[Federal Register: January 21, 2009 (Volume 74, Number 12)]
[Rules and Regulations]
[Page 3677-3820]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21ja09-17]
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Part II
Department of Labor
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Employment Standards Administration
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29 CFR Parts 403 and 408
Labor Organization Annual Financial Reports; Final Rule
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DEPARTMENT OF LABOR
Employment Standards Administration
29 CFR Parts 403 and 408
RIN 1215-AB62
Labor Organization Annual Financial Reports
AGENCY: Office of Labor-Management Standards, Employment Standards
Administration, Department of Labor.
ACTION: Final Rule.
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SUMMARY: The Department of Labor's Employment Standards Administration
(``ESA'') Office of Labor-Management Standards (``OLMS'') publishes
this Final Rule 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 changes are made pursuant to
section 208 of the Labor-Management Reporting and Disclosure Act
(``LMRDA''), 29 U.S.C. 438. The final rule will apply prospectively.
DATES: Effective Date: This rule shall take effect on February 20,
2009.
Applicability Date: This rule will apply prospectively to labor
organizations whose fiscal years begin on or after July 1, 2009.
FOR FURTHER INFORMATION CONTACT: Denise Boucher, Director of the Office
of Policy, Reports and Disclosure, at: Denise M. Boucher, U.S.
Department of Labor, Employment Standards Administration, Office of
Labor-Management Standards, 200 Constitution Avenue, NW., Room N-5609,
Washington, DC 20210, (202) 693-1185 (this is not a toll-free number).
(800) 877-8339 (TTY/TDD).
SUPPLEMENTARY INFORMATION:
I. Statutory Authority
This final 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. This rule 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
On May 12, 2008, the Department issued a notice of proposed
rulemaking (73 FR 27346) proposing to modify and improve the Form LM-2
by requiring additional information about the receipt and disbursement
of labor organization funds, and 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 hearing. As noted in the proposal, the
revisions to Form LM-2 and the standards and procedures for revoking a
labor organization's simplified filing privilege are part of the
Department's continuing effort to better effectuate the reporting
requirements of the LMRDA.
The Department initially provided for a 45-day comment period
ending June 26, 2008. In response to public requests, the Department
published a notice extending the comment period to July 11, 2008. (73
FR 34913). The Department received 536 comments on the LM-2/LM-3 NPRM,
excluding requests for extensions. Of these comments, approximately 45
were unique comments. The remaining comments were copies of a form
letter endorsing the proposal. Comments were received from labor
organizations, employers, trade and public interest groups, and two
Members of Congress.
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 organizations' 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 responsibility 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.
The final 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
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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 29.4% 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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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 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. Rep. No.
85-1417 (1957); see also William J. Isaacson, Employee Welfare and
Benefit Plans: Regulation and Protection of Employee Rights, 59 Colum.
L. Rev. 96 (1959).
The statute was designed to remedy these various ills through a set
of integrated provisions aimed at 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.
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.
Section 201 of the LMRDA requires labor organizations to file
annual, public reports with the Department, detailing the labor
organization's financial condition and operations. 29 U.S.C. 431(b).
The Department has developed several forms for implementing the LMRDA's
financial reporting requirements. The annual report forms (Form LM-2,
Form LM-3, and Form LM-4), require information about a labor
organization's assets, liabilities, receipts, disbursements, loans to
officers and employees and business enterprises, direct and indirect
payments to each officer, and payments to each employee of the labor
organization paid more than $10,000 during the fiscal year.\3\ The
reporting detail required of labor organizations, as the Secretary has
established by rule, varies depending on the amount of the labor
organization's annual receipts. 29 CFR 403.4.
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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
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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 or Form LM-4,
depending on its total annual receipts, instead of Form LM-2. See 29
CFR 403.4(a)(1).\5\ The Form LM-3, which may be used by a labor
organization with annual receipts of $10,000 or greater, but less than
$250,000, 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 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 final rule, the Department has
revised section 403.4(a)(1) by correcting it to read ``$250,000.''
See text of regulation.
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With regard to each of these reports, the LMRDA states that the
Secretary of Labor shall ``prescribe the[ir] form and publication * * *
and such other reasonable rules and regulations * * * as he may find
necessary to prevent the circumvention or evasion of such reporting
requirements.'' 29 U.S.C. 438. This final rule revises the Form LM-2
and establishes a procedure and standards for revocation of a labor
organization's simplified filing privilege. The revised Form LM-2 will
provide greater transparency of labor organization finances and
effectuate the goals of the LMRDA.
III. Changes to the Form LM-2 and the Form LM-3
A. Form LM-2
1. Introduction
The Department proposed changes to enhance the Form LM-2 by
requiring labor organizations to disclose additional information about
their financial activities to their members, this Department, and the
public. Each of the changes proposed has been adopted in the final
rule, with some modifications in response to public comment received on
the proposals. On the revised form, labor organizations will 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
have also been revised to require reporting of the value of benefits
paid to and on behalf of officers and employees. This change will
provide a more accurate picture of total compensation received by labor
organization officers and employees. Labor organizations will report on
Schedules 11 and 12 travel reimbursements indirectly paid on behalf of
labor organization officers and employees. This change will provide
more accurate information on travel disbursements for labor
organization officers and employees. The 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 new schedules will
require the reporting of 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 change is consistent
with the information currently provided for disbursements. Finally, the
Department is amending the Form LM-2 instructions to conform to the
requirements of the Form T-1 published on October 2, 2008.\6\
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\6\ When the current Form LM-2 was revised in 2003, the
Department also established a Form T-1. The latter was vacated by
the DC Circuit in American Federation of Labor and Congress of
Industrial Organizations v. Chao, 409 F.3d 377 (2005). See
discussion at 73 FR 57412, 57413 (Oct. 2, 2008). The Form LM-2
instructions contained descriptive information about the Form T-1.
As discussed in its proposal to revise the Form LM-2, 73 FR at
57416, the Department noted that it had proposed to establish a new
Form T-1 (73 FR 11754 (Mar. 4, 2008)) and that a final Form T-1 rule
would affect the instructions to the Form LM-2. Because the Form T-1
published on October 2, 2008, 73 FR 57412, differs in some respects
from the Form T-1, as described in the 2003 rule, the Department has
revised the relevant portion of the Form LM-2 instructions to
reflect the new Form T-1. The most significant changes have been
made to Section X of the General Instructions. Compare the language
of the new Form LM-2 instructions, at pages 4-6, with the language
in the new Form T-1 instructions, at pages 1-3, shown at 73 FR at
57457-59. Minor changes have been made to sections II and VII of the
General Instructions; items 10 (``Trusts or Funds'') and 11
(``Political Action Committee Funds''); and Schedule 7 (``Other
Assets'').
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The Department also sought comment on three specific questions:
Whether the functional categories on the Form LM-2 should be changed in
order to improve their usability to members of labor organizations and
the public; whether the confidentiality exception from the Form LM-2
instructions should be narrowed, clarified or removed; and ``whether
all transactions greater than $5,000 should be identified by amount and
date in the relevant 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 negotiat[ing] strategy.'' 73
FR at 27352-53. Comments were received on these questions; however,
with the exception of a clarification about the use of the
confidentiality exception for reporting payments under a job targeting
or market recovery program, the Department has made no changes to the
Form LM-2 on the points for which specific comments were requested.
The Department framed the request regarding the appropriateness of
the functional reporting categories as follows:
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.
73 FR at 27348. Numerous comments were received on this question.
Several commenters expressed support for the continued use of the
functional categories, which they find useful. Some commenters argued
that no changes should be made to the functional categories, arguing
that the functional categories place an unnecessary burden on unions
and that unions have already spent considerable time to modify their
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accounting systems to allow for reporting on the current Form LM-2.
Among the suggestions for improving the functional categories were the
following:
Separate reporting for organizing and representation
functions and require additional itemization.
Lower the itemization threshold from $5,000 to $200.
Require accurate reporting of time spent, rather than an
estimate to the nearest 10%, by officers and employees on activities in
the functional categories.
Require details regarding specific matters, cases,
contracts, or grievances for which legal fees or other representational
expenses, including staff time, are incurred.
The Department requested comment on the functional categories to
further its understanding of any problems, concerns, or areas where
improvement would be useful. Other than the items specifically listed,
the Department did not propose general changes to the functional
categories. The Department sought comment for informational purposes.
That information has been received and reviewed and will be used to
guide any changes that may be proposed in this area in the future.
The remaining two questions are discussed below in connection with
Schedule 15.
The enhancements adopted in today's final rule, 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 enhancements 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 organization's financial condition and operations without
imposing an unwarranted burden on reporting labor organizations. The
Department is revising the Form LM-2 software currently in use by Form
LM-2 filers to conform to the enhancements made in today's final rule
and will make the software available to filers without charge.
2. The Revisions to the Form LM-2 and Instructions
a. General
The Department received numerous comments on the proposed changes
to the Form LM-2. While many comments concerned particular aspects of
the proposal, many who opposed the proposal made some or all of the
following claims: (1) The proposal comes too soon after, and without
adequate justification to depart from, the reporting requirements
established in 2003; (2) the proposal lacks the support of union
members and supersedes their right to examine records underlying their
union's financial reports; and (3) the proposal, especially the
additional itemization to be required of labor organizations, places
unnecessary and costly burdens on them. The comments received on these
points are discussed below.
(1) Timing and Justification for Changing the Form
Several commenters raised questions about the timing of and
justification for the proposed changes. For example, one commenter
stated that the Department's proposal to require additional detailed
reporting by labor organizations was made without any review by the
Department of whether the 2003-revised Form LM-2 has been effective or
beneficial to union members. It suggested that the Department failed to
provide concrete examples of the need for a particular change or for
how a change would address a concrete problem. Another commenter stated
that by changing the reporting requirements so soon after the 2003
revision, the Department would impose needless, but significant, non-
recurring costs on filers.
The 2003 rule represented an extensive change in the annual
financial reports required under the LMRDA. The 2003 rule represented
the first significant change in the Form LM-2 in over 40 years. Among
other things, it required unions to report information in new
functional categories, union officials to allocate how they spend their
time working on members' interests, itemize major disbursements,
identify tardy accounts receivables, and file the reports
electronically in a format that allows for computer-assisted review and
dissemination via the Internet. When the Department formulated its
proposal to revise further the Form LM-2, it had the benefit of three
cycles of reviewing forms submitted in accord with the 2003 revision to
assess the utility of the form and to identify areas in which
improvement was needed. In developing the proposals, the Department has
had the opportunity to review thousands of forms and to tap the
experience gained by its staff in investigating Form LM-2 issues and
from their dialogue with union officials and union members while
providing Form LM-2 compliance assistance to them. The Department has
had the additional benefit of the lessons learned since the 2003 rule
took effect in developing other LMRDA reports (Form LM-30 and Form T-1)
and defending these reports in litigation before the federal courts.
The changes proposed and adopted in the instant rulemaking are
incremental changes to the 2003 revisions. As stated in the NPRM and
the discussion below, the Department acknowledges that unions will
incur some additional burden in making the changes. In contrast to the
2003 revisions to the Form LM-2, however, the burden is minimal. Unions
already have systems with the capability of itemizing disbursements;
and there is no apparent reason (and none of the commenters suggested
otherwise) why the same systems cannot be adapted for itemizing
receipts.
As discussed in greater detail in the PRA section of the preamble,
the Department has carefully considered the comments about its
preliminary burden estimates, as set forth in the NPRM. The Department
has revised upwards its estimate of the recurring burden associated
with the new changes to the Form LM-2 to 15.6 hours, an increase of
about 35 percent from the estimate in the NPRM. The revised estimate
includes the changes made to the form and instructions from their
proposed versions.
(2) Benefits to Union Members
Some commenters stated that the Department failed to explain why
union members would find the proposed reporting requirements to be
useful. Another commenter expressed concern about the absence of any
studies showing how union members are using the information being
reported under the 2003-revised Form LM-2 to improve the accountability
and fiscal management of their unions. As the Department explained in
the NPRM, 73 FR at 27346-48, the proposed rules were designed to
improve the transparency of union finances and better effectuate the
intention of Congress in enacting the Act's reporting and disclosure
provisions. As discussed above, the proposed changes were the result of
the Department's experience with the 2003-revised Form LM-2. Through
this experience, it became evident to the Department's staff that
[[Page 3682]]
the Form LM-2 incompletely reflected the compensation paid to union
officials. Notably missing from the reports was a true reflection of
the amounts of compensation being paid to or on behalf of individual
officials. See 73 FR at 27350. While salaries and most other
disbursements were being reported on an individual basis, the reports
failed to disclose the total amount of travel expenses incurred by
union officials or the amount of benefits paid to them. In a similar
fashion, the 2003 Form LM-2 failed to provide itemization of a union's
receipts. Without this information, union members, the Department, and
the public have been missing pertinent, material information about the
union's finances. The Department's proposals, as adopted in this rule,
provide greater transparency about a union's finances. Further, each of
the proposals was accompanied by one or more illustrations of why the
changes are necessary and how they will benefit union members. These
examples show the still opaque nature of the current reporting in some
areas; the examples were chosen to highlight the problems rather than
serve as an exhaustive listing of the problems.
Some of the commenters suggest that union members have little or no
concern about how the union conducts its finances and none about
transactions as little as $5,000. They further suggest that any
interest is easily met by a member's right for ``just cause'' to review
the union's financial records if he or she has questions relating to
the union's finances. They assert, in effect, that LMRDA section
201(c), which provides union members a right to review records
underlying a union's financial report for ``just cause,'' becomes
superfluous because of the additional detail that the Department would
require.
The commenters correctly recognize that Congress provided members
an important right to obtain additional information about their union's
finances. The LMRDA requires both that a labor organization file annual
reports with the Department, LMRDA section 201(b), 29 U.S.C. 431(b),
and make available to its members the information required to be
contained in the annual report. LMRDA section 201(c), 29 U.S.C. 431(c).
However, they mistakenly view detailed reporting as undermining that
right. In the Department's view, the additional detail required by the
changes to the Form LM-2 promotes the right of union members to seek
further information about their union's finances. Sections 201(b) and
(c) are complementary. As noted by the DC Circuit, there is no
inconsistency between the itemization required by the Form LM-2 and
subsection 201(c) because section 201(c) simply requires disclosure of
data that underlies a subsection 201(b) report. AFL-CIO v. Chao, 409
F.3d 377, 383-384 (D.C. Cir. 2005). The Court explained that additional
detail in the subsection 201(b) reports would facilitate a union
member's right to probe further pursuant to subsection 201(c). Id.
Today's rule is entirely consistent with the approach taken by the
Department in 2003 and the court's view of the interplay between
section 201(b) and 201(c). The information that will be reported on the
Form LM-2 under this final rule enhances the member's right to examine
underlying records. It enables a member to more easily identify
transactions warranting additional scrutiny, which he or she can then
pursue by requesting and examining underlying records. It thereby
promotes the interests of the inquiring member, his or her fellow
members, and the labor organization as an institution.
By providing itemization of receipts, labor organizations will
better disclose to their members a more complete accounting of all
funds received and the identity of individuals and entities with which
the labor organization does business. The Department also 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
misappropriation of funds. 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 properly 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 his or her right to examine the union's books
and records underlying the information reported on the Form LM-2.
One commenter made the point that the question whether unions
should make itemized disclosures of sales of union assets to non-
insiders is the kind of question that should be resolved by the unions
themselves in accord with their internal democratic processes. This
process, it was argued, would better accord with members' real
interests than the Department's imputed interest. The commenter points
out that in many, if not most, instances the Department has
acknowledged that the added detail on the proposed revised Form LM-2--
for example the sale of a union automobile for less than its book value
to a non-insider-can only be evaluated by a union member who, if he or
she believes the matter worthy of further scrutiny, can follow up by
exercising his or her LMRDA Sec. 201(c) right to inspect union
records. The Department agrees with the assessment that in most cases
union members will be in the best position to determine whether a
particular transaction or transactions raise questions that demand
further examination of the underlying details. Nonetheless, as
discussed above, Congress established a reporting system in which the
Department and the general public also serve important roles.
The Department cannot ensure adequate disclosure if itemization and
reporting policies are left to the discretion of individual unions.
Different reporting standards would lead to as many different forms and
reporting requirements as there are labor organizations. Finally,
members would have to research each individual labor organization to
determine whether and where they report. For example, a member of a
local who is affiliated with an international has an interest in the
local, international, and any intermediate body. Under this final rule,
the member can go to the Department Web site and search each labor
organization's filings containing information reported in a consistent
format. If the decisions were left to the unions' own choice, members
would be provided information varying in detail and which could change
from year to year, denying members the ability to make reliable
historical and cross-union comparisons. The integrated reporting system
adopted by the Department ensures that members can find information and
know what information is provided on the reports.
A number of the commenters asserted that the new receipt reporting
requirements would produce a forest of financial minutia that is
expensive to track and impossible for members to meaningfully
interpret. One commenter estimated that the average Form LM-2 report is
195 pages. The commenters also stated that labor organizations with $50
million or more in annual receipts filed, on average, 96.3 more pages
in 2007 than in 2004, a 97.4% increase. He stated that the proposed
changes would add substantial length to the reports. This commenter and
others questioned how many members will have the time, patience, and
resources to meaningfully
[[Page 3683]]
delve into their labor organization's Form LM-2 report.
The Department acknowledges that additional reporting requirements
add length to a report and that the interest of individual union
members to examine their union's finances will vary greatly from
individual to individual. The Department also recognizes that a typical
member will not have an interest in investigating each transaction
listed on the Form LM-2. However, a member need not study his or her
labor organization's entire Form LM-2 for the report to be useful. The
member can use the summary schedules for quick references or, as
discussed above, use the search function to find specific transactions.
The summary schedules allow for quick references. For example, a quick
look at any summary schedule might reveal a large number where one
would expect a small number or a small number where one might expect a
large number. If such a disparity is identified, the member is free to
search the itemized receipt/disbursement schedules to investigate the
unexpected aggregate. In one case a labor organization indicated on its
Form LM-2 summary schedule that it had received $5,037,071 in rent.
This accounted for more than ten percent of the labor organization's
total receipts. No itemized schedule for rents is available on the
current Form LM-2. Another labor organization indicated on its Form LM-
2 summary schedule that it had received $15,123,482 in receipts on
behalf of affiliates for transmittal to them. This accounted for almost
a quarter of the labor organization's receipts, exceeded only by per
capita taxes. Like rents, receipts on behalf of affiliates for
transmittal to them are not itemized on the current Form LM-2. However,
the newly revised Form LM-2 will provide the information necessary to
evaluate the rent receipts and receipts on behalf of affiliates for
transmittal to them. Another labor organization indicated that it
received $6,900,000 in loans. This was the third largest source of its
receipts and accounted for more than ten percent of its total receipts.
Closer examination of the labor organization's Form LM-2 Schedule 9
(``Loans Obtained'') indicated that the loans were obtained from two
institutions. There is no indication that these loans were illegal, but
a member may want to know more about a large loan received in a year
when the labor organization's total receipts exceeded its disbursements
by more than two million dollars. Further, itemization allows a member
to search his or her labor organization's Form LM-2 for specific
vendors or purchasers.
A commenter expressed concern that the Department has failed to
recognize that labor organizations have numerous internal controls in
place to detect and prevent embezzlement, including multiple levels of
review for receipts and disbursements, annual internal audits,
segregation of duties, banking tools such as ``positive pay,'' digital
checks that eliminate check stock inventories and therefore, the
changes are not providing additional benefit to union members. The
Department acknowledges that many labor organizations have internal
controls in place to detect and prevent embezzlement. In 2008, these
internal controls combined with the Department's on-going audit program
and study of Form LM-2s have resulted in 93 embezzlement convictions
and $3,134,415 in restitution. Notwithstanding these efforts, many
financial irregularities continue to go undetected. The greater
transparency provided by today's rule will allow union members and the
Department to better detect such irregularities and better deter, in
the first instance, union officials and others from engaging in
questionable financial practices.
A few commenters stated that the additional reporting required by
the proposals would confuse union members who would not be able to
discern the nuances associated with these new requirements. The
Department disagrees with this suggestion. The changes required by this
rule are straightforward and will not be confusing to union members,
whose ability to understand basic financial information seems to be
underestimated by some commenters. Moreover, the Department would
expect labor organizations to assist their members in properly
understanding the financial reports and the Department, through its
extensive compliance assistance program, is ready and able to assist
any members who have questions.
(3) Itemization
A number of commenters asserted that it was a mistake for the
Department in 2003 to require itemization of major disbursements,\7\
and that this mistake, in effect, would be compounded by applying this
requirement to major receipts by a labor organization. At least one
commenter stated that the $5,000 threshold is too high; it suggested
lowering it to $200. The question whether itemization is beneficial was
answered in the 2003 rulemaking. As set forth in the preamble to that
rule, 68 FR at 58389-91, itemization promotes the transparency of union
finances, thereby providing union members with information essential
for them to exercise their democratic rights within the union and to
ensure that the union's finances receive appropriate scrutiny by the
members, this Department, and the public.\8\ In that rule, itemization
was required for major disbursements by a union, providing greater
transparency on that side of a union's ledger. Today's rule, in large
part, merely extends that requirement to the union's receivables,
allowing members to see more clearly the source and amount of the
union's finances.
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\7\ The existing instructions for the Form LM-2 (created in
2003) require itemization of ``any individual disbursement of $5,000
or more or total disbursements to any single entity or individual
that aggregate to $5,000 or more during the reporting period.''
\8\ The 1959 Senate report on the version of the bill later
enacted as the LMRDA mandated that union members receive a full
accounting of ``union internal processes and financial operations.''
S. Rep. No. 187, at 2, reprinted in 1 NLRB Leg. Hist. of the LMRDA,
at 398. The LMRDA states that a full accounting includes
``information in such detail as may be necessary accurately to
disclose [the labor organization's] financial condition and
operations for its preceding fiscal year * * * [including] receipts
of any kind and the sources thereof.'' 29 U.S.C. 431(b). Senator
Kennedy stated that ``receipts of any kind'' was ``intended to be as
broad as it suggests * * * receipts of any kind and the sources
thereof.'' As noted in the Senate report ``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.'' S. Rep. No. 187, at 8, reprinted in 1 NLRB Leg. Hist. of
the LMRDA, at 404. This rule furthers the Department's goal of
increased transparency.
---------------------------------------------------------------------------
The principle of aggregation, i.e., reporting an organization's
total expenditures within a particular category, while an accepted
accounting principle, provides only a partial view of an organization's
finances, a shortcoming addressed in the 2003 rule by requiring
itemization of disbursements of $5,000 or greater and in today's rule
by requiring as a general rule that receipts of $5,000 or greater must
be identified. In those instances, where commenters demonstrated a
particular problem with itemizing certain receipts, the Department has
modified its proposals to meet these concerns. As discussed below, the
Department acknowledges that the rule will impose some additional
burden on labor organizations, but not nearly as much as suggested by
some commenters.\9\
---------------------------------------------------------------------------
\9\ The Department has reduced the recordkeeping and reporting
burden associated with Schedules 14 and 15, by requiring labor
organizations to only report on these schedules the yearly
aggregates it receives from represented employers and labor
organizations.
---------------------------------------------------------------------------
[[Page 3684]]
The primary purpose of this rulemaking is the furtherance of labor
organization transparency. See 73 FR at 27346-47. OLMS experience over
years of auditing and investigating union financial activities
indicates that increased access to information concerning a labor
organization's finances will enable members to protect their own
interests through more effective vigilance over union funds, and will
aid OLMS in enforcement efforts. Although a member will not have
knowledge of each receipt received by the labor organization,
interested members will have information on many of the itemized 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. For example, a member will be able to
determine whether his or her labor organization is receiving the
appropriate interest and dividends on its investments. Schedule 5
(``Investments'') will list the book value of each investment of $5,000
or more as of the end of the year. The member can look at his or her
labor organization's most recent Form LM-2 (for the last fiscal year
covered by the 2003 revisions) to determine the book value of
particular assets. With this information and the information provided
on the new Form LM-2, the member can determine how much the labor
organization received in increased value or interest during the
reporting year. The member can calculate the amount of appreciation or
interest, the latter based on either the rate of the particular
institution identified on the Form LM-2 or the market average, which is
available on the Internet. A disparity between the rate computed from
the Form LM-2 and the market rate may indicate that further
investigation is warranted to determine whether the disparity is due to
bad investment choices or culpable actions. Moreover, as discussed in
the preceding section, itemization effectively complements a member's
right to examine documentation underlying the information reported on
the Form LM-2 by allowing him or her to identify major financial
receipts involving the union, a task that would be very impractical, at
best, without the itemization required by today's rule.
b. Particular Aspects of the Rule
The following is a ``section-by-section'' discussion of the
sections, items and schedules on the revised Form LM-2 and
instructions:
Items 1-21. These items are unchanged, except for some minor
editorial changes, mostly concerning the reporting of information about
trusts in which labor organizations hold an interest. See n. 6.
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 changes to the items listed under
``Cash Receipts.'' As discussed below, however, the Department is
adding, as proposed, 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 new Form LM-2, including the new
numbering system for the cash disbursement items can be found in the
appendix to this final rule.
Schedules 1-2. These schedules are unchanged.
Schedules 3 and 4--Sale of Investments and Fixed Assets and
Purchase of Investments and Fixed Assets: The Department adopts its
proposal, but exempts certain stock transactions from particularized
reporting as further discussed below. The first new column on the form,
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 of labor organizations and the public
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. In addition to the reasons
discussed below, this disclosure is important because if an insider
(e.g., officer or employee) receives property at below market price the
receipt of such property is a disbursement to the insider that should
be reported on Schedule 11 or 12.
As explained in the NPRM, 73 FR at 27349-50, the Department
believes that Schedules 3 and 4 of the current Form LM-2 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. As explained in the NPRM, 73
FR at 27349, 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 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, as discussed in the NPRM, id., one labor
organization listed 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 enhancements made
today to Schedules 3 and 4 will help ensure the disclosure of any
potential conflicts of interest between the seller and the labor
organization.
The book value of an asset is the value at which the investment or
fixed asset was shown on the labor organization's books and reflects
the lower of its cost or market value. See 73 FR at 27413 (unchanged
from current instructions to the form). The value of certain assets
such as stocks can vary greatly within
[[Page 3685]]
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. As
the Department explained in its proposal, 73 FR at 27349, 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 changes made in today's final rule 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 received many comments supporting the proposed
changes to the Form LM-2. Many of these comments were identical or
nearly so. Commenters expressed support for the Department's proposed
revisions to Schedules 3 and 4, which, in their view, would allow union
members to spot transactions where union officers and employees are
given advantageous prices when purchasing labor organization assets.
Another commenter approved of the Department's ongoing promotion of
transparency. Additionally, the commenter agreed with the Department
that the additions to Schedules 3 and 4 will provide members with the
information necessary to scrutinize those transactions to ensure the
best practices when managing their money.
Some commenters questioned the wisdom of requiring unions to
provide additional detail in the Form LM-2 reports, asserting that the
new information would add length to the reports and further burden
unions without benefit to members. They raised specific objection to
the burden associated with reporting details concerning the sale and
purchase of investments and assets. The Department does not expect the
average member to investigate each investment or asset sale/purchase
listed on the Form LM-2. Such an undertaking by a single member would
be time consuming and impracticable. However, a member need not study
its labor organization's entire Form LM-2 for the report to be useful.
The member can use the Schedules 3 and 4 summary schedules for quick
references or use the search function to find specific transactions.
For example, a quick look at the summary schedules for Schedules 3 and
4 might reveal a large number where one would expect a small number or
a small number where one might expect a large number. Once one of these
disparities is identified the member is free to search the itemized
schedules for an explanation for the unexpected aggregate. In one case,
a labor organization indicated on its Form LM-2 summary schedule that
it had received $527,937 from the sale of investments and fixed assets.
This accounted for over 94 percent of the labor organization's total
receipts. A closer look at Schedule 3 of its Form LM-2 indicated that
the labor organization had received all of the $527,937 from the sale
of one building. This sale left the labor organization with only $1,347
in fixed assets. Another labor organization indicated that it received
$64,389,415 from the sale of investments and fixed assets, almost half
of the labor organization's total receipts. Upon closer inspection of
the labor organization's Form LM-2 a member would find that $15,782,856
of the $64,389,415 was from the sale of ``common stock.'' However, the
same schedule indicated that none of the money from the sale was
reinvested. Nothing indicates that either of these sales was illegal,
but a member may want to know more about such a large sale of union
assets. Further, itemization allows a member to search his or her labor
organization's Form LM-2 for specific sellers or purchasers. Using the
OLMS Web site, a member can easily search his or her labor
organization's Form LM-2 for a specific seller or purchaser in seconds,
e.g., the labor organization's president's brother. The changes to
Schedules 3 and 4 will provide members with information necessary to
verify that sales/purchases are transacted at market price and at arm's
length.
The majority of the commenters believed that an exception should be
created for the purchase and sale of publicly-traded assets on a
registered market exchange. They stated that the reporting of these
open market, arms length transactions would provide no relevant
information to a member. Further, since these trades are through the
``market,'' it is doubtful that the ``seller'' and ``buyer''
information is even available, due to investments being pooled and
matched by the investment broker market. The only purchaser information
available to provide on the proposed new investment schedules would be
that of the broker. A national labor organization pointed out that the
Department does not require disclosure of transactions involving
securities on registered public exchanges, such as the NYSE and NASDAQ,
on Form LM-30. Therefore, the labor organization reasoned that the same
transactions should not be disclosed on Form LM-2. In both contexts,
such sales and purchases of securities are by definition transacted at
``market prices'' and ``at arm's length.'' 29 U.S.C. 432(b).
The Department agrees with the commenters' position that an
exception should be created for bona fide market transactions over a
registered securities exchange. Consistent with the current Form LM-2
and the Form LM-30, the Department excepts marketable securities from
itemization on Schedule 3. The labor organization will not be required
to itemize the purchase or sale of marketable securities when the end
seller or purchaser, i.e., the party transacting with the labor
organization, is not known. (Such as sales of stock over a registered
exchange.) The instructions have been revised and include the direction
that ``Marketable securities are those for which current market values
can be obtained from published reports of transactions in listed
securities or in securities traded `over the counter,' such as
corporate stocks and bonds, stock and bond mutual funds, state and
municipal bonds, and foreign government securities.'' The total amount
of such sales will be reported on Schedule 3 Detailed Summary page.
A number of commenters stated that their investment activities are
run through independent investment groups, asserting that for this
reason such activities should be excepted from the proposed reporting
requirement. The Department disagrees that an exception for investment
manager transactions is appropriate. Such an exception is neither good
policy nor necessary. Although the investment manager may have
independent control over the individual investments, the labor
organization still has control over the manager. If the labor
organization is dissatisfied with returns or particular purchases/
sales, then it is free to hire a new investment manager. Thus, the
investment manager is never truly independent. Further, the exception
laid out above should alleviate many of the commenters' concerns. Most
of the investment manager purchases/sales will qualify for the
exception provided
[[Page 3686]]
for bona fide transactions made with a registered securities exchange.
Those transactions that do not qualify for the exception, i.e.,
securities purchased outside these highly regulated channels, will be
of particular interest to members, the public, and the Department.
These are the types of transactions that are subject to abuse whether
it is abuse by the labor organization or the independent investment
manager. Therefore, the Department has chosen not to create an
exception for investment manager transactions.
A number of commenters expressed a concern that the additional
information required for the sale and purchase of investments on
Schedules 3 and 4 will be deceptive. A national labor organization
argued that the value of a given stock transaction cannot be understood
absent an understanding of market conditions, news affecting that
particular stock and market segment at the time of sale and the
investment manager's strategy resulting in the sale. Additionally, it
stated that the ``market price'' of a tangible item, such as a car,
cannot be objectively determined without knowledge of the degree of
wear-and-tear, local market conditions, and the like. Without these
essential facts a national labor organization stated that listing the
name of the purchaser and the date of the sale may well lead union
members to conclude that a buyer received a windfall when, in fact,
that is not the case. The labor organization suggested that the
Department retain the current reporting format, aggregating the total
of all such sales and purchases and the net effect on assets.
The Department disagrees with the suggestion that the proposed
changes to Schedules 3 and 4 will be deceptive. As discussed earlier,
members will be able to assess without difficulty whether the sale or
purchase of an asset and its price appears appropriate given its timing
and the existing market conditions. Unlike the previous Form LM-2,
members will now be able to evaluate sales/purchases by date and
purchaser/seller. This clearly improves the members' ability to
evaluate a transaction in its particular context. To use an example
discussed above and in the NPRM, 73 FR at 27349, a labor organization
indicated on its Form LM-2 that it sold a Ford Explorer for $9,252, but
listed its book value at $23,471. The previous Form LM-2 included price
information and a general description. The identification of the buyer
can be used to identify interested party transactions, but it can also
be used to better understand the sale. For example, the Ford Explorer
might have been sold to a dealership rather than on the open market. In
this case the identification of the buyer would alleviate any concern
of an interested party windfall. The disclosure of this information
will allow members to make preliminary assessments of sales/purchases
from the information provided on the Form LM-2. If necessary, as
discussed below, they can then exercise their section 201(c) right to
obtain additional information about the particular transaction. It
should be noted that most securities transactions will fall within the
exception discussed above.
The additional information that will be disclosed on the Form LM-2
will enable union members, the general public, and the Department to
focus their attention on particular transactions involving significant
sums of money. As some commenters have acknowledged the information
will be most directly beneficial to union members who will be most
familiar with the transactions and the parties involved, but the
information also improves the ability of the public and the Department
to examine the details of a transaction. Moreover, to the extent the
union believes that any particular transaction could be misleading, the
union may choose to provide additional information on the Form LM-2 to
minimize this possibility. By adopting this rule, the Department is
setting a minimum standard that labor organizations must meet for
reporting the sale and purchase of investments and assets. A number of
commenters stated that the revisions were not necessary and would not
benefit members. Multiple national labor organizations stated that
union members already have access to any information necessary to
assess sales of union assets. They explained that any individual member
could exercise his or her section 201(c) right to obtain the
information.
The Department recognizes that members possess the right to examine
any books, records and accounts to obtain information on the purchase/
sale of investments and assets under 29 U.S.C. 431(c). However, members
have no way of knowing whether they need to request the information
from the labor organization without the Form LM-2. As explained above,
a quick look at the summary schedules for Schedules 3 and 4 might
reveal a large number where one would expect a small number or a small
number where one might expect a large number. Once one of these
disparities is identified the member is free to search the itemized
schedules for an explanation for the unexpected aggregate. In one case,
a labor organization indicated on its Form LM-2 summary schedule that
it had received $35,224,391 from the sale of investments and fixed
assets. This accounted for over half of the labor organizations total
receipts. A closer look at Schedule 3 of its Form LM-2 indicated that
it had sold ``corporate stocks'' for $34,297,627. See 73 FR at 27349.
Nothing indicates that this sale was illegal, but a member may want to
know more about such a large sale of union assets. Under the new
reporting requirements the member will now be able to evaluate whether
the transaction occurred at arm's length or not. The member need only
look for the purchaser/seller information to know whether the
transaction merits further inquiry. If the transaction occurred on a
registered exchange the labor organization will not detail that
transaction. In this case, the member will know that no insiders
received unjust enrichment from the transaction. However if the
transaction occurred not on a registered exchange but through some
other means the transaction information of the date and identity of the
purchaser/seller will be useful to the member. If the itemized
schedules do not provide an adequate explanation or reveal a
transaction with an interested party then the member is free to request
additional information from the labor organization pursuant to 29
U.S.C. 431(c). This process is more efficient for both the labor
organization and the member. Labor organizations will not have to
provide information unless the member finds a particularly interesting
transaction and the member will not have to request superfluous
information to obtain a clear accounting of the labor organization's
activities. Both itemization reporting and the changes adopted in this
rule are essential to providing members with a clear picture of their
labor organization's activities.
Two commenters offered alternatives to requiring a labor
organization to disclose the name and address of the purchaser or
seller in transactions involving labor organization investments and
other assets. A labor organization suggested that if the Department is
concerned about sales of assets for less than market value it can
merely mandate disclosure of specifically such sales of union assets.
Another commenter suggested that the Department pare down the report
and ask about specific areas of concern. For example, instead of
modifying Schedules 3 and 4 as currently proposed, the Department
should simply ask about related party transactions and any non-routine
[[Page 3687]]
transactions and specifically define related parties.
In the Department's view, the suggested approach is a poor
substitute for the full transparency achieved under the Department's
proposal. The Department seeks to provide members with the tools by
which each member can make his or her own evaluations of the financial
decisions made by the officials of his or her labor organization.
Although members as a general rule will have the greatest interest in
matters involving a party in interest or a sale of an asset for less
than market value, members will also have an interest in other less
easily categorized transactions. For example, a member may have an
interest in the sale of a building to a non-party in interest at what
appears to be fair market price. As a general matter, the sale of the
building might indicate to the member that his or her labor
organization is selling off assets or not managing his or her money
appropriately. But a sale of the asset to a particular individual or
group, such as a sale to a company in which a union official's long-
time associate has an interest or to a company in which a politician or
his or her associate has an interest (who might have inside information
about a possible change in zoning that would substantially increase the
value of the property) would be of substantial interest to members.
Itemization of the purchase/sale of investments and assets provides
members with a base from which they can evaluate transactions.\10\
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\10\ One commenter suggested that the Department replace the
Book Value column with a Market Value or Par Value column. In the
commenter's view, this change would allow those studying the Form
LM-2 to determine whether the sale of an investment or fixed asset
was at market value and at arm's length.
The Department has decided not to change the values reported on
Schedules 3 and 4 column (E), ``Book Value.'' Book value is ``the
value at which the investment or fixed asset was entered on the
labor organization's books.'' Form LM-2 Instructions page 16.
Depending on when the asset was obtained, the book value will
reflect the asset's original or depreciated value. Book value allows
for regularized reporting of the value of assets. Unlike market or
par value (the latter applicable only to equitable assets and even
then of limited utility to union members and the public), book value
does not pose problems of verification in comparing the value of the
reported asset and the value carried on the union's books. Further,
unlike market value which can be determined independently through
the market (e.g., by bluebook, comparable real estate values, market
price of stock) book value cannot be easily ascertained by union
members and others reading the Form LM-2. For these reasons, the
Department views the book value as an essential check to determine
the union's compliance with this aspect of its reporting obligation.
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Therefore, the Department adopts the reporting requirements as
outlined in the NPRM with an added exception that labor organizations
need not report bona fide purchases or sales of securities traded on a
securities exchange registered as a national securities exchange under
the Securities Exchange Act of 1934, shares in an investment company
registered under the Investment Company Act of 1940 or securities of a
public utility holding company registered under the Public Utility
Holding Company Act of 1935.
Schedules 5-10. These schedules are unchanged except for a minor
editorial change to the instructions for Schedule 7 to clarify the
reporting of information about a trust in which a labor organization is
interested. See n. 6.
Schedule 11--All Officers and Disbursements to Officers; and
Schedule 12--Disbursements to Employees: The Department proposed
two substantive changes to the categories of disbursements reported on
these schedules: Reporting of indirect disbursements to officers and
employees for hotels (room rent charges) and public carrier
transportation; and disclosure of benefits disbursed to officers and
employees. No commenters suggested that one approach was appropriate
for officers and another for employees. In today's rule, the same
revisions are being made to both Schedules 11 and 12. In today's final
rule the Department has decided to adopt the proposed items with minor
changes. These changes are discussed below.
a. Indirect Disbursements to Officers and Employees for Hotels (Room
Rent Charges) and Public Carrier Transportation
The Department proposed to eliminate the existing exception to the
reporting of indirect disbursements, thus requiring the reporting of
both direct and indirect payments on behalf of a particular union
official for hotels (room rent charges and public carrier
transportation charges) on Schedule 11. The Department adopts the
proposal, with a minor clarification as discussed below.
Indirect disbursements for official business, which include travel
and lodging expenses, will be reported in Column G, on both Schedule
11, ``All Officers and Disbursements to Officers'' and Schedule 12,
``Disbursements to Employees.'' This column is clearly identified, and
is distinct from columns listing gross salary, allowances, and
benefits. Concerns raised by commenters that union members may not
grasp the ``nuances of the reporting categories'' and that disclosure
would result in inflated figures of total compensation are unwarranted.
As explained in the NPRM, 73 FR at 27350, disbursements for
temporary lodging and transportation made directly to a labor
organization official by the labor organization are now reported, by
individual, on Schedule 11; however, if the labor organization pays the
vendor directly for the travel it is not reported by individual. 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.''
A ``direct disbursement'' to an official is a payment made by the
labor organization to the official in the form of cash, property,
goods, services, or other things of value. An ``indirect disbursement''
to an official 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 or employee, the union will have to include this amount as part
of the disbursements made to the particular official. If the credit
arrangement results in an invoice that is detailed by officer or
employee, e.g., hotel room rent charges, the labor organization will
use this detailed invoice when allocating expenses by officer or
employee. If the billing arrangement is set up in such a way that
expenses are not detailed by officer or employee, e.g., when a labor
organization purchases a block of hotel rooms for its officers or
employees, then the labor organization will divide the total cost by
the number of officers or employees for which the expense was incurred.
The instructions to the form now clarify that unions may allocate these
disbursements in this manner.
The distinction between reporting of direct and indirect
disbursements was established because of the difficulties faced by
unions over 40 years ago in 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
[[Page 3688]]
intervening decades. This issue was not addressed in the 2002-2003
rulemaking.
As noted in the NPRM, 73 FR at 27350, payment for an official's
travel and lodging expenses by credit card 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 official 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.
The Department received almost 500 form letters endorsing its
proposal to require disclosure of indirect disbursements. These
commenters stated that such disclosure would provide union members a
more accurate idea of how much their union is spending on these
matters. Noting agreement with the proposal, a commenter stated that
all expenditures for travel for officers should be reported regardless
of the method of payment to the vendor. Another commenter noted
specific examples of union spending that highlighted the importance of
disclosure of travel disbursements. The commenter explained that while
one large union's membership declined 15% last year, the union expended
members' dues money to hold meetings at resorts and casinos in
destinations including Palm Springs, Las Vegas, and Atlantic City.
One commenter alleged that a review of the legislative history of
the LMRDA does not provide support for the disclosure of indirect
disbursements made on behalf of an officer or employee for official
business. The commenter alleged that Congress was particularly
concerned with schemes through which corrupt employers and union
officials could enrich or benefit themselves by structuring indirect
payments through relatives or to vendors of goods and services that
were unrelated to their duties as union officials.
While Congress did evince a particular concern over corrupt schemes
in which union officers sought to enrich themselves through indirect
payments, it also clearly intended that union members receive a full
accounting of their union's financial operations. See discussion above,
at n.8. The mandate for a full accounting does not exempt transactions
that may be considered ``official business.''
Commenters questioned the utility of providing disclosure of
indirect disbursements. The Department believes that union members have
an interest in learning the full extent of disbursements made to or for
labor organization officials. Travel and lodging expenses may be of
particular interest when officers and employees are not utilizing
particularly cost effective modes of transportation, levels of
accommodation, or choice of lodging. This more complete reporting will
help members determine whether such disbursements warrant further
scrutiny. Information about travel and lodging expenses is no less
valuable when payments are made indirectly to the vendor rather than
directly to the union official.
Several commenters suggested that sums aggregated by individual
officials, as called for under the proposed rule, could easily be
misconstrued by membership and the public. One commenter believed that
the data would unfairly make individual officers targets because of
their ``allegedly excessive spending.'' They provided as an example the
contrasting circumstances of two union officials--one who travels
often, but cheaply, will have a large amount of money in travel
expenses, while another official who only travels once but flies first
class and stays at a high-end hotel will appear to be more fiscally
responsible with union funds. The Department recognizes that dollar
figures alone will not show how profligate or not union officers are
with their members' money. A member, however, who is familiar with the
demands of an officer's duties, including travel on behalf of the
union, will be able to determine from the sums reported whether the
expenses incurred seem about right or not and, if the latter,
identifies a need for closer scrutiny of particular expenses. One
commenter stated that the proposed change would allow ``labor's
enemies'' to falsely inflate an official's compensation by including
the cost of legitimate business travel. Another commenter noted that
such indirect disbursements do not meet the IRS definition of income.
As discussed earlier, the Department believes that union members
deserve the benefit of increased transparency and these commenters
concerns can be best addressed by providing information about a union's
policies, so members will better understand the amounts reported by
individual officers. Better education may also be the answer to
concerns about false claims about disbursements to union officer
officials. In any event, the Department does not believe that members
should be denied information relevant to disbursements made to their
officers because of the asserted ``misuse'' of public information.
Because Congress chose to make union financial reports public, the
Department is required to make public information it deems necessary
for union members to possess a full picture of their union's finances.
Finally, the Department recognizes, as it believes the public does
also, that the Form LM-2 and IRS forms do not capture identical
information. Indirect disbursements represent a significant aspect of a
union's expenditures--and as such are important for purposes of
disclosure without regard to any tax consequences they may pose for
individuals.
Commenters also noted that aggregation of the data by specific
officers would not provide the same utility as disclosure of the
specific details of such payments and that aggregation may prove
misleading to members. Two commenters argued that disclosure of union
travel and expense policies would be more useful to members than data
regarding indirect travel expenses. One commenter asserts that the data
revealed by eliminating the exemption for indirect expenses will not
afford union members any more useful information than they already have
by examining the labor organization's itemized expenditures for
individual hotels and common carriers on Schedules 15 and 19. This
commenter provides that a union's travel and expense policies, which
are available to members upon request, are far more probative because
they explain the types of expenses that officers and employees are
entitled to incur when they travel. Some commenters noted that
providing specific details of payments for travel and lodging would be
more useful to union members than providing aggregate sums. Two
international unions argued that requiring disclosure of union travel
and expense policies would be more useful to members.
[[Page 3689]]
The Department acknowledges that providing union members additional
information regarding the specific details of travel disbursements and
providing members copies of travel and expense policies would provide
the members access to possibly useful information. As noted in the
NPRM, 73 FR 27350, eliminating the exception from reporting indirect
disbursements will provide union members a more accurate accounting of
the total amount spent on travel and lodging for union officials. This
data will help union members better determine whether further
investigation is warranted. To the extent that labor organization
commenters believe greater detail would benefit union members, labor
organizations are free to amend their bylaws to require a level of
disclosure or specificity that is greater than that required by the
Form LM-2.
b. Disclosure of Benefits Disbursed to or on Behalf of Officers and
Employees
As a second change to this schedule, the Department proposed the
addition of a new column to allow disclosure of benefits disbursements
made to each labor organization official. The final rule adopts the
proposed changes. Columns ``(A)'' through ``(E)'' are unchanged from
the current form. Column ``(F)'' will be redesignated ``Benefits.''
This is the only new column on the schedules 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.''
In response to comments received, the Department is adding
clarifying information to the requirements for this schedule as
follows:
Reasonable estimates may be used if precise cost figures
are not readily available for benefits provided to individual officers,
e.g., insurance premiums, defined benefit plan contributions, and so
forth.
FICA, federal and state unemployment tax, workers'
compensation taxes, and other employer taxes that are legally required
to be paid by the employer are not included within the scope of
benefits for officers and employees. These types of payments are to be
reported on the Form LM-2 in the manner provided for in the current
instructions.
The reporting changes adopted by this rule only apply to
disbursements on behalf of labor organization officers and employees.
These changes do not apply to disbursements to persons who are no
longer officers or employees of the labor organization. Thus,
disbursements on behalf of individuals who have retired from employment
by the labor organization will be handled the same way that these
disbursements are currently handled for members, i.e., they will be
aggregated in Schedule 29.
In proposing the identification of total benefits paid to officials
on an individual by individual basis, the Department explained that the
current Form LM-2 fails to provide sufficient information on
disbursements by the labor organization to or on behalf of its
officers. See 73 FR at 27350. In the Department's view, labor
organization members should know the value of benefits paid by the
union to its officers. Benefits received by officers for life
insurance, health insurance, and pensions, for example, make up an
important part of the compensation package paid for by the union and
its members. Reporting benefits disbursed in the aggregate on Schedule
20 (i.e., reporting the total benefits paid to all union officials)
does not provide a complete picture of compensation received by
individual labor organization officers. For example, as noted in the
NPRM, id., one local in its Form LM-2 listed almost $500,000 for
``Officer's Union Fringes'' even though the labor organization had
fewer than ten full-time officers. From this information alone, a
member of a labor organization would have 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 amount. Rather than report fringe benefits in the
aggregate on the current Schedule 20, the labor organization will now
report the benefits on Schedule 11 by individual labor organization
officer.
In another instance, again as noted in the NPRM, id., 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. Id. 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 reported to the IRS on an individual-by-individual basis,
as required by the IRS; however, these payments are simply lumped
together on the Form LM-2, without identifying the amounts paid to
individual officers. 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 an aggregate on 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.
By requiring unions to report the total amount of benefits
disbursements made to each officer, members and the public will see the
total payments made to or on behalf of each officer. This increased
transparency will better enable union members to evaluate whether the
compensation paid to each officer is appropriate for the services he or
she renders to the organization. This information will allow union
members, among other uses, to debate and vote to change the amount of
the compensation if they deem it appropriate and consistent with their
organization's constitution, by laws, and the organization's financial
status. They also will be able to evaluate whether the costs of the
benefits provided by the union are in line with market conditions and
benefits paid to officers by other labor organizations--a factor that
may bear on the performance of the union officials with stewardship
over the union's finances.
The Department received mixed comments on its proposal. About 500
commenters who submitted form letters endorsed the Department's
proposal to require unions to report aggregate benefits disbursements
for each officer and employee. One commenter cited data from a large
labor organization's 2007 Form LM-2 that showed pension benefits paid
of $15,858,309 and combined payroll for officers and employees of
$40,468,063. The commenter noted that the data may indicate ``very
generous pension benefits,'' but without the proposed change ``there is
no way of telling from looking at Form LM-2.'' Many others opposed the
proposal. One commenter stated that the proposed disclosure of
aggregate benefits data is unnecessary because union members already
have access to much of this information
[[Page 3690]]
already under the Form LM-2; others stated that any other information
needed may be obtained by invoking their ``just cause'' right to
examine the union's underlying financial reports; while some suggested
that the information, as earlier noted, was available to union members
by requesting a copy of the union's IRS Form 990. While the Department
agrees that the current Form LM-2 provides important information about
the salaries paid to individual officers, members receive only an
incomplete picture of the payments made to individual officers. Without
the reporting required by today's rule, members would be left guessing
as to the total compensation paid to particular officers. Moreover, as
discussed further below, the IRS Form 990 fails to provide the same
level of transparency as proposed by the Department.
Commenters are correct that labor organizations are required to
track and report officer benefits disbursements for the IRS Form 990.
There is a minor level of overlap in the information required to be
disclosed for officers and employees on the Form 990 and the Form LM-2.
Disclosure of benefits disbursements on the Form LM-2 is not identical
to the disclosure required on the Form 990 because the Form 990
requires disclosure of this information for ``key employees,'' unlike
the Form LM-2 where this information must be disclosed for all
employees earning $10,000 or more a year.\11\ As such, while there is
overlap between the Form 990 and the Form LM-2, the Form LM-2 will
provide more comprehensive information because the required disclosures
apply to a larger group of individuals. Moreover, the Department's
proposal ensures that all members will have ready access to this
particular information in a single database. While some members might
be aware that individual payments would be reported to the IRS, others
are not likely to be aware of this disclosure source. Additionally,
union members should be able to determine easily the total compensation
paid to all their officials, not merely the key officials. Where a
labor organization has a large number of highly paid employees, only a
fraction will be reported on the Form 990. While a few commenters
suggested that the Department underestimates the burdens associated
with tracking the information in a way that allows compliance with both
the Form LM-2 and the IRS Form 990, the Department remains convinced
that unions can maintain their records in a way that avoids any
unnecessary additional burden. This point is further discussed below in
the Department's analyses under the Regulatory Flexibility Act and the
Paperwork Reduction Act.
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\11\ For Form 990 purposes, the IRS defines a ``key employee''
as ``any person having responsibilities, powers, or influence
similar to those of officers, directors, or trustees.'' Instructions
to IRS Form 990 (2007), at p. 40. To illustrate this requirement,
the IRS states: A chief financial officer and the officer in charge
of the administration are both key employees if they have the
authority to control the organizations, activities, its finances, or
both.'' Id. For the 2008 tax year, the IRS is requiring Form 990
filers to also provide information on the filer's five current
highest compensated employees (other than officers, directors,
trustees, or key employees) receiving more than $100,000 in
reportable compensation from the filer or related organizations. IRS
Form 990 (2008), Part VII, Section A, 1a.
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Other commenters stated that members already know or can easily
estimate the value of the benefits paid to officers. One commenter
stated that each of its officers and employees participated in the same
medical plan as its members, so members could already ascertain the
value of the benefits provided to officers and employees. The
Department recognizes that in some instances a member can estimate the
value of a particular benefit, but that this will exist only for
certain benefits and for certain unions. Transparency is ill served
where it varies from union to union and from benefit to benefit.
Several commenters asserted that some benefits would be difficult
to report on an individual-by-individual basis. For example, one
commenter noted that it would be burdensome to collect data because
there may be multiple benefit plans involved (0034) (0044). Another
commenter noted that the insured group may vary from month to month,
requiring the organization to recalculate the amount attributed to each
officer and employee, which may result in increased costs. Other
commenters requested clarification of how to treat benefits for
retirees, lump sum benefit data, and administration expenses associated
with benefits.
The Department recognizes that labor organizations may have to
estimate the particular value of a benefit provided a union official.
It is not the intention of the Department to impose on unions a complex
methodology to arrive at the most precise valuation of benefits made to
each individual official. In this regard, the Department notes that the
IRS, which requires labor organizations to report all forms of deferred
compensation, allows: ``[r]easonable estimates * * * if precise cost
figures are not readily available.'' See instructions to 2007 IRS Form
990, p. 41. Under this final rule, the Department will also accept
reasonable good faith estimates of the value of benefits paid to
individual officials.\12\
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\12\ As noted in the NPRM, 73 FR at 27351, the changes are
consistent with the level of disclosure required in other contexts
for executive and employee compensation. Both the IRS (see Form 990)
and the Securities and Exchange Commission (see 71 FR 78338 (2006))
require similar disclosure for certain officials.
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As noted above, several commenters expressed concerns about the
need to report information that could intrude upon an individual's
legitimate concerns for his or her privacy. Several commenters raised a
generalized concern that the proposal would raise privacy issues under
HIPAA. Four commenters raised specific concerns about reporting
payments where the labor organization is self-insured and thus pays
directly for the health care of its officials. The commenters argue
that a self-insured organization would violate HIPAA by providing
information relating to ``past payment[s] for the provision of health
care.'' One commenter noted that it would be unable to report some
information, even if it were required, because the employees in the
union's accounting office are unable to view records that include
protected health information. Two comments noted that the proposal
would allow a union member for just cause to examine the underlying
information which would violate HIPAA. Another commenter, while noting
that the Department was not requiring labor organizations to identify
the nature or value of any particular benefit--the Department proposed
only that the total value of all the benefits to an individual be
reported--questioned whether this would sufficiently address HIPAA
privacy concerns.
As noted in the NPRM, 73 FR at 27351, the Department is fully
cognizant of the need to protect the legitimate privacy interests of
individuals under HIPAA and other laws. To further address the concerns
of commenters, the Department, as discussed below, has clarified the
rule to further protect the privacy of individuals. However, the
Department disagrees with the premise of some commenters that the rule
as proposed infringed on the privacy of individuals. In the 2003
revisions to the Form LM-2, the Department made the decision to
aggregate the benefits paid to union officials on Schedule 20
(Benefits) based on privacy considerations. See 68 FR 58374, 58387,
58399, 58426 (Oct. 9, 2003). Based on those same considerations, the
Department crafted Schedule 11 and Schedule 12 in order to preserve the
privacy interests of individuals. Under the proposal and the final
rule, a person
[[Page 3691]]
reading the report would be unable 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. Given that benefits that must be reported
are aggregated without identifying the nature of particular benefits
that comprise the total, the potential for disclosing information of a
private or protected nature is only remotely possible if at all.
However, in those rare instances, where a labor organization, in good
faith and on reasonable grounds, believes that a particular disclosure
would violate HIPAA, or other federal or state law, or confidential
settlement agreement, it should not include that particular information
for the affected individual, but should instead include its value as
part of the aggregated, non-itemized amount reported on the schedules
and identify that reason and the individual affected in item 69
(additional information) of the Form LM-2.
On a related matter, a commenter questioned whether FICA, federal
and state unemployment tax, long term disability insurance, accident
death and dismemberment insurance, and workers' compensation would be
required to be included in the benefits disclosure by the officer or
employee's name. As noted above, the Department is not requiring labor
organizations to report the value of such payments on an individual-by-
individual basis.
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, as proposed and adopted by today's rule, includes
information from Schedule 14 through Schedule 29. These summary pages
provide a snapshot of the labor organization's activities. Members of
the union and the public 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. As noted in the NPRM, these line items exceed $20 million
in some instances. 73 FR at 27351. For example, one labor organization
stated that it received over $298 million in per capita taxes and
another received over $28 million in rent. Id. Little useful
information can be discerned from these totals alone. The Department
proposed that for each of these schedules the labor organization would
separately identify payments from any individual or entity that alone
or in the aggregate total $5,000 or greater during a reporting period.
The Department has adopted this proposal with some modifications for
schedules relating to the receipt of dues payments and per capita
taxes. The general instructions for completing these schedules have
been modified to account for these changes, including notice to filers
that they should complete the revised schedules 14 (``Dues and Agency
Fees'') and 15 (``Per Capita Tax'') before completing the summary
detail page.
As explained in the NPRM, 73 FR at 27351, the lack of itemization
of most receipts on the current Form LM-2 makes it easier for
individuals to embezzle money coming to labor organization accounts. In
one case, the president and treasurer of a local labor organization
converted over $184,129 in dues checks. See 73 FR at 27352. One
commenter took issue with this example in the NPRM, stating that simply
requiring a listing of checks received by a Form LM-2 filer will not
prevent the type of embezzlement identified in the example. (38) The
commenter noted that the purpose of every receipt is not reflected in a
corresponding disbursement of the same amount, reducing the value of
the new itemization schedules. The Department agrees that it will not
be possible to track the disbursement of each receipt from the
information on the revised Form LM-2. The difference between the
receipt and disbursement functional categories makes such a comparison
impossible. Nonetheless, the itemization of individual receipts
provides helpful information to union members. The revised 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. 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 proposed to add new schedules that coincide with the
items of cash receipts listed on Statement B.\13\ In today's final
rule, the Department adopts the proposal with the modifications
discussed below. The Department is revising the existing Form LM-2 to
include schedules for 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.
Except as discussed below, the itemization schedules for receipts will
operate in the same fashion as do the itemization schedules for
disbursements.
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\13\ Current schedules 14 through 20 will be re-numbered as
schedules 21 through 29.
---------------------------------------------------------------------------
Schedule 14--Dues and Agency Fees. The Department proposed the
requirement that a labor organization report dues and agency fees of
$5,000 or more it receives from an individual or entity during the
reporting period, and that each individual payment of $5,000 or more be
disclosed on a separate line. The Department adopts the proposal as
modified. As modified, labor organizations are not required to itemize
such payments made by individual members. The aggregate dues and agency
fees received directly from a represented employer must be reported by
each individual employer. However, as modified, filers will only have
to report for each employer the total such payments received during the
reporting period--not each payment from the employer that alone or in
combination with other payments is $5,000 or greater. Filers will enter
in Column (A) the full name and business address of the represented
employer. Filers will enter in Column (B) the purpose of the receipt of
$5,000 or more, which means a brief statement or description of the
reason the receipt was received. An adequate description includes
information about the number and type of units covered by the receipt
and the number of employees covered by the receipt. Filers will enter
in Column (C) the total received from the represented employer during
the reporting period.
Some commenters expressed concerns with the difficulties associated
with
[[Page 3692]]
itemizing the receipt of dues. As explained by one commenter, its
members work for multiple employers that are signatory to collective
bargaining agreements. Under collective bargaining agreements, working
dues are deducted from members' paychecks and forwarded to an
intermediate body or a local union. The commenter explained that in
such situations information regarding the specific employer may not be
transmitted to or recorded by the intermediate body, leading to
difficulties in how to report such receipts. The commenter posited
three possibilities: The dues can be considered received from (a) the
member from whose paycheck the dues were deducted, (b) the employer
that forwarded the dues either to the labor organization or to another
entity that then forwarded the dues to the labor organization, or (c)
where the working dues were sent by an employer to some other entity
and then forwarded to the union, the entity that forwarded the dues.
Another commenter explained that many unions do not allocate or
transmit on a receipt-by-receipt basis the dues they receive on behalf
of local unions or affiliates. The commenter explained that under the
unions' own internal procedures they would do so only periodically and
based on the total amount collected during that period. This commenter
explained that the itemization of dues receipts would have to make
calculations that do not correspond to the amounts they actually
transmit to their locals; he also indicated that unions would have to
devise accounting systems that pro rate every dues check received or
perform such calculations manually. One commenter explained that the
timing of the dues deductions from members' pay varied from unit to
unit and that employers of more than one unit often remit payment for
these units in a single check to the international. One commenter
expressed concern that the Department was confused about how dues money
is handled by most unions, including unions in the railroad industry.
The Department believes that labor organizations have misread the
Department's proposal and thereby overstated the burdens associated
with reporting the receipt of dues payments. The Form LM-2
Instructions, as proposed, state on page 31 that the filer must enter
``the purpose of each individual receipt of $5,000 or more which means
a brief statement or description of why the union received the
receipt.'' See 73 FR at 2742. The proper reporting of dues will depend
on how the dues are collected. If the dues are received directly from
the employer, the labor organization receiving these payments should
identify the employer that sent the dues. If another entity, such as an
intermediate body, sent the dues to the labor organization, then the
labor organization receiving the payments should identify the
intermediate body and the intermediate body should list the dues
payments received from the employer on the schedule for ``receipts on
behalf of affiliates for transmittal to them'' (now renumbered as
schedule 21). Both the intermediate body and the labor organization
must identify the units covered by the payment.
If a parent labor organization receives $5,000 or more on behalf of
affiliates for transmittal to them from a represented employer covering
an affiliated labor organization then the parent labor organization
must identify the payer, the type or classification of the payment
(which in most cases will be dues), the purpose, including information
as to which affiliates the receipt covers, and the amount of the
receipt. This type of information will be readily available as the
parent must determine what portion of the check is to be disbursed to
each local. The Department recognizes that unions may have to change
the manner in which they capture and report information such as dues,
but they remain free to devise their own procedures for collecting this
information in order to meet the reporting requirements. The Department
has not required unions to conform their procedures to a prescribed
template; they are free to craft their own procedures so long as the
dues receipts are fairly and accurately allocated and reported.
Two commenters expressed concern that the itemization of the dues
schedule would disclose members' personal information. Under the
proposal, a labor organization would have to report the member's name
and address. The commenters felt that members' names and addresses
should remain confidential. The same concern was expressed with respect
to initiation fees, fines, assessments, and work permits. The
Department has accommodated these concerns. The Department is not
requiring the identification of members who made payments directly to
their labor organization for dues, fees, fines assessments, work
permits, and disbursements on their behalf. Instead, the labor
organizations should add these amounts to the aggregate reported on the
line 3 (Other Receipts) of summary schedules 14, 16, and 22.
Schedule 15--Per Capita Tax. The Department proposed that a labor
organization report on a new Schedule 15 per capita payments it
receives from an individual or entity during the reporting period. The
Department adopts the proposal as modified to clarify how the
information should be described.
The labor organization will report per capita taxes of $5,000 or
more received during the reporting period. Per capita taxes received
directly from a labor organization must be aggregated for the year and
reported by each individual labor organization. Filers will enter in
Column (A) the full name and address of the labor organization from
which the per capita tax was received. Enter in Column (B) the purpose
of the receipt of $5,000 or more, which means a brief statement or
description of the reason the receipt was received. An adequate
description includes information about the number and type of units
covered by the receipt and the number of employees covered by the
receipt. Filers will enter in Column (C) the total received from the
represented employer during the reporting period.
The Department received several comments relating to the reporting
of per capita taxes. Because the comments on this schedule were
essentially the same as those received on the other new schedules
proposed for a labor organization's receipts, they are discussed
together below.
Schedule 16-22. As earlier discussed, the Department proposed the
addition of these schedules to capture, by functional category, a labor
organization's various receipts. Labor organizations are required to
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 establishing this reporting obligation, the Department is
requiring labor organizations to provide the same information about
their ``major'' receipts as they are currently required to report
[[Page 3693]]
about their ``major'' disbursements. Most of the general comments about
the proposal to require itemization of both sides of the ledger were
addressed earlier in the preamble. Neither those comments nor the
Department's response to those comments will be repeated. Instead, only
comments about particular aspects of the receipts schedules, not
already discussed, are addressed below. Schedules 16, 21, and 22, like
Schedules 14 and 15, require filers to identify receipts by units,
jobs, and timeframes. The instructions have been modified for this
purpose.
A national labor organization stated that it does not break down
sales of supplies by entity and will have to alter substantially its
account system to track the sales of supplies to affiliates by entity.
Another national labor organization was particularly concerned with
itemizing receipts on Schedule 21, ``Receipts on Behalf of Affiliates
for Transmittal to Them.'' The commenter explained that many parent
labor organizations collect dues, fees, and other amounts that include
the members' dues for subordinate or local unions. The commenter stated
that it will be extremely difficult to designate the precise amount of
each receipt to be transmitted to one or more locals or affiliates. One
labor organization calculated that the proposed receipts schedules will
increase its yearly burden by 250-500 hours (compared to the
Department's estimated average of .47 hours per year). A commenter
estimated that the ``per capita tax'' schedule alone would increase the
number of itemized entries on its Form LM-2 by 1,200. Another commenter
stated that under the Department's proposal it would have to make about
10,000 itemized entries, one for each employer from whom it receives
members' dues payments.
As stated earlier in this preamble and in the preamble to the
proposed rule, greater transparency promotes the detection of
embezzlement and financial irregularities and, in so doing, also deters
individuals at the front end from engaging in criminal or other
improper conduct. Receipts from dues, per capita taxes, and sales of
supplies are as susceptible to embezzlement or other improper use as
any other receipt. For example, as noted in the NPRM, 73 FR at 27351-
52, the president and treasurer of a local labor organization converted
over $184,129 in dues checks. The dues and agency fees schedule will
provide an essential check for transactions between affiliates and
parent bodies.\14\
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\14\ The Department recognizes that some national or
international labor organizations receive dues payment from hundreds
and, in some cases, thousands of employers. Although this will add
length to the reports, the recurring burden will be minimal given
the sorting feature in accounting software. Further, members
interested in tracking payments to and from the national
organization and between that organization and an intermediate body
of local labor organization will be able to quickly search for
payments involving particular employers, labor organizations, and
bargaining units. The Department expects that most labor
organizations already track such payments in order to ensure they
are receiving the appropriate amount in dues payment and that most
will receive payments from only a relatively small number of
employers.
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Members of the affiliate labor organization will be able to check
the amount their labor organization received in dues against the parent
labor organizations receipts on behalf of affiliates for transmittal to
them. The same analysis can be done on lump sum payments from the
represented employer to the parent labor organization covering multiple
affiliates. The member need only look at each of the covered
affiliates' dues schedule and aggregate the payments to ensure they
match the sum reported on Schedule 21. A difference in these two
numbers could indicate embezzlement and warrant further investigation.
As discussed in the NPRM, 73 FR at 27352, the per capita tax
schedules of affiliates and parent labor organization can also be used
to detect embezzlement and financial irregularities. The member can
check for possible embezzlement or misallocation of funds owed his or
her labor organization by checking his or her labor organization's per
capita tax disbursements reported in Item 57 against the per capita tax
receipts of the parent and its intermediate bodies. This can be done by
entering his or her labor organization's name in the payer/payee search
available on unionreports.gov. The search results will identify each
labor organization that received per capita taxes from the member's
labor organization. These payments can then be aggregated to determine
whether the per capita disbursements from the member's labor
organization match the per capita receipts reported on all the
recipients' per capita tax schedules (Schedule 15). A difference in
these two numbers could indicate an embezzlement or misallocation and
warrant further investigation.\15\
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\15\ One commenter noted that it has 750 local affiliates, the
vast majority of which have no office address other than the home of
the local president or treasurer. It explained that all of these
local affiliates make per capita payments over $5,000 per year and
therefore it would be required to report on Schedule 15 the name and
address of the person/entity making the payment. Expressing concern
for the privacy of these officials, it urged the Department to
except it from reporting their home addresses. The Department does
not agree that an exception is necessary. Labor organizations
already must disclose a publicly available address for itself or a
registered agent for service of process in order to comply with
state corporation laws. Further, the IRS requires a labor
organization to list its address on IRS Form 990. For purposes of
Schedule 15, a labor organization may use the address used by the
labor organization in complying with state law or reported on the
Form 990. Alternatively, a labor organization concerned about the
disclosure of an officer's home address may elect to obtain a P.O
Box and use that as its mailing address.
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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.
Special Procedures for Reporting Confidential Information
The Department requested comments on whether to narrow, clarify, or
remove the confidentiality exception from the Form LM-2 instructions.
The Department recently considered this same question in connection
with the Form T-1 rulemaking. There the Department issued a final rule
retaining the special procedure without change but cautioning that it
was to be used in
[[Page 3694]]
limited circumstances. As discussed below, the Department reaches the
same result here, i.e., preserving the confidentiality procedure.
However, based in part on comments received in connection with the
proposed changes to the Form LM-2 but primarily based on the agency's
interpretation of its own regulations, the Department is clarifying
that the procedure may not be used by unions in connection with
payments made by them to employers if such payments are made as part of
a job targeting, market recovery or similar program.
Additionally, the Department modifies the instructions to clarify
that the procedure may be used to report information the disclosure of
which is proscribed by HIPPA or other federal or state law and that
where this information is reported in aggregated form for this purpose,
it is not subject to the per se ``just cause'' proviso of the
procedure. See 29 CFR 403.8 (2008); see also 73 FR at 57449 (revising
29 CFR 403.8(c)).\16\ This change conforms the instructions in the Form
LM-2 to the instructions and regulatory text in the Form T-1 final
rule, which takes effect on December 31, 2008. See 73 FR at 57449,
57469.\17\
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\16\ In this rulemaking the Department only addresses whether
the information is available pursuant to the ``just cause per se''
provision of the special reporting procedure. The Department does
not reach the question whether a union member for ``just cause''
would be able to examine underlying documents. The result may well
depend upon the particular circumstances giving rise to the member's
request, the nature of the information that is at issue, and the
potential applicably of non-disclosure provisions under statute and
case law.
\17\ The revised section reads: ``This provision does not apply
to disclosure that is otherwise prohibited by law or that would
endanger the health or safety of an individual, or that would
consist of individually identifiable health information the trust is
required to protect under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) Privacy Regulation.''
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The instructions currently allow unions to use the confidentiality
procedure for information that would (1) 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) expose the reporting union's
prospective organizing strategy; (3) 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) subject to a
confidentiality agreement in a settlement agreement; or (5) endanger
the health or safety of an individual. See 73 FR at 27423-24 (unchanged
from current rule). If the receipt or disbursement fits within one of
the above 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. A union member has a statutory right ``to examine any
books, records, and accounts necessary to verify'' the labor
organization's financial report if the member can establish ``just
cause'' for access to the information. 29 U.S.C. 431(c); 29 CFR 403.8.
The instructions and regulatory text expressly provide that if a labor
organization chooses to utilize the special procedures for confidential
information, such use constitutes a per se demonstration of ``just
cause for access to the information'' and thus the information must be
available to a member for inspection. 68 FR at 58448, 58499-00.
Information that is withheld from full disclosure is not subject to the
per se disclosure rule if its disclosure would consist of individually
identifiable health information of the kind required to be protected
under the Health Insurance Portability and Accountability Act of 1996
(HIPAA) privacy regulation, violate state or federal law, violate a
non-disclosure provision of a settlement agreement, or endanger the
health or safety of an individual.
Several commenters objected to the use of special procedures for
reporting confidential information. The objections, however, were
directed at the use of the procedure to shield from the view of union
members and the public the amount of union funds directed at organizing
activities, not at the use of the procedure to protect the legitimate
privacy interests of individuals. One commenter asserted that the
procedure effectively allowed labor organizations to assert
unsubstantiated claims as a guise to justify any instance where they
elect to withhold information. One commenter argued that the exemption
affords labor organizations greater ability to withhold information
than what is permitted under the discovery rules of federal civil
procedure or permitted by the National Labor Relations Board (NLRB).
Another commenter noted that narrowing or removing the exemption ``will
provide labor organization members with clearer information regarding
[labor organization] receipts and disbursements.'' The commenter argued
that financial information should be available to labor organizations'
membership without having to petition the labor organization directly.
The commenter also alleged that because of potential tax and other
impacts and implications, the public is entitled to and should have the
same benefit of clarity regarding labor organization receipts and
disbursements.
Several commenters argued in favor of maintaining the special
procedure for reporting organizing activities, asserting it was
necessary to balance the interest of union members in transparency
against the interest in protecting a union's ongoing organizing
campaigns. One commenter expressed the unsubstantiated view that but
for the inclusion of the special procedure in the 2003 rule, the courts
would have overturned the rule. Another commenter, while noting that
transparency is a positive benefit to the public, urged the Department
to weigh this benefit against the labor organizations' primary
responsibility--to represent its members. This commenter concluded that
the damage done to unions' representational responsibilities far
outweighs the value of this transparency in and of itself.
Other comments noted that eliminating the confidentiality exception
would be detrimental to legitimate organizing efforts and could
compromise a labor organization's efforts to effectively engage in
collective bargaining. Specifically, one commenter argued that
requiring a union to identify ``salts'' on the Form LM-2 will
unreasonably chill, if not destroy, this legitimate form of organizing
under the NLRA. Disclosure of ``salts'' could jeopardize the
individual's ability to earn a livelihood. This category of information
subject to the Special Procedures for Confidential Information remains
unchanged in the final rule. Labor organizations should note that
notwithstanding the confidentiality provisions any employee who
receives over $10,000 in any fiscal year is required by the LMRDA to be
disclosed, even if employed as a ``salt.''
One commenter argued that the need for a confidentiality exemption
is self evident. One commenter noted that the current exception is
already narrowly tailored to protect legitimate union interests while
ensuring union members have access to information. Two commenters
suggested that concerns that the Department found ``persuasive'' in
2003 when it adopted this narrow exception to itemized reporting are no
less real or compelling today. Several commenters also noted that the
[[Page 3695]]
Department cited no complaints from union members that this exception
prevented them from accessing information on their union.
Several commenters argued against imputing an improper motive to a
labor organization's use of the confidentiality procedure. One noted
that a union's decision to protect information from disclosure should
not be assumed to connote misuse or abuse of the exception. This
commenter alleged that use of the exemption is evidence of the extent
to which the Department has already transformed the Form LM-2 from a
vehicle Congress created to strengthen unions into a trap for the
unwary and a weapon of choice for anti-union consultants bent on
stopping workers from organizing. Two commenters believed that misuse
of the exemption may be attributed to the steep ``learning curve''
inherent in the complex reporting scheme.
The Department also specifically invited comments on an alternative
proposal to require that all transactions greater than $5,000 be
identified by amount and date on the relevant schedules, permitting
however, labor organizations, where acting in good faith and on
reasonable grounds, to withhold information that would otherwise be
reported, in order to prevent the divulging of information relating to
the labor organization's prospective organizing or negotiating
strategy. Only one commenter addressed this proposed alternative. The
commenter noted that such an approach did not provide protection for
information recognized in the other parts of the existing
confidentiality section, such as information that is required to be
kept confidential pursuant to a settlement agreement, information the
union is prohibited by law from disclosing, or information where
disclosure would endanger the health or safety of the individual. The
commenter also noted that such an approach would require additional
itemization and reporting that would provide meaningless information to
members.
The Department has carefully considered the comments relating to
the Special Procedures for Reporting Confidential Information. It also
has undertaken further review of the use of this procedure by reporting
labor organizations. The Department's review of Form LM-2 data
indicates that the confidentiality exception is used only by a small
number of Form LM-2 filers. However, the Department has found that in
some cases where the confidentiality exception is used, large portions
of the labor organizations' disbursements are not being itemized. For
example, one labor organization treated $360,308.00 in disbursements as
confidential information and entered this amount on line 5 of Schedule
17. The $360,308 accounted for 45% of the labor organization's total
disbursements. A mid-sized local labor organization treated $1,011,863
as confidential. This accounted for 49% of the labor organization's
total disbursements. Finally, a large local labor organization treated
$5,931,513.00 as confidential. This accounted for 46% of the labor
organization's total disbursements. As these examples demonstrate, an
undisciplined use of the special procedures may result in the non-
itemization of disbursements of millions of dollars and thus deny
members the very transparency that is the foundation of the LMRDA's
disclosure provisions.
Thus, while this final rule retains the Special Procedure for
Reporting Confidential Information, the Department reemphasizes the
limited situations in which it should be used and clarifies that it was
not the Department's intention that it should be used to shield the
itemization and full disclosure of payments to employers for job
targeting, market recovery or other similar programs. In clarifying
this aspect of the rule, the Department remains of the view that a
labor organization should not be required to disclose information that
would harm the labor organization's prospective organizing campaign or
negotiations, by disclosing strategy that would otherwise be
confidential. However, the Department reiterates, as it did in the Form
T-1 final rule, that labor organizations are required to itemize
transactions related to organizing drives and contract negotiations
after the confidentiality interest giving rise to the exemption has
ended. The instructions make clear that absent unusual circumstances
information about past organizing drives or contract negotiations
should not be treated as confidential under the reporting requirements.
The Department also reiterates, as noted in the 2003 final rule, the
procedures may not be used for Schedules 16 through 18. 68 FR at 58500.
This rule has renumbered Schedules 16 through 18 as Schedules 25
through 27. Thus, the instructions for this final rule state that the
procedures may not be used for the new Schedule 25 (``Political
Activity and Lobbying''), Schedule 26 (``Contributions, Gifts and
Grants''), and Schedule 27 (``General Overhead'').
The Department is also clarifying that the procedure may not be
used for payments made to employers as part of a labor organization's
job targeting, market recovery or other similar program. A commenter
urged the Department to eliminate the confidentiality procedure because
of what it saw as a widespread practice by labor organizations to avoid
reporting the names of, and amount of payments to, employers who had
received job targeting funds. Independently, the Department's own
recent investigative experience has shown that some labor organizations
have been using this procedure to shield from disclosure payments to
employers as part of the unions' job targeting or market recovery
programs. Although the total number of instances appears relatively
small, the amount of money involved is substantial. The labor
organizations have informed the Department that they consider such
payments to be part of their ``organizing strategy'' and that the
disclosure of such payments would adversely affect future organizing
efforts. As discussed below, the Department has determined that
payments to employers for job targeting or market recovery purposes are
not encompassed by the special procedure. Therefore, any payments of
$5,000 or greater to a particular employer must be itemized.
In the 2003 rule, the Department, recognizing that the disclosure
of certain payments related to organizing might adversely affect a
union's legitimate interests, created a special procedure for reporting
confidential or sensitive information. The key language of the 2003
rule is embodied in the instructions to the Form LM-2: ``Filers may use
the [special procedure for reporting confidential information] to
report * * * [i]nformation that would expose the reporting union's
prospective organizing strategy. The union must be prepared to
demonstrate that disclosure of the information would harm an organizing
drive'' (emphasis added).
Neither the rule nor its preamble illustrated the particular kinds
of payments that would or would not qualify for this limited reporting
procedure. Although the preamble to the rule mentioned ``job
targeting'' in a few instances, the preamble did not specifically
identify which particular schedule should be used for reporting such
payments. See 68 FR at 58387, 58400. The closest the preamble comes to
addressing how job targeting disbursements should be reported is the
following statement: ``In the Department's view, receipts and
disbursements of job targeting funds that exceed the itemization
threshold will be disclosed as a result of the
[[Page 3696]]
general reforms implemented by this rule.'' Id., at 58400. The
Department acknowledges that the term ``organizing strategy'' is
ambiguous, and that the rule did not make clear whether payments made
directly to employers, such as job targeting payments, would qualify.
The ambiguity of the term is illustrated by literature reviewed by the
Department, some of which classified activities as far flung as
community service projects and pension investment strategies as being
part of a union's ``organizing strategy.'' Kate Bronfenner, Organizing
to Win: New Research on Union Strategies, 302. The Department never
intended that the term should be read so broadly. Such activities may
have an indirect impact on the attractiveness of a union to workers,
but do not directly attempt to organize workers, and thus fall outside
the meaning of the term as interpreted and administered by the
Department. Moreover, the ``key language'' of the rule, as quoted
above, dictates that the special procedure must be read as limited to
information that would ``harm an organizing drive.'' Payments to an
employer in order to assist it in bidding for construction jobs on
which union members will be paid in accord with union industry practice
cannot be viewed as part of an ``organizing drive.'' Such payments
stand in contrast to payments commonly associated with an organizing
drive, such as payments to printing vendors for literature and signage,
and rental of meeting facilities, communication equipment,
transportation vehicles, and various consultants. For this reason, the
Department modifies the rule by explicitly stating that ``payments made
by a labor organization to an employer under a market recovery, job
targeting, or like program (e.g., for ``industry advancement''), must
be reported. Such payments must be itemized where they aggregate to
more than $5,000. If the labor organization chooses to report such
payments on Schedule 24 (``Representational Activities''), it may not
use the confidentiality exception. Additionally, it is the Department's
view that this clarification best serves the LMRDA's purpose, by
providing transparency to this substantial aspect of a union's
financial operations without impeding a union's prospective organizing
drives. In making this change, the Department takes no position in this
rule on the propriety or not of job targeting or similar payments made
by a labor organization under the Labor Management Relations Act, the
Davis-Bacon Act, or other law, or how such information has been
addressed under the discovery rules of federal civil procedure and NLRB
practice. The changes are based solely on the Department's
interpretation of the confidential reporting procedure and its view
that the disclosure purposes of the LMRDA are best served by making
known to union members and the public the amounts and recipients of job
targeting, market recovery or other similar payments.
C. Proposed Procedure and Standards To Revoke the Simplified Reporting
Option Where Appropriate in Particular Circumstances
1. Introduction
The Department proposed 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 final rule adopts the proposal with some
modifications. The new 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. Without such a procedure, the Department
has been unable to revoke a labor organization's privilege to file a
simplified report--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. See 73 FR at 27353. The procedures
established in this rule will remedy this shortcoming in the
Department's reporting system.\18\
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\18\ The 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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As discussed in the NPRM, 73 FR at 27346-47, the goal of these
changes is to improve transparency in situations where it is most
needed, i.e., where a union has failed to comply with its basic
financial reporting obligation. Although it may appear counterintuitive
to require a non-compliant organization that fails to meet its
relatively simple Form LM-3 obligation to file a more detailed Form LM-
2, this view assumes that the only reason for non-compliance was
relatively benign, e.g., a responsible officer was brand new to the
position or his or her illness delayed the timely submission or
clarification of a submission. The Department recognizes that some
submissions are delayed for such reasons; thus, the Department did not
propose that a delinquent or materially deficient filing would
automatically trigger revocation and require the submission of a Form
LM-2. However, as most commenters appeared to recognize, the reasons
for non-compliance are varied and by no means all benign. Labor
organizations will be given the opportunity to explain the reasons for
the delay, including mitigating circumstances, and may thereby avoid
having to file the Form LM-2. But where revocation is appropriate, the
union will incur some additional burden in completing the Form LM-2
but, as discussed below, the burden is manageable and outweighed by the
gains in transparency. 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 may have occurred. 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.\19\
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\19\ 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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The differences between the Form LM-2 and the Form LM-3 forms have
been accentuated by the substantial revisions made to the Form LM-2 in
2003 and those adopted in this final rule. 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
[[Page 3697]]
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. Itemization 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 that 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, 68 FR at 58401-02, 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.
As discussed in the NPRM, 73 FR at 27354, 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 way
such organizations maintain their financial records, and may be an
indicator of more serious financial mismanagement. 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 pled guilty to embezzling $112,525
and received a prison sentence of 33 months, and was ordered to pay
back the money 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 pled 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 will also benefit from the increased transparency.
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 problems to remain undetected. The greater
detail required by the Form LM-2 makes it more difficult to hide such
problems.
As discussed in the NPRM, at 73 FR at 27357, 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 highlight the need for more, not
less, detailed reporting. The inability to comply with the reporting
obligations may be symptomatic of financial management problems, benign
or otherwise, within the union. As discussed below, commenters
generally agreed with the Department's assessment of why labor
organizations are delinquent or deficient in filing the Form LM-3. Some
commenters, however, disagreed with the efficacy of additional
reporting as a means of detecting fraud or embezzlement. As discussed
further below, the Department recognizes that the changes will not
eliminate fraud or embezzlement. But the changes should increase the
ability of union members, the Department, and the public to identify
how the union's finances are being managed. This increased
transparency, especially insofar as overdue accounts and major
transactions (those valued at $5,000 or greater) are concerned, will
increase the prospect that fraud will be uncovered and the fear of
detection may deter individuals from engaging in the improper conduct
in the first instance.
To implement this procedure and standards for revocation, the
Department proposed 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
[[Page 3698]]
filers of the procedure and standards. The Form LM-3 instructions will
remain unchanged except for a new paragraph that notes that the
privilege to file the Form LM-3 may be revoked under certain
circumstances, and refers filers to the standards and procedures set
forth in the Department's regulations (29 CFR 403.4).
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, or files a Form
LM-3 that lacks material information,\20\ 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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\20\ 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.\21\ 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 OLMS 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.
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\21\ The Department anticipates that the new rule will provide
ample incentive for labor organizations to fulfill timely their Form
LM-3 filing responsibilities. If the rule has that salutary effect,
the number of unions potentially subject to revocation of their Form
LM-3 privilege will be relatively small. Should this not be the
case, available resources may limit the ability of the Department to
pursue revocation in all cases where it may be warranted. In such
instances, the Department will exercise, fairly and impartially, its
enforcement discretion in deciding where revocation should be
pursued.
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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 factors exist that
mitigate against revocation. 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 based on neutral criteria, 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, but in no event will a labor
organization 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.
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.
2. Discussion of Comments Received
A few commenters addressed the authority of the Secretary to make
the proposed changes. One commenter noted that the Secretary has the
statutory authority to revoke the simplified reporting privilege and
doing so will promote greater transparency. The commenter also noted
that the revocation procedure will act as an effective deterrent to
deliberately inaccurate or late reporting of financial information.
Others, however, argued that Congress intended revocation under section
208 to be limited to situations where the simplified report would not
accurately reflect the finances of a small labor organization, i.e.,
where filing the simplified form would permit the labor organization to
circumvent or evade its reporting obligations. A suggested example of
its appropriate use would be where a single labor organization, in
effect, was formed as two separate labor organizations in order to
decrease its annual receipts below the $250,000 filing threshold for
the Form LM-2. The same commenters stated that the authority under
section 208 was not intended to be used for individual or episodic
violations. In its view, the only appropriate remedies for individual
violations are already provided for under the LMRDA--civil and criminal
enforcement. Another commenter argued that where conduct is culpable,
it should be dealt with through criminal investigations and
prosecutions.
The Department disagrees with this narrow reading of the
Secretary's authority. Section 208 permits the Secretary to establish
simplified forms for labor organizations where she ``finds by virtue of
their size a detailed report would be unduly burdensome.'' 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].'' Contrary to
the view of these commenters, section 208 grants her express,
unambiguous statutory authority to revoke the
[[Page 3699]]
privilege of a labor organization to file a simplified report. There is
nothing in the text of the LMRDA or its legislative history to suggest
that the Secretary's authority to revoke the privilege is somehow
constrained by her separate grant of civil and criminal enforcement
powers. 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. Moreover, requiring unions that are delinquent or materially
deficient in their reports to file the more detailed Form LM-2 will
help identify situations demanding civil and criminal investigations
and prosecutions. The revocation process is but one tool that the
Department may utilize to ensure that labor organizations are complying
with the LMRDA reporting requirements. Where conduct warrants criminal
enforcement, the Department will use this complementary tool.
A few commenters took an alternative tack by stating that implicit
in the authority to create a simplified financial report is the
assumption that simplified reports adequately reveal a small labor
organization's finances, or that small organizations are incapable of
filing the same report as larger organizations, or both. They suggested
limiting revocation to only those situations where a simplified report
would not accurately reflect the finances of a small labor
organization. While Congress clearly viewed simplified reports as
potentially adequate for reporting the finances of small labor
organizations, it left the Secretary to decide whether to permit some
unions to file a simpler form. It is difficult to square the decision
by Congress to leave the choice to the Secretary while, at the same
time, hobbling her authority to revoke the authority where she deems it
appropriate. Congress left it to the Secretary to determine what is
``unduly burdensome.'' And, where action (or inaction) of individuals,
not a union's size, is the reason for the reporting deficiency, the
argument that the Secretary is constrained by the language of section
208 loses any remaining force. Commenters have failed to provide any
persuasive arguments in support of such a reading.
A few commenters suggested that the Department was exaggerating the
problem, one stating that a phone call to the labor organization in
question should be sufficient to remedy the problems, while other
suggested that the Department should address the problem by providing
compliance assistant to small unions so that they will understand their
filing obligation. As most commenters appeared to recognize, however,
it is hard to exaggerate the difficulties confronting the Department in
obtaining timely and complete Form LM-3s from a substantial percentage
of unions in this category. The problems persist despite the
Department's robust compliance efforts to assist unions with their
filing obligations.
Several labor organization commentators believed that increased
disclosure was punitive. A commenter asserted that compliance does not
appear to be the goal of this proposal, explaining its view that the
proposal would impose extraordinary costs on labor organizations. (45)
The Department disagrees with this assertion. Filing a delinquent or
materially deficient report violates the labor organization's duty to
provide accurate disclosure of its financial condition and operations.
Such evasion of the reporting requirements may be a sign of more
serious financial mismanagement. Increased transparency and disclosure
will help labor organization members and the Department ascertain
whether serious financial mismanagement is occurring. Revocation of a
labor organization's simplified reporting privilege will further the
purposes of the LMRDA, namely, ensuring that the organization
accurately discloses its financial condition and operations.
Many commenters described the proposal as unnecessarily burdensome.
Commenters stated that Form LM-3 filers do not keep track of data that
is required on the Form LM-2. Specifically, one commenter believed that
the Form LM-2 functional categories would pose a particular challenge
for Form LM-3 filers. An additional commenter also noted that
aggregation, itemization and categorization could pose a problem. This
international labor organization commenter noted that from its
experiences with filing Form LM-2 reports for Form LM-3 filers that had
been placed in trusteeship, conversion of data to the Form LM-2 format
had been difficult.\22\
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\22\ As ``evidence'' of the burden, two commenters noted that
the Form LM-2 is so difficult to complete that the Department, in
light of the legal challenge to the 2003 rule, recognized that
unions would need at least 18 months to prepare for filing the form.
(As discussed in the text, the actual burden to an affected union
under this aspect of today's rule will be much less demanding than
for a typical Form LM-2 filer. The ``lead time'' for the submission
of the Form LM-2s, as revised by the 2003 rule, was provided because
of two factors: (1) The need for some unions to substantially revise
sophisticated recordkeeping and accounting systems; and (2) the
delay in the Department's development of software by which unions
would electronically submit their Form LM-2s. Neither factor is in
play under the instant rule.
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The Department acknowledges that the Form LM-2 will prove more
burdensome to complete than the Form LM-3, a fact that should provide
incentive for an organization to file its Form LM-3 on time and without
material deficiencies. At the same time, however, the Department
believes that some commenters overstate the burden to those labor
organizations that will be required to file the Form LM-2. The burden
to a labor organization of filing a Form LM-2 is proportionate to the
size of the labor organization. Form LM-2 requires additional
information and specificity that is not captured by the Form LM-3. A
labor organization that has had the Form LM-3 filing privilege revoked
will have to assign receipts and disbursements into functional
categories, a new task for those unions. However, due to the relatively
small number of receipts and disbursements, assigning the receipts and
disbursements to functional categories should not require a significant
adjustment in the labor organization's recordkeeping systems. The
burden imposed by requiring itemization of receipts and disbursements
into functional categories is linked to the amount of receipts and
disbursements that a labor organization has. A labor organization with
less than $250,000 in annual receipts will have significantly fewer
receipts and disbursements to itemize than a larger labor organization.
And where the labor organization believes that it does not have
voluntary resources to complete the form itself, it can turn to its
parent or other affiliated unions for assistance or referral to third
parties experienced in preparing the Form LM-2. Additionally, labor
organizations that will file the Form LM-2 due to having their Form LM-
3 filing privilege revoked are relieved of the requirement to file the
Form LM-2 electronically, which may reduce the burden of converting
files to a system that is compliant with the electronic form.
[[Page 3700]]
The Department notes that currently situations exist where a Form
LM-3 filer may be required to file a Form LM-2 with little notice. For
example, a traditional Form LM-3 filer that received $230,000 in annual
receipts in the previous year but nearing the end of its current fiscal
year eclipses that total, and now has $260,000 in annual receipts must
file a Form LM-2 for that year with little advance notice. Similarly, a
traditional Form LM-3 filer that received $100,000 in annual receipts
in the previous fiscal year but nearing the end of its current fiscal
year sells an asset thus bringing its annual receipts over the $250,000
Form LM-2 threshold, would be required to file the Form LM-2 with
little advance notice. Additionally, the Department has long required a
Form LM-2 to be filed for a labor organization that has been placed in
trusteeship without regard to the amount of its annual receipts.
Depending on particular circumstances, a Form LM-2 could have to be
filed shortly after the imposition of a trusteeship, even though but
for the trusteeship, a Form LM-3 would have fulfilled the
organization's annual financial reporting obligation. See 29 CFR 403.4
and 408.5.
Focusing on the Department's estimate of 96 revocations a year out
of a much larger potential universe of delinquent filers, commenters
questioned the Department's intention or ability to identify those
labor organizations that will be required to file the Form LM 2. Some
commenters suggest that the procedure invites, if not compels,
arbitrary action by the Department. One commenter noted that nearly 80%
of all 2006 Form LM-3 filers filed on time or within 30 days of their
filing deadline. The commenter noted that over 2,000 Form LM-3 filers
remain delinquent over 30 days after their filing deadline. Another
commenter asserted that the proposal would require the Form LM-2 to be
filed by less than one-tenth of one percent of all Form LM-3 filers,
allowing the Department unbridled discretion in singling out those for
sanction. Two commenters questioned what process the Department would
utilize to determine which delinquent and deficient filers would have
their Form LM-3 filing privilege revoked. One commenter requested the
Department present clear, precise, and reasoned criteria for
revocation. One commenter worried that the Department would revoke the
Form LM-3 filing privilege for labor organizations that filed their
Form LM-3 one day late.
Such fear is unfounded and, in any event, premature. As explained
in the NPRM, 73 FR at 27370, 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.) The term ``other circumstances'' is
necessarily broad to encompass situations that are contrary to the
Act's disclosure provisions but not easily catalogued in advance.
Moreover, the Department's actions are constrained by the language of
section 208, which requires that revocation be limited to situations
where it would serve the purposes of that section. The Department has
established a procedure that ensures due process--notably no commenter
has taken issue with the investigatory and decision making process.
This process ensures fair and even-handed treatment. Moreover, any
labor organization that believes it has been aggrieved by the
Department's decision to revoke the Form LM-2 filing privilege could
secure judicial review of the Department's decision.
The ``other circumstances'' provision will rarely be used. As the
commenters noted, if a large labor organization divided itself into two
separate labor organizations, while continuing to function as one
entity, the labor organization would be evading the Form LM-2 reporting
requirement. In such a situation, the labor organizations may be filing
timely Form LM-3 reports, which may comply with the technical
requirements of Form LM-3, but revocation would still be warranted.
While revocation is appropriate in that instance, the commenters, have
failed to make a convincing argument that the Department's statutory
discretion should be limited by specifying particular situations where
revocation may be appropriate. The Department cannot anticipate every
situation where revocation would be appropriate and for this reason it
retains the ``other circumstances'' language in the final rule.
Two commenters asserted that the examples of mitigating
circumstances in the proposal, ``natural disasters'' and ``death or
serious illness'' of the president or treasurer of the labor
organization, indicated that the Department will allow mitigation only
in the most extreme situations, inviting arbitrariness in singling out
violators for the revocation sanction. (38, 40) The language in
question does not require such inference. For example, the NPRM stated
that ``[m]itigating 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.'' 73 FR 27356. To
alleviate this concern, however, the Department acknowledges that
mitigating factors, including a labor organization officer's lack of
recordkeeping or bookkeeping experience will be taken into account by
the Department in deciding whether revocation is appropriate. However,
where officers of a labor organization have deliberately obscured its
financial condition and operations, the Secretary will exercise her
statutory right to revoke the simplified filing privilege of the labor
organization.
Two commenters expressed concern that the Secretary could impose
the Form LM-2 filing requirement indefinitely. 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 filed a
materially deficient report, and the fiscal year during which the
revocation was issued. However, to the extent that a labor organization
continues to fail to accurately disclose its financial conditions and
operations despite the revocation, application of the revocation to
additional fiscal years may be appropriate. Thus the duration of the
revocation is limited by the Section 208 requirement that revocation
further the purposes of the Act.
Labor organizations will receive notice of their delinquency well
before the revocation process is invoked. Only after notification of
the delinquency and voluntary cooperation has failed to resolve the
delinquency will a revocation proceeding commence. Labor organizations
will be notified that a consequence of failure to file a timely report
or filing a report with material deficiencies may be revocation of
their simplified reporting privilege. They will be so informed not less
than 30 days before the revocation process is invoked. Under the final
rule, labor organizations that file a delinquent or materially
deficient Form LM-3 will be notified of their right to file a written
submission contesting the proposed revocation. The notice also informs
the labor organization that failure to file a written submission within
30 days will result in an automatic revocation of their simplified
reporting privilege. The written submission must address four issues
that should be readily ascertainable to a labor organization official:
(1) The existence of a delinquency, material deficiency or other
circumstances; (2) whether the deficiency, if any, was material; (3)
whether a delinquency or other
[[Page 3701]]
circumstance for revocation was caused by factors reasonably outside
the control of the labor organization; and (4) any mitigating factors.
In light of the labor organization's prior notification of the
delinquency and opportunity to voluntarily resolve the delinquency, 30
days is sufficient for a labor organization to prepare its response.
The automatic revocation of the simplified reporting privilege for a
labor organization that fails to contest the proposed revocation, much
like a default judgment in a civil suit, is a reasonable response to
the labor organization's continuing inattention to its filing
obligations. Whether the privilege will be revoked will ultimately
depend on the Secretary's determination of whether revocation is
warranted, which is a fact-specific inquiry requiring evaluation of the
circumstances of the delinquency, material deficiency or other grounds,
and evidence presented by the labor organization.
Several commenters noted the possible consequences to a labor
organization whose Form LM-3 filing privilege is revoked. One commenter
stated that the need to file the more burdensome Form LM-2 would divert
the labor organization from grievance handling and its other core
business. By filing a timely Form LM-3 report without material
deficiencies a labor organization can avoid any diversion of resources
that may occur as a result of the revocation of the simplified filing
privilege. One international labor organization worried that labor
organization officers may resign should their organization's Form LM-3
privilege be revoked. Another international labor organization believed
that if a local labor organization's Form LM-3 filing privilege were
revoked the parent organization would move to place the local in
trusteeship or merge it with another local organization. Revocation of
the Form LM-3 filing privilege is the culmination of an investigation
which may unearth underlying financial problems within a labor
organization. The Department acknowledges these possible consequences.
At the same time, such consequences are foreseeable and, depending on
the particular circumstances, may be reasonable and appropriate
actions. Where a union official believes that complying with his or her
financial reporting obligation will interfere with the union's
grievance handling or other responsibilities to its members, the
revocation procedure will bring this to light, allowing members to
weigh this factor in exercising their democratic right to elect or
remove such officer. In the Department's view, there is no merit to the
suggestion that filing an annual financial report is not within the
union's ``core business.'' Labor organizations, including parent
organizations, and individual officers, however, must ultimately decide
what actions they deem appropriate in such situations.
One commenter argued that the definition of materiality presented
in the NPRM set too low a threshold for material deficiency. The
Department disagrees. As explained in the NPRM, the proposed definition
of ``material'' was modeled on the standards of the Financial
Accounting Standards Board (``FASB''), and the standard applied to
corporations in TSC Industries Inc. v. Northway Inc., 426 U.S. 438, 449
(1976) and tailored to apply to the unique circumstances of the LMRDA
reporting requirements. The standard proposed in the NPRM was as
follows: ``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.'' 73 FR
27355. One commenter argued that the proposed standard is too low
because it does not include language from the FASB regarding the
``magnitude'' of the deficiency and language utilized in TSC Industries
Inc. v. Northway Inc. regarding the ``total mix'' of information
available. The Department disagrees with this assessment. The proposed
standard requires that a deficiency be judged ``in the light of
surrounding circumstances'' which inherently involves consideration of
the magnitude of the deficiency in light of the total information
available to determine whether ``a reasonable person relying upon the
report would have been changed or influenced.''
Some commenters argued that requiring a labor organization to file
an opposition to a notice of proposed revocation within 30 days was
insufficient and believed that 60 days would be appropriate. Two
commenters suggested that the Department implement an alternate
compliance system modeled on Federal lobbying disclosure laws. Under
the Federal lobbying disclosure system, a lobbyist is notified in
writing of his or her noncompliance and then given 60 days to provide
an adequate response. If an adequate response is not provided within 60
days the matter is referred to the United States Attorney for the
District of Columbia. 2 U.S.C. 1605(a)(8). The Department disagrees
with these suggestions. The Department already contacts delinquent Form
LM-3 filers to encourage them to fulfill their reporting obligations.
Currently if a labor organization's annual report is not received
timely, the Department sends the labor organization a delinquency
notice letter. If the annual financial report is still not submitted,
the Department District Office in whose jurisdiction the labor
organization is located will open a delinquent report case and seek to
obtain the report. The Department will continue its practice of
contacting delinquent filers in order to promote the timely remedying
of their delinquency. Only when delinquent filers have failed to timely
remedy their delinquency would revocation of the Form LM-3 filing
privilege be utilized.
Another commenter noted that filers who could not timely file a
Form LM-3 would not likely be able to prepare a written response to a
notice of proposed revocation with the 30 days allotted for this
purpose. For this reason, the commenter stated that it would be unfair
in those situations to, in effect, impose a default judgment. The
Department cannot agree with this point of view. As discussed above,
the Department currently provides reminders to labor organizations
about the need to timely file a Form LM-3; it will continue to provide
such ``early warnings'' about the need to timely and completely file
the required reports, now coupled with a reminder that failure to do so
may result in having to file the more detailed Form LM-2. Where,
despite these reminders, a labor organization fails to timely submit
its position within 30 days of the revocation notice, the entry of a
``default judgment'' seems entirely appropriate. The Department
recognizes that there may be some situations in which a labor
organization, for good cause, may be unable to submit a complete
statement of position on the proposed revocation within the 30-day
timeframe. Where good cause is shown, the Department will approve a
timely request for a short extension of time for submission of the
union's statement.
One commenter suggested that an exception should be crafted to the
Form LM-3 revocation procedures for situations where an international
union has assumed responsibility for assuring that locals file LM-3s.
The commenter noted that once the Department has notified the
international labor organization that its affiliate was delinquent in
its reporting obligation, the international would then assist and
promote the filing of a delinquent Form LM-3. Another commenter noted
that compliance assistance programs have
[[Page 3702]]
been effective within the Department of Labor, citing EBSA's
``Delinquent Filer Voluntary Compliance Program.''
The Department promotes the importance of voluntary compliance. It
recognizes the efforts that many international labor organizations have
made to remedy their affiliated local labor organizations' delinquent
reporting. Their efforts to assist and promote timely compliance by
their affiliates are a responsible response to a significant problem.
Approximately 40 parent national and international labor organizations
regularly assist the Department with obtaining delinquent annual
disclosure reports from their affiliated organizations. The Department
periodically sends each parent organization a list of the subordinate
affiliates that have failed to file reports for either of the two most
recent fiscal years. An accompanying letter requests that the parent
organization assist in obtaining the delinquent reports and in
providing the Department with updated contact information, for the
labor organization officials responsible for filing them.
The revocation procedure is to be used after attempts to secure
timely voluntary compliance, through a program or otherwise, have
proven unsuccessful. The procedure established in the final rule is
designed to address the situations where despite the best efforts of
the Department and parent labor organizations, a labor organization
fails to file its required Form LM-3. Whatever its reasons for non-
compliance, the time has come to determine whether revocation of the
privilege is warranted. The officials of the non-complying labor
organization may be trying to obscure the financial condition and
operations of the organization in order to hide more serious financial
problems, including criminal activity such as embezzlement. The
additional information provided by the Form LM-2 is a measured and
proportionate remedy to ensure accurate disclosure of the financial
condition and operations of a labor organization.
IV. Regulatory Procedures
Executive Order 12866
This final rule has been drafted and reviewed in accordance with
Executive Order 12866, section 1(b), Principles of Regulation. Based on
a preliminary analysis of the data the rule is not likely to 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. As a
result, 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. Because this final rule makes revisions to
information collection requirements, our discussion of its impact can
be found in the Paperwork Reduction Act and Final Regulatory
Flexibility Act sections that follow.
Unfunded Mandates Reform
For purposes of the Unfunded Mandates Reform Act of 1995, this
final 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, adjusted by the rate of inflation between 1995 and
2008 ($130.38 million) per 2 U.S.C. 1532(a).
Executive Order 13132 (Federalism)
The Department has reviewed this final rule in accordance with
Executive Order 13132 regarding federalism and has determined that the
final 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.''
Paperwork Reduction Act
This statement is prepared in accordance with the Paperwork
Reduction Act of 1995, 44 U.S.C. 3501. As discussed in the preamble,
this rule implements an information collection that meets the
requirements of the PRA in that: (1) The information collection has
practical utility to labor organizations, their members, other members
of the public, and the Department; (2) the rule does not require the
collection of information that is duplicative of other reasonably
accessible information; (3) the provisions reduce to the extent
practicable and appropriate the burden on labor organizations that must
provide the information, including small labor organizations; (4) the
form, instructions, and explanatory information in the preamble are
written in plain language that will be understandable by reporting
labor organizations; (5) the disclosure requirements are implemented in
ways consistent and compatible, to the maximum extent practicable, with
the existing reporting and recordkeeping practices of labor
organizations that must comply with them; (6) this preamble informs
labor organizations of the reasons that the information will be
collected, the way in which it will be used, the Department's estimate
of the average burden of compliance, the fact that reporting 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.'' 5 CFR 1320.9; see also 44 U.S.C.
3506(c).
A. Issues Raised in Public Comments Related to the Department's Cost
Estimates
As the Department has done with the final rule, the NPRM employed
the cost conclusions derived in the PRA analysis in order to assess
burdens to small labor organizations for the purposes of the Regulatory
Flexibility Act (``RFA'') analysis. As a result, for the most part, the
comments received by the Department on its costs analysis did not
indicate whether they were specifically addressing the PRA analysis,
the RFA, or both. Because of the interrelationship between the
analyses, and because the RFA specifically requires the Department to
address comments related to its burden analysis,\23\ the Department has
construed all comments received regarding its assessment of costs to
the regulated community as comments related to both the PRA and the RFA
analysis. Therefore, the introduction to the PRA analysis below is a
complete recitation of the
[[Page 3703]]
significant issues raised by the comments, the Department's response
thereto, and changes made to both the PRA and RFA analyses as a result
of those comments.
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\23\ The RFA requires that an agency's final regulatory
flexibility analysis include ``a summary of the significant issues
raised by the public comments in response to the initial regulatory
flexibility analysis, a summary of the assessment of the agency of
such issues, and a statement of any changes made in the proposed
rule as a result of such comments.'' 5 U.S.C. 604(a)(2).
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A number of commenters expressed concern that the Department used
as the foundation for the NPRM's burden analysis the Department's
estimates of compliance costs associated with revisions made to the LM-
2 in 2003, instead of collecting data from a survey of labor
organizations' actual compliance costs realized as a result of the
earlier revision. Commenters questioned whether the Department could
accurately estimate the current Form LM-2 and new Form LM-2 burdens
using estimates that pre-dated the current Form LM-2. Although actual
data on burden was not available in 2003, labor organizations have been
filing the revised Form LM-2 for three years, and several commenters
suggested that the Department should have sought information regarding
compliance burdens from the regulated community rather than rely on
those estimates as a baseline for the burden analysis in this rule.
Several labor organizations provided specific data regarding their
own compliance costs associated with that revision. One commenter
indicated that his labor organization spent approximately $100,000 in
2004, its first reporting year, on staff time, outside accounting
services, and new software to comply with the data gathering
requirements of the current Form LM-2, approximately $75,000 more than
the Department estimated in the 2003 rule. The same labor organization
asserted that it cost an additional $100,000 each year to comply with
the recordkeeping and reporting requirements of the 2003 rule,
approximately $83,000 more than the Department estimated in the 2003
rule. Two other LM-2 filers estimated that they spent over $120,000 a
year to comply with the requirements of the current LM-2 in a timely
manner. Based on these estimates, the commenters indicate that the
Department has underestimated the total burden by at least 50 percent.
Another commenter estimated that the Department had underestimated the
total burden by at least a factor of three. Finally, one commenter,
citing an unpublished analysis of the increase in the number of pages
submitted as part of the LM-2 filing, noted that for labor
organizations with at least $50 million in annual revenue, their
submissions increased in size an average of 94 percent for the three
years of filing experience after the 2003 revisions, suggesting that
the Department underestimated the costs to labor organizations
associated with complying with those revisions. These commenters and
others indicate that actual compliance experience, rather than the
Department's estimates, could be used to inform and calculate the Form
LM-2 burden estimates associated with the revisions in this rule.
After considering the comments regarding actual costs associated
with the LM-2 revision in 2003, the Department has decided to retain
the approach adopted in the NPRM and use the costs estimates developed
in 2003 as a baseline for the costs associated with this revision. The
cost estimates developed in 2003 were the result of a comprehensive and
detailed empirical analysis of costs to all labor organizations
affected by the change, not just the costs incurred by the largest
labor organizations. Certainly, some labor organizations will spend
more time on recordkeeping and reporting than others, as shown in the
examples offered by the commenters. For example, a labor organization
with $2,500,000 in annual receipts will have many times more itemized
receipts to report than a labor organization with $250,000 in annual
receipts. It is likely, as noted above, that there are multiple labor
organizations that spend $100,000 or more on recordkeeping and
reporting. However, just over half of LM-2 filers have more than $1
million in annual receipts. Those LM-2 filers with less than $1 million
in receipts will spend significantly less on recordkeeping and
reporting than the larger labor organizations, those with millions in
receipts. To account for these size differences, the Department used
weighted average burden estimates to ensure that the cost estimates
represented the experience of all labor organization filers, and that
large labor organizations are not over represented and small labor
organizations are not underrepresented in the final burden estimate.
For a number of reasons, the Department has confidence in its 2003
estimates of compliance burdens as a fair and realistic representation
of costs to labor organizations for compliance with the previous Form
LM-2 revisions. The 2003 estimates were based on the Department's
detailed review of the recordkeeping and reporting requirements of the
Form LM-2. That review incorporated the expertise of investigators with
first-hand knowledge of union financial reporting. In addition, the
burden estimates used in 2003 were based on the Department's review of
extensive public comments, which included a survey of affected labor
organizations submitted by the AFL-CIO as part of its 2003 comment.
Where appropriate, the AFL-CIO's survey data were incorporated into the
2003 analysis to improve those burden estimates. In response to public
comments in 2003, the Department improved its methodology and, as a
result, its overall estimate of burden hours was ultimately increased
from 15.25 hours to 292.00 hours. Moreover, to further improve the 2003
burden estimates, the Department conducted internal time trials to
determine the amount of time needed to change the accounting structure,
document records, and fill out the Form LM-2. Finally, legal challenges
by the AFL-CIO to the Department's methodology underlying and
conclusions regarding its burden estimates in 2003 were rejected by the
court in American Federation of Labor and Congress of Industrial
Organizations v. Chao, 298 F.Supp.2d 104, 121-126 (D.D.C. 2004), aff'd
409 F.3d 377 (D.C. Cir. 2005) (AFL-CIO v. Chao). In the Department's
view, the collection of data regarding compliance costs from a survey
of affected labor organizations would not result in a significant
improvement to the Department's analysis of costs associated with the
prior Form LM-2 revisions, and the use of a survey tool would have
injected into the analysis substantial issues regarding appropriate
respondent sampling, verification of reported respondent costs, and
comparability of results to prior estimates, significantly limiting the
utility of such an approach.
The majority of comments submitted regarding the Department's
burden analysis indicated that the analysis of the costs to implement
the new receipts schedule was flawed and significantly underestimated
the recordkeeping and reporting burden. In particular, the commenters
were concerned that basing the number of itemizations on the current
Schedule 14 (``Other Receipts'') grossly underestimated the number of
itemized receipts on the other receipt itemization schedules. The
commenters pointed out that the current schedule 14 does not include
the major sources of union revenues, and that most itemized receipts
will be reported on the new dues, per capita tax and investment
schedules. As one example, a labor organization stated that it receives
more than $5,000 in annual withheld dues from more than 10,000
employers, and that the schedule will require it to enter a line item
for each of those 10,000 employers. A certified public accounting firm
noted that depending on a labor organization's investment
[[Page 3704]]
activities, the potential volume of itemized transactions is
tremendous. An international labor organization estimated that it would
spend 120 to 240 hours per year putting together its investment records
to comply with the reporting requirements. Another international labor
organization noted that it receives over $5,000 from over 750
affiliates. This labor organization estimated that the additional
itemization schedules will add 1,000 pages to its Form LM-2. An
accountant with experience in filling out LM-2s believed that the
reporting time required is 5 to 10 times what was estimated in the
NPRM, employer contributions could take 20 to 25 hours alone.
As discussed elsewhere in this preamble, the Department has created
exceptions in the final rule to itemized receipt reporting that
responds to these and other commenters, and will significantly reduce
the recordkeeping and reporting burden proposed in the NPRM, and the
Department has revised its burden analysis accordingly. First, as
discussed above, dues and agency fees, which make up approximately 70%
of all receipts, received directly from an employer need not be
itemized by transaction. The labor organization need only report the
aggregate dues and agency fees received from each employer over the
year. As a result, however, it is axiomatic that those labor
organizations that receive payments of dues and agency fees from many
employers will have a greater reporting responsibility on this schedule
than those labor organizations that receive dues and agency fees from
relatively fewer employers. Second, as discussed above, investment
transactions made over a registered market exchange need not be
itemized. Finally, as discussed above, per capita taxes received
directly from an affiliate should not be itemized by transaction. The
labor organization need only report the aggregate per capita taxes
received from each affiliate over the year. These exceptions should
alleviate many of the concerns raised by the commenters and
significantly reduce the overall burden. In addition to these new
itemization exceptions and as discussed further below, the Department
has improved the burden estimates associated with the new receipts
schedules by using the aggregates currently reported on Summary
Schedule B, which were divided by $5,000 to estimate the number of
itemized receipts per schedule.
Regarding reporting obligations for disbursements to officers and
employees, a number of commenters stated that they could not breakdown
benefits by officer and employee, nor could they breakdown indirect
disbursements to officers and employees for travel and lodging, without
extensive changes to their recordkeeping system. A number of labor
organizations explained that they frequently make single credit card
payments that cover the hotel and transportation expenses of more than
one officer or employee. As a result, several labor organizations
estimated that they would need between 40 and 120 hours per year to
comply with the new officer and employee reporting requirements.
In response to concerns raised regarding the reporting of officer
benefits, the Department reiterates, as noted in the NPRM, that there
should be no increased recordkeeping burden associated with the report
of officer benefits because labor organizations are currently required
to track each officer's benefits to complete the IRS Form 990.
In response to concerns raised regarding the reporting of indirect
disbursements to officers and employees, the Department's final rule
has created an exception for certain indirect disbursements to decrease
the overall burden, and has improved the methodology to improve
indirect disbursement burden estimates. To reduce the overall burden,
the Department will now allow labor organizations to distribute
indirect disbursements equally between multiple officers and employees
if they meet the exception discussed elsewhere in this preamble. In the
NPRM, the Department accounted for the increase burden for indirect
disbursements by applying the same burden to this change as it would
apply to a new schedule in 2003, and estimated that, on average, each
officer and employee will have one reportable indirect disbursement. As
explained further below, to improve the burden estimates for indirect
disbursements for travel and lodging, the Department adopted a new
methodology for calculating the number of reportable indirect
disbursements. The number of indirect disbursements is now based on the
number of disbursements currently reported on the LM-2. These changes
should reduce the burden hours and significantly improve the overall
burden estimates.
Several commenters stated the overall cost conclusions reached in
the NPRM were flawed because the salary estimates employed in the
calculations were artificially low. First, some asserted that the
Department incorrectly used general Bureau of Labor Statistics
(``BLS'') salary data rather than labor organization-specific data.
Second, some asserted that the Department incorrectly used an average
salary for an in-house and outside accountant when labor organizations
must only use outside accountants in order to comply with their
fiduciary duties. Some commenters noted that outside accountants
frequently charge $100 or more an hour. Finally, some commenters noted
that the salary estimates did not account for fringe benefits, which
constitute approximately 30% of total compensation costs.
The Department has improved the compensation cost estimates in
response to these comments. First, instead of employing BLS salary
data, the Department has estimated the average salary of the president
and secretary using the e.Lors database and a stratified random sample.
Second, unlike the NPRM, the Department did not average the in-house
and outside accountants' and bookkeepers' salaries, and instead derived
them exclusively from the BLS survey. Finally, based on BLS data and
explained further below, all of the salaries were increased by 30.2% to
account for the costs of benefits, resulting in a more accurate total
compensation cost for each employee identified. The same method was
used to estimate the LM-3 compensation costs, and these changes will
improve the accuracy of the cost estimates for the final rule.
Given the costs associated with implementation, some commenters
questioned whether the benefits of this final rule outweigh the costs.
The Department has not conducted a formal cost/benefit analysis of this
rule. However, as outlined above, labor organization members will
benefit from greater transparency and accountability. For the first
time, members will have a nearly complete accounting of all receipts
and disbursements. These benefits are difficult to quantify, but we
believe members have benefited greatly from the 2003 revisions to the
Form LM-2. The revisions adopted in this final rule and those adopted
in the 2003 final rule have created the most functional and informative
Form LM-2 in Department history.
Regarding the LM-3 revocation burden analysis, several commenters
suggested that the analysis was flawed in many aspects. First, some
commenters questioned the means by which the Department estimated that
96 LM-3 filers will have their privilege revoked. Second, some
commenters argued that the Department failed to fully account for the
reporting burden by not including the computer hardware and software
costs in the analysis. Third, some commenters argued that the
Department did not use actual data from
[[Page 3705]]
Form LM-2 reports to estimate the total burden hours and costs, and
instead of using actual data available on the e.LORS database, the
Department merely reduced the total LM-2 burden hours by 69% and used
the Tier I LM-2 filers' salary data.\24\ Critics suggested that such a
blanket reduction does not take into account the time needed to review
the LM-2 rules and requirements, review each disbursement and receipt,
record the necessary information, place the disbursements into the
appropriate functional categories, and prepare the form.
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\24\ As indicated in the NPRM, the Department's analysis has
segregated labor organizations into three ``tiers,'' based on size
of annual receipts. Tier I labor organizations are those with annual
receipts between $250,000 and $499,999; Tier II labor organizations
are those with annual receipts between $500,000 and $6.5 million;
and Tier III labor organizations are those with annual receipts over
$6.5 million.
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The Department has revised its methodology to determine the LM-3
revocation burden and cost. As explained further below, where possible,
the Department has based the LM-3 revocation burden on actual data
taken from LM-3s. The information that could not be drawn from the LM-
3s was estimated from LM-2 filers with between $250,000 and $500,000 in
annual receipts. These additions will improve both the burden and cost
estimates.
In sum, based upon careful consideration of all the comments
regarding the burden analysis in the NPRM, the Department has made
adjustments to its quantitative methods and therefore to its burden
estimates. As reflected in the analysis that follows, the Department
has, among other things:
Calculated salary data for labor organizations presidents
and treasurers from LM-2 data using a proportionate stratified random
sample;
Revised the compensation cost for each individual,
accountant, president, treasurer, etc., by increasing wages by 30.2% to
account for total compensation, including compensation received in the
form of benefits;
Employed publicly available data from the Department's
e.LORS database and the Federal Mediation and Conciliation Service to
determine the number of employers that will make dues payments;
Employed data from the Department's e.LORS database to
determine the number of labor organizations that will pay and receive
per capita taxes;
Employed the aggregate receipts reported on Summary
Schedule B to estimate the number of itemized receipts on Schedules 16-
22;
Calculated the number of indirect disbursements to
officers and employees for lodging or travel by employing the total
number of disbursements for official business currently reported on the
LM-2;
Replaced the overall percentage reduction for computing
the burden associated with LM-3 revocation with discrete analyses of
the burden for each schedule, summary schedule, and item using the same
assumptions as used in the LM-2 analysis; and
Where possible, employed LM-3 data to estimate the number
of itemized receipts and disbursements, and if LM-3 data was not
available, employing Tier I LM-2 data.
As a result of these improvements to the Department's
methodological approach, the estimates of costs to labor organizations
for compliance with this rule have been revised upward.\25\ Those
figures are reported in the analyses that follow. Pursuant to the PRA,
the information collection requirements contained in this final rule
were submitted to OMB, and received approval on January 8, 2009, under
an OMB control number 1215-0188, which will expire on September 30,
2011. The Form LM-2 and its instructions, which are modified to reflect
the new filing criteria, are published as an appendix to this final
rule. The instructions to the Form LM-3, which have been modified to
reflect the new revocation procedure, are also published as an appendix
to this final rule.
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\25\ This upward revision was modest, and occurred despite the
fact that overall compliance costs to labor organizations were
reduced as a result of changes made in the final rule, in
particular, to reporting requirements for the two largest receipt
itemization schedules, dues and per capita taxes. These
modifications from the NPRM realized a reduction in overall
compliance costs for covered labor organizations, but the
methodological improvements in the cost analysis offset those
savings.
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B. Summary of the Rule: Need and Economic Impact
This final rule has improved 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 ``[t]he 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.'' S. Rep. No. 187 (1959), at 8,
reprinted in 1 NLRB Legislative History of the Labor-Management
Reporting and Disclosure Act of 1959, at 404. A full accounting
included ``full reporting and public disclosure of union internal
processes [and] financial operations.'' Id. at 2.
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 final rule 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 final 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.
The Department's NPRM in this rulemaking contained an initial PRA
analysis, which was also submitted to OMB. The initial PRA analysis was
based largely on the PRA analysis prepared by the Department in
connection with its 2003 final rule that substantially revised the Form
LM-2.\26\ The PRA analysis employed in 2003 was approved by the Office
of Management and Budget. Based upon careful consideration of comments
received regarding the Department's estimate of costs in the NPRM, the
Department made methodological revisions which resulted in adjustments
to its burden estimates in this final rule. The costs to the Department
also were adjusted. Federal annualized costs are discussed following
the consideration of the burden on the reporting labor organizations.
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\26\ The PRA analysis for the revisions to Form LM-2 in 2003 is
set forth at 68 FR 58436-42.
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Based upon the analysis presented below, the Department estimates
that the total first year burden to comply
[[Page 3706]]
with revised Form LM-2 will be 685,924 hours for all covered labor
organizations. The total first year compliance costs associated with
this burden is estimated to be $22,143,880 for all covered labor
organizations. Both the burden hours and the compliance costs
associated with Form LM-2 decline in subsequent years. The Department
estimates that the total burden averaged over the first three years for
all covered labor organizations to comply with the Form LM-2 to be
274,539 hours per year. The total compliance costs associated with this
burden averaged over the first three years are estimated to be
$8,863,038 for all covered labor organizations.\27\
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\27\ The compliance costs for all covered labor organizations
for the first year, and the compliance costs averaged over the first
three years--$22.14 million and $8.86 million, respectively--are
well below the $100,000,000 threshold that would make this rule
economically significant under Executive Order 12866. Therefore, as
noted above, this rule is not an ``economically significant''
regulatory action under section 3(f)(1) of Executive Order 12866.
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C. 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.
D. Overview of Changes to Form LM-2
The revised 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 this final rule, several of the current supporting schedules
will change. The schedules for ``Sale of Investments and Fixed Assets''
and ``Purchase of Investments and Fixed Assets'' will 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''
will be modified and the disbursements for benefits to labor
organization officers and employees will be reported in the schedules
for disbursements to officers and employees.
Under the final rule, the Form LM-2 will be revised to require
labor organizations to individually identify receipts within supporting
schedules for all of the current categories of receipts.
E. Methodology for the Burden Estimates
As an initial matter, it should be noted, as was noted in the NPRM,
that some of the numbers included in both this PRA analysis and the
preceding regulatory flexibility analysis will not add perfectly due to
rounding.
In reaching its estimates, the Department considered both the one
time and recurring costs associated with the final rule. Separate
estimates are included for the initial year of implementation as well
as the second and third years. For filers, the Department included
separate estimates, based on the relative size of 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.
In 2006, there were approximately 4,571 labor organizations that
were required to file Form LM-2 reports under the LMRDA (approximately
19.11 percent of all labor organizations covered by the LMRDA).\28\
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.
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\28\ The Department has updated these figures from the NPRM,
which relied on 205 LM-2 reports.
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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
[[Page 3707]]
all of the following positions (either internal or external staff,
including the labor organization's president, secretary-treasurer,
accountant, bookkeeper, and computer programmer) 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 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 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 final rule.
F. 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.
G. Hours To Complete and File Form LM-2: Recurring and Nonrecurring
Reporting and Recordkeeping
To estimate the burden hours and costs for 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, in 2006 there were
4,571 such filers. In Tier I, the Department estimates there are 1,325
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 estimates
there are 3,194 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
final rule.
[[Page 3708]]
The final rule will revise Form LM-2 to improve financial
disclosure and clarity within categories of receipts and disbursements.
Under the final rule, 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 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 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.
1. Hours to Complete Schedules 3 and 4
For revised Schedules 3 and 4 (Sale of Investments and Fixed Assets
and Purchase of Investments and Fixed Assets), the Department estimates
that labor organizations will 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 included for Schedules 3
and 4 in this final rule. 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 on
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 and
an additional (recurring) .01 hours on 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. On average, Tier
II labor organizations report 1.5 receipts in Schedule 3 and less than
3.4 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).\29\ It should be noted that the newly adopted exception
for purchases and sales over a registered market exchange will further
reduce the recordkeeping and reporting burden on these schedules.
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\29\ 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.
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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.
2. Hours to Complete Schedules 11 and 12
For revised 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 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
2007. 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
[[Page 3709]]
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.\30\ The average burden
was computed by taking the burden in each tier and weighting it by the
number of labor organizations in each tier.
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\30\ 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.
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As explained below, the Department estimates that, on average,
labor organizations will take an additional (recurring) hour on
recordkeeping burden and half an hour on 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 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 columns on Schedule 11 (using the
same methodology, as discussed above, for Schedules 3 and 4). To report
the additional information required by the new 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 report 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.
The Department assumes that Tier III labor organizations are
already tracking the data required to report travel and lodging on
Schedule 11. After weighting the averages based on the number of labor
organizations in the two remaining tiers, the Department concludes that
labor organizations in Tier I and Tier II will spend one hour a year
tracking indirect disbursements for temporary lodging or transportation
as a result of the following analysis. In 2007, 46% of Tier I officers,
or approximately 4.53 officers per labor organization, reported $1,800
in disbursements for official business; 55% of Tier II officers,
approximately or 7.27 officers per labor organization, reported $3,768
in disbursements for official business; and 84% of Tier III officers,
or approximately 46.43 officers per labor organization, reported $9,354
in disbursements for official business. Based on institutional
experience, the Department assumes that the average trip or hotel will
cost $600. Dividing the average reported disbursements for official
travel by $600 provides a reasonable estimate of the number of indirect
disbursement for official travel or lodging. Therefore, on average,
each Tier I labor organization will have 4.53 officers who receive
slightly more than 3 indirect disbursements for travel or lodging and
each Tier II labor organization will have 7.27 officers who receive
approximately 6.28 indirect disbursements for travel or lodging. The
Department again assumes that Tier I labor organizations will spend 3
minutes on recordkeeping per disbursement, half of the tier II labor
organizations will spend 3 minutes on recordkeeping per disbursement.
There is a slight recurring reporting burden, on average, of .50
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. Indirect disbursements for travel and lodging will be
included in the aggregate reported in ``Disbursements for Official
Business.'' Therefore, there is no new recurring reporting burden for
indirect disbursements for temporary lodging or transportation. 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 revised Schedule 11, the Department estimates that, on
average, labor organizations in Tiers I and II will spend slightly more
time on revised Schedule 12, and that labor organizations in Tier III
already keep records of benefits and indirect disbursements. Labor
organizations in Tiers I and II, on average, will spend an additional
(recurring) 1.91 hours of recordkeeping burden and .49 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. As on Schedule 3 and 4, the Department assumes that Tier I labor
organizations will spend 3 minutes (.05 hours) on keeping records per
disbursement, 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 disbursement, and Tier III labor organizations
already keep records of benefits and indirect disbursements.
The Department assumes that each employee will receive, on average,
one reportable benefit. If each employee
[[Page 3710]]
receives one reportable benefit, then Tier I labor organizations will
spend approximately 3 minutes (.05 hours) per employee keeping records
of benefits paid employees. On average, Tier I labor organizations have
2.79 employees listed on their Form LM-2 and Tier II labor
organizations have 10.24 employees listed on their Form LM-2.
Therefore, on average, labor organizations will spend .02 hours keeping
records on benefits to employees each year.
Like Schedule 11, the Department calculated the schedule 12
indirect disbursements for travel and lodging recordkeeping burden
using the aggregate currently reported in disbursements for official
business. In 2007, 35% of Tier I employees, or approximately 1 employee
per labor organization, reported $2,550.78 in disbursements for
official business; 59% of Tier II employees, or approximately 6
employees per labor organization, reported $5,049.82 in disbursements
for official business; and 74% of Tier III employees, or approximately
240.67 employees per labor organization, reported $9,022 in
disbursements for official business. The Department assumes that the
average trip or hotel will cost $600. Dividing the average reported
disbursements for official travel by $600 provides a reasonable
estimate of the number of indirect disbursement for official travel or
lodging. Therefore, on average, each Tier I labor organization will
have 1 employee who receives 4.25 indirect disbursements for travel or
lodging and each Tier II labor organization will have 6 employees who
receive approximately 8.42 indirect disbursements for travel or
lodging. The Department again assumes that Tier I labor organizations
will spend 3 minutes on recordkeeping per disbursement, half of the
Tier II labor organizations will spend 3 minutes on recordkeeping per
disbursement, and Tier III labor organizations will already track the
data. Therefore, on average, labor organizations in Tier I and Tier II
will spend 1.89 hours keeping records on indirect disbursements for
travel and lodging to employees each year.
Labor organizations will spend an additional 1.91 hours keeping
records of employee benefits and indirect disbursements to employees
for lodging or travel. Like Schedules 3 and 4, the Department assumes
it will take Tier I labor organizations .05 hours for recordkeeping
burden per transaction 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 .49 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.
3. Hours To Complete Schedule 14
On average, labor organizations will spend 10.38 hours in the first
year changing the accounting structure; developing, testing, reviewing,
and documenting accounting software queries; designing query reports;
and training accounting personnel. 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.
To reduce the overall recordkeeping and reporting burden, the
Department amended the itemization rules for Schedule 14. The labor
organization will never have to itemize dues and agency fees received
directly from members; dues and agency fees received directly from an
employer are reported as yearly totals.
Unlike the NPRM which used Schedule 14 data to estimate the number
of itemized receipts on Schedule 14, this final rule used Federal
Mediation and Conciliation Service (``FMCS'') data to estimate the
number of dues and agency fees itemized on Schedule 14. To estimate the
number of union employers, the Department relied on FMCS's Form F-7,
which must be filed by a labor organization or employer with the FMCS
thirty days after notification to the other party of the intent to
terminate or modify a collective bargaining agreement. Typically,
collective bargaining agreements are renegotiated every 3 years.
Therefore, the Department can reasonably estimate the number of
employers employing employees in bargaining units represented by labor
organizations by determining the number of Form F-7s filed between 2004
and 2006, 54,884.\31\ In 2006, the Department received 4,571 Form LM-2s
out of 23,924 labor organization filings. The Department assumes that
smaller labor organizations, those that do not file the LM-2, represent
the employees of one employer. That leaves 30,960 (54,884 - 23,924)
union employers who have collective bargaining agreements with LM-2
filers. Therefore, on average, each LM-2 filer receives dues from 6.77
employers.
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\31\ Because there is no publicly available source for obtaining
the number of employers employing workers represented by labor
organizations, the Department has relied instead on the number of
Form 7s filed by labor organizations to estimate this figure. The
Department recognizes that the filing of a Form 7 is a requirement
of the National Labor Relations Act, 29 U.S.C. 158(d)(3), and, as a
result, labor organizations and employers covered by the Railway
Labor Act, 45 U.S.C. 151 et seq., and public sector labor
organizations not covered by the NLRA but that file LM reports as
``mixed'' unions, are not included in this figure. Further, the
Department recognizes that because Form 7s represent contract
disputes, more than one Form 7 may be filed by employers or labor
organizations representing employees employed by that employer.
Finally, the estimate assumes full compliance with the NLRA notice
requirement. Although imperfect, the Department views this figure as
a best estimate of the number of employers employing workers
represented by labor organizations.
---------------------------------------------------------------------------
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. If it takes 3
minutes of recordkeeping per receipt or disbursement, then the average
labor organization will spend .31 hours 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.
[[Page 3711]]
Therefore, the Department estimates the reporting burden per schedule
to be .50 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.
4. Hours To Complete Schedule 15
On average, labor organizations will spend 10.38 hours in the first
year changing the accounting structure; developing, testing, reviewing,
and documenting accounting software queries; designing query reports;
and training accounting personnel. 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.
To reduce the overall recordkeeping and reporting burden, the
Department amended the itemization rules for Schedule 15. The labor
organization will never have to itemize per capita taxes received
direct from members and per capita taxes received directly from an
affiliate are reported as yearly totals.
Unlike the NPRM, which used Schedule 14 data to estimate the number
of itemized receipts on Schedule 15, this final rule used e.LORS data
to estimate the number of per capita taxes itemized on Schedule 15. To
determine the per capita tax recordkeeping burden the Department
estimated the number of affiliates per LM-2. In 2006, 12,025 LM-3s were
filed with OLMS, and of these 11,168 were designated locals. Labor
organizations need only itemize per capita taxes from affiliates that
exceed $5,000. Therefore, the Department limited its LM-4 search to
those that had $5,000 or more in disbursements. OLMS received 1,332 LM-
4s in 2006 from labor organizations that had greater than $5,000 in
disbursements. Additionally, 1,325 Tier I LM-2 filers indicated that
they were locals; 2,702 Tier II LM-2 filers indicated that they were
locals; and 15 Tier III LM-2 filers indicated that they were locals. In
sum, there were 16,592 local labor organizations and 650 intermediate
and international LM-2 filers. Tier I has 121 intermediate and
international LM-2 filers, Tier II has 492 intermediate and
international LM-2 filers, and Tier III has 37 intermediate and
international LM-2 filers. Without more precise data, the Department
assumed that all intermediate and international LM-2 filers had the
same number of affiliates, 25.53 itemized per capita taxes.
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. If it takes 3
minutes of recordkeeping per receipt or disbursement, then the average
labor organization will spend .16 hours 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 .48 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.
5. Hours To Complete Schedules 16 Through 22
For revised Schedules 16 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. 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 Tier 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.
Unlike the NPRM, the burden estimate in this final rule used the
aggregates reported on Statement B items 38 through 42 and 46 through
47 to estimate the number of itemized receipts reported on the new
schedules 16 through 22. The aggregates reported in each item were
divided by $5,000 to estimate the number of itemized receipts. For
example, in 2006, on average, Tier I LM-2 filers report that they
received $5,684.98 in interest. When the aggregate is divided by
$5,000, we reach 1.14 itemized disbursements. These findings are
summarized on Table 1.
Table 1--LM-2 Receipt Itemization Summary
----------------------------------------------------------------------------------------------------------------
Schedule Tier I Tier II Tier III
----------------------------------------------------------------------------------------------------------------
Fees, Fines, Assessments, Work Permits.......................... 4.72 39.44 235.64
Sale of Supplies................................................ 0.08 0.50 22.70
Interest........................................................ 1.14 10.05 685.52
Dividends....................................................... 0.22 2.88 146.74
Rents........................................................... 0.56 4.86 272.42
On Behalf of Affiliates for Transmittal to Them................. 0.74 37.60 3,017.36
From Members for Disbursement on Their Behalf................... 1.02 9.35 644.38
----------------------------------------------------------------------------------------------------------------
[[Page 3712]]
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. 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. The burden estimates
for Schedules 16 through 22 are summarized on Table 3. The average
burden was computed by taking the burden in each tier and weighting it
by the number of labor organizations in each tier.
[GRAPHIC] [TIFF OMITTED] TR21JA09.006
6. Hours to Review Instructions
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 2003 instructions were 44
pages and the new instructions are 52 pages. The changes to the LM-2
have added only 6 pages. The Department views as sufficient an
additional 2.0 hours for review of the instructions.
7. Subsequent Yearly Burden
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. Rather, the
Department assumes that the second and third year burden will be equal
to the recurring first year burden.
8. Compensation Cost
The Department assumes that, on average, the completion by a labor
organization of Form LM-2 will involve an accountant/auditor, computer
software engineer, bookkeeper/clerk, labor organization president and
labor organization treasurer. Based on the 2007 BLS wage data,
accountants earn $30.37 per hour, computer engineers earn $41.18 per
hour, and bookkeepers/clerks earn $15.76 per hour.\32\ BLS estimates
that the cost of an employee's total compensation is approximately
30.2% higher than the employee's wages alone. Therefore, in order to
account for total compensation, the Department adjusted each of the BLS
salaries upward to include the additional 30.2% attributed to benefit
to estimate the total compensation cost for each of the individuals
involved in completing the Form LM-2.
---------------------------------------------------------------------------
\32\ The wage and salary data is based on information contained
in Bureau of Labor Statistics, Occupational Employment Statistics
Survey, 2007.
---------------------------------------------------------------------------
To estimate the average annual salaries of labor organization
officers needed to complete tasks for compliance with this rule--the
president and treasurer--the Department drew a proportionate stratified
sample from the 4,571 LM-2 filers. A proportionate stratified sample
ensured that neither large nor small labor organizations were over-
represented in the sample and permitted the final cost figures to be
reported without regard to ``tier'' or size, as was done with the NPRM.
The Department first calculated the appropriate sample size.
Consistent with commonly accepted statistical practices, the Department
determined that a level of precision or sample error of 6%, a
confidence interval of 90%, and a degree of variability of 50% (maximum
variability) was acceptable for the Form LM-2 final burden analysis.
The sample size of 180 LM-2 filers was then increased by 20% to 217, in
order to ensure an appropriate sample size was maintained throughout
the analysis.
The population was arranged into three strata based on annual
receipts:
Strata I ($250,000--$499,999 receipts): 1,325 Form LM-2 filers
Strata II ($500,000--$6.5 mil receipts): 2,895 Form LM-2
filers
Strata III ($6.5 mil and higher receipts): 351 Form LM-2
filers
The proportion of each strata to the population was then
determined:
Strata I ($250,000--$499,999 receipts): 28.99%
Strata II ($500,000--$6.5 mil receipts): 63.33%
Strata III ($6.5 mil and higher receipts): 7.68%
Finally, the sample size from each strata was drawn proportionately
to its representation in the population:
Strata I ($250,000--$499,999 receipts): 217 x 28.99% = 63
Strata II ($500,000--$6.5 mil receipts): 217 x 63.33% = 137
Strata III ($6.5 mil and higher receipts): 217 x 7.68% = 17
These average annual salary figures were then adjusted to include
the additional 30.2% attributed to benefits to reflect total
compensation cost for each officer, which the Department calculated as
$35.15 per hour for labor organization president and $30.71 per hour
for labor organization treasurer.
[[Page 3713]]
Table 3--Compensation Cost Table
----------------------------------------------------------------------------------------------------------------
Title Salary hourly Salary--yearly Compensation--cost--hourly
----------------------------------------------------------------------------------------------------------------
Accountants/Auditors................................ $30.37 $63,180.00 $43.51
Computer software engineers, applications........... 41.18 85,660.00 59.00
Bookkeepers/Clerks.................................. 15.76 32,780.00 22.58
President........................................... 24.53 51,027.10 35.15
Treasurer........................................... 21.44 44,592.89 30.71
Weighted Average.................................... .............. .............. 32.28
----------------------------------------------------------------------------------------------------------------
The Department estimated the percentage of time the accountant,
computer software engineer, bookkeeper, president, and treasurer would
spend completing the LM-2. These percentages were used to calculate a
weighted average compensation cost, $32.28.
9. Conclusion
The Department estimates the additional weighted average reporting
and recordkeeping burden for the revised Form LM-2 to be 150.06 hours
per respondent in the first year (including nonrecurring implementation
costs) and 15.06 hours per respondent in the second and third years.
See Table 3 below. The Department estimates the total additional annual
burden hours for respondents for the revised Form LM-2 to be 685,924
hours in the first year and 68,847 hours in the second and third years.
The Department estimates the additional weighted average annual
cost for the revised Form LM-2 to be $4,844 ($32.28 (weighted average
cost per hour) x 150.06 (additional hours to complete the changes to
Form LM-2 in first year) = $4,844) per respondent in the first year
(including nonrecurring implementation costs) and $486 ($32.28
(weighted average cost per hour) x 15.06 (additional hours to complete
the changes to Form LM-2 in second and third year) = $486) 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 $22.14 million ($32.28 x 685,924 (total hours
to complete changes to Form LM-2 in first year) = $22.14 million) in
the first year and $2.22 million ($32.28 x 68,847 (total hours to
complete changes to Form LM-2 in second and third year) = $2.22
million) in the second and third years.
[GRAPHIC] [TIFF OMITTED] TR21JA09.007
The Department's estimates of the additional burden and costs
associated with the revisions to the Form LM-2 are presented in Table
3. This table only presents the increases associated with the changes
to the form. Neither the burden or costs associated with the current
Form LM-2 nor the revocation of the privilege of some labor
organizations to file the Form LM-3 is included in these estimates.
H. Form LM-3 Revocation Procedures Burden Estimates
The Department has established 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 final rule.
Rather than using a general burden reduction, the Department
estimated the LM-3 revocation burden using the underlying assumptions
in this rule and the 2003 LM-2 final rule. The number of receipts,
disbursements, and officers was determined using a proportionate random
sample of 2006 LM-3 data found on the e.LORS database. The distribution
of receipts and disbursements was based on 2006 Tier I LM-2 filers.
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.
For the analysis below, recordkeeping burden is the amount of time
the LM-3 filer will spend going through its records to identify the
information needed to complete the LM-2. Reporting burden is the amount
of time the LM-3 filer will spend transcribing the information onto the
LM-2.
[[Page 3714]]
1. Review LM-2 Form and Instructions
The Department determined that LM-3 filers who have had their
filing privilege revoked will spend 8.32 hours reviewing the Form LM-2
and instructions, which allows an LM-3 filer approximately .16 hours to
review each page.
2. LM-2 Page 1 Burden Hours
There is no recordkeeping burden associated with the first page of
the LM-2. The first page of the LM-2 reports the same information
provided on the first page of the LM-3. The LM-3 filer need only copy
the contents of the first page of its LM-3 onto the first page of its
LM-2. This copying should take approximately 3 minutes per item. There
are 16 items on the first page. Therefore, the reporting burden is
estimated at .80 hours.
3. LM-2 Page 2 Burden Hours
The Department estimates that LM-3 filers will expend .33 hours on
recordkeeping and .60 hours on reporting to complete the second page of
the LM-2. The second page of the LM-3 asks 6 yes/no questions found on
the second page of the LM-2 and includes the same 4 fillable items
found on the LM-2. There is no additional recordkeeping burden
associated with the 6 repeat questions or the 4 fillable items.
However, two questions found on the LM-2 are not repeated on the LM-3.
The LM-3 filer will spend .33 hours answering these questions. Once the
LM-2 specific questions are answered, the LM-3 filer need only copy the
information found on its LM-3 onto the LM-2. The Department estimates
that LM-3 filers will spend 3 minutes per item copying the information
from the LM-3 onto the LM-2 and answering the two additional questions.
4. LM-2 Itemization Schedules
It should be noted that LM-3 filers should already have the
information necessary to itemize the receipts, disbursements, assets,
and liabilities for the LM-2. The LMRDA requires labor organization to
maintain records ``on matters required to be reported which will
provide in sufficient detail the necessary basic information and data
from which the documents filed with the Secretary may be verified,
explained or clarified, and checked for accuracy and completeness, and
shall include vouchers, worksheets, receipts, and applicable
resolutions, and shall keep records available for examination for a
period of not less than five years.'' 29 U.S.C. 436. However, it is
unlikely that LM-3 filers keep the information in the detail or format
necessary to complete the LM-2. Therefore, the Department has accounted
for this detail and formatting change by adding a recordkeeping burden
to itemized receipts, disbursements, assets, and liabilities.
In order to improve the LM-3 revocation burden estimates employed
in the NPRM, the Department sampled a randomly selected subset of the
10,977 Form LM-3 filers in 2006. The Department first calculated the
appropriate sample size. Consistent with commonly accepted statistical
practices, the Department determined that a level of precision or
sample error of 6%, a confidence interval of 90%, and a degree of
variability of 50% (maximum variability) was acceptable for the Form
LM-3 revocation final burden analysis. The sample size of 185 LM-3
filers was then increased by 20% to 222, in order to ensure an
appropriate sample size was maintained throughout the analysis.
To improve estimates of means, the Department used a proportionate
stratified sample, which ensured that neither large nor small labor
organizations were over-represented in the sample and permitted the
final cost figures to be reported without regard to ``tier'' or size,
as was done with the NPRM. The population was arranged into three
strata based on annual receipts:
Strata I ($10,000-$49,999 receipts): 5,868 Form LM-3 filers
Strata II ($50,000-$149,999 receipts): 3,782 Form LM-3 filers
Strata III ($150,000-$249,999 receipts): 1,327 Form LM-3
filers
The proportion of each strata to the population was then
determined:
Strata I ($10,000-$49,999 receipts): 53.46%
Strata II ($50,000-$149,999 mil receipts): 34.45%
Strata III ($150,000-$249,999 receipts): 12.09%
Finally, the sample size from each strata was drawn proportionately
to its representation in the population:
Strata I ($10,000-$49,999 receipts): 222 x 53.46% = 119
Strata II ($50,000-$149,999 mil receipts): 222 x 34.45% = 76
Strata III ($150,000-$249,999 receipts): 222 x 12.09% = 27
This sample indicated that the average 2006 LM-3 filer reports
$68,585 in annual receipts, $67,459 in annual disbursements, $69,673 in
assets, and $1,901 in liabilities. The Department divided the annual
receipts, disbursements, assets, and liabilities by $5,000 to estimate
the maximum number of itemized transactions, and based on this
calculation has concluded that LM-3 filers will likely have13.71
itemized receipts, 13.49 itemized disbursements, 13.93 itemized assets,
and .38 itemized liabilities reported on the LM-2.
The Department used Tier I LM-2 data to determine in which
schedules these receipts, disbursements, assets, and liabilities would
be reported. The Department assumes that the distribution of LM-3
itemized receipts, disbursements, assets and liabilities is similar to
the distribution found in LM-2s of labor organizations with between
$250,000 and $500,000 in receipts. For example, the Department found
that 6.51% ($31,326,557/$481,289,983 = .0651 or 6.51%) of total
receipts are attributed to fees, fines, assessments, etc. These
findings are summarized on Tables 5 through 8.
Table 5--Itemized Receipt Distribution
------------------------------------------------------------------------
Percentage of all
Receipt functional category Receipts receipts
------------------------------------------------------------------------
Dues and Agency Fees............ $356,476,010.00 74.07
Per Capita Tax................. 22,574,114.00 4.69
Other Fees..................... 31,326,557.00 6.51
Sales of Supplies.............. 541,767.00 0.11
Interest....................... 7,602,504.00 1.58
Dividends...................... 1,495,909.00 0.31
Rents.......................... 3,781,903.00 0.79
On Behalf of Affiliates........ 4,912,381.00 1.02
From Members................... 6,877,831.00 1.43
Loan Repayments................ 518,391.00 0.11
[[Page 3715]]
Loans Obtained................. 1,307,960.00 0.27
Sales of Investments and Assets 7,402,058.00 1.54
Other Receipts................. 36,472,598.00 7.58
---------------------------------------
Total Receipts............. 481,289,983.00 100.00
------------------------------------------------------------------------
Table 6--Itemized Disbursement Distribution
------------------------------------------------------------------------
Percentage of all
Disbursement functional category Disbursements disbursements
------------------------------------------------------------------------
Representational Activities.... $106,498,651.00 22.30
Political Activities & Lobbying 8,034,914.00 1.68
Contributions, Gifts, & Grants. 8,655,415.00 1.81
General Overhead............... 76,126,990.00 15.94
Union Administration........... 85,108,151.00 17.82
Benefits....................... 37,836,304.00 7.92
Per Capita Tax................. 102,038,579.00 21.36
Strike Benefits................ 3,545,000.00 0.74
Fees, Fines, Assessments, etc.. 4,203,835.00 0.88
Office & Administrative Expense 71,976.00 0.02
Professional Fees.............. 1,075.00 0.00
Supplies for Resale............ 749,492.00 0.16
Purchase of Investments & Fixed 14,954,159.00 3.13
Assets.........................
Loans Made..................... 326,659.00 0.07
Repayment of Loans Obtained.... 1,443,492.00 0.30
To Affiliates of Funds 6,957,774.00 1.46
Collected on Their Behalf......
On Behalf of Individual Members 6,556,628.00 1.37
Direct Tax..................... 14,515,926.00 3.04
---------------------------------------
Total Disbursements........ 477,625,020.00 100.00
------------------------------------------------------------------------
Table 7--Itemized Asset Distribution
------------------------------------------------------------------------
Percentage of all
Asset functional category Assets assets
------------------------------------------------------------------------
Cash........................... $218,193.74 57.55
Investments.................... 235,122.64 14.25
Treasury Securities............ 120,077.14 1.41
Loans Receivable............... 12,850.12 0.66
Accounts Receivable............ 4,499.69 0.97
Fixed Assets................... 287,842.82 24.37
Other Assets................... 2,975.39 0.79
---------------------------------------
Total Assets............... 881,561.54 100.00
------------------------------------------------------------------------
Table 8--Itemized Liability Distribution
------------------------------------------------------------------------
Percentage of all
Liability functional category Liabilities liabilities
------------------------------------------------------------------------
Accounts Payable............... $5,400,228.00 20.06
Loans Payable.................. 5,944,284.00 22.08
Mortgages Payable.............. 7,249,483.00 26.92
Other Liabilities.............. 8,332,886.00 30.95
---------------------------------------
Total Liabilities.......... 26,926,881.00 100.00
------------------------------------------------------------------------
The Department can estimate the number of receipts, disbursements,
assets, and liabilities itemized on each schedule using the Tier I LM-2
distribution data and the LM-3 itemized transactions data. For example,
if the LM-3 filing privilege is revoked, LM-3 filers will itemize
approximately 13.71 receipts per year on the Form LM-2. Based on the
Tier I LM-2 distribution, .89 (13.71 (total itemized receipts) x 6.51%
= .89) of the 13.71 receipts will be itemized on Schedule 16 (``Fees,
Fines, Assessments, etc.''). The Department used the same method to
determine the number of itemized transactions on each of the
itemization schedules. The results are summarized in Table 9.
It should be noted that the Department assumes that LM-3 filers
[[Page 3716]]
will receive dues payments from one employer. Consistent with the
reporting requirements adopted in this rule, LM-3 filers will have one
itemized dues receipt. Further, the Department estimates that like Tier
I LM-2 filers, non-local LM-3 filers will receive 2.33 per capita
receipts. Approximately 7.13% of LM-3 filers are non-locals. Therefore,
on average each LM-3 filer will have .02 per capita itemizations.
Table 9--LM-3 Itemization Summary
------------------------------------------------------------------------
Average
number of
entries
------------------------------------------------------------------------
Total Itemized Receipts................................ 13.71
Schedule 2: Loans Receivable....................... 0.01
Schedule 3: Sale of Investments and Fixed Assets... 0.21
Schedule 9: Loans Payable.......................... 0.04
Schedule 14: Dues and Agency Fees.................. 1
Schedule 15: Per Capita Tax........................ .02
Schedule 16: Fees, Fines, Assessments, Work Permits 0.89
Schedule 17: Sale of Supplies...................... 0.02
Schedule 18: Interest.............................. 0.22
Schedule 19: Dividends............................. 0.04
Schedule 20: Rents................................. 0.11
Schedule 21: On Behalf of Affiliates for 0
Transmittal to Them................................
Schedule 22: From Members for Disbursement on Their 0.20
Behalf.............................................
Schedule 23: Other Receipts........................ 1.04
Total Itemized Disbursements........................... 13.49
Schedule 24: Representational Activities........... 3.01
Schedule 25: Political Activities and Lobbying..... 0.23
Schedule 26: Contributions, Gifts, and Grants...... 0.24
Schedule 27: General Overhead...................... 2.15
Schedule 28: Union Administration.................. 2.41
Schedule 29: Benefits.............................. 1.07
Item 57: Per Capita Tax............................ 1.00
Item 58: Strike Benefits........................... 0.10
Item 59: Fees, Fines, Assessments, etc............. 0.12
Item 60: Supplies for Resale....................... 0.02
Schedule 4: Purchase of Investments and Fixed 0.42
Assets.............................................
Schedule 2: Loans Made............................. 0.01
Schedule 9: Repayment of Loans Obtained............ 0.04
Item 64: To Affiliates of Funds Collected on Their 0
Behalf.............................................
Item 65: On Behalf of Individual Members........... 0.19
Item 66: Direct Taxes.............................. 0.41
Assets................................................. 13.93
Item 22: Cash...................................... 8.02
Schedule 1: Accounts Receivable.................... 0.13
Schedule 2: Loans Receivable....................... 0.09
Item 25: U.S. Treasury Securities.................. 0.20
Schedule 5: Investments............................ 1.99
Schedule 6: Fixed Assets........................... 3.40
Schedule 7: Other Assets........................... 0.11
Liabilities............................................ 0.38
Schedule 8: Accounts Payable....................... 0.08
Schedule 9: Loans Payable.......................... 0.08
Item 32: Mortgages Payable......................... 0.10
Schedule 10: Other Liabilities..................... 0.12
------------------------------------------------------------------------
The Department estimates that LM-3 filers will expend .25 hours on
each schedule identifying those receipts that must be itemized, and .03
hours per column putting together the necessary information and
inputting it onto the LM-2. For example, LM-3 filers who have had their
filing privilege revoked will spend .32 hours on recordkeeping and .07
hours on reporting completing the fees, fines, assessment schedule. The
average LM-3 filer will itemize .89 fees, fines, assessments, etc. on
LM-2 schedule 16. The initial search and identification of itemized
fees, fines, assessments, etc. will take .25 hours. Once the itemized
fees, fines, assessments, etc. are identified, the labor organization
must identify and enter the source, type, purpose, date, and amount of
the fee, fine, assessment, etc. onto the Form LM-2, .15 hours or
approximately .03 hours per item. The results are summarized in table
10.
[[Page 3717]]
[GRAPHIC] [TIFF OMITTED] TR21JA09.008
5. All Officers and Disbursement to Officers
There is no recordkeeping burden associated with identifying
officers and their salaries. This information is reported on the LM-3
schedule ``All Officers and Disbursements to Officers.'' Labor
organizations will have to break down the amount reported in column (E)
of LM-3 schedule ``All Officers and Disbursements to Officers'' between
columns (E), (G), and (H) of LM-2 Schedule 11, and report benefits next
to each officer's name. Officers will have to estimate the time they
spend on representational activities, political and lobbying
activities, contributions, general overhead, and union administration.
LM-3 filers who have had their filing privileges revoked and their
officers will spend 69.53 hours compiling the information necessary to
complete the Form LM-2 Schedule 11. The labor organization will spend
.25 hours compiling the records on disbursements and .08 hours per
disbursement assigning the disbursements to a particular officer and
disbursement category (allowances, official business or other). The LM-
3 sample indicated that, on average, an LM-3 filer has 8.31 officers.
The Department estimates that each officer will receive one benefit
disbursement and one indirect disbursement for travel or lodging. Based
on the LM-3 sample, approximately 43.70% of the officers listed on the
LM-3, or 3.47 officers per LM-3 filer, receive allowances and other
disbursements. On average, these officers receive $973.92 in allowances
and other disbursements. Unlike the LM-2 analysis above, the Department
estimates that the average LM-3 officer disbursement will be $200. The
average disbursement amount was reduced to take into account the
smaller size of LM-3 filers. Therefore, the 3.47 officers who receive
allowances and other disbursements will receive, on average, 4.87
disbursements for allowances and other disbursements ($973.92/$200 =
4.87), 1 disbursement for benefits, and 1 indirect disbursement for
lodging or travel. The remaining 4.84 officers who do not receive
allowances or other disbursements will receive 1 disbursement for
benefits and 1 indirect disbursement for lodging or travel. In sum,
each LM-3 filer will make 33.51 disbursements to its officers. The
labor organization will spend 2.93 hours compiling all disbursements to
officers.
In addition to compiling the disbursement data, officers will have
to estimate how much time they spent on each of the functional
categories: representational activities, political and lobbying
activities, contributions, general overhead, and union administration.
In 2003, the Department estimated that officers will spend 1 hour at
the beginning of the year reviewing the LM-2 instructions, .5 hours a
month dividing up their time, 1 hour at the end of the year checking
the distributions. In sum, each officer will spend 8 hours estimating
the percentage of time spent on each functional category. If the
average LM-3 filer has 8.31 officers, and it takes each officer 8 hours
to estimate the percentage of time spent on each functional category,
then officers will expend 66.48 hours on recordkeeping to complete
Schedule 11.
The labor organization will spend 2.08 hours on reporting. Each
officer row on the LM-2 Schedule 11 has 15 separate fillable items. The
Department assumes that a labor organization can fill out an item in
one minute. Therefore, the labor organization will spend .25 hours
filling out each officer row. If the average LM-3 filer has 8.31
officers, and it takes .25 hours to fill out one row, then labor
organizations will expend 2.08 hours completing Schedule 11.
6. Disbursements to Employees
There is no recordkeeping burden associated with identifying
employees and their salaries. The LM-3 does not
[[Page 3718]]
include a separate schedule for reporting disbursements to employees,
but LM-3 filers have to track disbursements to employees to complete
LM-3 Statement B, item 46. Labor organizations will have to break down
the amount reported on LM-3 Statement B, item 46, by employee and type
of disbursement (allowance, official business, or other). Additionally,
the labor organization will have to report the benefits each employee
receives. Employees will have to estimate the time they spend on
representational activities, political and lobbying activities,
contributions, general overhead, and union administration.
LM-3 filers who have had their filing privileges revoked and their
employees will spend 23.48 hours compiling the information necessary to
complete the Form LM-2 Schedule 12. The labor organization will spend
.25 hours compiling the records on disbursements and .08 hours per
disbursement assigning the disbursements to a particular employee and
disbursement category (allowances, official business or other).
The Department used the average number of employees listed on LM-2s
with between $250,000 and $500,000 in annual receipts to estimate the
number of employees employed by LM-3 filers. On average, LM-2 filers
with between $250,000 and $500,000 in annual receipts list 2.79
employees on Schedule 12. The Department estimates that each employee
will receive one benefit disbursement and one indirect disbursement for
travel or lodging. Approximately 39.82% of the employees listed on LM-
2s with between $250,000 and $500,000 in annual receipts, or 1.11
employees per LM-2 filer with between $250,000 and $500,000 in annual
receipts, receive allowances and other disbursements. The Department
cannot estimate the number of employee allowances and other
disbursements from the LM-3. Therefore, the Department applied the
estimated number of officer disbursements, 4.87, to employees. The 1.11
employees who receive allowances and other disbursements will receive,
on average, 4.87 disbursements for allowances and other disbursements,
1 disbursement for benefits, and 1 indirect disbursement for lodging or
travel. The remaining 1.68 employees who do not receive allowances or
other disbursements will receive 1 disbursement for benefits and 1
indirect disbursement for lodging or travel. In sum, each LM-3 filer
will make 10.99 disbursements to its employees.
In addition to compiling the disbursement data, employees will have
to estimate how much time they spent on each of the functional
categories: representational activities, political and lobbying
activities, contributions, general overhead, and union administration.
In 2003, the Department estimated that employees will spend 1 hour at
the beginning of the year reviewing the LM-2 instructions, .5 hours a
month dividing up their time, 1 hour at the end of the year checking
the distributions. In sum, each employee will spend 8 hours estimating
the percentage of time spent on each functional category. If the
average LM-3 filer has 2.79 employees and it takes each employee 8
hours to estimate the percentage of time spent on each functional
category, then employees will expend 22.32 hours on recordkeeping to
complete Schedule 12.
The labor organization will spend .70 hours on reporting. Each
employee row on the LM-2 Schedule 12 has 15 separate fillable items.
The Department assumes that a labor organization can fill out an item
in one minute. Therefore, the labor organization will spend .25 hours
filling out each employee row. If the average LM-3 filer has 2.79
employees, and it takes .25 hours to fill out one row, then labor
organizations will expend .70 hours completing Schedule 12.
7. Member Status Schedule
The Department estimates that LM-3 filers who have had their filing
privilege revoked will spend .25 hours filling out Schedule 13
(``Membership Status''). All labor organizations already keep track of
membership status. Therefore, there is no recordkeeping burden.
Most labor organizations have 3 types of membership: Active,
retired, and journeyman. Each membership type will require an
independent itemization on Schedule 13. The Department has determined
that each itemized membership should require 5 minutes. If there are 3
itemized memberships, then LM-3 filers will expend .25 hours filling
out the LM-2.
8. LM-2 Statement A Burden Hours
There is no recordkeeping burden associated with LM-2 Statement A.
This information is already provided on the LM-3's Statement A. The LM-
3 filer need only copy the information from the LM-3 onto the LM-2. The
Department estimates that such copying should take approximately 1
minute per item. Statement A has 26 different items. At one minute each
the LM-3 will spend .43 hours filling out Statement A.
9. LM-2 Statement B Burden Hours
The Department estimates that LM-3 filers will expend .42 hours on
recordkeeping and .58 hours on reporting to complete LM-2 Statement B.
Twenty-two out of the twenty-nine aggregates reported on Statement B
either have a corresponding LM-2 itemization schedule or are already
reported on the LM-3. The recordkeeping burden associated with these
items is either included in the recordkeeping burden for its
corresponding schedule or it is included in the LM-3 recordkeeping
burden. There is no recordkeeping burden for these items associated
with Statement B. The remaining seven items, strike benefits, fees,
fines, assessments, etc., supplies for resale, repayment of loans
obtained, to affiliates of funds collected on their behalf, on behalf
of individual members, and direct taxes, are unique LM-2 functional
categories with no corresponding itemization schedules. Using the
distributions taken from LM-2s of labor organizations with between
$250,000 and $500,000 in annual receipts and the LM-3 itemized receipt
estimate, the Department has determined that LM-3 filers will have one
per capita tax disbursement, .10 strike disbursement, .12 fees, fines,
assessment, etc. disbursement, .02 supplies for resale disbursement,
zero disbursements to affiliates on their behalf, .19 disbursement on
members behalf, and .41 disbursement for direct taxes. Five out of the
six items will have some amount of money reported in the item,
approximately one transaction per item. The LM-3 filers will spend 5
minutes on recordkeeping per transaction or .42 hours total.
The LM-3 filers will copy twenty-two of the twenty-nine aggregates
from the other itemization schedules on their LM-3. As discussed above,
the remaining five items will have to be compiled by the LM-3 filer.
LM-3 filers will spend one minute per item filling out Statement B, or
.48 hours in total.
10. Detailed Summary Schedules 3 and 4
The Department estimates that LM-3 filers who have had their filing
privilege revoked will spend .25 hours on recordkeeping and .2 hours on
reporting to complete summary schedules 3 and 4. These summary
schedules do not include any new information. They merely summarize the
information itemized on Itemization Schedules 3 and 4. LM-3 filers will
spend .25 minutes compiling the information from the itemization
schedules for reporting here.
[[Page 3719]]
Once the information is compiled it must be transcribed onto the
summary schedules. There are six items per summary schedule. LM-3
filers can transcribe the information into each item in 1 minute, .2
hours to completely transcribe all the information onto summary
schedules 3 and 4.
11. Detailed Summary Schedules 14 through 28
The Department estimates that LM-3 filers who have had their filing
privilege revoked will spend .25 hours on recordkeeping and 1 hour on
reporting to complete summary schedules 14 through 28. These summary
schedules do not include any new information. They merely summarize the
information itemized on Itemization Schedules 14 through 28. LM-3
filers will spend .25 minutes compiling the information from the
itemization schedules for reporting here.
Once the information is compiled it must be transcribed onto the
summary schedules. There are four items per summary schedule. LM-3
filers should be able to transcribe the information into each item in 1
minute. There are 15 separate summary schedules and each has 4 items
that must be filled. Therefore, LM-3 filers will spend 1 hour (15
itemization schedules x 4 items per schedule x 1 minute per item = 60
minutes) transcribing all the information onto summary schedules 14
through 28.
12. Compensation Cost
The Department assumes that, on average, the completion by a labor
organization with between $10,000 and $250,000 in annual receipts of
Form LM-2 will involve an accountant/auditor, bookkeeper/clerk, labor
organization president and labor organization treasurer. Based on the
2007 BLS wage data, accountants earn $30.37 per hour, computer
engineers earn $41.18 per hour, and bookkeepers/clerks earn $15.76 per
hour.\33\ BLS estimates that the cost of an employee's total
compensation is approximately 30.2% higher than the employee's wages
alone. Therefore, the Department adjusted upward each of the BLS
salaries to include the additional 30.2% attributed to benefits to
estimate the total compensation cost for each of the individuals
involved in completing the Form LM-2.
---------------------------------------------------------------------------
\33\ The wage and salary data is based on information contained
in Bureau of Labor Statistics, Occupational Employment Statistics
Survey, 2007.
---------------------------------------------------------------------------
The Department estimated the average annual salaries of labor
organization officers needed to complete tasks for compliance with the
LM-3 revocation--the president and treasurer--from responses to salary
inquiries contained in the sample of 222 labor organizations that filed
a Form LM-3 in 2006. The Department assumed that LM-3 part-time
officers work approximately 200 hours per year. These average annual
salary figures were then adjusted to include the additional 30.2%
attributed to benefits to reflect total compensation cost for each
officer. Accordingly, the Department calculated as total hourly
compensation cost $21.68 per hour for labor organization president and
$25.08 per hour for labor organization treasurer.
Table 11--Compensation Cost Table
----------------------------------------------------------------------------------------------------------------
Title Salary--hourly Salary--yearly Compensation--cost--hourly
----------------------------------------------------------------------------------------------------------------
Accountants/Auditors................................ $30.37 $63,180.00 $43.51
Bookkeepers/Clerks.................................. 15.76 32,780.00 22.58
President........................................... 15.13 3,026.45 21.68
Treasurer........................................... 17.51 3,501.73 25.08
----------------------------------------------------------------------------------------------------------------
The Department estimated the percentage of time the accountant,
bookkeeper, president, and treasurer would spend completing the LM-2.
These percentages were used to calculate a weighted average
compensation cost, $25.40.
13. Conclusion
The Department estimates that Form LM-2 filers with total annual
receipts under $250,000 (LM-3 Filers that have had the privileged
revoked) will spend 102.40 hours fulfilling recordkeeping requirements
and 16.83 hours completing the form, which corresponds to $3,028.23 in
costs.
[[Page 3720]]
[GRAPHIC] [TIFF OMITTED] TR21JA09.009
14. 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.
[[Page 3721]]
Final 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 economic impact on a substantial number of
small entities. The Department certifies that the final rule will not
have a significant economic impact on a substantial number of small
entities. To evaluate whether this final rule would have a significant
economic impact on a substantial number of small entities, the
Department conducted a Final Regulatory Flexibility Analysis (``FRFA'')
as a component of this final rule.
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, 73 FR 57412
(October 2, 2008), has been used in developing the final regulatory
flexibility analysis for this rule.
The Department recognizes that the SBA has not established fixed,
financial thresholds for ``organizations,'' as distinct from other
entities. See A Guide for Government Agencies: How to Comply with the
Regulatory Flexibility Act, Office of Advocacy, U.S. Small Business
Administration at 12-13, available at http://www.sba.gov. The
Department further recognizes that under SBA guidelines, the
relationship of an entity to a larger entity with greater receipts is a
factor to be considered in determining the necessity of conducting a
regulatory flexibility analysis. 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).\34\ 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 final
regulatory flexibility analysis. Accordingly, the following analysis
assesses the impact of these regulations on small entities as defined
by the applicable SBA size standards.
---------------------------------------------------------------------------
\34\ 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. *
* *''
---------------------------------------------------------------------------
All numbers used in this analysis are based on 2006 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 Final Rule
The following is a summary of the need for and objectives of the
final rule. A more complete discussion is found earlier in this
preamble.
The objective of this final 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
has determined that further enhancements to the Form LM-2 are
necessary. These 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 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 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 changes will require the
reporting in Schedules 11 and 12 of travel reimbursements indirectly
paid these officials. This change will provide more accurate
information on travel disbursements made to them by their labor
organizations. The 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 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 are often indicators
of larger problems associated with the ways in which 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, including a
labor organization's failure to maintain the records required by the
LMRDA; inadequate office procedures; frequent turnover of labor
organization officials, who often serve on a part-time basis;
uncertainty of first-time officers about their reporting
responsibilities under the LMRDA and their inexperience with
bookkeeping, recordkeeping, or both; 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
[[Page 3722]]
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 and the public 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 the error would benefit from the
increased transparency of the Form LM-2.
As explained previously 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. This
final rule will prevent circumvention and evasion of these reporting
requirements by providing members of labor organizations with financial
information concerning their labor organization.
The legal authority for the final rule 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.'' 29 U.S.C. 438. 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.
B. Summary of the Significant Issues Raised by Public Comments
The Department's NPRM in this rulemaking contained an Initial
Regulatory Flexibility Analysis and Paperwork Reduction Act analyses.
As noted above in the introduction to the Department's PRA analysis,
because of the overlapping nature of costs for the purposes of both the
RFA and PRA analyses, the Department construed all comments received
related to the Department's assessment of costs to the regulated
community as comments addressing both the PRA and the RFA analyses. The
Department's discussion of significant issues raised in comments
related to cost estimates, the agency's response thereto, and
adjustments made to the methodology as a result of comments is found in
the PRA section of this preamble. See, supra, Paperwork Reduction Act,
Sec. A. As explained in that section, based upon careful consideration
of the comments, the Department made adjustments to the methodology
employed to assess costs, and those adjustments resulted in
modifications to conclusions on costs, which have been employed in the
following final RFA analysis. Thus, the statutory requirement that the
Department provide in its final RFA analysis ``a summary of the
significant issues raised by the public comments in response to the
initial regulatory flexibility analysis, a summary of the assessment of
the agency of such issues, and a statement of any changes made in the
proposed rule as a result of such comments[,]'' 5 U.S.C. 604(a)(2), has
been satisfied. Moreover, the Department received no comments
addressing or challenging the specific conclusion in the NPRM that the
rule does not have a significant economic impact on a substantial
number of small entities.
C. Number of Small Entities Covered Under the Rule
The primary impact of this final rule will be on those labor
organizations that have $250,000 or more in annual receipts. There are
approximately 4,571 labor organizations of this size that are required
to file Form LM-2 reports under the LMRDA. See Table 13 below. The
Department estimates that 4,220 of these labor organizations, or
92.32%, are considered small under the current SBA standard (annual
receipts less than $6.5 million). These labor organizations have annual
average receipts of $1.30 million.\35\ See Table 13. The Department
estimates that about 96 labor organizations with annual receipts of
less than $250,000 will be affected by the final rule. These 96 labor
organizations have annual average receipts of $68,468. See Table 13.
Although these estimates may not be predictive of the exact number of
small labor organizations that will be impacted by this final rule in
the future, the Department believes these estimates to be sound and
they are derived from the best available information.
---------------------------------------------------------------------------
\35\ 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).
---------------------------------------------------------------------------
D. Reporting, Recording and Other Compliance Requirements of the Rule
\36\
---------------------------------------------------------------------------
\36\ The estimated burden on labor organizations is discussed in
detail in the previous section concerning the Paperwork Reduction
Act. The figures discussed above are derived from the figures
explained in that section.
---------------------------------------------------------------------------
This final rule is not expected to have a significant economic
impact on a substantial number of small entities. The LMRDA is
primarily a reporting and disclosure statute. Accordingly, the primary
economic impact will be the cost of obtaining and reporting required
information.
For the estimated 4,220 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 $16,328.22 or
1.26% of their average annual receipts. See Table 13, which provides a
more complete list of the burden estimates.\37\ The average additional
first year cost (including first year non-recurring implementation
costs) to these organizations is estimated at $4,717.39, or .36% of
average annual receipts. Id. The average total first year cost of the
revised Form LM-2 on these labor organizations is estimated at
$21,045.61, or 1.62% of total annual receipts. Id. The Department views
as unlikely that the smallest subset of these labor organizations
(those with between
[[Page 3723]]
$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 smallest
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 final rule on such labor organizations is
estimated at $4,891.21 in the first year, or .38% of the annual
receipts of all organizations with receipts of $250,000 to $6.5
million, and $462.88 in the second year, or .04% 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 final rule would
be 1.26% of receipts in the first year and .12% in the second year.\38\
Id.
---------------------------------------------------------------------------
\37\ 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.
\38\ 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 (1,325) compared to the
number of labor organizations with $500,000 to $6.5 million in
annual receipts (2,895) and the three and one half-fold difference
in average receipts between labor organizations with $250,000 to
$499,999 in annual receipts and labor organizations with $500,000 to
$6.5 million in annual receipts.
\39\ Note: Some of the figures used in this table and other
figures mentioned in this document may not add due to rounding.
---------------------------------------------------------------------------
The average annual reporting and recordkeeping burden for the
current Form LM-3 is estimated at $1,404.00 or 2.08% of average annual
receipts for Form LM-3 filers. See Table 1. The Department assumes that
Form LM-3 filers will spend approximately $23.13 per hour to complete
the form. See Table 11. The additional cost of filing a Form LM-2 is
$3,028.23 or 4.49% 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 will 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).
Table 13--Summary of Regulatory Flexibility Analysis \39\
------------------------------------------------------------------------
Total burden
For unions that meet the SBA small hours per Total cost per
entities standard respondent respondent
------------------------------------------------------------------------
Weighted Average Cost of Current Form LM- 507.62 $16,382.22
2......................................
Percentage of Average Annual Receipts... n.a. 1.26%
Average Cost of Current Form LM-3....... 116.00 1,404.00
Percentage of Average Annual Receipts... n.a. 2.08%
Weighted Average First Year Cost of 653.86 21,045.61
Revised Form LM-2......................
Percent of Average Annual Receipts...... n.a. 1.62%
Weighted Average Second Year Cost....... 520.36 16,748.65
Percent of Average Annual Receipts...... n.a. 1.29%
Weighted Average Increase in Cost of 146.56 4,717.39
Final Rule, First Year.................
Percent of Average Annual Receipts...... n.a. 0.36%
Weighted Average Increase in Cost of 13.06 420.44
Final Rule, Second Year................
Percent of Average Annual Receipts...... n.a. 0.03%
Maximum First Year Cost of Revised Form 659.26 19,677.27
LM-2 for Unions with $250,000 to
$499,999 in Annual Receipts............
Percentage of Average Annual Receipts... n.a. 5.47%
Maximum Second Year Cost................ 521.68 15,570.78
Percentage of Average Annual Receipts... n.a. 4.33%
Maximum Increase in Cost of Final Rule, 151.96 4,891.21
First Year.............................
Percent of Annual Receipts for $250,000 n.a. 1.26%
to $499,999 Union......................
Percent of Annual Receipts for $500,000 n.a. 0.29%
to $6,500,000 Union....................
Percent of Annual Receipts for $250K to n.a. 0.38%
$6.5M Union............................
Maximum Increase in Cost of Final Rule, 14.38 462.88
Second Year............................
Percent of Annual Receipts for $250,000 n.a. 0.12%
to $499,999 Union......................
Percent of Annual Receipts for $500,000 n.a. 0.03%
to $6,500,000 Union....................
Percent of Annual Receipts for $250K to n.a. 0.04%
$6.5M Union............................
Average Cost of Revised Form LM-2....... 119.22 3,028.23
Union with between $10K and $249,999 in n.a. 4.49%
Annual Receipts........................
------------------------------------------------------------------------
Total 2006 Filers between $250K & $6.5M................. 4,220
Total 2006 Filers between $250K & $499,999.............. 1,325
Total 2006 Filers between $500K & $6.5.................. 2,895
Total 2006 Filers between $500K & $49.9M................ 3,194
Number of Form LM-2 Filers with Annual Receipts between 3,401
$250K & $2M............................................
Total 2006 Form LM-3 Filers............................. 10,977
Total 2006 Form LM-2 Filers............................. 4,571
Total 2006 Union Filers................................. 23,924
Percentage of All Union Filers that File Form LM-2...... 19.11%
Percentage of all Union Filers with Annual Receipts 18.1%
between $250K & $6.5M..................................
Percentage of Union Filers with Annual Receipts between 5.5%
$250K & $499,999.......................................
Percentage of Form LM-2 Filers with Annual Receipts 92.32%
between $250K & $6.5M..................................
[[Page 3724]]
Percentage between $250K & $499,999..................... 31.40%
Percentage between $500K & $6.5M........................ 68.60%
Percentage of Form LM-3 Filers that will File Form LM-2. .87%
2006 Average Annual Receipts for Unions between $250K & $1,296,219.27
$6.5M..................................................
2006 Average Annual Receipts for Unions between $250K & $359,925.03
$499,999...............................................
2006 Average Annual Receipts for Unions between $500K & $1,724,895.80
$6.5M..................................................
2006 Average Annual Receipts for Unions between $10K and $67,468.14
$249,999...............................................
OLMS will update the e.LORS system to coincide with all changes
embodied in this final rule. 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 previously 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.
E. Description of the Steps the Agency Has Taken To Minimize the
Economic Impact on Small Entities
The Department considered a number of alternatives to the final
rule that could minimize the economic 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 fully met. As explained further in the
preamble, members of labor organizations cannot accurately determine
from the current Form LM-2 important information regarding their
union's finances, including the parties to whom it sells, and from whom
it purchases, investments and fixed assets; the identity of parties
from whom the union receives major amounts of funds; and the benefits
and indirect disbursements received by officials and employees of the
labor organization. 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 4,571 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 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
concludes that 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.
F. Conclusion
The Regulatory Flexibility Act does not define either ``significant
economic impact'' or ``substantial'' as it relates to the number of
regulated entities. 5 U.S.C. 601. In the absence of specific
definitions, ``what is `significant' or `substantial' will vary
depending on the problem that needs to be addressed, the rule's
requirements, and the preliminary assessment of the rule's impact.'' A
Guide for Government Agencies, supra, at 17. As to economic impact, one
important indicator is the cost of compliance in relation to revenue of
the entity. Id.
As noted above, the final rule will apply to 4,220 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 1,325 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 final rule described
above. Finally, the Department estimates that approximately 96 Form LM-
3 filers, or .87% of all Form LM-3 labor organizations covered by the
LMRDA, would be affected by this rule.
For the estimated 4,220 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 $16,328.22 or
1.26% 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 $4,717.39, or 0.36% of
average annual receipts. The average total first year cost of the
revised Form LM-2 on these labor organizations is estimated at
$21,045.61, or 1.62% of total annual receipts. 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
[[Page 3725]]
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 $4,891.21 in the first year, or
0.38% of the annual receipts of all organizations with receipts of
$250,000 to $6.5 million, and $462.88 in the second year, or .04% of
annual receipts.
The average annual reporting and recordkeeping burden for the
current Form LM-3 is estimated at $1,404.00 or 2.08% 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 will be $3,028.23 or 4.49% of average annual
receipts
Given the relatively small costs of compliance in relation to the
revenues of the affected labor organizations, the Department concludes
that the economic impact of this rule is not significant. As to the
number of labor organizations affected by this rule, the Department has
determined by examining e.LORS data that in 2006, the Department
received 4,228 Form LM-2s from labor organizations with receipts
between $250,000 and $6,500,000, or just 17.6% of the 24,065 labor
organizations that must file any of the annual financial reports
required under the LMRDA (Forms LM-2, LM-3, or LM-4). The Department
concludes that the rule does not impact a substantial number of small
entities. Therefore, under 5 U.S.C. 605, the Department certifies that
the final rule will not have a significant economic impact on a
substantial number of small entities.
Executive Order 13045 (Protection of Children From Environmental Health
Risks and Safety Risks)
In accordance with Executive Order 13045, the Department has
evaluated the environmental safety and health effects of the final rule
on children. The Department has determined that the final rule will
have no effect on children.
Executive Order 13175 (Consultation and Coordination With Indian Tribal
Governments)
The Department has reviewed this final rule in accordance with
Executive Order 13175, and has determined that it does not have
``tribal implications.'' The final rule does not ``have substantial
direct effects on one or more Indian tribes, on the relationship
between the Federal government and Indian tribes, or on the
distribution of power and responsibilities between the Federal
government and Indian tribes.''
Executive Order 12630 (Governmental Actions and Interference With
Constitutionally Protected Property Rights)
This final rule is not subject to Executive Order 12630,
Governmental Actions and Interference with Constitutionally Protected
Property Rights, because it does not involve implementation of a policy
with takings implications.
Executive Order 12988 (Civil Justice Reform)
This final rule has been drafted and reviewed in accordance with
Executive Order 12988, Civil Justice Reform, and will not unduly burden
the federal court system. The final rule has been written so as to
minimize litigation and provide a clear legal standard for affected
conduct, and has been reviewed carefully to eliminate drafting errors
and ambiguities.
Environmental Impact Assessment
The Department has reviewed the final rule in accordance with the
requirements of the National Environmental Policy Act (``NEPA'') of
1969 (42 U.S.C. 4321 et seq.), the regulations of the Council on
Environmental Quality (40 U.S.C. part 1500), and the Department's NEPA
procedures (29 CFR part 11). The final rule will not have a significant
impact on the quality of the human environment, and, thus, the
Department has not conducted an environmental assessment or an
environmental impact statement.
Executive Order 13211 (Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use)
This final rule is not subject to Executive Order 13211, because it
will not have a significant adverse effect on the supply, distribution,
or use of energy.
Electronic Filing of Forms and Availability of Collected Data
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 Web site, individual
guidance provided through responses to e-mail, written, or telephone
inquiries, and formal group sessions conducted for labor organization
officials regarding compliance.
List of Subjects in 29 CFR Part 403
Labor unions, Reporting and recordkeeping requirements.
Text of Final Rule
0
In consideration of the foregoing, the Department amends part 403 of 29
CFR Chapter IV as set forth below:
PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS
0
1. The authority citation for Part 403 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.
0
2. Amend 29 CFR 403.4 by:
0
a. Revising paragraph 403.4(a)(1) to read as set forth below:
0
b. Redesignating paragraph (b) as paragraph (f).
0
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 of this part 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 Sec.
403.4(a)(1) and require
[[Page 3726]]
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 provided notice to the labor organization
that revocation is possible if conditions warranting revocation are not
remedied;
(2) The Secretary has undertaken such investigation as the
Secretary deems proper revealing:
(i) The date the labor organization's Form LM-3 was due has passed
and no Form LM-3 has been received; or
(ii) The labor organization filed the Form LM-3 with a material
deficiency and failed to 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.
(3) The Secretary has provided notice to the labor organization of
a 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 a deficiency is material) or other circumstances alleged in the
notice;
(ii) The reason for the delinquency, deficiency or other cited
circumstance and whether it was caused by factors reasonably outside
the control of the labor organization; and
(iii) Any other factors, including those in mitigation, the
Secretary should consider in making a determination regarding whether
the labor organization's privilege to file the Form LM-3 should be
revoked.
(4) The Secretary (or a designee who has not participated in the
investigation), after review of all the information collected and
provided, shall issue a determination in writing to the labor
organization. If the Secretary determines that the privilege shall be
revoked, the Secretary will inform the labor organization of the
reasons for the determination and order it to 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
Sec. 403.4(b)(3) must submit its written statement of position and any
supporting facts, evidence, and argument by mail, hand delivery, or by
alternative means 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's 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 8th day of January 2009.
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 revised Form LM-2 and the revised
instructions to that form. The appendix also contains the revised
instructions to the Form LM-3. The form itself is not included
because no changes have been made to the current version.
BILLING CODE 4510-CM-P
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[FR Doc. E9-503 Filed 1-16-09; 8:45 am]
BILLING CODE 4510-CM-C