[Federal Register: May 12, 2008 (Volume 73, Number 92)]
[Proposed Rules]
[Page 27345-27447]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12my08-6]
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Part III
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; Proposed Rule
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DEPARTMENT OF LABOR
Office of Labor-Management Standards
29 CFR Part 403
RIN 1215-AB62
Labor Organization Annual Financial Reports
AGENCY: Office of Labor-Management Standards, Employment Standards
Administration, Department of Labor.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: The Department of Labor's Employment Standards Administration
(``ESA'') proposes to: make several revisions to the current Form LM-2
(used by the largest labor organizations to file their annual financial
reports) that will provide additional information on Schedules 3, 4, 11
and 12, clarify reporting under certain functional categories and add
itemization schedules corresponding to categories of receipts; and
establish a procedure and standards by which the Secretary of Labor may
revoke a particular labor organization's privilege to file a simplified
annual report, Form LM-3, where appropriate, after investigation, due
notice, and opportunity for a hearing. The proposed changes are made
pursuant to section 208 of the Labor-Management Reporting and
Disclosure Act (``LMRDA''). The proposed rule will apply prospectively.
DATES: Comments must be received on or before June 26, 2008.
ADDRESSES: You may submit comments, identified by RIN 1215-AB62, only
by the following methods:
Internet--Federal eRulemaking Portal. Electronic comments may be
submitted through http://www.regulations.gov. To locate the proposed
rule, use key words such as ``Labor-Management Standards'' or ``Labor
Organization Annual Financial Reports'' to search documents accepting
comments. Follow the instructions for submitting comments. Please be
advised that comments received will be posted without change to http://
www.regulations.gov, including any personal information provided.
Mail: Mailed comments should be sent to: Kay H. Oshel, Director of
the Office of Policy, Reports and Disclosure, Office of Labor-
Management Standards, U.S. Department of Labor, 200 Constitution
Avenue, NW., Room N-5609, Washington, DC 20210.
Because of security precautions the Department continues to
experience delays in U.S. mail delivery. You should take this into
consideration when preparing to meet the deadline for submitting
comments.
The Office of Labor-Management Standards (``OLMS'') recommends that
you confirm receipt of your mailed comments by contacting (202) 693-
0123 (this is not a toll-free number). Individuals with hearing
impairments may call (800) 877-8339 (TTY/TDD).
Only those comments submitted through http://www.regulations.gov,
hand-delivered, or mailed will be accepted.
Comments will be available for public inspection during normal
business hours at the above address.
FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director of the Office
of Policy, Reports and Disclosure, at: Kay H. Oshel, U.S. Department of
Labor Employment Standards Administration, Office of Labor-Management
Standards, 200 Constitution Avenue, NW., Room N-5609, Washington, DC
20210, (202) 693-1233 (this is not a toll-free number), (800) 877-8339
(TTY/TDD).
SUPPLEMENTARY INFORMATION:
I. Statutory Authority
This proposed rule is issued pursuant to section 208 of the LMRDA,
29 U.S.C. 438. Section 208 authorizes the Secretary of Labor to issue,
amend, and rescind rules and regulations to implement the LMRDA's
reporting provisions. Secretary's Order 4-2007, issued May 2, 2007, and
published in the Federal Register on May 8, 2007 (72 FR 26159),
contains the delegation of authority and assignment of responsibility
for the Secretary's functions under the LMRDA to the Assistant
Secretary for Employment Standards and permits re-delegation of such
authority. The proposal implements section 201 of the LMRDA, which
requires covered labor organizations to file annual, public reports
with the Department, identifying the labor organization's assets and
liabilities, receipts, salaries and other direct or indirect
disbursements to each officer and all employees receiving $10,000 or
more in aggregate from the labor organization, direct or indirect loans
(in excess of $250 aggregate) to any officer, employee, or member,
loans (of any amount) to any business enterprise, and other
disbursements during the reporting period. 29 U.S.C. 431(b). The
statute requires that such information shall be filed ``in such detail
as may be necessary to disclose [a labor organization's] financial
conditions and operations.'' Id.
Section 208 authorizes the Secretary to establish ``simplified
reports for labor organizations or employers for whom [s]he finds that
by virtue of their size a detailed report would be unduly burdensome.''
Section 208 also authorizes the Secretary to revoke this privilege for
any labor organization or employer if the Secretary determines, after
such investigation as she deems proper and due notice and opportunity
for a hearing, that the purposes of section 208 would be served by
revocation.
II. Background
A. Introduction
This proposal is part of the Department's continuing effort to
better effectuate the reporting requirements of the LMRDA. The LMRDA's
various reporting provisions are designed to empower labor organization
members by providing them the means and information to maintain
democratic control over their labor organizations and ensure a proper
accounting of labor organization funds. Labor organization members are
better able to monitor their labor organization's financial affairs and
to make informed choices about the leadership of their labor
organization and its direction when they receive the financial
information required by the LMRDA. By reviewing the reports, a member
may ascertain the labor organization's priorities and whether they are
in accord with the member's own priorities and those of fellow members.
At the same time, this transparency promotes both the labor
organization's own interests as democratic institutions and the
interests of the public and the government. Furthermore, the LMRDA's
reporting and disclosure provisions, together with the fiduciary duty
provision, 29 U.S.C. 501, which directly regulates the primary conduct
of labor organization officials, operate to safeguard a labor
organization's funds from depletion by improper or illegal means.
Timely and complete reporting also helps deter labor organization
officers or employees from making improper use of such funds or
embezzling assets.
In its continuing effort to achieve these goals, the Department
proposes: first, to modify and improve the Form LM-2 by requiring
additional information about the receipt and disbursement of labor
organization funds; and second, to establish standards and procedures
for revoking, where appropriate, the privilege afforded some labor
organizations to file simplified annual reports, after investigation,
due notice, and opportunity for a hearing.
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The proposed rule brings the reporting requirements for labor
organizations in line with contemporary expectations for the disclosure
of financial information. Today labor organizations are more like
modern corporations in their structure, scope, and complexity than the
labor organizations of 1959.\1\ Further, as benefits have become a
larger component of compensation, information about such benefits has
become more important to members.\2\ Moreover, labor organization
members today are better educated, more empowered, and more familiar
with financial data and transactions than ever before. As labor
organization members, no less than as consumers, citizens, or
creditors, they expect access to relevant and useful information in
order to make fundamental investment, career, and retirement decisions,
evaluate options, and exercise legally guaranteed rights.
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\1\ There are now more large labor organizations affiliated with
a national or international body than ever before. At the close of
FY 2005, 4,452 labor organizations, including 101 national and
international labor organizations, reported $250,000 or more in
total annual receipts. Unless otherwise noted, all estimates are
based on data from the OLMS electronic labor organization reporting
system (``e.LORS'') for FY 2005.
\2\ The balance between wages/salaries paid to workers and their
``other compensation'' has changed significantly during this time.
For example, in 1966, over 80% of total compensation consisted of
wages and salaries, with less than 20% representing benefits. U.S.
Department of Labor, Report on the American Workforce (2001) 76, 87.
By 2007, wages dropped to 70.8% of total compensation and benefits
grew to 29.2% of the compensation package. U.S. Department of Labor,
Bureau of Labor Statistics Chart on Total Benefits, available on the
Web site of the Bureau of Labor Statistics, http://www.bls.gov.
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In August and September of 2007, Department officials met with
representatives of the community that would be affected by the proposed
changes, including officials of labor organizations and their legal
counsel, to hear their views on the need for reform and the likely
impact of changes that might be made. The Department developed its
proposal with these discussions in mind and it requests comments from
this community and other members of the public on any and all aspects
of the proposal.
B. The LMRDA's Reporting and Other Requirements
In enacting the LMRDA in 1959, a bipartisan Congress made the
legislative finding that in the labor and management fields ``there
have been a number of instances of breach of trust, corruption,
disregard of the rights of individual employees, and other failures to
observe high standards of responsibility and ethical conduct which
require further and supplementary legislation that will afford
necessary protection of the rights and interests of employees and the
public generally as they relate to the activities of labor
organizations, employers, labor relations consultants, and their
officers and representatives.'' 29 U.S.C. 401(a). The statute was
designed to remedy these various ills through a set of integrated
provisions aimed at labor organization governance and management. These
include a ``bill of rights'' for labor organization members, which
provides for equal voting rights, freedom of speech and assembly, and
other basic safeguards for labor organization democracy, see 29 U.S.C.
411-15; financial reporting and disclosure requirements for labor
organizations, their officers and employees, employers, labor relations
consultants, and surety companies, see 29 U.S.C. 431-36, 441; detailed
procedural, substantive, and reporting requirements relating to labor
organization trusteeships, see 29 U.S.C. 461-66; detailed procedural
requirements for the conduct of elections of labor organization
officers, see 29 U.S.C. 481-83; safeguards for labor organizations,
including bonding requirements, the establishment of fiduciary
responsibilities for labor organization officials and other
representatives, criminal penalties for embezzlement from a labor
organization, a prohibition on certain loans by a labor organization to
officers or employees, prohibitions on employment and officeholding of
certain convicted felons in a labor organization, and prohibitions on
payments to employees, labor organizations, and labor organization
officers and employees for prohibited purposes by an employer or labor
relations consultant, see 29 U.S.C. 501-05; and prohibitions against
extortionate picketing, retaliation for exercising protected rights,
and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529,
530.
The LMRDA was the direct outgrowth of a congressional investigation
conducted by the Select Committee on Improper Activities in the Labor
or Management Field, commonly known as the McClellan Committee, chaired
by Senator John McClellan of Arkansas. In 1957, the committee began a
highly publicized investigation of labor organization racketeering and
corruption; and its findings of financial abuse, mismanagement of labor
organization funds, and unethical conduct provided much of the impetus
for enactment of the LMRDA's remedial provisions. See generally
Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of
1959, 73 Harv. L. Rev. 851, 851-55 (1960). During the investigation,
the committee uncovered a host of improper financial arrangements
between officials of several international and local labor
organizations and employers (and labor consultants aligned with the
employers) whose employees were represented by the labor organizations
in question or might be organized by them. See generally Interim Report
of the Select Committee on Improper Activities in the Labor or
Management Field, S. Report No. 85-1417 (1957); see also William J.
Isaacson, Employee Welfare and Benefit Plans: Regulation and Protection
of Employee Rights, 59 Colum. L. Rev. 96 (1959).
Financial reporting and disclosure was conceived as a partial
remedy for these improper practices. As noted in a key Senate Report on
the legislation, disclosure would discourage questionable practices
(``The searchlight of publicity is a strong deterrent.''); aid labor
organization governance (Labor organizations will be able ``to better
regulate their own affairs. The members may vote out of office any
individual whose personal financial interests conflict with his duties
to members.''); facilitate legal action by members against ``officers
who violate their duty of loyalty to the members''; and create a record
(The reports will furnish a ``sound factual basis for further action in
the event that other legislation is required.''). S. Rep. No. 187
(1959), at 16, reprinted in 1 NLRB Legislative History of the Labor-
Management Reporting and Disclosure Act of 1959, at 412.
The Department has developed several forms for implementing the
LMRDA's financial reporting requirements. The annual reports required
by section 201(b) of the Act, 29 U.S.C. 431(b) (Form LM-2, Form LM-3,
and Form LM-4), contain information about a labor organization's
assets, liabilities, receipts, disbursements, loans to officers and
employees and business enterprises, payments to each officer, and
payments to each employee of the labor organization paid more than
$10,000 during the fiscal year.\3\ The
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reporting detail required of labor organizations, as the Secretary has
established by rule, varies depending on the amount of the labor
organization's annual receipts. 29 CFR 403.4.
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\3\ The format of Forms LM-2 and LM-3 remained essentially
unchanged from the early 1960s, when the Department issued the first
and second generation of rules under the Act, until October 2003
when the revised Form LM-2 was issued. See, e.g., 25 FR 433 (Jan.
20, 1960); 28 FR 14383 (Dec. 27, 1963). The Form LM-4 was adopted by
a final rule in 1992 with an effective date of December 31, 1993.
See 57 FR 49356-49365 (Oct. 30, 1992). The effective date was
subsequently postponed until December 31, 1994. See 58 FR 28304 (May
12, 1993). The Form LM-4 was then revised slightly and adopted by a
final rule with the same December 31, 1994 effective date. See 58 FR
67594 (Dec. 21, 1993).
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Labor organizations with annual receipts of at least $250,000 and
all labor organizations in trusteeship (without regard to the amount of
their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4.
This form may be filed voluntarily by any other labor organization. The
Form LM-2 requires receipts and disbursements to be reported by
functional categories, such as representational activities; political
activities and lobbying; contributions, gifts, and grants; union
administration; and benefits. Further, the form requires filers to
allocate the time their officers and employees spend according to
functional categories, as well as the payments that each of these
officers and employees receive, and it compels the itemization of
certain transactions totaling $5,000 or more. This form must be
electronically signed and filed with the Department.\4\
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\4\ The Form LM-2 and its instructions are published at 68 FR
58449-523 (Oct. 9, 2003) and are available at http://
www.olms.dol.gov. Copies of the Form LM-3 and Form LM-4 are also
available at http://www.olms.dol.gov.
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Forms LM-3 and LM-4 were developed by the Secretary to meet the
LMRDA's charge that she develop ``simplified reports for labor
organizations and employers for whom [s]he finds by virtue of their
size a detailed report would be unduly burdensome,'' 29 U.S.C. 438. A
labor organization not in trusteeship that has total annual receipts
less than $250,000 for its fiscal year may elect, ``subject to
revocation of the privilege,'' to file Form LM-3 instead of Form LM-2.
See 29 CFR 403.4(a)(1).\5\ The Form LM-3 is a five-page document
requiring labor organizations to provide particularized information by
certain categories, but in less detail than Form LM-2. A labor
organization not in trusteeship that has total annual receipts less
than $10,000 for its fiscal year may elect, ``subject to revocation of
the privilege,'' to file Form LM-4 instead of Form LM-2 or Form LM-3.
29 CFR 403.4(a)(2). The Form LM-4 is a two-page document that requires
a labor organization to report only the total aggregate amounts of its
assets, liabilities, receipts, disbursements, and payments to officers
and employees.
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\5\ The 2003 rule set this amount at $250,000. However, the rule
inadvertently failed to change the figure in 29 CFR 403.4(a)(1) from
$200,000 to $250,000. As part of this proposal, the Department
intends to revise section 403.4(a)(1) by correcting it to read
``$250,000.'' See proposed text of regulation.
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The labor organization's president and treasurer (or its
corresponding officers) are personally responsible for filing the
reports and for any statement in the reports known by them to be false.
29 CFR 403.6. These officers are also responsible for maintaining
records in sufficient detail to verify, explain, or clarify the
accuracy and completeness of the reports for not less than five years
after the filing of the forms. 29 CFR 403.7. A labor organization
``shall make available to all its members the information required to
be contained in such reports'' and ``shall * * * permit such member[s]
for just cause to examine any books, records, and accounts necessary to
verify such report[s].'' 29 CFR 403.8(a).
The reports are public information. 29 U.S.C. 435(a). The Secretary
is charged with providing for the inspection and examination of the
financial reports, 29 U.S.C. 435(b); for this purpose, OLMS maintains:
(1) A public disclosure room at its national office in Washington, DC
\6\ where copies of such reports filed with OLMS may be reviewed and;
(2) an online public disclosure site, www.unionreports.gov, where
copies of such reports filed since the year 2000 are available for the
public's review.
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\6\ The public disclosure room is located in Room N-1519 of the
Francis Perkins Building, 200 Constitution Ave., NW, Washington, DC
20210.
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III. Proposal
A. Proposal To Improve the Form LM-2
1. Introduction
The Department is proposing further enhancements to the Form LM-2
for the purpose of clarifying reporting and providing additional
information to labor organization members and the public about the
financial activities of labor organizations. The proposed enhancements
provide additional information in Schedule 3 (Sale of Investments and
Fixed Assets) and Schedule 4 (Purchase of Investments and Fixed Assets)
that will allow verification that these transactions are performed at
arm's length and without conflicts of interest. Schedules 11 and 12
will be revised to include the value of benefits paid to and on behalf
of officers and employees. This will provide a more accurate picture of
total compensation received by labor organization officers and
employees. In addition, the proposed changes will require the reporting
on Schedules 11 and 12 of travel reimbursements indirectly paid on
behalf of labor organization officers and employees.
This proposed change will provide more accurate information on
travel disbursements for labor organization officers and employees. The
proposed enhancements also include additional schedules corresponding
to the following categories of receipts: Dues and Agency Fees; Per
Capita Tax; Fees, Fines, Assessments, Work Permits; Sales of Supplies;
Interest; Dividends; Rents; On Behalf of Affiliates for Transmittal to
Them; and From Members for Disbursement on Their Behalf. These
schedules will provide additional information, by receipt category, of
aggregated receipts of $5,000 or more. The $5,000 threshold for
itemization is used throughout the Form LM-2. This proposed change is
consistent with the information currently provided on disbursements.
The Department also requests comment from the public regarding the
appropriateness of the current functional disbursement categories in
the Form LM-2. Comment is sought on whether changes should be made to
these sections in order to improve their usability to members of labor
organizations and the public. Form LM-2 is filed by approximately 18.5
percent of the reporting labor organizations, i.e., those with $250,000
or more in total annual receipts. Finally, the Department proposes to
amend the Form LM-2 instructions to conform to the requirements for the
proposed Form T-1.
The revisions to the Form LM-2 made by the Department in 2003 have
helped to fulfill the LMRDA's reporting mandate. However, based upon
the Department's experience since 2003 and after reviewing data from
reports filed on the revised form, the Department believes that further
enhancements to Form LM-2 are necessary. The proposed enhancements, as
more fully described below, will ensure that information is reported in
such a way as to meet the objectives of the LMRDA by providing labor
organization members with useful data that will enable them to be
responsible and effective participants in the democratic governance of
their labor organizations. The proposed changes are designed to provide
members of labor organizations with additional and more detailed
information about the financial activities of their labor organization
that is not currently available through the Form LM-2 reporting.
Moreover, experience with the software and technology developed for the
2003 revisions show that it is possible to provide the level of detail
necessary to give labor organization members a more accurate picture of
their labor
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organization's financial condition and operations without imposing an
unwarranted burden on reporting labor organizations. When a final rule
is promulgated based on this notice of proposed rulemaking the
Department will revise the Form LM-2 software currently in use by Form
LM-2 filers to conform to any changes made in the final rule and will
make it available to filers without charge.
These proposed changes are consistent with the goals of the LMRDA
and its legislative history as discussed above and in connection with
the Department's 2002 NPRM and 2003 Final Rule. The reasons underlying
the proposed revisions to the Form LM-2 are discussed section by
section below.
2. The Proposed Revisions to the Form LM-2 and Instructions
The following is a ``section-by-section'' discussion of the
sections, items and schedules on the proposed revised Form LM-2 and
instructions:
Items 1-21. These sections on the form are unchanged.\7\
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\7\ The Department published on March 4, 2008 a proposed rule
that would establish a Form T-1 relating to the financial operations
of ``trust[s] in which a labor organization is interested.'' See 29
U.S.C. 402(l), 438. The proposed Form T-1 rule, if adopted, will
affect the instructions to the Form LM-2. See 73 FR 11754.
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Statement A. This statement is unchanged.
Statement B. Receipts and Disbursements: This statement currently
contains two primary columns, one with the heading ``Cash Receipts''
and one with the heading ``Cash Disbursements.'' Under each heading are
items listed that describe categories of receipts or disbursements that
should be reported. There are no proposed changes to the items listed
under ``Cash Receipts.'' As discussed below, however, the Department
proposes additional schedules to correspond to items listed under
``Cash Receipts'' for which currently no schedules exist. As a result
of these changes, the remaining cash disbursement items will be
renumbered on Statement B. The proposed new form, including the new
numbering system for the cash disbursement items can be found in the
appendix to this proposed rule.
Schedules 1-2. These schedules are unchanged.
Schedule 3--Sale of Investments and Fixed Assets: The Department
proposes to add two new columns to Schedule 3. The first new column
entitled ``Name and Address of Purchaser (A)'' will disclose the
purchasers of investments and fixed assets from the labor organization,
if in the aggregate the sales amount to $5,000 or more per purchaser. A
second column ``Date (C)'' will disclose the date of the sale. These
additions will provide members with information necessary to verify
that the sale was transacted at market price and at arm's length,
thereby helping prevent interested parties from unjustly enriching
themselves by purchasing labor organization assets at below-market
price. The Department believes that Schedules 3 and 4 of the current
Form LM-2 (the latter discussed below) do not provide labor
organization members with adequate information to enable them to
determine whether a particular purchase or sale of an investment or
asset was transacted at market price and at arm's length. For instance,
one labor organization in its latest Form LM-2 reported that it had
sold a ``John Deere Lawn Tractor, Trailer and Mower'' for $678, even
though this asset had a book value and cost of $18,000. Another labor
organization reported that it had sold automobiles that had a book
value of $57,997, a ``real estate investment trust'' that had a book
value of $25,735, and furniture and equipment with a book value of
$7,634. For each of these items, the union listed the sale price as $0.
This same labor organization sold corporate stocks with a book value of
$29,570,505 for $34,297,627. Another union sold a Ford Explorer for
$9,252 that had a book value of $23,471. In all these situations, labor
organization members would be unable to determine whether the labor
organization received fair market value for the items that it sold,
whether an insider benefited from these transactions, or whether the
union's officials are properly managing the labor organization's
finances. The book value of an asset is the value at which the
investment or fixed asset was shown on the labor organization's books.
The value of certain assets such as stocks can vary greatly within the
fiscal year. Because the date of sales is not listed on the current
Form LM-2, a labor organization member is unable to determine whether
the labor organization received good value on the sale transaction. The
stock on the day of the sale may have been worth much more than its
book value. In this scenario, a labor organization member would be
unable to determine whether the stocks were sold by the labor
organization at market value. The labor organization's financial report
filed on the current Form LM-2 would show this transaction as a profit
for the labor organization, but the transaction could also have been
detrimental to the labor organization if the asset was sold at a price
below current market value. The proposed changes will help ensure
disclosure of any potential conflicts of interest between the purchaser
and the labor organization. The schedule will total all individually
itemized transactions and will provide the sum of the sales by itemized
individual purchasers and the sum of all non-itemized sales of
investments and fixed assets, as well as the total of all sales. The
Department estimates that this proposed change would impose a recurring
burden on labor organizations of .51 hours per year. See the
Department's initial Paperwork Reduction Act (``PRA'') analysis below;
see also Table 2 below.
Schedule 4--Purchase of Investments and Fixed Assets: The
Department proposes to add two new columns to Schedule 4. The first new
column entitled ``Name and Address of Seller'' will disclose the
identity of the seller of investments and fixed assets to the labor
organization, if in the aggregate the sales amount to $5,000 or more
per seller. A second new column will disclose the date of the purchase.
These changes will provide information to allow members to verify that
all such sales were transacted at market price and at arm's length,
thereby helping to prevent parties from unjustly enriching themselves
by selling assets to a labor organization at above market price. The
Department's review of data filed on the current Form LM-2 has
demonstrated that the current form does not provide labor organization
members with a clear understanding of the entities that are receiving
in some cases hundreds of millions of dollars of the labor organization
members' money. For instance, one labor organization listed on one line
of its report disbursements of $789,369,139, another labor organization
reported disbursements of $313,978,214, and another labor organization
reported disbursements of $156,544,561. Labor organizations also report
smaller amounts on this schedule. For instance, three labor
organizations reported disbursements of $5,353, $5,350, and $6,952 on
this schedule. None of the reports disclose the parties that sold these
assets to these labor organizations. As such, the members of these
labor organizations are not in a position to know whether these sums of
money were well spent. The proposed changes help ensure the disclosure
of any potential conflicts of interest between the seller and the labor
organization. The schedule will total all individually itemized
transactions and will provide the sum of the purchases from itemized
individual sellers and the
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sum of all other purchases of investments and fixed assets as well as
the total of all purchases. As discussed below in the Department's
initial PRA analysis, the Department estimates that this proposed
change would impose a recurring burden on labor organizations of .56
hours per year. See Table 2 below.
Schedules 5-10. These schedules are unchanged.
Schedule 11--All Officers and Disbursements to Officers: The
Department proposes two substantive changes to the categories of
disbursements reported on this schedule. First, an exception to the
reporting of indirect disbursements will be eliminated and, therefore,
both direct and indirect payments on behalf of the officer for travel
expenses will be reported on Schedule 11. A ``direct disbursement'' to
an officer is a payment made by the labor organization to the officer
in the form of cash, property, goods, services, or other things of
value. An ``indirect disbursement'' to an officer is a payment made by
the labor organization to another party for cash, property, goods,
services, or other things of value received by or on behalf of the
officer. Such payments include those made through a credit arrangement
under which charges are made to the account of the labor organization
and are paid by the labor organization. For example, when a union,
through its credit arrangements, is billed directly and pays the
airline bills of an officer, the union will have to include this amount
as part of the disbursements made to the particular officer.
The instructions to the current Form LM-2 except from reporting on
Schedule 11:
Indirect disbursements for temporary lodging (room rent charges
only) or transportation by public carrier necessary for conducting
official business while the officer is in travel status away from
his or her home and principal place of employment with the labor
organization if payment is made by the labor organization directly
to the provider or through a credit arrangement and these
disbursements are reported in disbursement Schedules 15 through 19.
The distinction between reporting of direct and indirect
disbursements has existed for more than 40 years. The distinction,
which was not in the first set of Form LM-2 instructions, was
established because of the difficulties faced by unions in then
reconstructing documentation for certain payments for their prior
fiscal year. Because of this difficulty, organizations were allowed to
report such disbursements as functional expenses of the organization
rather than as disbursements to particular officials. This distinction
remained in the instructions and was not revisited by DOL despite
changes in data reporting and record retention methods over the
intervening decades. This issue was not addressed in the 2002-2003
rulemaking. The Department proposes to eliminate this distinction.
Disbursements for temporary lodging and transportation made directly to
the labor organization officer by the labor organization are reported
on Schedule 11; however, the exemption applies if the labor
organization pays the vendor directly for the travel. This distinction
does not serve the purpose of section 201(b)(3) of the LMRDA, 29 U.S.C.
431(b)(3), which calls for reporting of ``other direct or indirect
disbursements (including reimbursed expenses) to each officer and also
to each employee. * * *'' Under the current instructions, however,
these indirect disbursements are not attributed to the labor
organization officer.
That payment for an official's travel and lodging expenses is made
by credit card and does not reduce the significance of the expense to a
labor organization member; yet the current Form LM-2 treats the method
of payment as significant. Travel and lodging expenses for a particular
officer may raise questions among the membership for various reasons.
The choice of transportation by public carrier (airplane, train or bus)
and the level of accommodation (first-class or coach) may be
significant to a member. Lodging choices may run from a motor inn to a
five-star hotel; where options are available, the officer's choice of
accommodation may be significant to a member. However, the mode of
payment now controls whether a labor organization member knows the full
extent of disbursements made for a particular official of the labor
organization. Although the specifics of the travel will not appear on
the Form LM-2, members will have a better understanding of the total
amount of disbursements made to or on behalf of a particular official.
Through this more complete reporting, members of the labor organization
will be better able to determine whether such disbursements warrant
further scrutiny, including review of the underlying documentation
maintained by the labor organization.
As discussed below in the Department's initial PRA analysis, the
Department believes that the proposed elimination of this exception
will result in a recurring burden of .19 hours per respondent.
Second, a new column will be added to Schedule 11 to allow
disclosure of benefits disbursements for the labor organization
official. Columns ``(A)'' through ``(E)'' will remain unchanged. Column
``(F)'' will be redesignated ``Benefits.'' This is the only new column
on the schedule requiring disclosure of additional information. Column
``(G)'' will be redesignated ``Disbursements for Official Business.''
Column ``(H)'' will be redesignated ``Other Disbursements not reported
in (D) through (G).'' Column ``(I)'' will be added for ``Total.''
The current Form LM-2 does not provide sufficient information on
disbursements made to or on behalf of officers. Benefit disbursements
include, for example, disbursements for life insurance, health
insurance, and pensions. Labor organization members should be provided
information on benefits disbursed to or on behalf of officers because
benefits received by officers may be an important part of the
compensation package provided by the labor organization. Reporting
benefits disbursed in the aggregate on Schedule 20 does not provide
labor organization members and the public with a complete picture of
compensation received by labor organization officers. For example, one
local in its 2005 Form LM-2 listed $491,252 for ``Officer's Union
Fringes'' even though the labor organization had fewer than ten full-
time officers. Unfortunately, a member of a labor organization has no
way of knowing, for example, if these benefits were evenly distributed
among the officers, or if one officer received $400,000 and the other
eight officers split the remaining $91,252. Under the proposal, rather
than report fringe benefits in the aggregate on the current Schedule
20, the labor organization will report the benefits on Schedule 11 by
individual labor organization officer.
In another instance, a labor organization reported payments of
$49,542 to ``Various Companies'' for ``Benefits Administration'' and
payments of $64,219 to ``Various School Districts'' for ``Benefits paid
on behalf of officers.'' Another labor organization reported on its
Form LM-2 total disbursements of $461,971, $460,203, and $244,780 to
certain individual officers. This disclosure did not take into account
that these same officers and employees also received $181,297,
$184,397, and $161,240 respectively as contributions to their employee
benefit plans. These benefits payments were disclosed to the IRS but do
not appear itemized by officers and employees on the Form LM-2. While
labor organization members aware of the IRS data may be able to obtain
this information about the compensation packages received by labor
organization officers and employees, the Department's proposal will
provide all
[[Page 27351]]
members with ready access to this information in a single database.
Under the current Form LM-2, such benefits payments are not
required to be reported as having been made to or on behalf of a
specific officer. Requiring that the aggregate amounts of benefits
disbursements appear next to the name of each labor organization
officer and employee, when applicable, will result in labor
organizations better informing their members how their monies have been
spent. The above examples demonstrate that the current Form LM-2 fails
to provide a full accounting of labor organizations' disbursements to
their officials. The current Form LM-2 allows benefits payments made to
or on behalf of officers to be lumped together with general benefits
paid to members in Schedule 20. With such large disbursements listed in
one category, it is impossible for labor organization members to
ascertain what benefits are being paid to labor organization officers
and employees. The Department believes that combining these
disbursements into a single schedule does not adequately inform labor
organization members and the public regarding benefits paid to labor
organization officers, and thus in this area the full reporting mandate
of the LMRDA is not fulfilled.
As discussed below in the Department's initial PRA analysis, the
Department believes that the addition of the benefits column to
Schedule 11 will add an estimated recurring burden of .49 hours for
officers See Table 3 below. Currently, labor organizations track
benefit disbursements to officers for the IRS Form 990. Therefore, the
only additional burden labor organizations will incur for Schedule 11
is the time required to enter the sum each officer received in benefits
next to each officer's name on the Form LM-2. Furthermore, the proposed
changes are consistent with the level of disclosure required in other
contexts for executive and employee compensation.\8\ Moreover, the need
for greater transparency in compensation packages applies equally well
to employees and not simply officers. Accordingly, the reasons
discussed above apply to Schedule 12 below as well.
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\8\ For example, the Securities and Exchange Commission on
December 29, 2006, amended its regulations governing disclosure to
that agency of executive compensation (71 FR 78338), and the
Internal Revenue Service Form 990 requires more detailed disclosure
in the area of executive compensation than does the Department's
Form LM-2.
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The Department recognizes that in the 2003 Form LM-2 Final Rule a
decision was made to aggregate the benefits on Schedule 20 (Benefits)
citing privacy considerations. See 68 FR 58374, 58387, 58399, 58426
(Oct. 9, 2003). The Department believes that its proposal to add a
benefits column to Schedule 11 (and 12) in the manner described above
will preserve the privacy of the individuals. Recognizing privacy
implications, the Department in this NPRM is not proposing to require
labor organizations to itemize individual payments made to their
officers and employees. Rather the Department proposes that labor
organizations disclose the total sum paid directly or indirectly to
each officer and employee. This level of disclosure balances the need
to disclose total compensation packages against the need to protect the
privacy of individuals receiving certain payments.
The balance struck by this proposal will ensure that proper
disclosure occurs, without disclosing private information to the
general public, such as whether a particular officer or employee
received an indirect payment for medical treatment. In fact, under the
proposal a labor organization member reading the report will not be
able to ascertain what types of benefits labor organization officers
and employees receive, only the total value of these benefits. For
instance, if a labor organization officer received a matching
contribution to a 401(k) plan in the amount of $5,000, indirect payment
of health insurance premiums in the amount of $6,700, and a health club
membership in the amount of $1,200, the labor organization's Form LM-2
would disclose that this officer received a total of $12,900 in
benefits. The individual payments will not be itemized, thus protecting
the official's privacy interests. The labor organization, however, is
required to provide such information to the Department of Labor upon
its request or to permit a member of the labor organization for just
cause to examine records necessary to verify the report, the latter
pursuant to 29 U.S.C. 431(c).
Schedule 12--Disbursements to Employees: The proposed substantive
changes to Schedule 12 are identical to the changes in Schedule 11 and
the supporting reasons for the proposed changes are the same as
described above for the changes to Schedule 11. One of the exceptions
to the reporting of indirect disbursements will be eliminated and,
therefore, both direct and indirect payments for travel expenses will
be reported on Schedule 12. The reporting labor organization will be
required to report aggregate benefits disbursements made to or on
behalf of each of the employees listed on Schedule 12. A new column
will be added to Schedule 12 to allow disclosure of benefits
expenditures. Columns ``(A)'' through ``(E)'' will remain unchanged.
Column ``(F)'' will be redesignated ``Benefits.'' This is the only new
column on the schedule requiring disclosure of additional information.
Column ``(G)'' will be redesignated ``Disbursements for Official
Business.'' Column ``(H)'' will be redesignated ``Other Disbursements
not reported in (D) through (G).'' Column ``(I)'' will be added for
``Total.''
As discussed below, the Department believes that the proposed
elimination of the exception will result in a recurring burden of .38
hours and the addition of the benefits column to Schedule 12 will add
an estimated recurring burden of .88 hours. See discussion of Schedule
12 in the PRA analysis below (figures here derived from the
recordkeeping burden associated with benefits and travel).
Schedule 13--Membership Status: This schedule is unchanged.
Detailed Summary Page: The current detailed summary page contains
information from Schedule 14 through Schedule 19. The new detailed
summary page will include information from Schedule 14 through Schedule
29. These summary pages will provide members with a snapshot of the
labor organization's activities. Members may then use this snapshot to
determine whether further analysis of the individual itemized schedules
is required. There is no additional burden associated with these
summary schedules because the software will automatically enter the
totals in the appropriate lines of the summary schedules as the labor
organization fills out the individual itemization schedules.
Schedules 14-22. Currently, Form LM-2 filers only report the total
amount received from dues and agency fees, per capita taxes, fees,
fines, assessments, and work permits, sales of supplies, interest,
dividends, rents, receipts on behalf of affiliates for transmittal to
them, and receipts from members for disbursement on their behalf on
Statement B. In some instances, these line items exceed $20 million.
For example, one labor organization stated that it received over $298
million in per capita taxes and another received over $28 million in
rent. Little useful information can be discerned from these totals
alone.
The lack of itemization of most receipts on the current Form LM-2
makes it easier for criminals to embezzle money coming to labor
organization accounts. In one case, the president and
[[Page 27352]]
treasurer of a local labor organization converted over $184,129 in dues
checks. However, the rank and file members, even if the individual
checks had been in amounts of $5,000 or more, would have been unable to
detect the conversion because the current Form LM-2 only requires the
disclosure of the yearly total received in dues checks, not the
reporting of individual checks received from employers. The proposed
form will contain itemized information for each check that is $5,000 or
more and disclose whether other checks aggregate to $5,000 or more. In
those instances where the receipt checks, either alone or in
combination aggregate to $5,000 or more, the labor organization will
disclose this on the form. The change will address this problem, which
extends to all the various reporting categories on the current form and
not merely the receipt of dues payments, because now receipts-side
embezzlements like the embezzlement of $184,129 mentioned above will be
harder to hide.
The Department proposes to add new schedules that coincide with the
items of cash receipts listed on Statement B. These schedules represent
new requirements that labor organizations itemize the individual
categories of receipts aggregated to $5,000 from any one source. The
labor organization will be required to complete a separate itemization
schedule for each individual or entity from which the labor
organization has received $5,000 or more. Each transaction from that
individual or entity will include information about the individual, the
purpose of the payment, the date of the payment, and the amount of the
payment. The total amount received from the individual or entity, both
itemized and non-itemized, will be included at the bottom of the
itemized schedule. The totals from each itemized schedule will then be
added together and that number will be entered in the appropriate item
on Statement B.
By providing itemization of receipts, labor organizations will
better disclose to their members and the public a full accounting of
all funds received and the identity of individuals and entities with
whom the labor organization does business. The Department can use this
information to determine the purpose of any receipt from one source in
an amount of $5,000 or more, which will help identify possible
diversion to unintended purposes. Members will be able to determine
that money received by the labor organization is actually accounted
for. For example, labor organization members can ensure that money they
paid to the organization for disbursement on their behalf is accounted
for on the Form LM-2. If there is no itemized receipt in new Schedule
22 for payments of $5,000 or more or the receipt is less than expected,
then the member will know that the money was not properly reported and
may pursue other avenues to determine what has happened to the money.
The current Schedules 14 through 20 will be re-numbered as described
herein. Schedules 14 through 22 will now provide itemized disclosure in
the following areas of receipts:
Schedule 14--Dues and Agency Fees,
Schedule 15--Per Capita Tax,
Schedule 16--Fees, Fines, Assessments, and Work Permits,
Schedule 17--Sale of Supplies,
Schedule 18--Interest,
Schedule 19--Dividends,
Schedule 20--Rents,
Schedule 21--Receipts on Behalf of Affiliates for Transmittal to
Them,
Schedule 22--Receipts from Members for Disbursement on Their Behalf.
Under the current form, receipts listed under the above listed
categories on Statement B are not itemized on a separate schedule for
aggregate amounts of $5,000 or more. The only itemized receipts are
``Other Receipts.'' ``Other Receipts'' of $5,000 or more are itemized
on the current Schedule 14. Proposed Schedules 14 through 22 will
include the same information that is currently required on Schedule 14
for ``Other Receipts.'' As discussed below in the Department's initial
PRA analysis, the Department's estimates that the proposed changes will
increase the recurring recordkeeping burden, per schedule, an
additional .21 hours per year. The Department estimates that the total
additional reporting burden for all the revised schedules will be .47
hours per year. See Table 2 below.
Additionally, the Department requests comments on whether to
narrow, clarify, or remove the confidentiality exception from the Form
LM-2 instructions. Currently, the following information is subject to
special reporting privileges under the confidentiality exception: (1)
Information that would identify individuals paid by the union to work
in a non-union facility in order to assist the union in organizing
employees, provided that such individuals are not employees of the
union who receive more than $10,000 in the aggregate from the union in
the reporting year; (2) information that would expose the reporting
union's prospective organizing strategy; (3) information that would
provide a tactical advantage to parties with whom the reporting union
or an affiliated union is engaged or will be engaged in contract
negotiations; (4) information pursuant to a settlement that is subject
to a confidentiality agreement, or that the union is otherwise
prohibited by law from disclosing; and (5) information in those
situations where disclosure would endanger the health or safety of an
individual. If the receipt or disbursement fits within one of the above
broad categories, then the labor organization need not itemize the
receipt or disbursement. Instead it may include the receipt or
disbursement in the aggregated total on Line 3 of Summary Schedule 23
(Other Receipts) or on Line 5 of Summary Schedules 24 (Representational
Activities) or 28 (Union Administration), as appropriate.
The current broad confidentiality exception makes it impossible to
ascertain from reviewing the form the actual purpose and payer/payee of
many receipts and disbursements. For example, one labor organization
did not identify the name of the payee, date of disbursement, nor the
amount of the transaction for over 46% of its disbursements. This labor
organization reported $5,931,513 in disbursements on Schedule 15, Line
5 (All Other Disbursements). In Item 69, the labor organization stated
that it had excluded certain confidential information from Schedule 15,
but included the information in the totals. This same labor
organization's total disbursements were $12,811,076. On a related
matter, OLMS review of Form LM-2 filings has found that many major
receipts and disbursements that do not qualify for the confidentiality
exception, 68 FR 58499-500, are being included on Line 3 (total All
Other Receipts) of Summary Schedule 14 (Other Receipts) or on Line 5
(total All Other Disbursements) of Summary Schedules 15
(Representational Activities) or 19 (Union Administration). Labor
organizations are usually describing the general type of information
that was omitted from the schedule in Item 69 (Additional Information),
but the name of the payer/payee, date, and amount of the transaction(s)
is not included. The Department believes that narrowing, clarifying, or
removing the confidentiality exception will provide labor organization
members with clearer information regarding these receipts and
disbursements. A member now can only obtain specific information about
these confidential transactions by requesting such information directly
from the labor organization.
The Department specifically invites comments on whether all
transactions greater than $5,000 should be identified by amount and
date in the relevant
[[Page 27353]]
schedules, permitting, however, labor organizations, where acting in
good faith and on reasonable grounds, to withhold information that
otherwise would be reported, in order to prevent the divulging of
information relating to the labor organization's prospective organizing
or negotiation strategy.
Schedule 23--Other Receipts: This schedule, currently numbered
Schedule 14, will be renumbered Schedule 23. No other changes will be
made to this schedule.
Schedule 24--Representational Activities: This schedule, currently
numbered Schedule 15, will be renumbered Schedule 24. No other changes
will be made to this schedule.
Schedule 25--Political Activities and Lobbying: This schedule,
currently numbered Schedule 16, will be renumbered Schedule 25. No
other changes will be made to this schedule.
Schedule 26--Contributions, Gifts and Grants: This schedule,
currently numbered Schedule 17, will be renumbered Schedule 26. No
other changes will be made to this schedule.
Schedule 27--General Overhead: This schedule, currently numbered
Schedule 18, will be renumbered Schedule 27. No other changes will be
made to this schedule.
Schedule 28--Union Administration: This schedule, currently
numbered Schedule 19, will be renumbered Schedule 28. No other changes
will be made to this schedule.
Schedule 29--Benefits: This schedule, currently numbered Schedule
20, will be renumbered Schedule 29. As described above in the
discussion regarding the proposed changes to Schedule 11 and Schedule
12, those benefits inuring to officers and employees of the labor
organization will be listed next to the corresponding officer's or
employee's name. Apart from this change, the same disbursements that
were disclosed on Schedule 20 will be disclosed on the new Schedule 29.
These include direct and indirect disbursements associated with direct
and indirect benefits to members and members' beneficiaries.
The Department proposes that its rule take effect 30 days after
publication and apply prospectively to labor organization's fiscal
years beginning on or after the effective date of a final rule
promulgated after this notice of proposed rulemaking.
Even though the Department is proposing at this time to change only
the specific schedules identified above, it specifically requests
comment on the appropriateness of the current functional categories and
whether modifications to these categories are needed in order to
provide labor organization members and the public with additional
useful information.
B. Proposed Procedure and Standards to Revoke the Simplified Reporting
Option Where Appropriate in Particular Circumstances
1. Introduction
The Department proposes to establish standards and procedures for
revoking the simplified report filing privilege provided by 29 CFR
403.4(a)(1) for those labor organizations that are delinquent in their
Form LM-3 filing obligation, fail to cure a materially deficient Form
LM-3 report after notification by OLMS, or where other situations exist
where revoking the Form LM-3 filing privilege furthers the purposes of
LMRDA section 208. The Department anticipates that the vast majority of
situations where revocation occurs will be for delinquency or material
deficiency. (See Regulatory Flexibility Analysis below; the Department
there estimates that of the 96 cases per year in which the simplified
reporting privilege will be revoked all but two will be for delinquency
or deficiency.) In granting the Secretary the authority to establish
simplified forms, section 208 also authorizes the Secretary to revoke a
labor organization's privilege to file such forms when the Secretary
determines, after investigation, due notice, and an opportunity for a
hearing, ``that the purposes of this section would be served [by
revocation].'' The Department's primary method of enforcement to obtain
a timely and complete report, a civil action seeking a court order that
the labor organization file an adequate report, is a time-consuming
process that permits the evasion of the reporting requirements to
continue for lengthy periods, denying members the timely disclosure of
this financial information, without which they are unable to properly
oversee the operations of their labor organization and, where they
believe appropriate, to timely change its leadership, policies, or
both.
The proposed procedure will effectuate the Department's authority
to revoke a labor organization's existing Form LM-3 filing privilege if
it fails to timely file a Form LM-3 or files a Form LM-3 that is
materially deficient. A delinquent filer has, by definition, failed to
accurately disclose its financial condition and operations, as required
by section 201(b). A materially deficient filing that remains
uncorrected also violates section 201(b). The Department proposes that
Form LM-2, rather than the less detailed Form LM-3, is the appropriate
level of financial disclosure for labor organizations whose Form LM-3
filings are delinquent or materially deficient. The Form LM-2 not only
requires more detail in general than the Form LM-3, but the Form LM-2
requires information that may be particularly pertinent to situations
where possible financial mismanagement or embezzlement is suspected.
In the absence of an established procedure, the Department's
ability to revoke a labor organization's privilege to file a simplified
report has been hindered--no matter how egregious a labor
organization's noncompliance with its reporting obligations, or obvious
the indications of financial mismanagement, embezzlement, or corruption
within that organization. The procedures set forth in this proposal
will remedy this shortcoming in the Department's reporting system.\9\
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\9\ The proposed revocation procedures will not affect labor
organizations with annual receipts less than $10,000. While section
208 allows the Secretary to revoke the privilege of such labor
organizations to file the highly simplified Form LM-4, the
Department is not proposing at this time to apply such procedure to
Form LM-4 filers.
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The Department's goal in revoking the filing privilege is to
promote greater financial transparency. The proposed rule fulfills that
goal by requiring the affected labor organizations to file the standard
reporting form, Form LM-2, which requires more detailed financial
information than the Form LM-3. This additional financial information
will assist members of labor organizations and OLMS investigators in
reviewing the labor organization's funds and assets during the
reporting period and enable them to determine whether additional
scrutiny of the labor organization's finances is in order, for example,
by requesting an explanation of the accounting, examining the
underlying records of various transactions, or both.\10\
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\10\ OLMS intends to continue its regular practice of contacting
Form LM-3 filers at the end of their fiscal year about their filing
obligation, and, in doing so, it will inform them of the potential
revocation of their privilege to file the Form LM-3 if they are
delinquent in filing the form, file a Form LM-3 that is materially
deficient, or for other appropriate cause. The instructions to the
Form LM-3 already inform labor organization officers of their
statutory obligation to file the completed forms with OLMS within 90
days after the end of their labor organization's fiscal year.
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2. Reason for the Proposal
The Department's enforcement experience has shown that the failure
of labor organizations to file the annual Form LM-3 on time and without
material deficiencies is often an indicator of larger problems about
the
[[Page 27354]]
way such organizations maintain their financial records, and may be an
indicator of more serious financial mismanagement. For example, the
labor organization may delay filing a Form LM-3 to avoid making timely
public disclosures about financial improprieties of officers, such as
the diversion of funds for personal use. Even if the Department
eventually succeeds in encouraging a delinquent labor organization to
file the required form, the lack of specificity in Form LM-3 may permit
significant management problems to remain undetected. The greater
detail required by the Form LM-2 makes it more difficult to hide such
problems.
The Department's enforcement experience reveals various reasons for
delinquent filings, such as a labor organization's failure to maintain
the records required by the LMRDA; inadequate office procedures;
frequent turnover of labor organization officials and their often part-
time status; uncertainty of first-time officers about their reporting
responsibilities under the LMRDA and their inexperience with
bookkeeping, recordkeeping, or both; an ``inherited bookkeeping mess;''
an inattention generally to ``paperwork;'' overworked or under-trained
officers; an officer's unwillingness to question or report apparent
irregularities due to the officer's own inexperience or concern about
the repercussions of reporting such matters; or a conscious effort to
hide embezzlement or the misappropriation of funds by the officers,
other members of the organization, or third parties associated with the
labor organization. Many of these causes of delinquency, including pre-
existing bookkeeping problems, inattention, overwork, insufficient
training, and an unwillingness to confront or report financial
irregularities, demonstrate that the labor organization members, the
public, and the Department would benefit from a more detailed
accounting of the organization's financial conditions and operations.
Moreover, OLMS review of data indicates that labor organizations that
are repeatedly delinquent are more likely than other labor
organizations to suffer embezzlement, or related crime. For instance,
in one recent case an investigation of a labor organization that was
delinquent in its reports for two years showed that the labor
organization had been the victim of a serious embezzlement. Its former
president plead guilty to embezzling $112,525 and received a prison
sentence of 33 months, and was ordered to pay back the $112,525 he had
stolen. In another case a former financial secretary of a labor
organization that had been delinquent in filing its reports for several
years plead guilty to embezzlement and was ordered to pay restitution
of $103,248 and also received a sentence including confinement for
eight months, home detention for four months, and probation for three
years. Many of the reasons that contribute to delinquent filings also
result in the filing of reports that omit or misstate material
information about the labor organization's finances. The members of a
labor organization that fails to correct a material reporting
deficiency after being notified by the Department and being given an
opportunity to address the error would also benefit from the increased
transparency.
3. Form LM-2 and Form LM-3 Compared
As discussed above, the reporting requirements apply to all labor
organizations covered by the LMRDA. The Form LM-2 is the standard form
for such purposes. It requires more detail than Forms LM-3 and LM-4,
the simplified forms developed by the Secretary. The difference between
the forms has been accentuated by the substantial revisions to the Form
LM-2 implemented by the Department in 2003. As the Department explained
in the preamble to the 2003 Form LM-2 rule, the broad aggregated
categories on the old Form LM-2 enabled officials of labor
organizations to potentially hide embezzlements and financial
mismanagement. 68 FR 58420. The more detailed reporting required of all
financial transactions covered by Form LM-2 was designed, in part, to
discourage and reduce corruption by making it more difficult to hide
financial irregularities from members and the Department's
investigators and thereby strengthen the effective and efficient
enforcement of the LMRDA. 68 FR 58402. Requiring labor organizations to
file a Form LM-2, after a determination that revocation of the
privilege of filing a Form LM-3 is warranted, will make it more
difficult to hide fraud.
The Form LM-2 requires labor organizations to provide more specific
information than the Form LM-3 in several areas relating to labor
organization finances including, in part, the following: Investments,
fixed assets, loans payable and owed, contributions, grants and gifts,
overhead expenses, union administration, and receipts. With regard to
labor organization receipts, Form LM-2 filers are explicitly required
to report all receipts including: ``receipts from fundraising
activities, such as raffles, bingo games, and dances; funds received
from a parent body, other labor organizations, or the public for strike
assistance; and receipts from another labor organization which merged
into the labor organization.'' See p. 29 of Instructions to Form LM-2,
as reproduced at 68 FR 58501
Form LM-2 requires filers to itemize receipts from and
disbursements to any individual or business or other entity that exceed
$5,000 in a fiscal year either in a single transaction or aggregated
over the year. Aggregation prevents a labor organization from
``hiding'' significant receipts from or disbursements to the same
individual or entity, a possibility that exists under the Form LM-3.
The name, address, and other information must be provided for any such
entity or individual. This information, which is not required by the
Form LM-3, enables members of a labor organization to detect payments
to individuals or entities that are out of the ordinary (given
information that is known to the member but would not appear irregular
to someone without such information). Thus, this information enables
members to identify situations which may reflect a breach of the labor
organization's duties to its members or provide a reasonable basis for
inquiry to determine whether officials of the labor organization are
improperly diverting funds for their own benefit or the shared benefit
of others. Additionally, a member who is aware that the labor
organization has a financial relationship with one or more of these
businesses will be in a better position to determine whether the
business has made any required reports (Form LM-10). The itemization of
payments at or above $5,000 also puts members in a better position to
determine whether any of the recipients of the payments are businesses
in which a labor organization official (or the official's spouse or
minor child) holds an interest, a circumstance that will require a
report to be filed by the official (Form LM-30).
The Form LM-2, unlike the Form LM-3, requires filers to provide a
list of accounts receivable and payable (involving a particular
individual or entity in an amount of $5,000 or greater, singly or
aggregated) that are past due by more than 90 days. As explained in the
2003 Form LM-2 rulemaking, such itemized disclosure can provide a vital
early warning signal of financial improprieties. In the case of an
already overdue report, the delinquency demonstrates that such
improprieties already may exist.
[[Page 27355]]
4. The Proposed Standards and Procedures for Revocation
Section 208 authorizes the Secretary to revoke a labor
organization's privilege to file simplified reports when the Secretary
determines after investigation, due notice, and an opportunity for a
hearing, ``that the purposes of this section would be served [by
revocation].'' The Department's proposal effectuates this provision in
a manner that safeguards the interests of labor organizations, which,
by virtue of their size, ordinarily would be able to satisfy their
annual reporting obligation by filing the Form LM-3. The procedure will
ensure that revocation determinations are not made for arbitrary
reasons. To implement this procedure and standards for revocation, the
Department proposes to modify section 403.4 of its regulations, 29 CFR
403.4, and to amend the instructions to the Form LM-3 in order to fully
apprise filers of the procedure and standards. The Form LM-3
instructions will remain unchanged except for a new paragraph that
discusses the revocation standards and procedures and quotes from the
language proposed for section 403.4. The Department proposes to add the
following as a new paragraph at the end of section II of the Form LM-3
instructions:
Filers are advised that the privilege to file the Form LM-3
instead of the Form LM-2 may be revoked if a labor organization
fails to file the Form LM-3 on or before the date it is due; a labor
organization files a Form LM-3 with a material deficiency and fails
to timely remedy this deficiency after notification by the
Department of Labor; or other circumstances exist that warrant
revocation of the labor organization's privilege to file the Form
LM-3. Section 208 of the LMRDA authorizes the Secretary to revoke
this privilege if the Secretary determines, after such investigation
as she deems proper and due notice and opportunity for a hearing,
that the purposes of section 208 would be served by revocation. 29
U.S.C. 438. Such revocation is governed by the standards just
mentioned, which are set forth in section 403.4 of the Department's
regulations (29 CFR 403.4), and the procedure also set forth in that
section. Where the privilege to file the Form LM-3 is revoked, a
labor organization will be required to file the Form LM-2. Section
403.4 provides in relevant part:
(b) The Secretary may revoke a labor organization's privilege to
file the Form LM-3 simplified annual report . . . and require the
labor organization to file the Form LM-2 as provided in Sec. 403.3,
if the following conditions are met:
(1) The Secretary has undertaken an investigation revealing:
(i) The labor organization failed to file the Form LM-3 on or
before the date it was due; or
(ii) The labor organization filed the Form LM-3 with a material
deficiency; and failed to timely remedy this deficiency after
notification by the Secretary that the report was deficient; or
(iii) Other circumstances exist that warrant revocation of the
labor organization's privilege to file the Form LM-3.
(2) The Secretary has provided notice to the labor organization
of the proposed decision to revoke the filing privilege, the reason
for such revocation, and an opportunity for the labor organization
to submit in writing a position statement with relevant factual
information and argument regarding:
(i) The existence of the delinquency or the deficiency
(including whether it is material) or other circumstances alleged in
the notice;
(ii) The reason for the delinquency or deficiency and whether it
was caused by factors reasonably outside the control of the labor
organization; and
(iii) Any other factors that should be considered in mitigation
of revoking the labor organization's privilege to file the Form LM-
3.
(3) The Secretary, after review of all the information provided,
shall issue a determination in writing to the labor organization,
stating the reasons for the determination, and, as appropriate,
informing the labor organization that it must file the Form LM-2 for
such reporting periods as the Secretary finds appropriate.
(c) A labor organization that receives a notice as set forth in
403.4(c)(2) must submit its written statement of position and any
supporting facts and argument by mail, hand delivery or by
alternative means specified in the notice to the Office of Labor-
Management Standards at the address provided in the notice within 30
days after the date of the letter proposing revocation. If the 30th
day falls on a Saturday, Sunday, or Federal holiday, the submission
will be timely if received by OLMS on the first business day after
the 30th day. Absent a timely submission to OLMS, the proposed
revocation shall take effect automatically unless the Secretary in
his or her discretion determines otherwise.
(d) The Secretary shall make the determinations provided for in
the foregoing paragraphs of this section. The determination shall be
the Department's final agency action on the revocation.
(e) For purposes of this section, a deficiency is ``material''
if in the light of surrounding circumstances, the inclusion or
correction of the item in the report is such that it is probable
that the judgment of a reasonable person relying upon the report
would have been changed or influenced.
Where there appear to be grounds for revoking a labor
organization's privilege to file the Form LM-3, such as where the labor
organization has failed to timely file the Form LM-3, files a Form LM-3
that lacks material information,\11\ or OLMS has received information
that provides a reasonable basis to suspect financial irregularities,
the Department will conduct an investigation to confirm the facts
relating to the delinquency or other possible ground for revocation.
The depth of the investigation will depend upon the particular
circumstances. For example, where OLMS has no record of receiving a
timely Form LM-3, the investigation may be limited to confirming that
the labor organization did not timely submit the report. In other
circumstances, an investigation may be needed to review the labor
organization's books, to review documents, and to interview subjects
and obtain statements from individuals with knowledge about a labor
organization's finances and their reporting to determine whether or not
the deficiencies on the Form LM-3 are material.
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\11\ OLMS will notify a filer whose Form LM-3 is materially
deficient by letter, advising in what respects the filing is
deficient and providing a date by which the filer must submit a
corrected Form LM-3. Ordinarily, the filer will be allowed not less
than 30 days from the date of the letter to submit a corrected Form
LM-3.
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If the Department finds grounds for revocation after the
investigation, the Department will send the labor organization a notice
of the proposed Form LM-3 revocation stating the reason for the
proposed revocation and explaining that revocation, if ordered, will
require the labor organization to file the more detailed annual
financial report, Form LM-2. The letter will also provide notice that
the labor organization has the right to a hearing if it chooses to
challenge the proposed revocation; and that the hearing will be limited
to written submissions due within 30 days of the date of the notice.
The submissions and any supporting facts and argument must be received
by the Office of Labor-Management Standards at the address provided in
the notice within 30 days after the date of the letter proposing
revocation. The letter will also advise that the labor organization's
failure to timely respond within 30 days will waive such labor
organization's opportunity to request a hearing and the proposed
revocation shall take effect automatically unless the Secretary in his
or her discretion determines otherwise.
In its written submission, the labor organization must present
relevant facts and arguments that address whether: (1) The report was
delinquent or deficient or other grounds for the proposed revocation
exist; (2) whether the deficiency, if any, was material; (3) whether
the circumstances concerning the delinquency or other grounds for the
proposed revocation were caused by factors reasonably outside the
control of the labor organization; and (4) any
[[Page 27356]]
factors exist that mitigate against revocation. The proposed definition
for ``material'' is derived from Financial Accounting Standards Board,
Statement of Financial Accounting Concepts No. 2 (SFAC No. 2), at 132
(``The omission or misstatement of an item in a financial report is
material if, in light of surrounding circumstances, the magnitude of
the item is such that it is probable that the judgment of a reasonable
person relying upon the report would have been changed or influenced by
the inclusion or correction of the item.'') and TSC Industries Inc. v.
Northway Inc., 426 U.S. 438, 449 (1976) (``A substantial likelihood
that, under all the circumstances, the omitted fact would have assumed
actual significance in the deliberations of the reasonable [person].
Put another way, there must be a substantial likelihood that the
disclosure of the omitted fact would have been viewed by [a] reasonable
[person] as having significantly altered the `total mix' of information
made available.''). Factors reasonably outside the control of a labor
organization could include, for example, natural disasters that
destroyed the records necessary to complete a Form LM-3, or the death
or serious illness of the labor organization's president or treasurer
while the form was being prepared for filing. Mitigating factors could
also include, for example, that the form was timely completed but was
mailed to an incorrect address or an attachment was inadvertently
omitted from the filing.
After review of the labor organization's submission, the Secretary
(or her designee who will not have participated in the investigation)
will issue a written determination stating the reasons for the
determination, and, as appropriate, informing the labor organization
that it must file the Form LM-2 for such reporting periods as he or she
finds appropriate. Where a labor organization has failed to timely
respond to the notice of proposed revocation, the Secretary will notify
the labor organization in writing that its privilege has been revoked
(or in an exercise of his or her discretion that revocation is
unnecessary). The determination by the Secretary shall be the
Department's final agency action on the revocation.
The revocation of the Form LM-3 filing privilege will ordinarily
only apply to the fiscal year for which the labor organization was
delinquent or failed to file a properly completed amended report after
notification of a material deficiency and the fiscal year during which
the revocation determination is issued. In other cases, the revocation
will apply to the fiscal years that the Department finds appropriate,
but no labor organization will be required to submit a Form LM-2 for
any past fiscal year for which the labor organization already has
properly and timely filed a Form LM-3. If the revocation is for a
longer period of time, the Department's reasons will be included in its
written determination. As discussed below in the PRA analysis, the
Department believes that current LM-3 filers who have had their
privilege revoked under the current proposed rule will incur an
additional 95.45 hour burden for each year in which they must file a
Form LM-2. See Table 1. Labor organizations that are required to file a
Form LM-2 because their Form LM-3 filing privilege has been revoked
will not be required to submit the Form LM-2 electronically.
The Department proposes that its rule take effect 30 days after
publication and apply prospectively to labor organization's fiscal
years beginning on or after the effective date of a final rule
promulgated after this notice of proposed rulemaking.
IV. Regulatory Procedures
Executive Order 12866
This proposed rule has been drafted and reviewed in accordance with
Executive Order 12866, section 1(b), Principles of Regulation. The
Department has determined that this proposed rule is not an
``economically significant'' regulatory action under section 3(f)(1) of
Executive Order 12866. Based on a preliminary analysis of the data the
rule is not likely to: (1) Have an annual effect on the economy of $100
million or more or adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or state, local, or tribal
governments or communities; (2) create a serious inconsistency or
otherwise interfere with an action taken or planned by another agency;
(3) materially alter the budgetary impact of entitlements, grants, user
fees, or loan programs or the rights and obligations of recipients
thereof; or (4) raise novel legal or policy issues. As a result, the
Department has concluded that a full economic impact and cost/benefit
analysis is not required for the rule under Section 6(a)(3) of the
Order. However, because of its importance to the public the rule was
treated as a significant regulatory action and was reviewed by the
Office of Management and Budget.
Unfunded Mandates Reform
For purposes of the Unfunded Mandates Reform Act of 1995, this
proposed rule does not include a federal mandate that might result in
increased expenditures by state, local, and tribal governments, or
increased expenditures by the private sector of more than $100 million
in any one year.
Executive Order 13132 (Federalism)
The Department has reviewed this proposed rule in accordance with
Executive Order 13132 regarding federalism and has determined that the
proposed rule does not have federalism implications. Because the
economic effects under the rule will not be substantial for the reasons
noted above and because the rule has no direct effect on states or
their relationship to the federal government, the rule does not have
``substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.''
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act of 1980, 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. To evaluate whether this proposed rule will have a
significant economic impact on a substantial number of small entities,
the Department has conducted an Initial Regulatory Flexibility Analysis
(``IRFA'') as a component of this rulemaking.
In the 2003 Form LM-2 rule, the Department's regulatory flexibility
analysis utilized the Small Business Administration's (``SBA'') ``small
business'' standard for ``Labor Unions and Similar Labor
Organizations.'' Specifically, the Department used the $5 million
standard established in 2000 (as updated in 2005 to $6.5 million) for
purposes of its regulatory flexibility analyses. See 65 FR 30836 (May
15, 2000); 70 FR 72577 (Dec. 6, 2005). This same standard, which has
also been used in rulemakings involving the Form T-1, has been used in
developing the initial regulatory flexibility analysis for this
proposed rule.
The Department recognizes that the SBA has not established fixed,
financial thresholds for ``organizations,'' as distinct from other
entities. See A Guide for Federal Agencies: How to Comply with the
Regulatory Flexibility Act,
[[Page 27357]]
Office of Advocacy, U.S. Small Business Administration at 12-13,
available at www.sba.gov. The Department further recognizes that under
SBA guidelines, the relationship of an entity to a larger entity with
greater receipts is a factor to be considered in determining the
necessity of conducting a regulatory flexibility analysis. Thus, the
affiliation between a local labor organization and a national or
international labor organization, a widespread practice among labor
organizations subject to the LMRDA, may have an impact on the number of
organizations that should be counted as ``small organizations'' under
section 601(4) of the RFA, 5 U.S.C. 601(4). Section 601(4) provides in
part: ``the term `small organization' means any not-for-profit
enterprise which is independently owned and operated and is not
dominant in its field.'' Affiliation of labor organizations presents a
unique circumstance in determining whether and, if so, how, receipts of
particular labor organizations should be aggregated, if at all, in
assessing whether a regulatory flexibility analysis is required and how
it should be conducted. However, for purposes of analysis here and for
ready comparison with the RFA analysis in its earlier Form LM-2
rulemaking, the Department has used the $6.5 million receipts test for
``small businesses,'' rather than the ``independently owned and
operated and not dominant'' test for ``small organizations.''
Application of the latter test likely would reduce the number of labor
organizations that would be counted as small entities under the RFA. It
is the Department's view, however, that it would be inappropriate,
given the past rulemaking concerning the Form T-1 and the Form LM-2, to
depart from the $6.5 million receipts standard in preparing this
initial regulatory flexibility analysis. Comments are invited to
address this question of whether the use of the $6.5 million figure,
without aggregation among affiliated labor organizations, is
appropriate and if not, to suggest alternative approaches for this
purpose. Accordingly, the following analysis assesses the impact of
these regulations on small entities as defined by the applicable SBA
size standards.
All numbers used in this analysis are based on 2005 data taken from
the OLMS electronic labor organization reporting (``e.LORS'') database,
which includes all records of labor organizations that have filed LMRDA
reports with the Department.
A. Statement of the Need for, and Objectives of, the Proposed Rule
The following is a summary of the need for and objectives of the
proposed rule. A more complete discussion is found in the preamble.
The objective of this proposed rule is to increase the transparency
of financial reporting by revising the current LMRDA disclosure Form
LM-2 to enable workers to be responsible, informed, and effective
participants in the governance of their labor organizations; discourage
embezzlement and financial mismanagement; prevent the circumvention or
evasion of the statutory reporting requirements; and strengthen the
effective and efficient enforcement of the Act by the Department. Form
LM-2 is filed by the largest reporting labor organizations, i.e., those
with $250,000 or more in total annual receipts.
The revisions to the Form LM-2 made by the Department in 2003 have
helped to fulfill the mandate of full reporting set forth in the LMRDA.
However, based upon the Department's experience since 2003 and after
reviewing data from reports filed on the revised form, the Department
believes that further enhancements to the Form LM-2 are necessary. The
proposed enhancements will ensure that information is reported in such
a way as to meet the objectives of the LMRDA by providing labor
organization members with useful data that will enable them to be
responsible and effective participants in the democratic governance of
their labor organizations. The proposed changes are designed to provide
members of labor organizations with additional and more detailed
information about the financial activities of their labor organization
that is not currently available through the Form LM-2 reporting.
The proposed enhancements provide additional information in
Schedule 3 (Sale of Investments and Fixed Assets) and Schedule 4
(Purchase of Investments and Fixed Assets) that will allow verification
that these transactions are performed at arm's length and without
conflicts of interest. Schedules 11 and 12 will be revised to include
the value of benefits paid to and on behalf of officers and employees.
This will provide a more accurate picture of total compensation
received by these labor organization officials. In addition, the
proposed changes will require the reporting in Schedules 11 and 12 of
travel reimbursements indirectly paid these officials. This proposed
change will provide more accurate information on travel disbursements
made to them by their labor organizations. The proposed enhancements
also include additional schedules corresponding to categories of
receipts, which will provide additional information, by receipt
category, of aggregated receipts of $5,000 or more. This proposed
change is consistent with the information currently provided on
disbursements.
The Department's enforcement experience has shown that the failure
of small labor organizations to file the annual Form LM-3 on time and
the filing of reports with material deficiencies is often an indicator
of larger problems about the way such organizations maintain their
financial records, and may be an indicator of more serious financial
mismanagement. The Department's enforcement experience reveals various
reasons for delinquent filings, such as a labor organization's failure
to maintain the records required by the LMRDA; inadequate office
procedures; frequent turnover of labor organization officials and their
often part-time status; uncertainty of first-time officers about their
reporting responsibilities under the LMRDA and their inexperience with
bookkeeping, recordkeeping, or both; an ``inherited bookkeeping mess;''
an inattention generally to ``paperwork;'' overworked or under-trained
officers; an officer's unwillingness to question or report apparent
irregularities due to the officer's own inexperience or concern about
the repercussions of reporting such matters; or a conscious effort to
hide embezzlement or the misappropriation of funds by the officers,
other members of the organization, or third parties associated with the
labor organization. Many of these causes of delinquency, including pre-
existing bookkeeping problems, inattention, overwork, insufficient
training, and an unwillingness to confront or report financial
irregularities, demonstrate that the labor organization members, the
public, and the Department would benefit from a more detailed
accounting of the organization's financial conditions and operations.
Moreover, OLMS experience indicates that labor organizations that are
repeatedly delinquent are more likely than other labor organizations to
suffer embezzlement, or related crime. Many of the reasons that
contribute to delinquent filings also result in the filing of reports
that omit or misstate material information about the labor
organization's finances. The members of a labor organization that fails
to correct a material reporting deficiency after being notified by the
Department and being given an opportunity to address
[[Page 27358]]
the error would benefit from the increased transparency of the Form LM-
2.
As explained in the preamble, additional reporting by labor
organizations is necessary to ensure, as intended by Congress, the full
and comprehensive reporting of a labor organization's financial
condition and operations, including a full accounting to members from
whose work the payments were earned. 67 FR 79282-83. The proposed rule
will prevent circumvention and evasion of these reporting requirements
by providing members of labor organizations with financial information
concerning their labor organization.
B. Legal Basis for Rule
The legal authority for the notice of proposed rulemaking is
provided by sections 201 and 208 of the LMRDA, 29 U.S.C. 431, 438.
Section 201 requires labor organizations to file annual financial
reports and to disclose certain financial information, including all
assets, receipts, liabilities, and disbursements of the labor
organization. Section 208 provides that the Secretary of Labor shall
have authority to issue, amend, and rescind rules and regulations
prescribing the form and publication of reports required to be filed
under title II of the Act, including rules prescribing reports
concerning trusts in which a labor organization is interested, and such
other reasonable rules and regulations as she may find necessary to
prevent the circumvention or evasion of the reporting requirements.
Section 208 also authorizes the Secretary to establish ``simplified
reports for labor organizations and employers for whom [s]he finds by
virtue of their size a detailed report would be unduly burdensome.''
Section 208 authorizes the Secretary to revoke this privilege for any
labor organization or employer if the Secretary determines, after such
investigation as she deems proper and due notice and opportunity for a
hearing, that the purposes of section 208 would be served by
revocation.
C. Number of Small Entities Covered Under the Rule
The primary impact of this proposed rule will be on those labor
organizations that have $250,000 or more in annual receipts. There are
approximately 4,452 labor organizations of this size that are required
to file Form LM-2 reports under the LMRDA. See n. 1 above and Table 1
below. The Department estimates that 4,228 of these labor
organizations, or 94.97%, are considered small under the current SBA
standard (annual receipts less than $6.5 million). These labor
organizations have annual average receipts of $1.26 million.\12\ See
Table 1. The Department estimates that about 96 labor organizations
with annual receipts of less than $250,000 will be affected by the
proposed rule. These 96 labor organizations have annual average
receipts of $68,939. See Table 1. Although these estimates may not be
predictive of the exact number of small labor organizations that will
be impacted by this proposed rule in the future, the Department
believes these estimates to be sound and they are derived from the best
available information.
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\12\ In the 2003 Form LM-2 rule, the Department estimated the
burden for each of three categories of reporting labor organizations
as measured by their range of annual receipts: Tier I ($250,000 to
less than $500,000); Tier II ($500,000 to less than $50,000,000) and
Tier III ($50,000,000 or more).
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D. Relevant Federal Requirements Duplicating, Overlapping or
Conflicting With the Rule
There are no federal rules that duplicate or conflict with this
proposed rule. There is some overlap, however, between the proposed
rule and documents required by the Internal Revenue Service (``IRS'').
Labor organizations are currently required to report some similar
information to the IRS on Form 990 or Form 990-EZ if they are exempt
from taxation under 26 U.S.C. 501 (c)(5). A copy of the labor
organization's filed Form LM-2 may currently be submitted to the IRS in
lieu of answering certain questions on Form 990. However, under
longstanding practice under the Form LM-2 and Form LM-3 rules, a Form
990 may not be submitted to OLMS for the Form LM-2.
E. Differing Compliance or Reporting Requirements for Small Entities
Under the proposal, the reporting, recordkeeping, and other
compliance requirements apply equally to all labor organizations that
are required to file a Form LM-2 under the LMRDA, including labor
organizations which have had their Form LM-3 filing privilege revoked.
The Department expects that only the largest labor organizations will
have to make significant changes in the level of detail with which
financial activity is reported in order to comply with the requirements
of the proposed rule. Differences between the smaller labor
organizations that are large enough to be required to file Form LM-2
and the largest labor organizations are more likely to result from
differences in the financial practices of the labor organizations
themselves. Only the largest filers, those that have annual receipts in
the millions, are likely to have extensive financial transactions that
will require substantial changes in their accounting practices in order
to report these transactions on the revised Form LM-2. Labor
organizations with receipts of between $250,000 and $2 million, which
account for over 3,441 of the estimated 4,452 Form LM-2 filers, are
likely to have less difficulty using the revised Form LM-2 than the
organizations with greater annual receipts.
F. Clarification, Consolidation and Simplification of Compliance and
Reporting Requirements for Small Entities
OLMS will update the e.LORS system to coincide with any changes
embodied in a final rule promulgated after this notice of proposed
rulemaking.
OLMS will provide compliance assistance for any questions or
difficulties that may arise from using the reporting software. A help
desk is staffed during normal business hours and can be reached by
telephone toll free at 1-866-401-1109.
The use of electronic forms makes it possible to download
information from previously filed reports directly into the form;
enables officer and employee information to be imported onto the form;
makes it easier to enter information; and automatically performs
calculations and checks for typographical and mathematical errors and
other discrepancies, which reduces the likelihood of having to file an
amended report. The error summaries provided by the software, combined
with the speed and ease of electronic filing, will also make it easier
for both the reporting labor organization and OLMS to identify errors
in both current and previously filed reports and to file amended
reports to correct them.
As discussed in the preamble, labor organizations that are required
to file a Form LM-2 because their Form LM-3 filing privilege has been
revoked are not required to comply with the electronic submission
requirement.
G. The Use of Performance Rather Than Design Standards
The Department considered a number of alternatives to the proposed
rule that could minimize the impact on small entities. One alternative
would be not to change the existing Form LM-2. This alternative was
rejected because OLMS experience demonstrates that the goals of the Act
are not being met. As explained further in the preamble,
[[Page 27359]]
members of labor organizations cannot accurately determine from the
current Form LM-2 what benefits officials of labor organizations are
receiving. Members need this information to make informed decisions on
the governance of their labor organizations.
Another alternative would be to limit the new reporting
requirements to national and international parent labor organizations.
However, the Department has concluded that such a limitation would
eliminate the availability of meaningful information from local and
intermediate labor organizations, which may have far greater impact on
and relevance to members of labor organizations, particularly since
such lower levels of labor organizations generally set and collect dues
and provide representational and other services for their members. Such
a limitation would reduce the utility of the information to a
significant number of members. Of the 4,452 labor organizations that
are required to file Form LM-2, just 101 are national or international
labor organizations. Requiring only national and international
organizations to file more detailed reports would not provide any
deterrent to fraud and embezzlement by local and intermediate body
officials nor would it increase transparency in local and intermediate
bodies.
Another alternative would be to phase in the effective date for the
Form LM-2 changes and provide smaller Form LM-2 filers with additional
lead time to modify their recordkeeping systems to comply with the new
reporting requirements. The Department has concluded that a three-month
period for all Form LM-2 filers to adapt to the new reporting
requirements should provide sufficient time to make the necessary
adjustments. OLMS also plans to provide compliance assistance to any
labor organization that requests it.
A review of the proposed revisions was undertaken to reduce
paperwork burden for all Form LM-2 filers and an effort was made during
the review to identify ways to reduce the impact on small entities. The
Department believes it has minimized the economic impact of the form
revision on small labor organizations to the extent possible while
recognizing workers' and the Department's need for information to
protect the rights of members of labor organizations under the LMRDA.
H. Reporting, Recording and Other Compliance Requirements of the Rule
\13\
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\13\ The estimated burden on labor organizations is discussed in
detail in the section concerning the Paperwork Reduction Act. The
figures discussed above are derived from the figures explained in
that section.
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This proposed rule is not expected to have a significant economic
impact on a substantial number of small entities. The LMRDA is
primarily a reporting and disclosure statute. Accordingly, the primary
economic impact will be the cost of obtaining and reporting required
information.
For the estimated 4,228 Form LM-2 filers with between $250,000 and
$6,500,000 in annual receipts, the estimated average annual reporting
and recordkeeping burden for the current Form LM-2 is $14,811.32 or
1.17% of their average annual receipts. See Table 1, which provides a
more complete list of the burden estimates.\14\ The average additional
first year cost (including first year non-recurring implementation
costs) to these organizations is estimated at less than $4,164.44, or
0.33% of average annual receipts. Id. The average total first year cost
of the revised Form LM-2 on these labor organizations is estimated at
$18,975.77, or 1.50% of total annual receipts. Id. The Department
believes that it is unlikely that the smallest subset of these labor
organizations (those with between $250,000 and $499,999 in annual
receipts) would incur many of the costs incurred by the typical Form
LM-2 filer (those with receipts between $500,000 and $6.5 million). The
labor organizations with the least annual receipts are likely to have
less complicated accounts covering fewer transactions than the typical,
larger Form LM-2 filer. However, to assess the ``maximum'' or ``worst-
case'' impact on this subset of labor organizations, the Department
considered the unlikely event that the labor organizations in this
subset could incur the same compliance burden as the average for labor
organizations with annual receipts of $500,000 to $49.9 million. Under
this unlikely scenario, the total additional cost of the proposed rule
on such labor organizations is estimated at $4,274.60 in the first
year, or 0.34% of the annual receipts of all organizations with
receipts of $250,000 to $6.5 million, and $260.27 in the second year,
or .02% of annual receipts. Id. For a small labor organization with
$250,000 to $499,999 in annual receipts, the estimated maximum
additional cost of the proposed rule would be 2.82% of receipts in the
first year and 2.23% in the second year.\15\ Id.
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\14\ The estimates reported in this paragraph do not include
labor organizations that voluntarily filed the Form LM-2 nor an
estimate of the number of labor organizations (with annual receipts
less than $250,000) that would have to file the Form LM-2 under the
proposed Form LM-3 revocation procedures. The number of such labor
organizations (158) represents only a small fraction of the total
number of reporting labor organizations and thus their inclusion
would not have a material effect on the burden estimates.
\15\ The several magnitude difference in percentages is
accountable to the much smaller number of labor organizations with
$250,000 to $499,999 in annual receipts (1,317) compared to the
number of labor organizations with $500,000 to $6.5 million in
annual receipts (2,881) and the three and one half-fold difference
in average receipts between labor organizations with $250,000 to
$499,999 in annual receipts ($360,387.94) and labor organizations
with $500,000 to $6.5 million in annual receipts ($1,262,627.09).
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The average annual reporting and recordkeeping burden for the
current Form LM-3 is estimated at $1,404.00 or 2.04% of average annual
receipts for Form LM-3 filers. See Table 1. The Department assumes that
Form LM-3 filers will spend the same amount on labor as Tier 1 Form LM-
2 filers or approximately $15.89 per hour. See Table 4. The additional
cost of filing a Form LM-2 rather than a Form LM-3 is $1,955.92 or
2.84% of average annual receipts for Form LM-3 filers. The Department
estimates that on average 96 Form LM-3 filers annually will have their
Form LM-3 filing privilege revoked and thus incur this additional
burden. The Department arrived at this figure by examining the number
of deficiency and delinquency cases processed by the Department. In the
latest fiscal year, the Department processed 684 deficiency cases for
Form LM-3 filers and 1,187 cases for delinquent Form LM-3 filers. The
Department assumes that it will examine one half of the deficiency and
delinquency cases for possible revocation (935.5 per year) and that 10%
of the cases examined will ultimately lead to revocation of the Form
LM-3 filing privilege (93.55). Further the Department assumes that in
another 2 cases per year it will find ``other circumstances exist that
warrant revocation'' for a total of 96 revocations per year (rounded
up).
[[Page 27360]]
Table 1.--Summary of Regulatory Flexibility Analysis \16\
------------------------------------------------------------------------
Total burden
For unions that meet the SBA small hours per Total cost per
entities standard respondent respondent
------------------------------------------------------------------------
Weighted Average Cost of Current 507.62 $14,811.32
Form LM-2..........................
Percentage of Average Annual n.a. 1.17%
Receipts.......................
Average Cost of Current Form LM-3... 116.00 $ 1,404.00
Percentage of Average Annual n.a. 2.04%
Receipts.......................
Weighted Average First Year Cost of 650.34 $18,975.77
Revised Form LM-2..................
Percent of Average Annual n.a. 1.50%
Receipts.......................
Weighted Average Second Year Cost... 516.81 $15,079.59
Percent of Average Annual n.a. 1.19%
Receipts.......................
Weighted Average Increase in Cost of 142.72 $4,146.44
Proposed Rule, First Year..........
Percent of Average Annual n.a. 0.33%
Receipts.......................
Weighted Average Increase in Cost of 9.19 $268.27
Proposed Rule, Second Year.........
Percent of Average Annual n.a. 0.02%
Receipts.......................
Maximum First Year Cost of Revised 654.12 $10,393.92
Form LM-2 for Unions with $250,000
to $499,999 in Annual Receipts.....
Percentage of Average Annual n.a. 2.82%
Receipts.......................
Maximum Second Year Cost............ 516.54 $8,207.77
Percentage of Average Annual n.a. 2.23%
Receipts.......................
Maximum Increase in Cost of Proposed 146.50 $4,274.60
Rule, First Year...................
Percent of Annual Receipts for n.a. 0.36%
$250,000 to $499,999 Union.....
Percent of Annual Receipts for n.a. 0.18%
$500,000 to $6,500,000 Union...
Percent of Annual Receipts for n.a. 0.34%
$250K to $6.5M Union...........
Maximum Increase in Cost of Proposed 8.92 $260.27
Rule, Second Year..................
Percent of Annual Receipts for n.a. 0.02%
$250,000 to $499,999 Union.....
Percent of Annual Receipts for n.a. 0.01%
$500,000 to $6,500,000 Union...
Percent of Annual Receipts for n.a. 0.02%
$250K to $6.5M Union...........
Average Cost of Revised Form LM-2... 211.45 $ 3,359.92
Union with between $10K and n.a. 4.87%
$249,999 in Annual Receipts....
Average Increase in Cost of Form LM- 95.45 $ 1,955.92
2..................................
Unions with between $10K and n.a. 2.84%
$249,999 in Annual Receipts....
------------------------------------------------------------------------
Total 2005 Filers between $250K & $6.5M....... 4228
Total 2005 Filers between $250K & $499,999.... 1317
Total 2005 Filers between $500K & $6.5........ 2911
Total 2005 Filers between $500K & $49.9M...... 3083
Number of Form LM-2 Filers with Annual 3441
Receipts between $250K & $2M.................
Total 2005 Form LM-3 Filers................... 9658
Total 2005 Form LM-2 Filers................... 4452
Total 2005 Union Filers....................... 24065
Percentage of All Union Filers that File Form 18.50%
LM-2.........................................
Percentage of all Union Filers with Annual 18.0%
Receipts between $250K & $6.5M...............
Percentage of Union Filers with Annual 5.5%
Receipts between $250K & $499,999............
Percentage of Form LM-2 Filers with Annual 94.97%
Receipts between $250K & $6.5M...............
Percentage between $250K & $499,999........... 31.15%
Percentage between $500K & $6.5M.............. 68.85%
Percentage of Form LM-3 Filers that will File .99%
Form LM-2....................................
2005 Average Annual Receipts for Unions $1,262,627.09
between $250K & $6.5M........................
2005 Average Annual Receipts for Unions $368,597.23
between $250K & $499,999.....................
2005 Average Annual Receipts for Unions $1,667,105.73
between $500K & $6.5M........................
2005 Average Annual Receipts for Unions $68,939.34
between $10K and $249,999....................
2005 Average Number of Employees Employed by 4
Unions with Annual Receipts between $250K &
$6.5M........................................
2005 Average Number of Officers Employed by 12
Unions with Annual Receipts between $250K &
$6.5M........................................
------------------------------------------------------------------------
\16\ Note: some of the figures used in this table and other figures
mentioned in this document may not add due to rounding.
I. Conclusion
As noted above, the proposed rule will apply to 4,228 Form LM-2
filers and approximately 96 Form LM-3 filers that meet the SBA standard
for small entities, about 18% of all labor organizations that must file
an annual financial report under the LMRDA. Further, the Department
estimates that just 1,317 labor organizations with annual receipts from
$250,000 to $499,999, or 5.5% of all labor organizations covered by the
LMRDA, would be affected by this rule. Even less (5.5% of the total)
would incur the maximum additional costs of the proposed rule described
above. Finally, the Department estimates that approximately 96 Form LM-
3 filers, or 1% of all Form LM-3 labor organizations covered by the
LMRDA, would be affected by this rule.
For the estimated 4,228 Form LM-2 filers with between $250,000 and
$6,500,000 in annual receipts, the estimated average annual reporting
and recordkeeping burden for the current Form LM-2 is $14,811.32 or
1.17% of their average annual receipts. The average additional first
year cost (including first year non-recurring implementation costs) to
these organizations is estimated at less than $4,164.44, or 0.33% of
average annual receipts. The average total first year cost of the
revised Form LM-2 on these labor organizations is estimated at
$18,975.77, or 1.50% of total annual receipts. The Department believes
that it is unlikely
[[Page 27361]]
that the smallest subset of these labor organizations (those with
between $250,000 and $499,999 in annual receipts) would incur many of
the costs incurred by the typical Form LM-2 filer (those with receipts
between $500,000 and $6.5 million). Under this ``worst case'' scenario
for these organizations, the total additional cost of the final rule on
such labor organizations is estimated at $4,274.60 in the first year,
or 0.34% of the annual receipts of all organizations with receipts of
$250,000 to $6.5 million, and $260.27 in the second year, or .02% of
annual receipts.
The average annual reporting and recordkeeping burden for the
current Form LM-3 is estimated at $1,404.00 or 2.04% of average annual
receipts for Form LM-3 filers. For the estimated 96 Form LM-3 filers
that would have their privilege to file Form LM-3 revoked (all of which
meet the SBA standard for small entities), the additional cost of
filing a Form LM-2 rather than a Form LM-3 is $1,955.92 or 2.84% of
average annual receipts for Form LM-3 filers.
To evaluate whether this proposed rule will have a significant
economic impact on a substantial number of small entities, the
Department has conducted this IRFA as a component of this rulemaking.
Although the Department acknowledges that there will be a substantial
number of small entities impacted by this proposed rule, it does not
believe that these entities will incur a significant economic impact.
The Department seeks comment on all aspects of this IRFA, particularly
on the numbers of small entities that may be impacted by this
rulemaking and the potential economic impacts to these small entities.
Paperwork Reduction Act
This statement is prepared in accordance with the Paperwork
Reduction Act of 1995, 44 U.S.C. 3501 (``PRA''). See 5 CFR 1320.9. As
discussed in the preamble to this proposed rule, the analysis under the
Regulatory Flexibility Act, and the analysis that follows, the rule
implements an information collection that meets the requirements of the
PRA in that: (1) The information collection has practical utility to
labor organizations, their members, other members of the public, and
the Department; (2) the rule does not require the collection of
information that is duplicative of other reasonably accessible
information; (3) the provisions reduce to the extent practicable and
appropriate the burden on unions that must provide the information,
including small labor organizations; (4) the form, instructions, and
explanatory information in the preamble are written in plain language
that will be understandable by reporting labor organizations; (5) the
disclosure requirements are implemented in ways consistent and
compatible, to the maximum extent practicable, with the existing
reporting and recordkeeping practices of labor organizations that must
comply with them; (6) this preamble informs labor organizations of the
reasons that the information will be collected, the way in which it
will be used, the Department's estimate of the average burden of
compliance, which is mandatory, the fact that all information collected
will be made public, and the fact that they need not respond unless the
form displays a currently valid OMB control number; (7) the Department
has explained its plans for the efficient and effective management and
use of the information to be collected, to enhance its utility to the
Department and the public; (8) the Department has explained why the
method of collecting information is ``appropriate to the purpose for
which the information is to be collected''; and (9) the changes
implemented by this rule make extensive, appropriate use of information
technology ``to reduce burden and improve data quality, agency
efficiency and responsiveness to the public.'' See 5 CFR 1320.9; 44
U.S.C. 3506(c).
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a pre-clearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the PRA. This helps to ensure that the
public understands the Department's collection instructions,
respondents can provide the requested data in the desired format, the
reporting burden (time and financial resources) is minimized, and the
Department can properly assess the impact of collection requirements on
respondents.
In this proposed rulemaking, the Department has sought to improve
the usefulness and accessibility of information to members of labor
organizations subject to the LMRDA. The LMRDA reporting provisions were
devised to protect the basic rights of labor organization members and
to guarantee the democratic procedures and financial integrity of labor
organizations. The 1959 Senate report on the version of the bill later
enacted as the LMRDA stated clearly that ``the members who are the real
owners of the money and property of the organization are entitled to a
full accounting of all transactions involving their property.'' A full
accounting was described as ``full reporting and public disclosure of
union internal processes and financial operations.''
As labor organizations have become more multifaceted and have
created hybrid structures for their various activities, the form used
to report financial information with respect to these activities had
until recently remained relatively unchanged and had become a barrier
to the complete and transparent reporting of labor organizations'
financial information intended by the LMRDA. By providing members of
labor organizations with more complete, understandable information
about their labor organizations' financial transactions, investments,
and solvency, this proposal will put them in a much better position
than they are today to protect their personal financial interests and
to exercise their rights of self-governance. The information collection
achieved by this rule is integral to this purpose. The paperwork
requirements associated with the proposed rule are necessary to enable
workers to be responsible, informed, and effective participants in the
governance of their labor organizations; discourage embezzlement and
financial mismanagement; prevent the circumvention or evasion of the
statutory reporting requirements; and strengthen the effective and
efficient enforcement of the LMRDA by the Department.
This PRA analysis is based largely on the PRA analysis prepared by
the Department in connection with its 2003 final rule that
substantially revised the Form LM-2.\17\ The PRA analysis was approved
by the Office of Management and Budget. The PRA analysis utilizes the
same basic methodology and data (the latter updated with more current
information) as used in the 2003 rule.
---------------------------------------------------------------------------
\17\ The PRA analysis for the Form LM-2 is set forth at 68 FR
58436-42.
---------------------------------------------------------------------------
1. Form LM-2 Proposed Rulemaking
This proposed rule modifies the annual reports required to be filed
by the largest labor organizations, as required by section 201 of the
LMRDA, 29 U.S.C. 431, and prescribed by the Secretary of Labor. As
discussed above and throughout the preamble, the revised paperwork
requirements are necessary to effectuate the purposes of the LMRDA by
providing members of labor organizations with information about their
labor organizations that will enable them to be responsible, informed,
and effective participants in
[[Page 27362]]
the governance of those organizations; discourage embezzlement and
financial mismanagement; prevent the circumvention or evasion of the
statutory reporting requirements; and strengthen the effective and
efficient enforcement of the LMRDA by the Department. The manner in
which the collected information will serve these purposes is discussed
throughout the preamble to this proposed rule.
The proposed revisions to Form LM-2 are designed to take advantage
of technology that reduces the burden to report information, while at
the same time making it easier to file and publish the contents of the
reports. Members of labor organizations thus will be able to obtain a
more accurate and complete picture of their labor organization's
financial condition and operations without imposing an unwarranted
burden on reporting labor organizations. In the 2003 rule, the
Department estimated the total first year compliance costs associated
with the Form LM-2 at $116,000,000. 68 FR 58428.
For the proposed Form LM-2, the total first year compliance costs
are estimated to be $89.5 million ($70.4 million (total cost to
complete current Form LM-2) + $19.1 million (total cost to complete
proposed changes to Form LM-2) = $89.5 million). This reflects an
increased burden of $19.1 million ($29.50 (weighted average cost per
hour) x 650,407 (total burden hours to complete proposed changes to
Form LM-2); this increase is chiefly the result of an adjustment in the
number of expected filers, the addition of proposed schedules, and
higher contemporary labor costs. Both the estimated burden hours and
the compliance costs associated with the revised Form LM-2 will decline
in subsequent years. The Department estimates that the total burden
averaged over the first three years to comply with the revised Form LM-
2 to be 249,868 hours. The total compliance costs associated with the
proposed changes to the Form LM-2, averaged over the first three years,
are estimated to be $7.4 million per year.
a. Background on Current Form LM-2
Every labor organization whose total annual receipts are $250,000
or more and those organizations that are in trusteeship must currently
file an annual financial report using the current Form LM-2, Labor
Organization Annual Report, within 90 days after the end of the labor
organization's fiscal year, to disclose its financial condition and
operations for the preceding fiscal year. The current Form LM-2 is also
used by covered labor organizations with total annual receipts of
$250,000 or more to file a terminal report upon losing their identity
by merger, consolidation, or other reason.
The current Form LM-2 consists of 21 questions that identify the
labor organization and provide basic information (in primarily a yes/no
format); a statement of 11 financial items on different assets and
liabilities; a statement of receipts and disbursements; and 20
supporting schedules. The information that is reported includes:
whether the labor organization has any trusts; whether the labor
organization has a political action committee; whether the labor
organization discovered any loss or shortage of funds; the number of
members; rates of dues and fees; the dollar amount for seven asset
categories, such as accounts receivable, cash, and investments; the
dollar amount for four liability categories, such as accounts payable
and mortgages payable; the dollar amount for 13 categories of receipts
such as dues and interest; and the dollar amount for 16 categories of
disbursements such as payments to officers and repayment of loans
obtained. Four of the supporting schedules include a detailed
itemization of loans receivable and payable and the sale and purchase
of investments and fixed assets. There are also 10 supporting schedules
for receipts and disbursements that provide members of labor
organizations with more detailed information by general groupings or
bookkeeping categories to identify their purpose. Labor organizations
are required to track their receipts and disbursements in order to
correctly group them into the categories on the current form.
The Department also has developed an electronic reporting system
for labor organizations, e.LORS, which uses information technology to
perform some of the administrative functions for the current forms. The
objectives of the e.LORS system include the electronic filing of
current Forms LM-2, LM-3, and LM-4, as well as other LMRDA disclosure
documents; disclosure of reports via a searchable Internet database;
improving the accuracy, completeness and timeliness of reports; and
creating efficiency gains in the reporting system. Effective use of the
system reduces the burden on reporting organizations, provides
increased information to members of labor organizations, and enhances
LMRDA enforcement by OLMS. The OLMS Online Public Disclosure site is
available for public use at http://www.unionreports.gov. 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 of the information in each report.
Filing labor organizations have several advantages with the current
electronic filing system. With e.LORS, information from previously
filed reports and officer or employee information can be directly
imported into Form LM-2. Not only is entry of the information eased,
the software also makes mathematical calculations and checks for errors
or discrepancies.
b. Overview of Changes to Form LM-2
The proposed Form LM-2 includes: the same number of questions (21)
as the current form that identify the labor organization and provide
basic information (in the same general yes/no format); the same (11)
financial items on assets and liabilities in Statement A; an updated
Statement B that asks for information in the same categories of
receipts (13) as the current Form LM-2 and ten additional supporting
schedules (for a total of 23 instead of 13).
Under the proposal, several of the current supporting schedules
would change. The schedules for ``Sale of Investments and Fixed
Assets'' and ``Purchase of Investments and Fixed Assets'' would be
modified by the inclusion of the name of the party transacting with the
labor organization in the purchase or sale. The schedule for
``Benefits'' would be modified and the disbursements for benefits to
labor organization officers and employees would be reported in the
schedules for disbursements to officers and employees.
Under the proposal, the Form LM-2 would be revised to require labor
organizations to individually identify receipts within supporting
schedules for all of the current categories of receipts.
c. Methodology for the Burden Estimates
In reaching its estimates, the Department considered both the
onetime and recurring costs associated with the proposed rule. Separate
estimates are included for the initial year of implementation as well
as the second and third years. For filers, the Department included
separate estimates, based on the relative size of labor organizations
as measured by the amount of their annual receipts. The size of a labor
organization, as measured by the amount of its annual receipts, will
affect the burden on reporting labor organizations. For example, larger
labor organizations have more receipts and disbursements to itemize and
more employees who have to estimate their time allocation.
[[Page 27363]]
In 2005, there were approximately 4,452 labor organizations that
were required to file Form LM-2 reports under the LMRDA (approximately
18.5 percent of all labor organizations covered by the LMRDA). Although
these estimates may not be predictive of the exact number of labor
organizations that will be impacted by this rule in the future, the
Department believes these estimates to be sound and derived from the
best available information.
The Department's estimates include costs incurred by the labor
organization for both labor and equipment. The labor costs reflect the
Department's assumption that the labor organizations will rely upon the
services of some or all of the following positions (either internal or
external staff, including the labor organization's president,
secretary-treasurer, accountant, bookkeeper, computer programmer,
lawyer, consultant) and the compensation costs for these positions, as
measured by wage rates and employer costs published by the Bureau of
Labor Statistics or derived from data reported in e.LORS.
The Department also made assumptions relating to the amount of time
that particular tasks or activities would take. The activities occur
during the 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 sending or exporting
the data in an electronic format that can be processed by the
Department's import software. Since the analysis is designed to provide
estimates for a ``representative'' labor organization the Department's
estimates largely reflect weighted averages. Where an estimate depends
upon the number of labor organizations subject to the LMRDA or included
in one of the tier groups, the Department has relied upon data in the
e.LORS system (for the years stated for each example in the text or
tables).
The following methodology and assumptions underlie the Department's
burden estimates:
The size of a labor organization, as measured by the
amount of its annual receipts, will affect the burden on reporting
labor organizations. Larger labor organizations have more receipts and
disbursements to itemize and more employees who have to estimate their
time allocation. Three tiers, based on annual receipts, have been
constructed to differentiate the burdens among Form LM-2 filers.
A labor organization's use of computer technology, or not,
to maintain its financial accounts and prepare annual financial reports
under the current rule, will affect the burden on reporting labor
organizations. Although few Form LM-2 filers do not have computers, the
larger the labor organization the greater likelihood that it will be
using a specialized accounting program instead of commercial-off-the-
shelf accounting software.
Relative burden associated will correspond to the
following predictable stages: Review of the rule, instructions, and
forms; adjustments to accounting software and computer hardware;
installation, testing, and review of the Department's reporting
software; 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; training officers and employees
to maintain information relating to transactions and estimating the
amount of time they expend in prescribed categories; the actual
recordkeeping of data under the revised procedures associated with
itemizing receipts and disbursements and allocating them by functional
categories; preparing a download methodology to either submit
electronic reports using ``cut and paste'' methods or the import/
export technology allowing for a more automated transfer of data to the
Department; the development, testing, and review of any translator
software that may be required between a labor organization's accounting
software and the Department's reporting software; and completing a
continuing hardship exemption request if necessary.
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
users gain experience. Estimates for each of the first three years and
a three-year average will provide useful information to assess the
burden. A weighted average provides a ``snapshot'' of the burden
associated with the form for an individual reporting labor
organization.
Burden can be usefully reported as an overall total for
all filers in terms of hours and cost. This burden, for most purposes,
can be differentiated for each individual form. The Federal burden
cannot be reasonably estimated by form.
The estimated burden associated with the current Form LM-2
and Form LM-3 is the appropriate baseline for estimating the burden and
cost associated with the proposed rule.
d. Baseline Adjustments: Current Form LM-2
Prior to the 2003 revision, the Department assumed that 5,038 local
labor organizations would take 200 hours and 141 national and
international labor organizations would take 1,500 hours to collect and
report their information on the current Form LM-2 for a weighted
average of approximately 240.0 hours for each of the 5,179 respondents.
In addition, the Department assumed at that time that Form LM-2 filers
would take an average 24.0 hours for accounting, 16.0 hours for
programming, 8.0 hours for legal review, and 4.0 hours for consulting
assistance to complete the current form for an average total burden of
292.0 hours per respondent. Further, the Department previously
estimated that 160.0 hours of the total is for recordkeeping burden and
132.0 hours is for reporting burden. In 2003, the Department estimated
that on average, labor organizations would spend 536.0 hours to comply
with the recordkeeping and reporting requirements.
In 2003 the Department estimated that the average annual cost of
complying with the current Form LM-2 recordkeeping and reporting
requirements per respondent would be $24,271. The total annual cost for
all respondents (based on the more recent estimate of 4,452 reporting
labor organizations rather than the 5,038 estimate used in 2003) is
estimated to be $116.0 million for the current Form LM-2.
e. Revised Form LM-2
To estimate the burden hours and costs for the proposed revisions
to Form LM-2, the Department, as it did in connection with the 2003
rule, divided the Form LM-2 filers into three groups or tiers, based on
the amount of the labor organizations' annual receipts. As discussed,
the Department estimates that there are 4,452 such filers. In Tier I,
the Department estimates there are 1,317 labor organizations with
annual receipts from $250,000 to $499,999.99. The Department assumes
that labor organizations within this tier probably use some type of
commercial off-the-shelf accounting software program and will most
likely use the ``cut and paste'' feature of the reporting software (see
Table 3). In Tier II, the Department
[[Page 27364]]
estimates there are 3,083 labor organizations with annual receipts from
$500,000 to $49.9 million. The Department assumes that labor
organizations within this tier most likely use some type of commercial
off-the-shelf accounting software program and will use all of the
electronic filing features of the reporting software. Id. Finally, in
Tier III, the Department estimates there are 52 labor organizations
with annual receipts of $50.0 million or more. Id. The Department
assumes that labor organizations within this tier most likely will use
some type of specialized accounting software program and also will use
all of the electronic filing features of the reporting software.
For each of the three tiers, the Department estimated burden hours
for the additional nonrecurring (first year) recordkeeping and
reporting requirements, the additional recurring recordkeeping and
reporting burden hours, and a three-year annual average for the
additional nonrecurring and recurring burden hours associated with the
proposed rule.
The proposal will revise Form LM-2 to improve financial disclosure
and clarity within categories of receipts and disbursements. Under the
proposal, receipts will have to be disclosed in the same manner that
disbursements are currently disclosed and certain disbursements (e.g.,
benefit payments, travel reimbursements, and transactions involving
investment and fixed assets) will have to be reported in greater
detail. To accomplish this result, additional schedules will be
required, which will add to the burden associated with each Form LM-2
filed.
For this analysis the Department has used an approach that largely
replicates the approach used in 2003, i.e., estimating the burden and
costs by the size of labor organizations as measured by the amount of
their annual receipts. However, the current approach differs somewhat
from the 2003 approach. Since the basic information required on the new
and revised schedules is already needed to complete the current Form
LM-2, the Department assumes that most of the burden associated with
the proposed changes will occur in the first year due to needed changes
to the accounting software and staff training. Like it did in 2003, the
Department has estimated burden hours and costs for the additional
nonrecurring (first year) recordkeeping and reporting requirements, the
additional recurring recordkeeping and reporting burden hours, and a
three-year annual average for the additional nonrecurring and recurring
burden hours. As in 2003, the Department assumes that Tier I and Tier
II labor organizations use commercial off-the-self accounting packages
and Tier III labor organizations use customized accounting software.
For proposed revised Schedules 3 and 4 (Sale of Investments and
Fixed Assets and Purchase of Investments and Fixed Assets), the
Department estimates that labor organizations shall spend, on average,
an additional, nonrecurring 10.38 hours per schedule to change their
accounting structures; develop, test, review, and document accounting
software queries; design query reports; and train accounting personnel.
See Table 2 below. This estimated burden is derived from the 2003 Form
LM-2 PRA estimate for the first year nonrecurring burden associated
with Schedule 17 (Contributions, Gifts, and Grants). The changes to
that schedule under the 2003 rule (the addition of date, name and
address of payer or payee) are the same changes that are proposed for
Schedules 3 and 4 in this NPRM. In 2003, the Department determined that
in order to provide this information it would take Tier I and II labor
organizations 5.3 hours to change their accounting systems and Tier III
labor organizations 13.3 hours. Again, as in 2003, the Department
estimates that it will take Tier I, II and III labor organizations 1
hour to design the report, 1 hour to develop a query, .75 hours to test
the query, .5 hours for management review, .75 hours to document the
query process, and .25 hours to train staff. The Department estimates
that Tier II and III labor organizations will spend an additional hour
preparing download methodology. The average burden was computed by
taking the burden in each tier and weighting it by the number of unions
in each tier.
To record the date of the transaction and address of the payee on
Schedule 4, the Department estimates, using a weighted average based on
the number of labor organizations within each tier, that labor
organizations will spend an additional (recurring) .03 hours of
recordkeeping burden and .48 hours on reporting. To record the date of
the transaction and address of the payer on Schedule 3, the Department
estimates, using a weighted average based on the number of labor
organizations within each tier, that labor organizations will spend an
additional (recurring) .07 hours of recordkeeping burden, and .49 hours
on reporting burden. Based on extensive public comment and analysis,
the Department in 2003 made the following underlying assumptions in
determining its final burden numbers. First, that it would take the
average Form LM-2 filer approximately .05 hours of additional
recordkeeping time per receipt/disbursement to record the name and
address of the payer/payee. Second, Tier I labor organizations would
incur an additional recordkeeping burden from training (.25 hours) and
preparing the report (.33 hours) to record the name and address of the
payer/payee. Third, that approximately one-half of the Tier II labor
organizations already kept these records, and all Tier III labor
organizations kept these records. Therefore, all Tier I labor
organizations would be subject to the additional recordkeeping burden,
and one-half the Tier II labor organizations would be subject to the
additional recordkeeping burden. The Department has adopted these
underlying assumptions for its current analysis.
The number of receipts and disbursements on Schedules 3 and 4 for
2006 was compiled from the e.LORS database, which showed that Tier I
labor organizations report, on average, less than 1 receipt in Schedule
3 and slightly more than 1 disbursement in Schedule 4. Further, Tier II
labor organizations report, on average, 1.5 receipts in Schedule 3 and
less than 3.5 disbursements in Schedule 4. Therefore, the additional
recordkeeping burden for Tier I and Tier II filers is .06 hours and .13
hours respectively (average number of disbursements/receipts per tier
on Schedules 3 and 4 times .05 hours; then divided by two for the Tier
II estimate).\18\
---------------------------------------------------------------------------
\18\ The sum is divided for Tier II labor organizations because,
as noted above, the Department estimated that one-half of these
organizations already keep these records.
---------------------------------------------------------------------------
Based on the same assumptions underlying the Department's 2006
estimates, the Department assumes that 75% of Tier I filers will use
the cut and paste method to enter their data on the Form LM-2 (.08 hour
burden per schedule) and 25% will manually enter the data on the Form
LM-2 (.016 hour burden per disbursement or receipt) and that all Tier
II and III filers will import or attach their data to the Form LM-2 for
an additional reporting burden of .42 hours per schedule. The average
burden was computed by taking the burden in each tier and weighting it
by the number of labor organizations in each tier.
For proposed Schedules 11 (All Officers and Disbursements to
Officers) and 12 (Disbursements to Employees), the Department estimates
that labor organizations will spend, on average, 10.38 hours to change
their accounting structures; develop, test, review, and document
accounting software queries; design query reports; and train
[[Page 27365]]
accounting personnel. As explained below, this estimated burden was
reached by analyzing the 2003 burden estimates from the Form LM-2 final
rule for Schedules 11 and 17 and applying that data to the Form LM-2
officer and employee entries on Form LM-2 reports filed with the
Department in 2006. As in 2003, the Department assumes that the time
required to add a column to one schedule is the same for any schedule.
To download the relevant information from their records, programmers
will only have to designate an appropriate location on their electronic
filing system for collecting and reporting this information. Therefore,
each labor organization would require, on average, approximately 5.2
hours to add the benefits column to Schedules 11 and 12 (one-half the
time required to add two columns to Schedules 3 and 4). The Department
has applied the same nonrecurring burden to the Disbursements for
Official Business revision as to the benefits revision, 5.2 hours.\19\
The average burden was computed by taking the burden in each tier and
weighting it by the number of labor organizations in each tier.
---------------------------------------------------------------------------
\19\ The Department suspects that it will take significantly
less time to make the changes listed above to column F
(Disbursements for Official Business) on Schedules 11 and 12, which
will now include indirect disbursements for temporary lodging or
transportation while on official business for the labor
organization. However, this information has never been reported by
individuals and there is no data upon which to reliably estimate the
number of disbursements.
---------------------------------------------------------------------------
As explained below, the Department estimates that, on average,
labor organizations will take an additional (recurring) .19 hours of
recordkeeping burden and .49 hours of reporting burden to enter the
amount officers receive in benefits on Schedule 11 and track the
indirect disbursements for temporary lodging or transportation. Again,
these estimates are calculated using the recurring burden estimates
from 2003 for Schedules 11 and 17. The average burden was computed by
taking the burden in each tier and weighting it by the number of labor
organizations in each tier.
The proposed changes to Schedule 11 involve individual columns, not
entire schedules. Nevertheless, the Department has assumed that labor
organizations will expend about the same amount of time keeping records
and entering data required by the new proposed columns on Schedule 11
(using the same methodology, as discussed above, for Schedules 3 and
4). To report the additional information required by the proposed
schedule, labor organizations will have to report the amount each of
its officers receives in benefits from the labor organization. The
labor organization must keep records of the benefits each officer
receives, like an itemized schedule, then aggregate the payments and
place the aggregate amount next to the officer's name. Although the
individual disbursements of $5,000 or more need not be entered on the
Form LM-2, the labor organization must track all the disbursements for
benefits so that a final lump sum total can be entered for each officer
on Schedule 11. Currently, labor organizations are required to keep
records of all benefits they provide to officers on the IRS Form 990.
Therefore, there is no recurring recordkeeping burden associated with
the new benefits column. However, there is a slight recurring reporting
burden, on average, of .49 hours. The Department assumes that 75% of
Tier I filers would use the cut and paste method to enter their data on
the Form LM-2 (.08 hour burden per column entering data, .25 hours on
training, .33 hours preparing the report), and 25% would manually enter
the data on the Form LM-2 (.016 hour burden per officer, .25 hours on
training, .33 hours preparing the report). Tier II and III filers will
import or attach their data to the Form LM-2 for an additional
reporting burden of .42 hours. Further, there is no new recurring
reporting burden for indirect disbursements for temporary lodging or
transportation. This information is currently required to be reported
in Schedules 15 through 20, as appropriate; thus, as only the location
on the form is changed, there is no additional reporting burden. The
only burden associated with this proposed change is estimated to be
about the same amount of time required for a new itemized schedule (.19
hours). The average burden was computed by taking the burden in each
tier and weighting it by the number of labor organizations in each
tier.
Compared to the proposed revised Schedule 11, the Department
estimates that, on average, labor organizations will spend slightly
more time on the proposed revised Schedule 12. Labor organizations, on
average, will spend an additional (recurring) .75 hours of
recordkeeping burden and .5 hours of reporting burden to track and
enter the amount employees receive in benefits on Schedule 12 and track
the indirect disbursements for temporary lodging or transportation.
Unlike benefits to officers (which are reported on Schedule 11), labor
organizations do not have to track benefits paid to employees for the
IRS Form 990 unless those employees are ``key employees.'' Further,
labor organizations have not had to track by individual employee the
indirect disbursements to employees for lodging or travel under the
current Form LM-2.
There is no way to determine the amount or number of benefits or
indirect disbursement for lodging or travel being paid to employees
from the current Form LM-2. To estimate the additional burden
associated with these tasks, the Department assumes that labor
organizations will expend the same amount of time keeping records of
benefits and indirect disbursements for lodging or travel for data
entry on Schedule 12 as they do on Schedules 3 and 4. The Department
assumes that labor organizations already keep some records of benefits
paid to employees and indirect disbursements for lodging and travel.
However, it is unlikely that these benefits or disbursements appear
next to the name of the person who received them. Therefore, like
Schedules 3 and 4, the labor organizations will now have to track the
name of the person to whom (or on whose behalf) the disbursement is
made. Unlike Schedules 3 and 4, where the burden is based on the
estimated number of disbursements, Schedule 12's recordkeeping burden
is based on the estimated number of employees. Tier I labor
organizations will spend approximately 3 minutes (.05 hours) per
employee keeping records of benefits paid to each employee and 3
minutes (.05 hours) per employee keeping records of indirect
disbursements for lodging or travel made to employees. On average, Tier
I labor organizations have 9.67 employees listed on their Form LM-2. As
on Schedule 3 and 4, the Department assumes that one half of the Tier
II labor organizations will already keep data on benefits and indirect
disbursements for lodging or travel made to employees, but the other
one half will spend approximately 3 minutes (.05 hours) per employee
keeping records of benefits paid to each employee and 3 minutes (.05
hours) per employee keeping records of indirect disbursements for
lodging or travel made to each employee. On average, Tier II labor
organizations have 13.53 employees listed on their Form LM-2. Finally,
it is assumed that Tier III labor organizations already keep records of
benefits and indirect disbursements for lodging or travel by employee.
Therefore, labor organizations will spend an additional .75 hours
keeping records of employee benefits and disbursements to employees for
lodging or travel. Like Schedules 3 and 4, the Department assumes it
will take Tier I
[[Page 27366]]
labor organization .05 hours recordkeeping burden per employee to keep
the new data. The Department, however, also assumes that one-half the
Tier II labor organizations currently keep the records, and all the
Tier III labor organizations keep the records. Additionally, the
Department assumes that labor organizations will use the same method
for reporting benefits as they use throughout the Form LM-2. Therefore,
the Department estimates that labor organizations will spend an
additional .50 hours per year reporting benefits on the Form LM-2.
There is no additional reporting cost associated with the removal of
the exemption for indirect disbursements to employees for lodging or
travel. This information is now reported in Schedules 15 through 20, as
appropriate, so only the reporting location on the form is changed. The
average burden was computed by taking the burden in each tier and
weighting it by the number of labor organizations in each tier.
For proposed Schedules 14 through 22, the Department estimates that
labor organizations will spend, on average, 10.38 hours per schedule to
change their accounting structures; develop, test, review, and document
accounting software queries; design query reports; and train accounting
personnel. This burden estimate is based largely on the 2003 burden
estimates for Schedule 14 and the number of itemized receipts reported
on Schedule 14 in 2006, approximately 6.4 per filer. It should be noted
that the Department has used the number of itemized entries currently
reported on Schedule 14 for estimating this burden because there is no
way to determine the number of itemized receipts which will appear on
the proposed Schedules 14 through 22 as they currently only report an
aggregate number. However, since Schedule 14 is a ``catch all''
schedule (includes all other receipts which do not fit into the other
specific receipt schedules), it is likely that the number of entries on
proposed Schedules 14 through 22 will be significantly lower than the
Department's estimate. As in 2003, the Department estimates that it
will take Tier I and Tier II labor organizations 5.3 hours to change
their accounting structures and 13.3 hours for Tier III labor
organizations to change their accounting structures. Additionally, the
Department estimates that each labor organization will spend
approximately 4.95 hours setting up the reporting system. The smallest
Form LM-2 filers, Tier I, will spend approximately 4.25 hours setting
up their reporting schedules (1 hour to design report, 1 hour to
develop query, .75 hours to test query, .5 hours for management review,
.75 hours for document query process, and .25 hours to train new
staff). The Tier II and III labor organizations will spend an
additional hour setting up their systems as their systems are more
complicated and will require a greater number of entries.
The Department also estimates that, on average, labor organizations
will take an additional (recurring) .21 hours of recordkeeping burden
and .47 hours of reporting burden to complete proposed Schedules 14
through 22. In 2003 the Department made the underlying assumption that
labor organizations will spend 3 minutes (.05 hours) on recordkeeping
per disbursement or receipt. Further, the Department assumed that all
the largest labor organizations, Tier III, and 10% of the Tier II labor
organizations will already keep this data. The Department has adopted
the above underlying assumptions in its current analysis. In 2006, Tier
I filers had, on average, 1.3 entries on other receipts and Tier II
filers had, on average, 6.1 entries on other receipts. If it takes 3
minutes of recordkeeping per receipt or disbursement, then the average
labor organization will spend .21 hours per schedule on recordkeeping
each year. Further, as in 2003, the Department assumes that Tier I
filers will spend .25 hours on training, .33 hours preparing the report
and 1 minute (.02 hours) to manually enter each disbursement or receipt
on the report and Tier II and III filers will spend 25 minutes (.42
hours) per schedule to cut and paste or import their data onto the Form
LM-2. Therefore, the Department estimates the reporting burden per
schedule to be .47 hours. The average burden was computed by taking the
burden in each tier and weighting it by the number of labor
organizations in each tier.
Finally, the Department estimates that labor organizations will
spend, on average, an additional, recurring 2.0 hours reviewing the
revised Form LM-2 and instructions. In 2003, the Department estimated
that, on average, labor organizations would spend 4.0 hours reviewing
the current Form LM-2 and instructions. The Department has reduced the
burden associated with reviewing the revised Form LM-2 and instructions
because the proposed changes are significantly less extensive than the
changes in 2003 and labor organizations are familiar with the kinds of
changes being made to the proposed Form LM-2.\20\
---------------------------------------------------------------------------
\20\ The Department estimates the total recordkeeping and
reporting burden to average 682.09 hours per response in the first-
year and 547.14 hours per response in the second- and third-years.
The total first-year burden was computed by adding the current Form
LM-2 total burden hours per respondent (536) to the revised Form LM-
2 first-year burden (146.09) from Table 5. The second- and third-
year burden was computed by adding the current Form LM-2 total
burden hours per respondent (536) to the revised Form LM-2 second-
and third-year burden (11.14) from Table 5.
[GRAPHIC] [TIFF OMITTED] TP12MY08.105
Given the current widespread use of automated accounting packages
and labor organizations' experience with the electronic filing, the
Department is not making the assumption (that was made in 2003) that
over time the recurring burden would be reduced due to efficiency gains
as the accounting staff became familiar with the software.
[[Page 27367]]
Rather, the Department assumes that the second- and third-year burden
will be equal to the recurring first-year burden.
To develop the cost estimates, the Department examined data from
BLS and the e.LORS system. The Department examined salary data for the
positions of president, secretary-treasurer, accountant, and
bookkeeper-clerk. This review was conducted for labor organizations in
all three tiers. Based on this review the Department has developed
averages for these labor organization personnel in each tier. The
annual salaries were divided by 2080 hours to convert them to hourly
rates. These figures are reported in Table 4 immediately below.
[GRAPHIC] [TIFF OMITTED] TP12MY08.220
The weighted average salary rates were then multiplied by the
estimated additional burden hours to arrive at the estimated additional
cost burden displayed in Table 5 below.
BILLING CODE 4510-86-P
[[Page 27368]]
[GRAPHIC] [TIFF OMITTED] TP12MY08.106
BILLING CODE 4510-86-C
[[Page 27369]]
The Department estimates the additional weighted average reporting
and recordkeeping burden for the revised Form LM-2 to be 146.09 hours
per respondent in the first year (including nonrecurring implementation
costs) and 11.14 hours per respondent in the second and third years.
See Table 5 below. The Department estimates the total additional annual
burden hours for respondents for the revised Form LM-2 to be 650,407
hours in the first year and 49,599 hours in the second and third years.
The Department estimates the additional weighted average annual
cost for the revised Form LM-2 to be $4,310 ($29.50 (weighted average
cost per hour) x 146.09 (additional hours to complete the proposed
changes to Form LM-2 in first year) = $4,310) per respondent in the
first year (including nonrecurring implementation costs) and $329
($29.50 (weighted average cost per hour) x 11.14 (additional hours to
complete the proposed changes to Form LM-2 in second and third year) =
$329) per respondent in the second year and third year. The Department
also estimates the total additional annual cost to respondents for the
revised Form LM-2 to be $19.19 million ($29.50x650,407 (total hours to
complete proposed changes to Form LM-2 in first year) = $19.19 million)
in the first year and $1.46 million ($29.50x49,599 (total hours to
complete proposed changes to Form LM-2 in second and third year) =
$1.46 million) in the second and third years.
The Department's estimates of the additional burden and costs
associated with the proposed revisions to the Form LM-2 are presented
in Table 5. This table only presents the increases associated with the
proposed changes to the form. Neither the burden or costs associated
with the current Form LM-2 nor the proposed revocation of the privilege
of some labor organizations to file the Form LM-3 is included in these
estimates.
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 filers and permit Form LM-3 and Form LM-4 filers
to submit forms electronically with digital signatures. Labor
organizations are currently required to pay a minimal fee to obtain
electronic signature capability for the two officers who sign the form.
These digital signatures ensure the authenticity of the reports.
Information about this system can be obtained on the OLMS Web site at
http://www.olms.dol.gov.
The OLMS Online Public Disclosure Room is available for public use
at http://www.unionreports.gov. 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.
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 labor organization
officials regarding compliance.
2. Form LM-3 Revocation Procedures Burden Estimates
The Department proposes to establish a procedure for revoking the
simplified reports filing privilege, provided by 29 CFR 403.4(a)(1),
for labor organizations that are delinquent in their Form LM-3 filing
obligation, have failed to timely file an amended form after
notification that the report is materially deficient, or those for
which the Department otherwise finds that the purposes of section 208
of the LMRDA, 29 U.S.C. 438, would be served by such revocation. The
Department's ultimate goal in revoking the filing privilege for such
labor organizations is to promote greater financial transparency. As
discussed above, the revised paperwork requirements are necessary to
effectuate the purposes of the LMRDA by providing members of labor
organizations with information about their labor organizations that
will enable them to be responsible, informed, and effective
participants in the governance of their labor organizations; discourage
embezzlement and financial mismanagement; prevent the circumvention or
evasion of the statutory reporting requirements; and strengthen the
effective and efficient enforcement of the LMRDA by the Department. The
manner in which the collected information will serve these purposes is
discussed throughout the preamble to this proposed rule.
As discussed in the preceding discussion about the Form LM-2, the
Department estimates that Form LM-2 filers will spend 463.08 hours
(389.60 (average recordkeeping hours to complete current Form LM-2) +
73.48 (average recordkeeping hours to complete proposed changes to Form
LM-2) = 463.08) fulfilling recordkeeping requirements and 219.01 hours
(146.40 (average reporting hours to complete current Form LM-2) + 72.61
(average reporting hours to complete proposed changes to Form LM-2) =
219.01) completing the proposed form in the first year. However, the
Department assumes that labor organizations with total annual receipts
under $250,000 will not devote as many hours nor incur as high a cost
as labor organizations with greater annual receipts. As explained
below, the Department has estimated that Form LM-3 filers who lose
their filing privilege will expend 143.56 hours fulfilling the
recordkeeping requirements of the Form LM-2 and 67.89 hours completing
the form itself, which corresponds to $3,359.92 in costs.
In its PRA estimates for the 2003 final rule, the Department
estimated that the average Form LM-2 filer in the first year of the
final rule would expend 133.9 hours on recurring recordkeeping
functions related to Schedule 11 (Officers) and an additional 69.3
hours on recurring recordkeeping burden hours related to Schedule 12
(Employees). See Table 4 of the Form LM-2 final rule at 68 FR 58439.
These 203.2 hours (133.9 plus 69.3) represent the recurring
recordkeeping hours that labor organization officers and employees
spend tracking the functional reporting categories for their work
(i.e., recordkeeping for Schedules 11 and 12 on Form LM-2). These hours
also represent over one half (56%) of the total estimated recurring
recordkeeping burden hours for the average Form LM-2 filer during the
first year of the final rule. It bears repeating, however, that the
total of 203.2 hours represents the burden for officers and employees
of the average labor organization filing the Form LM-2, not the
smallest labor organizations.
In the 2003 rule, the Department estimated that officers and
employees of the smallest Form LM-2 filers (Tier I filers) would spend
only 30 minutes a month (rather than 60 minutes for larger labor
organizations) during the year and an hour at the end of the year on
recurring recordkeeping, corresponding to a total of seven hours per
officer/employee per year. Moreover, the Department estimated that Tier
I labor organizations only have an average of eight officers and one
employee. See 68 FR 58436-37. The Department therefore estimated that
these nine officers and employees would spend only 63 hours (nine
officers/employees multiplied by seven burden hours) on recurring
recordkeeping, rather than the average of 203 hours for all Form LM-2
filers. See 68 FR 58439. This 140 hour difference (203 minus 63)
represents a
[[Page 27370]]
69% difference in the overall average burden hours for all Tier I labor
organization officers and employees on this aspect of the Form LM-2
rule. The Department has extrapolated from these 2003 figures to
determine estimates of the total burden and costs for Form LM-3 filers
that lose their simplified filing privilege and instead file a Form LM-
2. As discussed below, the Department calculated an adjusted burden
estimate for the average Form LM-2 filer, and then reduced this amount
by 69%, to reflect the generally fewer assets, liabilities, and
financial transactions of the ``Tier I'' labor organizations.
In adjusting the overall burden of the average Form LM-2 filer, the
Department eliminated those recurring and nonrecurring burden hours and
costs (shown in Table 5) associated with electronic filing, because the
proposed rule allows affected labor organizations the option of filing
electronically or by paper. Form LM-3 filers currently have the option
of filing the Form LM-3 electronically. However, in the latest fiscal
year for which data is available (2005) fewer than 20 did so. Given the
very small number of Form LM-3 filers that voluntarily use the
electronic filing system, the Department anticipates that none of the
labor organizations that have their Form LM-3 filing privilege revoked
will use electronic filing on their Form LM-2. Thus, for purposes of
the proposed rule, the Department combined the remaining recurring and
nonrecurring recordkeeping and reporting burden hours, because the
typical Form LM-3 filer that must file a Form LM-2 will incur such
burdens only once (i.e., the burden hours and costs will all be
nonrecurring). The estimated totals for the average filer in these
situations are 463.08 hours for recordkeeping and 219.01 hours for
reporting.
As mentioned, the Department reduced the combined Form LM-2
recordkeeping and reporting burden estimates for the average Form LM-2
filer (shown by Table 2) by 69%, concluding that affected labor
organization will spend 211.45 hours completing Form LM-2 (143.55
burden hours for recordkeeping and 67.89 hours for reporting) for a
total cost of $3,359.92 per respondent. To calculate the total cost,
the Department has used the same weighted average salary rates for Tier
I labor organizations ($15.89) used above in computing dollar costs.
Form LM-3 filers spend an estimated 64 hours fulfilling
recordkeeping requirements and 52 hours completing the form
(corresponding to a total cost of $1,404 per filer at $12.10 per hour).
Therefore, the Department estimates that a Form LM-3 labor organization
that loses its Form LM-3 filing privilege and files a Form LM-2 in its
place will experience an increase of 79.55 hours (143.55-64 = 79.55)
for recordkeeping and 15.89 hours (67.89-52 = 15.89 hours) for
reporting burdens associated with the Form LM-2, which translates to a
total burden hour increase of 95.45 hours and a cost increase of
$1,955.92 ($3,359.92-$1,404 = $1,955.92) per filer.\21\ The Department
estimates that it will revoke the Form LM-3 filing privilege for an
average of 96 filers during each of the first three years of the
proposed rule. This will result in an increase of 7,637.37
recordkeeping burden hours (96 x 79.55) and 1,525.72 reporting burden
hours (96 x 15.89) per year. Thus, there is an estimated annual
increase of 9,163.09 total burden hours and an estimated annual
increase of $187,798.61 in costs.
---------------------------------------------------------------------------
\21\ It should be noted that the increased cost to file the LM-2
($1,955.92) is not the same as the cost associated with the
increased burden hours to file the Form LM-2 instead of the Form LM-
3 (95.45 hours x the $15.89 average salary rate = $1516.68). As
stated above, the Department assumes that the hourly cost for those
Form LM-2 filers who have had their Form LM-3 privilege revoked to
be the same as Tier I Form LM-2 filers or $15.89. Therefore, the
additional cost to Form LM-2 filers who have had their Form LM-3
filing privilege revoked is based on the increased burden hours to
file the Form LM-2 (95.45) and the additional hourly cost of $3.79
($15.89 hourly cost to file Form LM-2-$12.10 hourly cost to file
Form LM-3 = $3.79). Thus, $3.79 (the additional hourly cost to
complete the Form LM-2 rather than the Form LM-3) x 116 (the
original burden hours to complete the Form LM-3 that, under the
proposal, would now be used to complete the Form LM-2) = $439.24
(the additional cost of completing the Form LM-2 rather than the
Form LM-3). This sum ($439.24) added to $1,516.68 (which is the
product of 95.45 (additional hours to complete the Form LM-2 rather
than Form LM-3) and $15.89 (hourly cost to fill out the Form LM-2))
equals $1955.92 (the total additional cost of completing the Form
LM-2 rather than the Form LM-3).
---------------------------------------------------------------------------
Finally, as discussed above in greater detail, this aspect of the
proposed rule relies on appropriate information technology to reduce
burden and improve efficiency and responsiveness. At the same time, the
Department's proposal has sought to minimize the burden on the
reporting labor organization by permitting it to submit the report
manually. Upon its receipt of manual reports, the Department will enter
the information electronically so that members of labor organizations,
the public, and the Department's investigators will be able to access
and fully search these reports through the OLMS Online Public
Disclosure Room.
BILLING CODE 4510-86-P
[[Page 27371]]
[GRAPHIC] [TIFF OMITTED] TP12MY08.107
BILLING CODE 4510-86-C
[[Page 27372]]
3. Request for Public Comment
Currently, the Department is soliciting comments concerning the
information collection request (``ICR'') for the information collection
requirements included in this proposed regulation at section 403.2,
Annual financial report, of title 29, Code of Federal Regulations,
which, when implemented, will revise the existing OMB control number
1215-0188. A copy of this ICR, with applicable supporting
documentation; including among other things a description of the likely
respondents, proposed frequency of response, and estimated total burden
may be obtained from the RegInfo.gov Web site at http://
www.reginfo.gov/public/do/PRAMain or by contacting Darrin King on 202-
693-4129 (this is not a toll-free number)/e-mail: king.darrin@dol.gov.
Please note that comments submitted in response to this notice will be
made a matter of public record.
The Department hereby announces that it has submitted a copy of the
proposed regulation to the Office of Management and Budget (``OMB'') in
accordance with 44 U.S.C. 3507(d) for review of its information
collections. The Department and OMB are particularly interested in
comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., by
permitting electronic submission of responses.
Type of Review: Revision of a currently approved collection.
Agency: Employment Standards Administration.
Title: Labor Organization and Auxiliary Reports.
OMB Number: 1215-0188.
Affected Public: Private Sector: Not-for-profit institutions.
Number of Annual Responses: 34,054.\22\
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\22\ This figure includes the burden estimates associated with
the Department's proposal to establish a reporting requirement
concerning a labor organization's section 3(1) trusts. See 73 FR
11754, March 4, 2008.
---------------------------------------------------------------------------
Frequency of Response: Annual for most forms.
Estimated Total Annual Burden Hours: 4,568,057.
Estimated Total Annual Burden Cost: $111,071,724.
Potential respondents are hereby duly notified that such persons
are not required to respond to a collection of information or revision
thereof unless approved by OMB under the PRA and it displays a
currently valid OMB control number. See 35 U.S.C.
3506(c)(1)(B)(iii)(V). In accordance with 5 CFR 1320.11(k), the
Department will publish a notice in the Federal Register informing the
public of OMB's decision with respect to the ICR submitted thereto
under the PRA.
4. Annualized Federal Costs
The estimated annualized Federal cost of this rule is $231,924.52.
This represents estimated operational expenses such as computer
programming to amend the Form LM-2, and staff time to draft documents
and review materials in cases where a labor organization's privilege to
file the Form LM-3 is revoked.
Executive Order 13045 (Protection of Children From Environmental Health
Risks and Safety Risks)
In accordance with Executive Order 13045, the Department has
evaluated the environmental safety and health effects of the proposed
rule on children. The Department has determined that the proposed rule
will have no effect on children.
Executive Order 13175 (Consultation and Coordination With Indian Tribal
Governments)
The Department has reviewed this proposed rule in accordance with
Executive Order 13175, and has determined that it does not have
``tribal implications.'' The proposed rule does not ``have substantial
direct effects on one or more Indian tribes, on the relationship
between the Federal government and Indian tribes, or on the
distribution of power and responsibilities between the Federal
government and Indian tribes.''
Executive Order 12630 (Governmental Actions and Interference With
Constitutionally Protected Property Rights)
This proposed rule is not subject to Executive Order 12630,
Governmental Actions and Interference with Constitutionally Protected
Property Rights, because it does not involve implementation of a policy
with takings implications.
Executive Order 12988 (Civil Justice Reform)
This proposed rule has been drafted and reviewed in accordance with
Executive Order 12988, Civil Justice Reform, and will not unduly burden
the federal court system. The proposed rule has been written so as to
minimize litigation and provide a clear legal standard for affected
conduct, and has been reviewed carefully to eliminate drafting errors
and ambiguities.
Environmental Impact Assessment
The Department has reviewed the proposed rule in accordance with
the requirements of the National Environmental Policy Act (``NEPA'') of
1969 (42 U.S.C. 4321 et seq.), the regulations of the Council on
Environmental Quality (40 U.S.C. part 1500), and the Department's NEPA
procedures (29 CFR part 11). The proposed rule will not have a
significant impact on the quality of the human environment, and, thus,
the Department has not conducted an environmental assessment or an
environmental impact statement.
Executive Order 13211 (Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use)
This proposed rule is not subject to Executive Order 13211, because
it will not have a significant adverse effect on the supply,
distribution, or use of energy.
List of Subjects in 29 CFR Part 403
Labor unions, Reporting and recordkeeping requirements.
Text of Proposed Rule
Accordingly, the Department proposes to amend part 403 of 29 CFR
Chapter IV as set forth below:
PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS
1. The authority citation for part 403 is revised to read as
follows:
Authority: Secs. 202, 207, 208, 73 Stat. 525, 529 (29 U.S.C.
432, 437, 438); Secretary's Order No. 4-2007, May 2, 2007, 72 FR
26159.
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2. Amend 29 CFR 403.4 by:
a. Revising paragraph (a)(1) to read as set forth below.
b. Redesignating paragraph (b) as paragraph (f).
c. Adding new paragraphs (b), (c), (d), and (e) to read as set
forth below.
Sec. 403.4 Simplified annual reports for smaller labor organizations.
(a)(1) If a labor organization, not in trusteeship, has gross
annual receipts totaling less than $250,000 for its fiscal year, it may
elect, subject to revocation of the privilege as provided in section
208 of the LMRDA, to file the annual financial report called for in
section 201(b) of the LMRDA and Sec. 403.3 on United States Department
of Labor Form LM-3 entitled ``Labor Organization Annual Report,'' in
accordance with the instructions accompanying such form and
constituting a part thereof.
* * * * *
(b) The Secretary may revoke a labor organization's privilege to
file the Form LM-3 simplified annual report described in paragraph
(a)(1) of this section and require the labor organization to file the
Form LM-2 as provided in Sec. 403.3, if the following conditions are
met:
(1) The Secretary has undertaken an investigation revealing:
(i) The labor organization failed to file the Form LM-3 on or
before the date it was due; or
(ii) The labor organization filed the Form LM-3 with a material
deficiency and failed to timely remedy this deficiency after
notification by the Secretary that the report was deficient; or
(iii) Other circumstances exist that warrant revocation of the
labor organization's privilege to file the Form LM-3.
(2) The Secretary has provided notice to the labor organization of
the proposed decision to revoke the filing privilege, the reason for
such revocation, and an opportunity for the labor organization to
submit in writing a position statement with relevant factual
information and argument regarding:
(i) The existence of the delinquency or the deficiency (including
whether it is material) or other circumstances alleged in the notice;
(ii) The reason for the delinquency or deficiency and whether it
was caused by factors reasonably outside the control of the labor
organization; and
(iii) Any other factors that should be considered in mitigation of
revoking the labor organization's privilege to file the Form LM-3.
(3) The Secretary (or his or her designee who will not have
participated in the investigation), after review of all the information
provided, shall issue a determination in writing to the labor
organization, stating the reasons for the determination, and, as
appropriate, informing the labor organization that it must file the
Form LM-2 for such reporting periods as the Secretary finds
appropriate.
(c) A labor organization that receives a notice as set forth in
paragraph (c)(2) of this section must submit its written statement of
position and any supporting facts and argument (by mail, hand delivery,
or by alternative means if specified in the notice) to the Office of
Labor-Management Standards (OLMS) at the address provided in the notice
within 30 days after the date of the letter proposing revocation. If
the 30th day falls on a Saturday, Sunday, or Federal holiday, the
submission will be timely if received by OLMS on the first business day
after the 30th day. Absent a timely submission to OLMS, the proposed
revocation shall take effect automatically unless the Secretary in his
or her discretion determines otherwise.
(d) The Secretary shall make the determinations provided for in the
foregoing paragraphs of this section. The determination shall be the
Department's final agency action on the revocation.
(e) For purposes of this section, a deficiency is ``material'' if
in the light of surrounding circumstances, the inclusion or correction
of the item in the report is such that it is probable that the judgment
of a reasonable person relying upon the report would have been changed
or influenced.
* * * * *
Signed in Washington, DC, this 2nd day of May 2008.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.
Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.
Appendix
Note: This appendix, which will not appear in the Code of
Federal Regulations, contains the proposed revised Form LM-2,
instructions and related charts.
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[FR Doc. E8-10151 Filed 5-9-08; 8:45 am]
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