-related information on a new form created for this
purpose, known as the ``Form T-1.''
As explained in the Department's proposal, the form used by labor
organizations to report financial information had not changed
significantly from its first printing shortly after the Act's passage
in 1959. 67 FR 79280-81. As the form remained static, dramatic changes
were occurring in the American workforce and in the financial operation
of labor organizations, as the impact of information technology on the
operation of organizations increased dramatically. Id. As noted in the
proposal, unions have substantial financial dealings with, or through,
trusts, funds or other organizations that meet the definition of a
``trust in which a labor organization is interested,'' as defined by
section 3(l) of the LMRDA, 29 U.S.C. 402(l), such as joint funds
administered by a union and an employer pursuant to a collective
bargaining agreement, educational or training institutions, credit
unions, strike funds, and redevelopment or investment groups. 67 FR
79284. Historically, however, the Department has required unions to
report on only a segment of such trusts: those in which the ownership
is wholly vested in the union, or its officers, employees, or members;
which is governed or controlled by the officers, employees, or members
of the union; and which is wholly financed by the union (``subsidiary
organizations'' or ``wholly-owned trusts''). The Department explained
its finding that revisions were needed to require unions to report on
the assets, liabilities, receipts, and disbursements of other trusts
because ``[t]hese separate organizations 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.
Before issuing its proposal, Department officials met with many
representatives of the affected community, including union officials
and their legal counsel, to hear their views on the need for reform and
the likely impact of changes that might be made. See 68 FR 58374. The
Department's proposal, developed with these discussions in mind,
requested comments on several specific issues in order to base any
revisions on a complete record reflecting the views of the parties
affected and the Department's consideration of the comments. Id. When
the comment period closed, on March 27, 2003, the Department had
received over 35,000 comments. Id. After careful consideration of the
comments, the Department issued its new union financial reporting rule
on October 9, 2003. 68 FR 58374.
In November 2003, the AFL-CIO filed a complaint against the
Department, challenging the 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 (American Federation of Labor and
Congress of Industrial Organizations v. Chao, 298 F.Supp.2d 104 (D.D.C.
2004), but on appeal the U.S. Court of Appeals for the District of
Columbia Circuit (American Federation of Labor and Congress of
Industrial Organizations v. Chao, 409 F.3d 377 (DC Cir. 2005) (``AFL-
CIO v. Chao'') vacated the rule relating to the Form T-1.
In light of the decision by the DC Circuit and guided by its
opinion, the Department has again reviewed the proposal as it related
to the Form T-1 and the comments received on the proposal. This final
Form T-1 rule is based on that review. Under this final Form T-1 rule a
union must file a Form T-1 for a section 3(l) trust if it, alone or in
combination with other unions, selects or appoints the majority of the
members of the trust's governing board or it contributes, alone or in
combination with other unions, more than 50% of the trust's revenue
during the annual reporting period. This final Form T-1 rule will close
a gap in the financial reporting regime that has provided unions and
others with an opportunity to evade their reporting obligations under
the Act. The rule achieves the Department's goal, consistent with the
Act's purpose, of providing union members and the public with detailed
information about the financial operations of unions. Such transparency
allows union members to obtain the information they need to monitor
their union's affairs and to make informed choices about the leadership
of their union and its direction. At the same time, this transparency
promotes both the unions' own interests as democratic institutions and
the interests of the public and the government.
B. Judicial Review of the 2003 Rule
The district court upheld the rule in its entirety, except for
temporarily delaying the rule's implementation date. See American
Federation of Labor and Congress of Industrial Organizations v. Chao,
298 F.Supp.2d 104 (D.D.C. 2004).
On appeal, the DC Circuit unanimously upheld the Department's
promulgation of the revised Form LM-2 as a reasonable exercise of its
LMRDA rulemaking authority. AFL-CIO v. Chao, 409 F.3d 377 (D.C. Cir.
2005). 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 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 T-1 rule
was impermissible, in part, because it encompassed joint trusts, which
by operation of statute were independent of a union's control. Id. 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. Id. 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 union 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.
[[Page 57718]]
The court recognized that reports on trusts that reflect a union'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. at 388, 389.
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 unions' 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 union simply
because the union satisfied a reporting threshold (a union 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 union's appointment of a single member to a
trust's governing board could trigger a reporting obligation, even
though the union's contribution to the trust constituted a fraction of
the trust's total revenues. Id. at 390. 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 a separate opinion, then Circuit Judge Roberts concurred with
the majority's conclusion that the Form LM-2 was valid, but dissented
on the majority's decision to vacate the provisions of the Final Rule
relating to Form T-1. 409 F.3d at 391. Contrary to the majority, he
concluded, as had the district court, that the Department had
established, as shown by the rulemaking record, that a section 3(l)
trust report was necessary to prevent a union's circumvention of its
reporting obligations.
The Department sought rehearing and rehearing en banc of the
panel's decision, asserting that the panel erred in requiring the
Department to make additional findings in order to establish a
reporting obligation with respect to any trust that met the statutory
definition of a section 3(l) trust and which satisfied the rule's
monetary threshold requirements. The petitions were denied on October
28, 2005.
C. LMRDA: Reporting Provisions and Their Enforcement
1. History and Summary of the LMRDA
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.'' LMRDA, section 2(a), 29 U.S.C. 401(a).
The statute creates a comprehensive scheme designed to empower union
members by providing them the means to maintain democratic control over
their unions and ensure a proper accounting of union funds. Together
with the Act's fiduciary duty provision, 29 U.S.C. 501, which directly
regulates the primary conduct of union officials, the Act's various
reporting requirements, 29 U.S.C. 431-433, operate to safeguard a
union's funds from depletion by improper or illegal means. The
reporting requirements also help ensure that a union official's duty to
the union and its members is not subordinate to that official's own
personal financial interests.
The legislation 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 union racketeering
and corruption; and its findings of financial abuse, mismanagement of
union 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 unions and employers (and
labor consultants aligned with the employers) whose employees were
represented by the unions in question or might be organized by them.
Similar arrangements also were found to exist between union officials
and the companies that handled matters relating to the administration
of union 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).
The statute was designed to remedy these various ills through a set
of integrated provisions aimed at union governance and management.
These include a ``bill of rights'' for union members, which provides
for equal voting rights, freedom of speech and assembly, and other
basic safeguards for union democracy, see LMRDA, sections 101-105, 29
U.S.C. 411-415; financial reporting and disclosure requirements for
unions, union officers and employees, employers, labor relations
consultants, and surety companies, see LMRDA, sections 201-206, 211, 29
U.S.C. 431-436, 441; detailed procedural, substantive, and reporting
requirements relating to union trusteeships, see LMRDA, sections 301-
306, 29 U.S.C. 461-466; detailed procedural requirements for the
conduct of elections of union officers, see LMRDA, sections 401-403, 29
U.S.C. 481-483; safeguards for unions, including bonding requirements,
the
[[Page 57719]]
establishment of fiduciary responsibilities for union officials and
other representatives, criminal penalties for embezzlement from a
union, loans by a union to officers or employees, employment by a union
of certain convicted felons, and payments to employees for prohibited
purposes by an employer or labor relations consultant, see LMRDA,
sections 501-505, 29 U.S.C. 501-505; and prohibitions against
extortionate picketing and retaliation for exercising protected rights,
see LMRDA, sections 601-611, 29 U.S.C. 521-531. As explained in the
Department's 2002 proposal and 2003 rule, the reporting regimen had
hardly changed in the more than 40 years since the Department issued
its first reporting rule under the LMRDA. 25 FR 433, 434 (1960).
2. Statutory Authority
This 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 Act's reporting
provisions. Secretary's Order 4-2001, issued May 24, 2001, and
published in the Federal Register on May 31, 2001 (66 FR 29656),
continued the delegation of authority and assignment of responsibility
to the Assistant Secretary for Employment Standards in Secretary's
Order 5-96 of the Secretary's functions under the LMRDA.
Section 208 allows the Secretary to issue ``reasonable rules and
regulations (including 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 Act's] reporting
requirements.'' 29 U.S.C. 438.
Section 3(l) of the LMRDA, 29 U.S.C. 402(l) 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.
The authority to prescribe rules relating to section 3(l) trusts
augments the Secretary's general authority to prescribe the form and
publication of other reports required to be filed under the LMRDA.
Section 201 of the Act requires unions to file annual, public reports
with the Department, detailing the union'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 union,
direct or indirect loans (in excess of $250 aggregate) to any officer,
employee, or member, any 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 union's] financial conditions and
operations.'' Id. Large unions report this information on the Form LM-
2. Smaller unions report less detailed information on the Form LM-3 or
LM-4.
D. The Rationale Underlying the Rule
In the proposal and the 2003 rule, the Department outlined the
reasons why labor organizations should report on the financial details
of section 3(l) trusts. The guiding point in the rulemaking is the
statutory command that the Department determine whether such reporting
is necessary to prevent the circumvention or evasion of the LMRDA's
reporting obligations. See 67 FR 79284 (``Form T-1 contains various
types of financial information that is intended to discourage
circumvention or evasion of the reporting requirements in title II [of
the LMRDA]''). ``The objective of this rule is to increase the
transparency of union financial reporting by revising the LMRDA
disclosure forms * * * [to] enable workers to be responsible, informed,
and effective participants in the governance of their unions;
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].'' Id. at 68 FR 58420 (emphasis added).
As explained further below, the Form T-1 is designed to close a
reporting gap under the Department's former rule whereby unions were
only required to report on ``subsidiary organizations.'' Today's rule
will assure that union members will receive a more complete accounting
of how their union's funds are invested or otherwise expended. By
reviewing the Form T-1, union members will receive information on funds
that would be accounted for on the LM-2 but for their distribution
through a trust in which the union has an interest. This rule will make
it more difficult for a union, union officials, or other parties with
influence over the union to avoid, simply by transferring money from
the union's books to the trust's books, the basic reporting obligation
that would apply if the funds had been retained by the union. Although
the rule will not require such an accounting for all section 3(l)
trusts in which a union participates, it will be required where a
union, alone or in combination with other unions, appoints or selects a
majority of the members of the trust's governing board or where
contributions by unions represent greater than 50% of the revenue of
the trust. Thus the rule follows the instruction in AFL-CIO v. Chao,
where the court 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.
The Act's primary reporting obligation (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; 29 U.S.C. 433. Thus, requiring unions
to report the information requested by the Form T-1 rule provides an
essential check for union members and the Department to ensure that
unions, union 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.
Under the instructions of the Department's pre-2003 Form LM-2, a
reporting obligation concerning section 3(l) trusts would arise only if
the trust was a ``subsidiary'' of the reporting union and met other
requirements set by the Department, i.e., an entity wholly owned,
wholly controlled and wholly financed by the union. See 68 FR 58413.
Thus, the former rule, which was crafted shortly after the Act's
enactment, required reporting by only a portion of the unions that
contributed to section 3(l) trusts, and, in many cases, no reporting at
all. During the intervening
[[Page 57720]]
decades, the financial activities of individuals and organizations have
increased exponentially in scope, complexity, and interdependence. 67
FR 79280-81. For example, many unions 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 union financial
practices, including business relationships with outside firms and
vendors, increases the likelihood that union officers and employees may
have financial interests in these businesses that might conflict with
fiduciary obligations owed to the union and its members. 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 union 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 unions, union officials, employers, and
other entities, including section 3(l) trusts.
In addition to the extensive changes in unions' financial
activities, some of the historical problems that led to the
establishment of the LMRDA's reporting provisions and other federal
statutes regulating trusts still persist, as illustrated by the 2002
proposal and the comments received on the proposal. As suggested by the
proposal (67 FR 79285) and reflected in the 2003 rule (68 FR 58413),
the enactment of ERISA has ameliorated many of the historical problems,
but many section 3(l) trusts do not file the detailed financial reports
that add transparency to the operations of such trusts. The Department
provided examples of situations where funds held in section 3(l) trusts
were being used for improper purposes by union officials:
Credible allegations that funds from a training benefits
trust jointly administered by the union and employer had, without any
public disclosure, been used to pay union officials supplementary
salaries.
A case in which no information was publicly disclosed
about the disposition of tens of thousands of dollars (over $60,000 per
month) paid into a trust established to provide strike benefits. No
information was disclosed because the trust was established by a group
of union locals and not controlled by any single union.
A case in which a credit union trust largely financed by a
union local had made large loans to union officials but had not been
obligated to report them because the trust was not wholly owned by the
union. Four loan officers, three of whom were officers of the Local,
received 61% of the credit union's loans.
A case in which local union officials established a
building fund financed in part with union members' pension funds.
67 FR 79283. In each of these instances, the information would have
been reported if the Form T-1 had been in place.
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 unions to report on only a subset of such trusts,
which resulted in a gap in the reporting requirements on these trusts.
As a result, members have long been denied important information about
union funds that were being directed to other entities, ostensibly for
the members' benefit, such as joint funds administered by a union 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 union members with information
about financial transactions involving a significant amount of money
relative to the union's overall financial operations and other
reportable transactions. 68 FR 58415 (2003). As explained in the
proposal, additional trust reporting is necessary to ensure, as
intended by Congress, the full and comprehensive reporting of a union's
financial condition and operations, including a full accounting to
union members from whose toil the payments were exacted. 67 FR 79282-
83.
This final Form T-1 rule preserves the key aspects of the 2002
proposal, as revised by the 2003 rule, but the scope of the reporting
requirement has been narrowed to conform with the D.C. Circuit's
decision in AFL-CIO v. Chao. Today's rule is tied to the union's
reporting obligation under the LMRDA and its relationship to a section
3(l) trust. In general terms, the final Form T-1 rule applies only to
those unions that, alone or in combination with other unions, select or
appoint a majority of the trustees or the members of the governing body
of the section 3(l) trust, or, alone or in combination with other
unions, contributed over 50% of the trust's revenue during a one-year
reporting period. A union that meets either of these conditions will be
required to file the Form T-1. On the form, the union will report the
amount of its contribution to the section 3(l) trust (including any
contribution made on its behalf), and the trust's total receipts and
liabilities. In completing the form, the union must separately
identify: any individual or entity from which the trust received
$10,000 or more; any individual disbursement of $10,000 or more by the
trust; and any entity or individual that received disbursements from
the trust that aggregated to $10,000 or more. The rule reiterates the
Department's determination, expressed in both the proposal and the 2003
rule, that no union need file the Form T-1 if the trust already files a
detailed ERISA report (Form 5500) or other reports required by federal
or state law. Further, a union is excused from providing the detailed
financial information required by the Form T-1 if it chooses to submit
an audit of the trust that meets the criteria prescribed by the rule. A
union that must file the Form T-1 will use the form and instructions
published as an appendix to this rule.
In the following discussion, the Department addresses the major
components of the Form T-1 rule, its consideration of the views
expressed in the comments, its rationale for the specific aspects of
the final Form T-1 rule and the determination that the Form T-1 rule is
``necessary to prevent the circumvention and evasion of [the] reporting
requirements'' imposed by the LMRDA.
To address the main points in the proposal, the comments received
on the proposal, and the rationale for adopting or modifying various
aspects of the proposal, the Department has chosen to utilize a
question and answer format. For each question, the Department outlines
the rationale it provided in the proposal and the preamble to the 2003
rule. As appropriate, further explanation is provided in light of the
Department's review of the rulemaking record after the D.C. Circuit's
decision in AFL-CIO v. Chao.
1. Should unions be required to report on section 3(l) trusts?
2. Should some labor organizations be excepted from filing based
on their size?
[[Page 57721]]
3. Should there be an initial dollar threshold that a union's
financial contribution to a union must exceed before the union may
be required to file a Form T-1?
4. When should a union that has met the initial dollar threshold
be required to report on a trust in which it is interested?
5. Where multiple unions participate in a single trust, which
unions should be required to file the Form LM-2?
6. Should itemization of substantial receipts and disbursements
of the trust be required and, if so, what aggregate dollar value
should trigger itemization?
7. Should some unions be excepted from filing, if the trust
already files a publicly-disclosed report, such as required by ERISA
or other federal or state law, or the union submits an audit of the
trust's finances?
8. What if a section 3(l) trust refuses to provide the reporting
union with the information required to complete the Form T-1?
9. What concerns about privacy or sensitive information are
implicated by requiring the disclosure of information about the
trust and how are these interests balanced with the right of members
to obtain relevant financial information about their union?
10. When should the rule take effect?
11. What assistance will the Department provide unions to assist
them with their section 3(l) reporting obligation?
1. Should unions be required to report on section 3(l) trusts?
The Department invited comment on whether its proposal was
appropriate and sufficient for the purpose of providing full disclosure
of pertinent financial information about section 3(l) trusts and
whether alternate or additional approaches would achieve full
disclosure while minimizing the reporting burden on unions. 68 FR
79285. Numerous comments were received in favor of and against the
proposal. Many comments objected to the Form T-1 as burdensome; they
generally expressed similar opposition to any change in the rules
relating to the Form LM-2. The Department disagreed with these comments
and explained in detail why the Form LM-2 and Form T-1 were needed and
appropriate to achieve the reporting purposes underlying the LMRDA. See
generally 68 FR 58375-95. Other comments addressed the Department's
legal authority to require the unions to provide any information other
than that required by the Department's longstanding rules. See
generally 68 FR 58376-80. In response, the Department explained that
the LMRDA vests the Department with authority to revise the reporting
requirements in the manner proposed. Id.
In preparing today's rule, the Department determined that it would
be helpful to clarify a point that may continue to confuse stakeholders
about the effect of a trust's coverage by ERISA, particularly insofar
as Taft-Hartley trusts are concerned. For example, one comment objected
to the Form T-1 as ``absolutely duplicative'' of existing reporting
requirements. An international union supported the proposition that
members should know about the receipts and disbursements, including
those made by relatively ``mundane trusts,'' such as building funds and
credit unions, but that the Form T-1 merely duplicates information that
is already reported on the Form 5500 that ERISA requires. Another
comment indicated that such reporting was unnecessary because of the
fiduciary obligation that attaches to individuals associated with union
benefit funds.
These comments fail to fully understand the reporting required of
Taft-Hartley trusts and the reporting requirements under other laws
regulating these trusts. In both the proposed and the 2003 rule, the
Department acknowledged that the LMRDA's reporting requirements would
be satisfied by the submission of the detailed report filed by an
ERISA-covered trust or an audit that satisfied ERISA requirements. 67
FR 79285; 68 FR 58413. In the 2003 rule, the Department explicitly
referred to the Form 5500 and explained that the audit alternative
could be satisfied by a union that submitted an audit meeting
prescribed, ERISA-based standards. 68 FR 58413.
The misconception underlying the comments is based in the
assumption that Form 5500 reports are filed for all section 3(l)
trusts. They are not. Some section 3(l) trusts fall outside of the
reporting requirements of ERISA. ERISA only covers pension and
``employee welfare benefit plans.'' 29 U.S.C. 1002. While there is
overlap between many section 3(l) trusts and ERISA ``employee welfare
benefit plans,'' there are also funds in which unions participate that
fall outside ERISA coverage, including strike funds, recreation plans,
hiring hall arrangements, and unfunded scholarship programs. 29 CFR
2510.3-1. Other section 3(l) trusts that are subject to ERISA are not
required to file the Form 5500 or file only abbreviated schedules. See
29 CFR 2520.104-20 (plans with fewer than 100 participants); 29 CFR
2520.104-22 (apprenticeship and training plans); 29 CFR 2520.104-26
(unfunded dues financed welfare plans); 29 CFR 2520.104-27 (unfunded
dues financed pension plans). See also Reporting and Disclosure Guide
for Employee Benefit Plans, U.S. Department of Labor (reprinted 2004),
available at http://www.dol.gov/ebsa/pdf/rdguide.pdf. Thus, the Form T-
1 fills the information gap confronted by union members who, absent the
rule, would be unable to obtain information about a trust comparable to
that disclosed by the Form 5500, even though the trust may be used to
circumvent or evade LMRDA Title II reporting requirements.
The fiduciary duty 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. Disclosure and accounting complement the
duty of an agent to act in his principal's interest. 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). Today's rule extends the reporting requirement to those union
benefit funds that previously were under no explicit federal obligation
to make such disclosure. Despite the additional coverage provided by
this rule, it is likely that some officials will doubtless continue to
devise methods to deny union members the benefit of trust funds derived
from their own dues. See Archibald Cox, Internal Affairs of Labor
Organizations Under the Labor Reform Act of 1959, 58 Mich.L.Rev. 819,
827 (1960) (``True criminals will undoubtedly ignore the duty to
report''). Union officers and union representatives have a similar
fiduciary duty to their union, but the Department's case files reveal
numerous examples of embezzlement of union funds. The Form T-1, by
disclosing information to union members, the true beneficiaries of
section 3(l) trusts, will increase the likelihood that wrongdoing is
detected. See Cox, id. (``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''). Further, since the union's obligation to submit
a Form T-1 overlaps with the responsibility of union 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 today's rule may cause the parties to reconsider the
primary conduct that would trigger the reporting requirement.
The comments received by the Department further illustrated how the
absence of a rule like the Form T-1 facilitated the diversion of union-
[[Page 57722]]
contributed trust funds for improper personal gain, and permitted the
evasion of the LMRDA's Title II reporting obligations. A labor policy
group identified multiple instances where union officials were charged,
convicted, or both, for embezzling or otherwise improperly diverting
union trust funds for their own gain, including the following: (1) Five
individuals charged with conspiring to steal over $70,000 from a
local's severance fund; (2) two local union 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 union president embezzled an
undisclosed amount of money from the local's disaster relief fund; (5)
an employee of an international union embezzled over $350,000 from a
job training fund; (6) a former international officer, who had also
been a director and trustee of a union benefit fund, was convicted of
embezzling about $100,000 from the union's apprenticeship and training
fund; (7) a former officer of a national union was convicted of
embezzling about $15,000 in funds from the union and about $20,000 from
the union's welfare benefit fund; and (8) a former training director of
a union's pension and welfare fund was charged and convicted of
receiving gifts and kickbacks from a vendor that provided training for
union members.
These comments recognize that existing safeguards intended to
protect trusts and trust beneficiaries do not prevent the diversion of
funds by some officials to trusts in order to circumvent or evade the
LMRDA's reporting provisions. Both historical and recent examples
demonstrate the vulnerability of trust funds to looting by union
officials and others. The McClellan Committee, as discussed above,
provided several examples of union officials using funds held in trust
for their own purposes rather than for their union and its members.
Additional examples of the misuse of union 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). 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 unions, a
presidential commission concluded that ``the plunder of union resources
remains an attractive end in itself. * * * The most successful devices
are the payment of excessive salaries and benefits to organized crime-
connected union 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 (1986), at 12.
More recently, union officials in New York were convicted in a
``pension-fund fraud/kickback scheme'' where union 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 to
placed into a sham investment, the body of which was to be used to fund
kickbacks to the union 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, 2006 WL 999937
(2d Cir. 2006). In another case, nepotism and no-bid contracts depleted
the union's health and welfare funds to the sum of several million
dollars. The problems associated with the fund included, among others,
paying the son-in-law of a board member, a local union official, a
salary of $119,000 to manage a scholarship program that gave out
$28,000 per year; a daughter of this board member was paid $111,799 a
year as a receptionist; and the fund paid $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.
In addition, while the comments received from unions and their
members generally opposed any reporting obligation concerning trusts
(beyond the then-existing regulation that limited reporting to
subsidiaries, entities ``wholly owned'' by unions), there were some
notable exceptions among the union members who commented on this point.
As stated in the preamble to the 2003 rule, ``[m]any union members
recommended generally greater scrutiny of joint employer-union funds
authorized under the LMRDA.'' 68 FR 58414. These members included
several from a single international union. They explained that under
the union's collective bargaining agreements, the employer sets aside
at least $.20 for each hour worked by a member and that this amount is
paid into a benefit fund known as a ``joint committee.'' The comments
indicate that some of the funds are ``lavished on junkets and parties''
and that the union uses the joint committees to reward political
supporters of the union's officials. They stated that the union refuses
to provide information about the funds, including amounts paid to
``union staff.'' From the perspective of one member, the union does not
want ``this conflict of interest'' to be exposed.
As the foregoing discussion, like the preamble to the 2003 rule,
makes clear, the Form T-1 rule will add necessary safeguards to deter
circumvention and evasion of the Act's reporting requirements. The rule
will make it more difficult for unions and complicit trusts to avoid
the disclosure required by the LMRDA. Union members will be able to
review financial information they may not otherwise have had,
empowering them to better oversee their union's officials and finances
as contemplated by Congress.
2. Should some labor organizations be excepted from filing based on
their size?
The Department proposed that all unions 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. 67 FR 79284. Thus, the obligation would attach to all
unions without regard to their size as measured by the amount of their
own annual receipts. See 68 FR 58412. In this regard, the proposal
departed from the model proposed for the Form LM-2, where only unions
with annual receipts of at least $200,000 would be obliged to provide
the kind of detailed reporting comparable to the Form T-1. Many
comments expressed the view that the Form T-1 would impose a
substantial burden on small labor organizations that are usually
staffed with part-time volunteers, with little computer or accounting
experience and limited resources to hire professional services. Id. In
the 2003 rule, the Department explained that it had been persuaded that
the relative size of a union, as measured by its overall finances, will
affect its ability to comply with the proposed Form T-1 reporting
requirements. 68 FR 58412-13. For this reason, the Department set as a
Form T-1 reporting threshold a union's receipt of at least $250,000
during the one-year reporting period, the same filing threshold that
applies for the Form LM-2. 68 FR 58413. For the same reason, the final
Form T-1 rule applies only to unions that have $250,000 or more in
annual receipts and meet the other parts of the test for filing the
Form T-1 as stated in the new rule.
[[Page 57723]]
3. Should there be an initial dollar threshold that a union's financial
contribution to a trust must exceed before the union may be required to
file a Form T-1?
The Department proposed that any union that contributes $10,000 or
more to a section 3(l) trust must file the Form T-1, and that unions
that contributed less than this amount would not have to file the form.
67 FR 79284. The Department explained that without contributions of
this magnitude a union likely would encounter some difficulty in
persuading the trust to provide a detailed accounting of the latter's
financial activities. 67 FR 79284. The Department invited comment on
whether the $10,000 contribution was appropriate as a filing threshold
or whether it would be preferable to prescribe a threshold that
reflected the union's proportional share of the trust's receipts, such
as 5%, 10%, or 25%. 67 FR 79285.
A number of comments stated that the $10,000 union contribution
threshold was too low and recommended various alternatives. 68 FR
58415. Those comments urged the Department to revise the proposal so
that the threshold was based on ownership or control of at least 50% of
the trust. Id. In the 2003 rule, the Department explained that the
alternatives suggested would not achieve the full disclosure sought by
the proposal; instead, it would deny information to the members of all
the other unions participating in the trust. 68 FR 58415-16. The
Department explained that the $10,000 threshold for union contributions
provided an appropriate compromise between unnecessarily burdening a
union and providing union members with information about how a trust
that has received a significant amount of their union's revenues has
managed the trust's finances. 68 FR 58415. The Form T-1 provides them
with the means to identify the amount and purpose of large payments to
individuals or entities and thereby determine whether there might be an
irregularity in the payment or the relationship between the payee and
officials of the members' own union. Id.
The comments that sought to impose a filing threshold based on
principles of ownership or control of the trust are addressed in the
response to question 4, below. In that section, the Department
discusses its determination that unions' filing obligations will depend
on their selection of a majority of the governing members of a trust or
their contribution of more than 50% of the union's annual revenue.
Despite its adoption of this test, the Department has chosen to retain
a $10,000 initial threshold. Unions that contribute less than this
amount have no Form T-1 filing obligation. The Department concludes
that the burden on a union of filing the Form T-1 under these
circumstances outweighs the marginal increase in transparency that
would be provided to union members whose union has contributed less
than $10,000 that year. Pursuant to this bright-line threshold, a union
that contributes less than $10,000 need not take the time to consider
any other factors relevant to a determination of whether the Form T-1
is required. Based on the amount of its annual contribution alone, the
union will recognize that it need not file a Form T-1.
4. When should a union that has met the initial dollar threshold be
required to report on a trust in which it is interested?
The Department's proposal required any union, regardless of its
size or the portion of the trust's receipts its payments represented,
to file a report if it contributed $10,000 or more to a section 3(l)
trust during the reporting period and the trust had annual receipts of
at least $200,000. 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 union 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.''
Id. 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. Id.
In the 2003 rule, the Department explained that it had received
only a few comments on the ``single entity'' test. 68 FR 58416. After
considering the comments, the Department determined that the test would
be less effective than other approaches, because it could be easily
evaded by unions seeking to conceal their relationship with a trust.
Id. The Department further explained that even if information
concerning the relationship between the trust and the union 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. Id.
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 unions' relationship with
section 3(l) trusts and indicia of their management control or
financial domination of the trusts. Id. at 388-89.
Several comments received by the Department noted that the union'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 unions. 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
possessed the authority ``for developing an analytical framework for
identifying ``significant trusts'' as to which financial disclosure
should be required.'' A local union, 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.''
Under the proposed rule, all covered unions were required to report
on organizations with annual receipts of $200,000 or more and that met
the definition of a section 3(l) trust. Based on the comments and the
decision in AFL-CIO v. Chao, the Department has reduced the types of
trusts for which reports are required. Under today's Form T-1 rule, a
reporting obligation exists where the union, alone or with other
unions, appoints or selects the majority of a section 3(l) trust's
governing board or its contributions to the trust, alone or in
combination with other unions, represents more than 50% of the trust's
revenue during the reporting period. For the purpose of determining
whether a union selected the majority of the members of a section 3(l)
trust's governing board, a member selected solely by one or more
members
[[Page 57724]]
who were themselves selected solely by a union will be considered a
union-selected member.
Under the Form T-1, unions that select the majority of trust board
members, or provide the majority of a union's annual revenue, are
required to file a report. This test is responsive to the comments that
contended that reporting is justified only when there are aspects of
union ownership or control over the trust. The test is also responsive
to the concerns expressed by the Court of Appeals when it vacated the
2003 Form T-1, in that the test looks to the relationship between the
union or unions and the trust and relies on principles of management
control and financial domination. Although the Department recognizes
that a union that meets this test may or may not be directing the
disbursements of a trust, either directly or though union officials, it
is apparent that this type of union/trust relationship can lead to the
circumvention or evasion of the reporting requirements. See the
response to question 1, above. The Department has determined that this
test is necessary to prevent the circumvention and evasion of the Title
II reporting requirements.
A union that, along with other unions, selects a majority of the
trust's board members, or, along with other unions, contributes more
than 50% of the union's annual revenue, will be required to file Form
T-1. As discussed in greater detail under question 5, directly below,
the Department recognizes that such a union did not unilaterally select
a majority of a trust's board, and did not single-handedly provide more
than 50% of the trust's revenue. The Department nevertheless
recognizes, as did the Court in AFL-CIO v. Chao, that there are
examples establishing that such participating unions ``retain a
controlling management role, [even though] no individual union wholly
owns or dominates the trust.'' 409 F.3d at 389. Absent the Form T-1,
the contributing unions, if so inclined, would be able to use the
trusts as a vehicle to expend pooled union funds without the disclosure
required by Form LM-2 and the members of these unions would continue to
be denied information vital to their interests. It seems apparent that
if a single union may circumvent its Form LM-2 reporting obligations
when it retains a controlling management role or financially dominates
a trust, then a group of unions is equally capable of doing so. A rule
directed to preventing a single union from circumventing the law must,
in all logic, be similarly directed to preventing multiple unions from
also evading their legal obligations.
5. Where multiple unions participate in a single trust, which unions
should be required to file the Form LM-2?
The proposal did not differentiate among the reporting obligations
of unions contributing to the same trust. Any union that satisfied the
reporting threshold would have to submit the Form T-1, even though the
union's share only represented a relatively small portion of the total
contributions made to the trust by unions. Several comments opposed the
Department's approach as requiring duplicate reports and described
trust reporting as unduly burdensome unless a union contributed a
substantial share of the trust's receipts.
An international union 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 union discussed a
fund with annual contributions over $300,000 in which seven locals
participated. Per local contributions 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 unions' parent organization. The union also explained that it is
common for local unions 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 union trustees. It stated that in such circumstances,
it is unrealistic to suggest that any single union 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
unions to participate in a section 3(l) trust without any single union
contributing a majority of the trust's revenues. In some trusts, such
as strike funds, unions 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 unions.
Thus, multiple-union funds typically will consist solely of funds
that are held in trust for the members of the various participating
unions, with no particular union contributing directly, or indirectly
by an employer on its behalf, a majority of the trust's revenues. As
such, unless a reporting obligation is imposed on one or more of the
unions on some basis other than majority contributions, no union
members will receive any information on the trust's finances--without
regard to the importance of the revenues relative to other assets of
any participating union. In its proposal, the Department illustrated
the need for reporting on section 3(l) trusts with four examples in
which unions had evaded their reporting obligations through their
involvement with such trusts. One of these examples included the
improper diversion of funds from a strike fund in which no single union
held a controlling interest. 67 FR 79283. The absence of any union
reporting obligations facilitated the improper disposition of thousands
of dollars (over $60,000 per month) from the strike fund. As discussed
above, a single union may circumvent its Form LM-2 reporting
obligations when it retains a controlling management role or
financially dominates a trust, and there is no basis to conclude that a
group of unions is not equally capable of doing so. Disbursements from
a trust of pooled union money reflect the contributing unions'
financial conditions and operations as clearly as the disbursements
from a trust funded by a single union. A rule directed to preventing a
single union from circumventing or evading the law should not permit
the same conduct when it is undertaken by more than one union.
As a result of this conclusion, multiple unions may be required to
report on a single trust. In responding to comments about where to
place the reporting obligation in such situations, the Department
considered two alternatives: fixing the obligation on the union with
the greatest stake in the trust; or allowing one of the participating
unions to voluntarily take on this responsibility. 68 FR 58415. While
these alternatives may provide an appropriate rationale for fairly and
roughly allocating the reporting burden, each suffers from the same
basic infirmity--union members are not likely to view reports filed by
other unions when searching for information on the financial activities
of their own union and its trusts. Members of other unions
participating in the trust would be effectively denied information no
less vital to their interests than the information provided to members
of the reporting union. Furthermore, this reporting gap could allow
some unions and individuals to evade their reporting
[[Page 57725]]
obligations under the Act. Improper payments will be much easier to
conceal if the Form T-1 was only filed by some of the participating
unions (some vendors or contributors to the section 3(l) trust may only
be known by members of a particular union). See example discussed below
in question 6. For these reasons, the Department has determined that
where multiple unions each contribute $10,000 or more to the trust
during the reporting period, and either they appoint a majority of the
members of the trust's governing board or their combined contributions
constitute greater than 50% of the trust's annual revenues, each will
be required to file a Form T-1.
6. Should itemization of substantial receipts and disbursements of the
trust be required and, if so, what aggregate dollar value should
trigger itemization?
The Department proposed that itemization should be required for
``major disbursements'' by the section 3(l) trust. 67 FR 79284. The
Department defined ``major disbursements'' for Form T-1 purposes as
$10,000 or more. Thus, a union would report any payee who received
$10,000 or more from the trust during the reporting period, the amount
of the disbursement, its purpose, and other pertinent information about
the transaction. Id.
The comments on this proposal, in large part, mirrored the comments
on the itemization required by the Form LM-2 proposal. Several comments
stated that itemization was likely to impose a significant burden on
unions with little corresponding benefit to members. Only a few unions,
they argued, had accounting systems capable of capturing items for
itemization and the number of entries alone for large trusts would be
overwhelming. Other comments supported itemization of Form T-1 receipts
and disbursements.
In responding to these comments, the Department restated its
commitment to itemization. The Department explained that itemization is
integral to preventing circumvention or evasion of the reporting
obligations imposed on unions and union officials. See, e.g., 68 FR
58384-91, 58416-17. Moreover, by excepting from the reporting
requirements unions with less than $250,000 in annual receipts, the
Department significantly reduced the overall burden associated with the
Form T-1. The Department observed that no comment suggested that
section 3(l) trusts lacked the capacity to provide the information
requested by the Form T-1. 68 FR 58416. The Department acknowledged
that the rule would require large section 3(l) trusts to itemize
numerous entries. Id. The Department noted, however, that these trusts
will have available to them bookkeeping and accounting software capable
of collecting the information required to complete the form. Id. With
regard to the itemization threshold of $10,000, the Department stated
that a disbursement in such amount represents a substantial transaction
of interest to union members. 68 FR 58414-15. The Department explained
that the difference between the reporting threshold for itemized
transactions under the Form LM-2 ($5,000) and the threshold under Form
T-1 ($10,000) was appropriate because the finances of a trust are less
likely to directly impact union members than the expenditures by the
union itself. 68 FR 58417.
Itemization is helpful in preventing circumvention or evasion of
the Act's reporting requirements. Among other requirements, Form T-1
requires a union 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 vendor that aggregate
to $10,000 or more during a reporting period and provide for each of
the vendors, their business address, and the purpose of the
disbursements, and
Any loans made at favorable terms by the trust to the
union's officers or employees, the amount of the loan, and the terms of
repayment.
68 FR 58430-31 (2003). See also 68 FR 58493 (officers); 68 FR 58495
(employees). Where payments from a business that buys, sells or
otherwise deals with a trust in which a labor union is interested are
made to a union officer or employee or his or her spouse, or minor
child, the LMRDA imposes on the union officer or employee a separate
obligation to report such payments (Form LM-30, as required by 29
U.S.C. 432). The itemization of trust payments of at least $10,000 also
allows union members to determine whether any of the recipients of the
trust's payments are businesses in which a union official (or the
official's spouse or minor child) holds an interest, a circumstance
that may also require a report to be filed by the union official (LM-
30). Thus, the Form T-1 operates to deter a union official from evading
this reporting obligation.
To illustrate how the Form T-1 ties into the other reporting
obligations under the Act, in addition to the examples in section D.1,
above, consider an instance in which a trust identifies a $15,000
payment to a company for duplicating services. With this information,
coupled with information about a union official's ``personal business''
interests, the union member or the Department may discover whether the
official has reported this payment on a Form LM-30. The same
information might allow a union member to ascertain whether the trust
and the union have used the same printing company and whether there was
a pattern of payments by the trust and the union 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 may be able to determine
whether the payments masked a kickback or other conflict-of-interest
payment, and, as such, reveal an instance where the union, a union
official, or an employer may have failed to comply with their reporting
obligations under the Act.
7. Should some unions be excepted from filing the Form T-1 if the trust
already files a publicly-disclosed report, such as required by ERISA or
other federal or state law, or if the union submits an audit of the
trust's finances?
In the NPRM, the Department explained that its proposal did not
require unions to file a report if a similar publicly available report
already was filed with a government agency. 67 FR 79285. The proposal
identified the following exceptions: A Political Action Committee fund
if reports on such funds are filed with a federal or state agency, a
political organization for which reports are filed with the Internal
Revenue Service pursuant to 26 U.S.C. 527, or a fund described in
sections 302(c)(5) through (9) of the LMRA, 29 U.S.C. 186(c)(5) through
(9), or for a plan that filed complete annual financial reports,
returns and schedules pursuant to the requirements of ERISA, 29 U.S.C.
1023 and 29 CFR 2520.103-1. Id. The proposal also provided that no
separate report would be required if annual audits were made freely
available on demand for inspection by interested persons under section
302(c)(5)(B) of the LMRA, 29 U.S.C. 186(c)(5)(B). Id.
The 2003 rule revised some of the exceptions proposed. The
Department clarified that no Form T-1 need be filed for any trust that
met the first three exceptions just discussed. 68 FR 58413. With regard
to the ERISA exception, as discussed above in connection with the first
question, the Department explained that the exception was available
only if the trust filed complete and timely Form
[[Page 57726]]
5500 reports. Id. With regard to the audit alternative, the Department
explained that the audit must meet either the requirements of 29 CFR
2520.103-1 (relating to annual reports and financial statements
required to be filed under ERISA) or comparable standards described in
the Form T-1 instructions. 68 FR 58413-14. The Department explained
that the standards in the instructions overlap partially with the ERISA
standards, as adapted to serve the particular needs of the Department
in administering the T-1 rule. 68 FR 58414. The Department recognized
that the audit option may not provide the same detail as the
itemization required by the Form T-1, but that this was an acceptable
trade off as a way to reduce the overall reporting burden on the union
and the section 3(l) trust. 68 FR 58413-14. The final Form T-1 rule
preserves the reporting exceptions and audit alternative provided under
the 2003 rule. Under the audit alternative a labor organization need
only complete the first page of the T-1 (items 1-15 and the signatures
of the organizations' officers) and submit a copy of an audit 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 union 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 this final rule, the Department has provided unions with
alternative approaches to meeting their disclosure obligations while at
the same time ensuring that unions make an accounting of the funds in
section 3(l) trusts, as they already do on the Form LM-2 for funds
maintained in the unions' own accounts.
8. What if a section 3(l) trust refuses to provide the reporting union
with the information required to complete the Form T-1?
The Department's proposal did not directly address the concern,
later expressed in several comments, that a section 3(l) trust in which
a union held a significant financial interest would refuse to provide
the information needed to complete the Form T-1. Several comments
expressed concern about a union's liability for failure to file a
timely report, given that the trust might refuse to provide the
information and the union's inability to compel its production. 68 FR
58417-18. In response, the Department acknowledged the possibility that
there may be some instances in which a trust will not fully cooperate
in providing timely information to the reporting union. 68 FR 58418.
The Department explained that unions are required to make a good-faith
effort to obtain timely information from a trust, adding that after
such good faith effort, the Department would exercise any available
investigative and other authority to assist the reporting union in
obtaining the necessary information. Id.
In this regard, it deserves emphasis that no comment suggested that
an administrator of a section 3(l) trust had expressed an intention to
withhold from a union information required to complete the Form T-1.
And, although there were some comments that a trust would be bound by
its own fiduciary obligations in determining whether to make the
information available, there was no indication that a trust held the
view that it would violate such duty by providing the information
required by the form. In addition, where a union, alone or in
combination with other unions, appoints or selects a majority of the
trust's board members, a majority of the board would then have an
interest in disclosure, which, by all appearances, would result in the
trust releasing the information necessary to meet the Form T-1
obligation either on its own initiative or by vote of the board
members. Also, by all appearances, where a union's contributions to the
trust, alone or in combination with other unions, constitute greater
than 50% of the revenue of the trust for that fiscal year, the union or
unions should have some control over whether the trust releases this
information. For these reasons, the Department expects that trusts will
routinely and voluntarily comply in providing such information to
reporting unions and that any need for the Department to intercede will
be rare. Nevertheless, the Department also reaffirms its intention to
use its available investigatory authority to assist the reporting union
to obtain information necessary to complete the Form T-1.
9. What concerns about privacy or sensitive information are implicated
by requiring the disclosure of information about the trust and how are
these interests balanced with the right of members to obtain relevant
financial information about their union?
As noted, the Department invited general comments about its
proposed reporting requirements for section 3(l) trusts. 67 FR 79285.
Several labor organizations raised privacy concerns about the
itemization requirement of the Form T-1; specifically, they identified
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) would be unwise and perhaps unlawful under federal privacy
laws. 68 FR 58417. Some comments recommended aggregating all
disbursements as a way to protect the privacy of beneficiaries. While
noting its concern that aggregating all disbursements would
substantially reduce the amount and quality of the information reported
on a Form T-1, the Department acknowledged the importance of ensuring
personal privacy. Id. To achieve such protection, the Department
modified the rule so as to permit a reporting union to choose not to
disclose sensitive information about individuals; the modification
allows a reporting union to withhold specific information if the union
concludes that the disclosure of such information would inappropriately
divulge private information. Id. The Form LM-2 also permits unions to
withhold personal information in similar circumstances. Id.
One comment questioned the wisdom of requiring the particular
identification of any loans to officers, employees, or members that
exceeded $250. 68 FR
[[Page 57727]]
58417. The comment suggested that in most cases such loans would be
made only on customary, commercial terms and that, consequently, there
would be little gained by disclosing this information. Any benefit from
disclosure in these circumstances would be outweighed by opening the
financial circumstances of union members and others to public
inspection. The Department agreed that individual financial
circumstances should be kept private. The Department explained that it
had deleted the proposed schedule to the Form T-1 that would have
collected information on individual loans. Id. The Department explained
that the Form T-1 instead was revised to contain a question asking the
union to state whether the trust had loaned money to a union official
on terms that are substantially more favorable than terms available to
others, or has forgiven loans to officers or employees of the union
during the reporting period. Id. The Form T-1 requirements, as crafted,
meet the privacy concerns expressed in the comments.
In response to a number of comments expressing concern that the
disclosure of some financial information would impede the
organizational and collective bargaining strategies of filing unions,
the Department crafted a procedure to accommodate both these concerns
and the countervailing interest of union members in obtaining financial
information about their union's finances. The procedure, applicable to
both Form LM-2 and Form T-1 filers, allows unions to withhold such
information so long as they comply with the specific conditions
applicable to such information, including requests by union members for
such information. The instructions published for Form LM-2 and Form T-1
are virtually identical on this point. See 68 FR 58499-100 (LM-2) 68 FR
58534 (T-1). Although it seems much less likely that disaggregated
information reported on the Form T-1 would raise the same concerns as
information reported on the Form LM-2, the Department believes that it
is prudent to extend the same option to Form T-1 filers. Thus, for the
same reasons as articulated in the preamble to the 2003 rule (see 68 FR
58386-88) and the instructions, the Department has adopted the same
approach in today's rule. In this regard, the Department notes that the
regulation promulgated by the 2003 rule (see 68 FR 58448, codified at
29 CFR 403.8(b)), as distinct from the forms and the instructions, only
specifically referred to Form LM-2. To remedy this oversight, today's
rule adds a new regulatory provision comparable to section 403.8(b)(1),
to clarify that the same treatment applies to the Form T-1 filers. The
only difference in the two provisions 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).
10. When should the rule take effect?
The Department proposed that unions should submit the Form T-1 to
the Department within 90 days after the end of the trust's fiscal year.
67 FR 79284. Comments were invited on alternative filing deadlines. Id.
Several comments suggested that 90 days after the close of the trust's
fiscal year did not allow unions sufficient time to complete the Form
T-1. The Department explained that, based on past experience with the
trust and the union's own records, unions likely would have information
available to them that would enable them to know ahead of time whether
a T-1 filing would be necessary. 68 FR 58417. Moreover, none suggested
that the trusts would be unable to provide the information within the
necessary timeframe.
The Department ultimately determined that a union should file the
Form T-1 at the same time as it files the Form LM-2, rather than 90
days after the close of the trust's fiscal year. 68 FR 58418.
Significantly, the Department explained that the union should file the
Form T-1 based on the latest available information reported to the
union by the trust or from a qualifying audit. Id. Thus, the Department
explained that if a trust's fiscal year ends on a different date than
the reporting union's fiscal year, the union will have the amount of
time between the end of the trust's most recent fiscal year and the end
of the union's own fiscal year, plus 90 days, to file the report. Id.
The final Form T-1 rule will not take effect until 90 days from the
date of this publication and will apply only to unions with fiscal
years beginning on or after the rule's effective date. A Form T-1
covers a trust's most recently concluded fiscal year, and a Form T-1 is
required only for trusts whose fiscal year begins on or after the
effective date of this publication (90 days after publication).
The final rule revises the Form T-1 instructions to make plain that
the Form T-1 should be filed at the same time that the union's Form LM-
2 is filed; it also makes plain that no Form T-1 is due until after the
close of the trust's first fiscal year that begins after the effective
date of today's rule. The instructions will restate this requirement
and provide examples of its application.
11. What assistance will the Department provide unions to assist them
with their section 3(l) reporting obligation?
This document, along with the preamble to the 2003 rule, the T-1
Form (unchanged by today's rule), and the instructions, as revised,
will be the authoritative source of information regarding the
obligation of unions to file reports on section 3(l) trusts.
Additionally, the Department will continue its substantial efforts to
assist unions with their reporting obligations under the Act. The
Department's Form T-1-specific compliance assistance will include an
overview of the reporting requirements; a schedule of Form T-1 seminars
for international, national, intermediate and local unions, and section
3(l) trust administrators conducted by OLMS offices throughout the
country; an email list-serve to provide periodic updates to interested
parties; and web-based materials that include frequently asked
questions, a description of the Form T-1 registration process, and
other topics of interest to unions and trust administrators.
II. Changes to the Form T-1 Proposal
As explained above, the Department has determined to narrow the
scope of its proposal, as revised by its 2003 rule. While both the
proposal and 2003 rule required any union meeting the threshold
reporting requirements with an interest in a section 3(l) trust to file
a Form T-1 unless it met specified ``audit'' or ``other reporting''
exceptions, today's rule limits the filing to those unions that, alone
or with other unions, selected or appointed the majority of the members
of a section 3(l) trust's governing board or contributed, alone or in
combination with other unions, more than 50% of the trust's revenue
during the trust's plan year ending during the union's annual reporting
period. For the purpose of determining whether a union selected the
majority of the members of a trust's governing board, a member selected
solely by one or more members who were themselves selected solely by a
union will be considered a union-selected member.
Only a few paragraphs of text are required to revise the Form T-1
instructions published at 68 FR 58524-38: a revised first paragraph
under section I (``Who Must File'') and a new paragraph to be added to
section II (``When to File''). The form itself is unchanged. The
revised language to section I of the instructions follows:
[[Page 57728]]
I. Who Must File
Every labor organization subject to the Labor-Management
Reporting and Disclosure Act, as amended (LMRDA), the Civil Service
Reform Act (CSRA), or the Foreign Service Act (FSA), with total
annual receipts of $250,000 or more (``union''), must file Form T-1
each year for each trust if the following conditions exist:
The trust is a trust defined by section 3(l) of the
LMRDA, that is, the trust is a trust or other fund or organization
(1) that was created or established by the union or the union
appoints or selects a member to the trust's governing board; and (2)
the trust has as a primary purpose to provide benefits to the
members of the union or their beneficiaries (29 U.S.C. 402(l)); and
The union's financial contribution to the trust, a
contribution made as a result of a collective bargaining agreement
to which the union is a party, or a contribution otherwise made on
the union's behalf, was $10,000 or more during the trust's fiscal
year and the trust had $250,000 or more in annual receipts; and
either
The union, alone or in combination with other unions,
appoints or selects a majority of the members of the trust's
governing board; or
The union's contributions to the trust, alone or in
combination with other unions, represent greater than 50% of the
trust's revenues during the one-year reporting period (contributions
by an employer on behalf of the union's members as required by a
collective bargaining agreement are considered to be contributions
of the union as are any contributions otherwise made on the union's
behalf).
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, LM-3, or LM-4, nor should a report be filed for any
entity that the LMRDA exempts from reporting. No separate report
need be filed for Political Action Committee (PAC) funds if publicly
available reports on the PAC funds are filed with a Federal or state
agency, or for a political organization for which reports are filed
with the Internal Revenue Service pursuant to 26 U.S.C. 527. No
separate report is required for an employee benefit plan that filed
a complete and timely annual report pursuant to the requirements of
the Employee Retirement Income Security Act of 1974 (ERISA), 29
U.S.C. 1023, 1024(a), and 1030, and 29 CFR 2520.103-1, for a plan
year ending during the reporting period of the union. A notice filed
with the Secretary of Labor pursuant to an exemption from reporting
and disclosure, however, does not constitute a complete annual
financial report. An abbreviated report may be filed for any covered
trust or trust fund for which an independent audit has been
conducted, in accordance with the standards of section 29 CFR
2520.103-1, as discussed in the next paragraph [of the
instructions].
The quoted language (without italics and bracketed material)
appears verbatim in the revised Form T-1 instructions. To highlight the
limited reach of the reporting obligation, a shortened version is
included as part of the Department's financial reporting regulations
(to be codified at 29 CFR 403.2(d)).
A new paragraph will be added to the beginning of section II of the
instructions to clarify when a union must file a Form T-1. The
clarification replaces the first paragraph of section II as published
in the 2003 final rule. See 68 FR 58525. The new paragraph ensures that
unions recognize that the Form T-1 must be filed at the same time that
they file their Form LM-2. The new paragraph reads:
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 union's own fiscal year. The penalties for
delinquency are described in Section V (Officer Responsibilities and
Penalties) of these instructions.
Filers should note that they have comparable lead time to prepare
their initial Form T-1 as they were provided by the 2003 rule. [The
following assumes that this rule is published on October 1, 2006 and
becomes effective January 1, 2007.]
No Form T-1 is due for any trust whose fiscal year began before
January 1, 2007, the effective date of the Form T-1 rule. Thus, no
union is required to file a Form T-1 until at least March 31, 2008. As
the examples below demonstrate, the union's obligation to file its
first Form T-1 depends primarily on the date on which the trust's
fiscal year begins. No Form T-1 is due until sometime after the close
of the trust's first fiscal year that begins on or after the Form T-1
rule takes effect, January 1, 2007.
If a union's fiscal year runs from the effective date of
the Form T-1 rule, January 1, 2007, until December 31, 2007, and the
trust's fiscal year also runs from those same dates, a Form T-1 would
be due on March 31, 2008. This date is 90 days after the close of the
union's fiscal year.
If both the union's and the trust's fiscal years run from
October 1, 2006, to September 30, 2007, the union's first Form T-1
would not be due until December 29, 2008. This date is 90 days after
the close of the trust's fiscal year that began on October 1, 2007.
Because the Form T-1 rule did not take effect until January 1, 2007,
the trust's first fiscal year covered by the rule closed on September
30, 2008.
If a union's fiscal year runs from January 1, 2007, to
December 31, 2007, and the trust's fiscal year runs from April 1, 2007,
to March 31, 2008 (the first fiscal year that began on or after the
effective date of the Form T-1 rule) , the union's first Form T-1 would
not be due until March 31, 2009. This date is 90 days after the close
of the union's fiscal year on December 31, 2008.
III. Regulatory Procedures
A. Executive Order 12866
This final rule has been drafted and reviewed in accordance with
Executive Order 12866. The Department has determined that this final
rule is not an ``economically significant''' regulatory action under
section 3(f)(1) of Executive Order 12866. Because compliance with the
rule can be achieved at a reasonable cost to covered labor
organizations and trusts in which they are interested (as defined by 29
U.S.C. 402(l)), 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. Because of its importance to the public, however,
the rule was treated as a significant regulatory action and was
reviewed by the Office of Management and Budget.
Based on the criteria set forth in the preamble and discussed in
further detail below, the Department estimates that 1,664 Form T-1s
will be filed for each of the first three years after the effective
date. The Department estimates the total cost of the final rule to be
$3.3 million in the first year, $1.6 million in the second year, and
$1.4 million in the third year (see the following Paperwork Reduction
Act section for a description of how the universe of filers and
resulting costs were estimated). The three-year total average cost of
the rule is $2.1 million per year.
The Department believes that there are substantial unquantifiable
benefits resulting from the greater transparency of labor
organizations' financial information to their members, the public, and
the Department, including the benefits of deterring fraud or
facilitating its detection.
[[Page 57729]]
B. Small Business Regulatory Enforcement Fairness Act
The Department has concluded that this final rule is not a
``major'' rule under the Small Business Regulatory Enforcement Fairness
Act of 1996 (5 U.S.C. 801 et seq.). It will not likely result in (1) an
annual effect on the economy of $100 million or more; (2) a major
increase in costs or prices for consumers, individual industries,
federal, state or local government agencies, or geographic regions; or
(3) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic or
export markets.
C. Executive Order 13132: Federalism
The Department has reviewed this final rule in accordance with
Executive Order 13132, regarding federalism, and has determined that
the rule does not have ``federalism implications.'' The economic
effects of the rule are not substantial, and it has no ``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.''
D. Regulatory Flexibility Act
The Department's NPRM in this rulemaking contained initial
Regulatory Flexibility Act and Paperwork Reduction Act analyses, which
were also submitted to, and approved by, OMB. Based upon careful
consideration of the comments and the changes made to the Department's
proposal in this final rule, the Department has made significant
adjustments to its burden estimates. The costs to the Department for
administering the reporting requirements of the LMRDA also were
adjusted. These adjustments are discussed in the PRA analysis, Section
F. See also discussion at 68 FR 58428.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq.,
requires agencies to prepare regulatory flexibility analyses, and to
develop alternatives wherever possible, in drafting regulations that
will have a significant impact on a substantial number of small
entities. The Small Business Administration (``SBA'') determined, in a
regulation that became effective on October 1, 2000, that the maximum
annual receipts allowed for a labor union or similar labor organization
and its affiliates to be considered a small organization or entity
under section 601(4), (6) of the Regulatory Flexibility Act was $5.0
million. 13 CFR 121.201 (2002) [Code Listing 813930]. This amount was
adjusted for inflation to $6.5 million by a regulation that became
effective on January 5, 2006. 13 CFR 121.201 (2006). Accordingly, the
following analysis assesses the impact of these regulations on small
entities as defined by the applicable SBA size standards.
1. Statement of the Need for, and Objectives of, the Rule
The following is a summary of the need for and objectives of the
rule. A more complete discussion is found in the preamble.
The objective of this rule is to increase the transparency of union
financial reporting by revising the LMRDA disclosure forms to enable
workers to be responsible, informed, and effective participants in the
governance of their unions; 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 union finances in relation to LMRDA section
3(l) trusts were not disclosed to members, the public, or the
Department.
One of the Act'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; 29 U.S.C. 433.
Requiring unions to report the information required by the Form T-1
final rule provides an essential check for union members and the
Department to ensure that unions, union 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, a reporting obligation
concerning section 3(l) trusts would arise only if the trust was a
``subsidiary'' of the reporting union 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 unions 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
unions 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 union financial practices, including business
relationships with outside firms and vendors, increases the likelihood
that union 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 union 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 unions, union 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 unions to report on only a subset of such trusts,
which resulted in a gap in the reporting requirements on these trusts,
where, were the union to retain the funds, these funds would appear on
the union's Form LM-2; however, despite the close relationship between
the union and the trust, and the purpose of the funds to benefit the
members, once such funds leave the union, there is no accountability
under the current rule. Thus, Form T-1 essentially follows union 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 union funds that were
being directed to other entities, ostensibly for the members' benefit,
[[Page 57730]]
such as joint funds administered by a union 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 union members with information about
financial transactions involving a significant amount of money relative
to the union's overall financial operations and other reportable
transactions. 68 FR 58415 (2003). The purpose of the LMRDA disclosure
requirements is to prevent financial malfeasance of union 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 proposal, additional trust reporting is
necessary to ensure, as intended by Congress, the full and
comprehensive reporting of a union's financial condition and
operations, including a full accounting to union members from whose
work the payments were earned. 67 FR 79282-83. The rule will prevent
circumvention and evasion of these reporting requirements by providing
union members with financial information concerning trusts that their
unions have helped select the directors or provided the majority of the
funds. The Form T-1 will also identify the trust's significant vendors
and service providers. A union member who is aware that a union
official has a financial relationship with one or more of these
businesses will be able to determine whether the business and the union
official have made required reports.
2. Number of Small Entities Covered Under the Rule
The impact of this final rule will be on the largest labor
organizations, defined as those that have $250,000 or more in annual
receipts, which are interested in a trust for purposes of section 3(l)
of the LMRDA. There are approximately 3,827 labor organizations with
$250,000 or more in receipts, which amounts to 18% of all labor
organizations covered by the LMRDA. Based on fiscal year 2005 LM-2
filings, the Department estimates that 3,508 of these unions, or 92% of
unions with receipts of $250,000 or more, are considered small under
the current SBA standard (annual receipts less than $6.5 million).
These unions have average annual receipts of approximately $1.1 million
and an average of 13 officers and 6 employees. From this universe of
potential filers (those unions interested in a trust under Section 3(l)
of the LMRDA which meets the $250,000 receipt threshold and other
requirements as outlined above), the Department expects approximately
1,664 Form T-1 reports. These estimates are derived from the best
available information as noted below in the Paperwork Reduction Act
analysis, Overview of Form T-1.
3. Reporting, Recordkeeping and Other Compliance Requirements of the
Rule
This final 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 final rule will be the cost of obtaining and
reporting required information.
In the 2003 final rule, the Department estimated that 2,769 Form T-
1s would be filed annually based on a three-tier analysis of unions
organized by receipt size. 68 FR 58435. In response to the opinion of
the D.C. Circuit in AFL-CIO v. Chao, the Department has imposed a more
restrictive description of the labor organizations that must file Form
T-1, thereby effectively decreasing the overall number of labor
organizations that will file Form T-1. Based on these restrictions, the
Department has reconstructed the three-tier analysis in estimating the
burdens and costs of Form T-1. (A more detailed discussion of the
methodology for estimating burden hours and costs for the From T-1
appears below at section F.4.) First, it was assumed that 10% of the
1,055 labor organizations with annual receipts of $250,000 to
$499,999.99 (Tier 1) would file one Form T-1. Second, it was assumed
that 25% of the 2,723 labor organizations with annual receipts of
$500,000 to $49.9 million (Tier 2) would file on average two Form T-1s.
Third, it was assumed that 100% of the 49 labor organizations with
annual receipts of $50 million or more (Tier 3) would file an average
of four Form T-1 reports each (see Table 1 below). The implementation
of a tier system is based on the underlying assumption that the size of
a union, as measured by the amount of its annual receipts, will affect
its recordkeeping and reporting burden for Form T-1. Larger unions have
more trusts to account for: The three tiers are constructed to
differentiate these relative burdens among those unions with $250,000
or more in receipts 68 FR 58433. These numbers represent an estimated
decline from the 2003 estimates that: 15% of Tier 1 labor organizations
would file on average 1 Form T-1; 35% of Tier 2 labor organizations
would file on average 2.6 Form T-1s; and 100% of Tier 3 labor
organizations would file on average 5 Form T-1s. 68 FR 58444.
For each of the three tiers, the Department estimated burden hours
for 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 had estimated the burden hours for revised Form
LM-2 filers 68 FR 58436.
As explained below, 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 (see Table 3). The Department estimates the total
annual burden hours for Form T-1 respondents to be approximately
119,000 hours in the first year, 56,000 hours in the second year, and
51,000 hours in the third year (see Table 3).
In arriving at these totals, the Department estimates the initial
burden required for preparing to complete the Form T-1 for all three
tiers as follows: 2.4 hours to provide the Form T-1 requirements to the
trust, 4.3 hours for reviewing the new form and instructions, and 8.0
non-recurring (first year) hours for installing, testing, and reviewing
the OLMS provided software. The overall 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 unions and trusts become
more familiar with the revised 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. These estimates are
proportionally based on the recordkeeping and reporting burden
estimates for the first two pages of the current Form LM-4, which are
very similar to the first two pages of Form T-1. The first two pages of
Form LM-4 have 21 items (8 questions that identify the union; four yes/
no questions; seven summary numbers for maximum amount of bonding,
number of members, total assets, liabilities, receipts, and
disbursements, and total disbursements to officers; and an
[[Page 57731]]
additional information item). The first two pages of Form T-1 have 25
items (14 questions that identify the union and trust; six yes/no
questions; four summary numbers for total assets, liabilities,
receipts, and disbursements; and an additional information item). For
comparison, Form LM-3 has 56 items with two statements on assets,
liabilities, receipts, and disbursements.
For the Form T-1 receipt and disbursement schedules, the Department
estimates that on average, 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 will take 1.2
(recurring) hours to prepare and transmit the receipts schedule and 1.4
hours for 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 final rule.
For the Form T-1 schedule of disbursements to officers and
employees of the trust the Department estimates that it will take
respondents an average of 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 Form T-1 and 1.0 hours for this information to be sent
to the Form LM-2 filer. In addition, the Department estimates that the
union 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.
The Department estimates the average annual cost for Form T-1 to be
$1,986 per respondent in the first year (including non-recurring
implementation costs), $934 per respondent in the second year, and $838
per respondent in the third year (see Table 4). The Department also
estimates the total annual cost to respondents for Form T-1 to be $3.3
million in the first year, $1.6 million in the second year, and $1.4
million in the third year (see Table 4).
The cost estimates are based on wage rate data obtained from the
Department's Bureau of Labor Statistics (``BLS'') 2004 National
Compensation Survey 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. The estimates used for
salaries of labor organization officers and employees are obtained from
the annual financial reports filed with OLMS and are also adjusted to
be total compensation estimates.
These expenses are not expected to have a substantial impact on the
3,508 unions considered to be small by SBA standards because they
amount to only 0.1% of each of these unions' average annual receipts
over three years ($1,253 [three-year average cost per respondent] /
$1.1 million [average annual receipts]). Further, the final rule will
apply to 3,508 unions that meet the SBA standard for small entities, or
just 16% of all unions with annual receipts of less than $6.5 million
that must file an annual financial report under title II of the LMRDA.
Even fewer will incur any actual costs as not all unions with $250,000
or more in receipts will be required to file Form T-1 as other
requirements must be met. Therefore, the Department has determined that
the final rule does not have a significant impact on a substantial
number of small entities.
4. Steps Taken To Minimize the Impact on Small Entities
Only unions with receipts of $250,000 or more that are
``interested'' in a trust for purposes of the LMRDA will be required to
file Form T-1. The NPRM tied the Form T-1 to the revised Form LM-2 and
required those unions with receipts of $200,000 or more to file the
revised Form LM-2 and Form T-1 for a section 3(1) trust. 67 FR 79820.
The Department, in response to comments received from the public,
raised the Form LM-2 and Form T-1 reporting threshold to $250,000. 68
FR 58383. Raising the threshold for filing a Form LM-2 from $200,000 to
$250,000 resulted in 501 of the smallest labor organizations previously
required to file a Form LM-2 to no longer be required to file Form LM-
2. The impact on Form T-1 is that these 501 smallest labor
organizations likewise are not required to file Form T-1. Furthermore,
the union need only file a Form T-1 for trusts which have $250,000 or
more in annual receipts thus further reducing the impact on small
entities.
The Department is also allowing for alternative acceptable filing
requirements. Providing alternative acceptable filing requirements for
those unions that would otherwise file Form T-1 is aimed at promoting
disclosure while reducing the recordkeeping and reporting burdens for
unions with trusts that are already subject to other disclosure
requirements. Specifically, no Form T-1 will be required if the trust
files a report pursuant to 26 U.S.C. 527, or pursuant to the
requirements of ERISA, 29 U.S.C. 1023, or if the organization files
publicly available reports with a Federal or state agency as a
Political Action Committee (``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 for a qualifying trust.
The instructions for Form T-1 provide examples and guidance on how
to complete the report and maintain records, and OLMS staff will
provide compliance assistance for any questions or difficulties that
may arise in completing the form or using the reporting software. A
help desk is staffed during normal business hours and can be reached by
calling a toll-free telephone number: 1-866-4-USA-DOL (1-800-487-2365).
E. Unfunded Mandates Reform
For purposes of the Unfunded Mandates Reform Act of 1995, this 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.
F. 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 final rule 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 unions that must provide the
information, including small unions; (4) the form, instructions, and
explanatory information in the preamble are written in plain language
that will be understandable by reporting unions; (5)
[[Page 57732]]
the disclosure requirements are implemented in ways consistent and
compatible, to the maximum extent practicable, with the existing
reporting and recordkeeping practices of unions that must comply with
them; (6) this preamble informs unions 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).
The Department's NPRM in this rulemaking contained initial
Regulatory Flexibility Act and PRA analyses, which were also submitted
to, and approved by, OMB. Based upon careful consideration of the
comments and the changes made to the Department's proposal in this
final rule, the Department has made significant adjustments to its
burden estimates. The costs to the Department for administering the
reporting requirements of the LMRDA also were adjusted. Nearly all of
the comments addressing the paperwork burden received in the course of
this rulemaking were directed at the revisions being made to Form LM-2.
Some comments, however, did apply to the Form T-1. These were
largely supportive of the Department's effort to specifically estimate
the burden hours associated with the unions' compliance with the
proposal. The organization, however, suggested that the burden
estimates could be improved if the Department capitalized its estimates
of costs and provided additional documentation of the Department's own
costs associated with the rule. Although capitalization would be a
reasonable alternative to the direct cost approach used in this
rulemaking, the Department believes that averaging the costs over the
first three years, as the Department has done here, yields
approximately the same result in estimating burden. Moreover, in this
rulemaking, there was relatively little to be capitalized. Only the
computer equipment and software and the one-time labor costs could be
considered for capitalization. In its analysis, the Department has
assumed that most of the computer equipment and software would be
purchased for normal business operations. The minimal additional costs
associated with the final rule have been allocated in the first year.
This same procedure was used for the one-time labor costs. While the
procedure used by DOL does not include any ``opportunity costs'' for
capital (e.g., interest charges), DOL believes that by using, in
effect, a three-year life cycle for all such costs it has reasonably
estimated the burden.
The commenter estimated the average burden associated with the
Department's proposal, per union per year, at about 180 hours. In
reaching its conclusions, it assumed that completing the Form LM-2 and
the Form T-1 would pose an equal burden on filers; therefore, the
combined estimate for completing both forms was 360 hours. Based on
this assumption, the commenter broke down its estimate for a single
form as follows: Install new software, 4 hours; design/adjust report
forms and format structures, 72 hours; modify existing accounting
systems, 32 hours; incorporate electronic signatures, 16 hours, systems
testing, 24 hours, and employee training, 32 hours (8 hours x 4
employees). However, the Department disagrees with the assumption that
Form LM-2 and Form T-1 pose an equal burden on filers as Form T-1
requires substantially less information than Form LM-2. For example,
Form T-1, using three schedules, requires itemization of receipts,
disbursements, and disbursements to officers and employees of the
trust; meanwhile, Form LM-2 requires itemization of information in
twenty schedules in addition to two statements, which include a total
of 68 individual questions, pertaining only to the union's assets and
liabilities. Further, Form LM-2 filers must itemize on these schedules
every transaction valued at $5,000 or higher; Form T-1 filers need only
itemize for transactions valued at $10,000 or higher.
To compute the compensation costs associated with these tasks, the
commenter used $27.80 as a ``fully loaded wage rate.'' It also noted
that the Department's analysis did not appropriately recognize that the
Department's proposal would have an impact beyond the bookkeeping and
accounting staff. Id. 8. Commenter noted that the rule likely would
affect the manner by which union staff document or record their
activities, and that such costs, though minimal on a transaction basis,
will have a measurable cost in the aggregate. Id. The Department has
considered such costs in its analysis of the final rule. As discussed
below, the Department has provided estimates to account for additional
union and trust personnel as well as outside independent accountants.
Pursuant to the PRA, the information collection requirements
contained in this final rule have been submitted to OMB for approval
(1215-0188). Within 30 days of the date of publication of this final
rule, you may direct comments by fax (202-395-6974) to: Desk Officer
for the Department of Labor/ESA, Office of Management and Budget. The
Form T-1 and its instructions, which are modified to reflect the new
filing criteria, are published as an appendix to this final rule.
1. Summary
This final rule implements the Form T-1 Trust Annual Report
required to be filed by the largest labor organizations for trusts in
which they are interested, under conditions prescribed by the Secretary
of Labor. See 29 U.S.C. 402(l); 431(b); 438.
As discussed in the preamble, members have long been denied
important information about union funds that were being directed to
other entities, ostensibly for the members' benefit, such as joint
funds administered by a union and an employer pursuant to a collective
bargaining agreement, educational or training institutions, credit
unions, and redevelopment or investment groups. 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 union members
with information about financial transactions involving a significant
amount of money relative to the union'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 union's financial condition and operations, including a full
accounting to union members whose work obtained the payments to the
trust. It is also necessary to prevent circumvention and evasion of the
reporting requirements imposed on officers and employees of unions and
on employers.
The form is designed to take advantage of technology that makes it
possible to increase the detail of information that is required to be
reported, while at the same time making it easier to file and publish
the contents
[[Page 57733]]
of the reports. Union members thus will be able to obtain a more
accurate and complete picture of their union'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 union member or an audit by an OLMS investigator.
The Department's NPRM in this rulemaking contained an initial PRA
analysis, which was also submitted to, and approved by, OMB. Based upon
careful consideration of the changes made to the Department's proposal
in this final rule, the Department made adjustments to its burden
estimates. The costs to the Department also were adjusted. Federal
annualized costs are discussed after the burden on the reporting unions
is considered.
Based upon the analysis presented below, the Department estimates
that the total first year burden to comply with Form T-1 will be
119,309 hours. The total first year compliance costs associated with
this burden, including the cost for computer hardware if necessary, is
estimated to be $3.3 million. Therefore, this final rule is not 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 75,379 hours per year. The total
compliance costs associated with this burden averaged over the first
three years are estimated to be $2.1 million.
2. Overview of Form T-1
This final Form T-1 rule preserves the key aspects of the NPRM, as
revised in some minor respects by the 2003 rule, but the scope of the
reporting requirement has been narrowed pursuant to the D.C. Circuit's
decision in AFL-CIO v. Chao, as discussed in the preamble. The 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
pursuant to the requirements of ERISA, 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 union 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 union 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, from 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.
3. Recordkeeping and Reporting Burden Hour Estimates
a. 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. Both the Form LM-2 and the Form T-1 have the same
filing dollar threshold, $250,000 or more in receipts. For today's
rule, baselines and other estimates (such as whether union, trust, or
outside personnel will complete the form) for the Form T-1 will be
assumed to parallel those of the revised 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 final 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 unions as measured by the
amount of their annual receipts.
This final rule will affect the largest labor organizations,
defined as those that have $250,000 or more in annual receipts. Such
labor organizations that are interested in a section 3(l) trust must
file a Form T-1 when: (1) The trust has annual receipts of $250,000 or
more; (2) the labor organization contributes $10,000 or more to the
trust; and (3) 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% of the
trust's annual revenue. During fiscal year 2005, the Department
received approximately 3,827 Form LM-2 reports. Therefore, the
Department estimates that there are 3,827 reporting labor organizations
with receipts of $250,000 or more. The Department estimates that of
these 3,827 labor organizations, 1,664 will file Form T-1s. This cohort
represents 18% of all labor organizations covered by the LMRDA. See
Table 1. 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 today's rule.
Today's estimates, like the 2003 rule, are based on a three-tier
analysis of unions organized by receipt size. The Department first
assumed that 10% of the 1,055 labor organizations with annual receipts
of $250,000 to $499,999.99 (Tier 1) would file one Form T-1. Second, it
was assumed that 25% of the 2,723 labor organizations with annual
receipts of $500,000 to $49.9 million (Tier 2) would file on average
two Form T-1s. Third, it was assumed that 100% of the 49 labor
organizations with annual receipts of $50 million or more (Tier 3)
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 union, as measured by the amount of its annual receipts, will affect
its recordkeeping and reporting burden for Form T-1. Larger unions have
more trusts for which to account: the three tiers are constructed to
differentiate these relative burdens among those unions with $250,000
or more in receipts (68 FR 58433).
Table 1.--Tier System Based on FY 2005 Figures
------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Labor Organizations with 250,000 or more in receipts: 3,827.
Tier 1 ($250,000-499,999 receipts): 1,055 x 10% ( filers) x 1
( reports) = 106.
Tier 2 ($500,000-49.9 mil receipts): 2,723 x 25% ( filers) x 2
( reports) = 1,362.
[[Page 57734]]
Tier 3 ($50 mil and higher receipts): 49 x 100% = 49 ( filers)
x 4 ( reports) = 196.
Form T-1 Filers: 1,664.
------------------------------------------------------------------------
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 unions and trusts will rely upon the
services of some or all of the following positions (union president,
union 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 union 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
unions 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 final rule will correspond
to the following predictable stages: Review of the rule, 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 union's
president and secretary-treasurer. As those unions that will be
required to file Form T-1 already are required to file Form LM-2, which
requires the use of digital signatures, 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 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 final rule because only a subset of those unions which file
Form LM-2 will be required to file Form T-1. As the Form T-1 will be
filed only by unions with $250,000 or more in receipts, which is the
dollar threshold for the revised Form LM-2, it is presumed that many of
the same union 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.
As shown on Table 2, the Department estimates the burden required for
preparing to complete the Form T-1 for all three tiers to be 2.4 hours
to provide the Form T-1 requirements to the trust, 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
unions 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 union, 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 union
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 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 final 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
[[Page 57735]]
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 union filer. In addition, the Department estimates that the
union 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 2.--Summary of Average First Year Burden for Form T-1
----------------------------------------------------------------------------------------------------------------
Nonrecurring Reporting Recordkeeping
Reporting or recordkeeping requirement burden hours burden 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 Union.................................. 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: Some numbers may not add due to rounding.
Source: U.S. Department of Labor, Employment Standards Administration, Office of Labor-Management Standards,
Paperwork Reduction Act Analysis.
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 2004 NCS. The
estimates used for salaries of labor organization officers and
employees are obtained from the annual financial reports filed with
OLMS and are also adjusted to be total compensation estimates.
The Department estimates that, on average, the completion by a
union of Form T-1 will involve an independent and/or union accountant,
a union bookkeeper or clerk, the union's president, and the union's
secretary treasurer. Based on the 2004 NCS, an independent accountant/
auditor earns on average $24.56 per hour (accountants employed by
unions are presumed to make the same average salary). Based on reviewed
annual labor organization reports for fiscal year 2005, union
bookkeepers/clerks earn on average $14.00 per hour, presidents $37.82
per hour, and secretary-treasurers $34.00 per hour. Given the nexus
between a trust and a union for purposes of Form T-1, the Department
believes that the salary rates of union officers and employees are
applicable to corresponding trust positions. These salaries combine for
an average of $27.60 per hour.
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. The Department estimates the total annual burden hours for
respondents for Form T-1 to be 119,309 hours in the first year, 56,409
hours in the second year, and 50,585 hours in the third year (see Table
3). Under today's rule only the estimated number of filers, not the
form itself, has changed from the 2003 rule; therefore, the current
burden hour estimates, per respondent, are identical to the 2003
estimates. See 68 FR 58446.
The Department estimates the average annual cost for the Form T-1
to be $1,979 per respondent in the first year (including non-recurring
implementation costs) (71.7 x 27.60 = 1,978.92); $936 per respondent in
the second year (33.9 x 27.60 = 935.64); and $839 per respondent in the
third year (30.4 x 27.60 = 839). These per respondent figures are also
close to the 2003 estimates (see 68 FR 58446).
The Department also estimates the total annual cost to respondents
for Form T-1 to be $3.3 million in the first year, $1.6 million in the
second year, and $1.4 million in the third year (see Table 4). Because
the scope of the form has been narrowed from the 2003 approach, these
estimates are less than the overall costs estimated in 2003 ($5.5,
$2.6, and $2.3 million). See 68 FR 58466.
Table 3.--Reporting and Recordkeeping Burden Hours and Costs for Form T-1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting Total Recordkeeping Total Total burden
Form Number of hours per reporting hours per recordkeeping hour per Total burden
responses respodent hours respondent hours respondent hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form T-1/First Year..................... 1,664 23.2 38,605 48.5 80,704 71.7 119,309
Second Year............................. 1,664 15.8 26,291 18.1 30,118 33.9 56,409
Third Year.............................. 1,664 12.3 20,467 18.1 30,118 30.4 50,585
Three-Year Average...................... 1,664 17.1 28,454 28.2 46,925 45.3 75,379
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Some numbers may not add due to rounding.
Source: U.S. Department of Labor, Employment Standards Administration, Office of Labor-Management Standards.
[[Page 57736]]
Table 4.--Respondent Costs for Form T-1
----------------------------------------------------------------------------------------------------------------
Average cost
Form/year Number of per Total
respondents respondent
----------------------------------------------------------------------------------------------------------------
Form T-1/First Year............................................. 1,664 $1,979 $3,293,056
Second Year..................................................... 1,664 936 1,557,504
Third Year...................................................... 1,664 839 1,396,096
Three-Year Average.............................................. 1,664 1,249 2,078,336
----------------------------------------------------------------------------------------------------------------
Note: 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.
Unions 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 website, individual
guidance provided through responses to email, written, or telephone
inquiries, and formal group sessions conducted for union 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.
Federal Costs Associated With Final Rule
The estimated annualized Federal cost of the Form T-1 is $173,000.
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.
Previously, the Department estimated that the combined Federal cost
for implementing the revised electronic Form LM-2 and the T-1 was $79.9
million. Much of this initially proposed cost represented
implementation of technology needed for electronic filing. The
implementation of the electronic Form LM-2 has absorbed this cost,
leaving continuing administration the remaining technology cost. The
current figure represents an analysis of Departmental staff and
contractors used to administer solely the Form T-1. Further, as there
are fewer anticipated reports, the Federal cost for processing Form T-1
will likewise be reduced.
G. 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 final rule
on children. The Department has determined that the final rule will
have no effect on children.
H. Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments)
The Department has reviewed this final rule in accordance with
Executive Order 13175, and has determined that it does not have
``tribal implications.'' The final 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.''
I. Executive Order 12630 (Governmental Actions and Interference With
Constitutionally Protected Property Rights)
This final 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.
J. Executive Order 12988 (Civil Justice Reform)
This final 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 final 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.
K. Environmental Impact Assessment
The Department has reviewed the final 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 final 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.
L. Executive Order 13211 (Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use)
This final 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 Final Rule
0
Accordingly, the Department amends part 403 of 29 CFR Chapter IV as set
forth below:
PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS
0
1. The authority citation for part 403 continues to read as follows:
Authority: Secs. 202, 207, 208, 73 Stat. 525, 529 (29 U.S.C.
432, 437, 438);
[[Page 57737]]
Secretary's Order No. 4-2001, 66 FR 29656, May 31, 2001.
0
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 if the following
conditions exist:
(i) The trust is of the type defined by section 3(l) of the
LMRDA, i.e., the trust was created or established by the labor
organization or the labor organization appoints or selects a member
to 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(l)); and
(ii) The labor organization's financial contribution to the
trust, or a contribution made on its behalf or as a result of a
negotiated agreement to which it is a party, was $10,000 or more
during the reporting period and the trust had $250,000 or more in
annual receipts; and either
(A) The labor organization, alone or with other labor
organizations, appoints or selects a majority of the members of the
trust's governing board; or
(B) The labor organization's contributions to the trust, alone
or in combination with other labor organizations, constitute greater
than 50% of the revenue of the trust during the trust's fiscal year;
and none of the exceptions discussed in paragraph (d)(2) of this
section apply.
(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 need be filed for a trust if an annual
financial report providing the same information and a similar level of
detail is filed with another agency pursuant to federal or state law,
as specified in the instructions accompanying Form T-1. In addition, 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, on the
date for filing the annual financial report of such trust, such labor
organization is in trusteeship, 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.
0
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.
0
4. In Sec. 403.8, redesignate paragraph (c) as paragraph (d) 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 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.
* * * * *
Appendix [Form T-1 and Instructions]
Note: This appendix, which will not appear in the Code of
Federal Regulations, contains the Form T-1 and the instructions for
this form.
BILLING CODE 4510-CP-P
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Signed at Washington, DC, this 21st day of September, 2006.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.
Signed at Washington, DC, this 22nd day of September, 2006.
Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.
[FR Doc. 06-8339 Filed 9-28-06; 8:45 am]
BILLING CODE 4510-CP-C
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