[Federal Register Volume 67, Number 249 (Friday, December 27, 2002)]
[Proposed Rules]
[Pages 79280-79414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32445]



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Part III





Department of Labor





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Office of Labor-Management Standards



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29 CFR Parts 403 and 408



Labor Organization Annual Financial Reports; Proposed Rule

  Federal Register / Vol. 67, No. 249 / Friday, December 27, 2002 / 
Proposed Rules  

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Parts 403 and 408

RIN 1215-AB34


Labor Organization Annual Financial Reports

AGENCY: Office of Labor-Management Standards, Employment Standards 
Administration, Department of Labor.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: The Department of Labor's Employment Standards Administration 
(ESA) is proposing to revise forms LM-2, LM-3, and LM-4, which are used 
by labor organizations to file the annual financial reports required 
under title II of the Labor-Management Reporting and Disclosure Act of 
1959, as amended (LMRDA or Act) with ESA's Office of Labor-Management 
Standards (OLMS). The purpose of this reform is to improve the 
transparency and accountability of labor organizations to their 
members, the public, and the government; to increase the information 
available to members of labor organizations; and to make the data 
disclosed in such reports more understandable and accessible. The 
Department invites comment on this proposed rule and the revised forms, 
as well as on the instructions for filling out the forms.
    Some of the reforms proposed include requiring form LM-2 filers to 
file reports electronically (unless the labor organization claims a 
temporary hardship exemption or applies for and is granted a continuing 
hardship exemption), to identify ``major'' receipts and disbursements, 
and to allocate disbursements among several categories provided on the 
form. The proposal would also require all covered labor organizations 
to report the assets, liabilities, receipts, and disbursements of 
organizations with annual receipts of $200,000 or more that meet the 
statutory definition of a ``trust in which a labor organization is 
interested'' in order to ensure meaningful disclosure to union members 
and prevent the circumvention of the reporting requirements of title 
II. Finally, the proposal would make conforming changes, as described 
below, to the other labor organization annual financial reporting 
forms, form LM-3 and form LM-4, which are affected in limited ways. The 
Department invites comments with respect to the benefits of these 
changes, the ease or difficulty with which labor organizations will be 
able to comply, and whether the information that would be provided to 
union members, the public, and the government if these changes were 
implemented would be meaningful, useful, and in accordance with the 
purposes of the Act.

DATES: Comments must be received on or before February 25, 2003.

ADDRESSES: Comments should be sent to Victoria A. Lipnic, Assistant 
Secretary for Employment Standards, U.S. Department of Labor, 200 
Constitution Avenue, NW., Room N-5605, Washington, DC 20210.
    All commenters are advised that U.S. mail delivery in the 
Washington, DC area has been slow and erratic due to the ongoing 
concerns involving anthrax contamination. All commenters must take this 
into consideration when preparing to meet the deadline for submitting 
comments. As a convenience to commenters, comments may be transmitted 
by e-mail to esa.gov">FormLM2-comments@dol-esa.gov or by facsimile (FAX) machine 
to (202) 693-1340. To assure access to the FAX equipment, only comments 
of five or fewer pages will be accepted via FAX transmittal, unless 
arrangements are made prior to faxing, by calling the number below and 
scheduling a time for fax receipt by OLMS.
    It is recommended that you confirm receipt of your comment by 
contacting (202) 693-0122 (this is not a toll-free number). Individuals 
with hearing impairments may call 1-800-877-8339 (TTY/TDD).
    Comments will be available for public inspection during normal 
business hours at the above address.

FOR FURTHER INFORMATION CONTACT: Victoria A. Lipnic, Assistant 
Secretary for Employment Standards, U.S. Department of Labor, 200 
Constitution Avenue, NW., Room S-2321, Washington, DC 20210, esa.gov">olms-mail@dol-esa.gov, (202) 693-0122 (this is not a toll-free number). 
Individuals with hearing impairments may call 1-800-877-8339 (TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Background

    Over the course of the last century, there have been tremendous 
changes in the American workplace. Not only has the size of the 
American workforce increased dramatically--roughly six-fold--but the 
``composition of the labor force shifted from industries dominated by 
primary production occupations, such as farmers and foresters, to those 
dominated by professional, technical, and service workers.'' Report on 
the American Workforce, U.S. Department of Labor, 2001, p. 3. The way 
in which American workers are compensated has also changed 
considerably. In 1966, over 80% of total compensation consisted of 
wages and salaries, with less than 20% representing benefits. By 2000, 
wages dropped to 73% of total compensation and benefits grew to 27% of 
the compensation package. Id. at p. 76, 87. Today's workforce--which is 
better educated, more empowered, and more familiar with financial data 
and transactions than ever before--expects relevant and useful 
information in order to make fundamental career decisions, evaluate 
options and exercise legally guaranteed rights. American workers 
rightly expect to receive such information not only from their 
government and their employers, but also from labor organizations that 
represent them or seek to represent them in the workplace.
    Labor organizations also have changed tremendously since the 
enactment of the LMRDA in 1959. There are now far fewer small, 
independent unions and more large unions affiliated with a national or 
international body. In 2000, 5,426 unions, including 141 national and 
international unions, reported $200,000 or more in total annual 
receipts--the threshold at which a labor organization must use form LM-
2 to file the annual financial report required by the LMRDA. In fact, 
many large unions today resemble modern corporations in their 
structure, scope and complexity. A large number of them manage full-
featured benefit plans for their members, maintain close business 
relationships with financial service providers such as insurance 
companies and investment firms, offer multiple compensation 
opportunities to their senior executives and officials, operate 
revenue-producing subsidiaries, conduct extensive government lobbying, 
and participate in foundations and charitable activities.
    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, which 
has remained significantly unchanged, has become a barrier to the full 
and transparent reporting intended by the Act. Moreover, just as in the 
corporate sector, there have been a number of financial failures and 
irregularities involving pension funds and other member accounts 
maintained by labor organizations. These failures and irregularities 
result in direct financial harm to union members. If the members of 
labor organizations had more complete, understandable information about 
their unions' financial

[[Page 79281]]

transactions, investments and solvency, they would be in a much better 
position than they are today to protect their personal financial 
interests and exercise their democratic rights of self-governance.
    In light of the changes in the American workplace, the availability 
of technical improvements, and the increasing complexity of many union 
financial activities reported under the LMRDA, the Department believes 
that reasonable changes must be made to the forms required under title 
II, and the means by which they are filed. First, the most efficient 
way to provide meaningful access to this information by interested 
members of the public is to require that the reports filed by the 
largest labor organizations be filed in electronic form. In response to 
requests from union members, the media, members of Congress, and other 
interested parties for Internet access to reports filed by unions under 
the LMRDA, OLMS has recently inaugurated a new website (http://www.union-reports.dol.gov) where individuals may now view union annual 
financial reports and conduct data searches, displaying the results in 
a number of preformatted listings, free of charge. In order to provide 
this access, however, OLMS currently must scan each report that is 
filed in paper format--a process that is expensive and time-consuming. 
Requiring form LM-2 reports to be filed electronically using software 
provided by OLMS, and making them available on the website, will 
decrease the number of requests for reports that must be handled 
manually, freeing OLMS staff for other compliance assistance and 
enforcement work. Finally, requiring electronic filing of form LM-2 
reports will provide OLMS with data that can be used more effectively 
for enforcement and compliance assistance purposes.
    In addition, the Department is proposing a number of changes in the 
form LM-2 itself, including a requirement that disbursements and 
receipts not otherwise identified be reported in specific categories 
that provide union members with more detailed information about the 
activities of their unions. The proposed revision of form LM-2 will 
provide union members and the public with information about the 
identity of individuals and entities who receive major disbursements of 
union funds and from whom unions receive major receipts not otherwise 
identified. This change is necessary to ensure that the information 
required is reported in such a way as to meet the objectives of the 
statute by providing union members with useful data that will enable 
them to be responsible and effective participants in the democratic 
governance of their unions. While it is recognized that changes in the 
form LM-2 may impose some burden on the largest unions, the burden of 
the proposed changes will dramatically diminish after the first year 
and the use of electronic filing proposed by this rulemaking will 
alleviate much of the burden on filers.
    The Department considered raising the threshold at which unions are 
required to file form LM-2 as a way of limiting the burden of requiring 
electronic filing in greater detail. The threshold was raised to its 
current level of $200,000 in 1994. Adjusting for inflation, that amount 
would be approximately $245,000 today. Raising the threshold to 
$250,000 in annual receipts would relieve 654 unions, with combined 
receipts of approximately $150,000,000 per year, of the obligation to 
use the proposed form LM-2. Taking such action, however, would impact 
the amount of information available to more than 950,000 members. Since 
it is unclear whether such action would substantially affect the burden 
imposed without compromising the objective of increasing transparency, 
it was decided to specifically request comments on whether the current 
$200,000 threshold for form LM-2 filers should be raised to $250,000 or 
some other amount, or, instead, whether it should be left unchanged.
    The LMRDA is effective only if union members and the government are 
given the information they need to determine how members' dues are 
being spent. As Representative Robert P. Griffin, a cosponsor of the 
bill, stated,

* * * the effectiveness of the Act will surely depend upon the 
Secretary of Labor, who bears a great responsibility for its 
enforcement. However, in a larger sense, the effectiveness of the 
Act will depend also upon the rank-and-file union members 
themselves. For in the last analysis, it is they who must make the 
law meaningful by taking hold of the tools of democracy and using 
them to clean corruption out of their unions and to keep them clean.

    Robert P. Griffin, Symposium on the Labor-Management Reporting and 
Disclosure Act of 1959, edited by Ralph Slovenko, Baton Rouge, 
Claitor's Bookstore Publishers, Tulane University School of Law, 1961, 
pp. 30-31. The LMRDA was passed with wide bipartisan support, and 
placed responsibility for enforcing its provisions jointly on the 
Department of Labor and rank-and-file union members. AFL-CIO President 
George Meany offered his support for the Act, stating ``if the powers 
conferred [in the LMRDA] are vigorously and properly used, the 
reporting requirements will make a major contribution towards the 
elimination of corruption and questionable practices.'' George Meany, 
Testimony before the House Labor Committee, June 1959. In light of the 
changes discussed above, the purposes of the Act could be better 
accomplished if the information that the statute requires labor 
organizations to report was provided in a more useful format and ``in 
such detail'' as necessary to provide union members with a more 
accurate picture of their union's ``financial condition and 
operations.'' 29 U.S.C. 431(b).
    The Department developed reporting forms to complement its 
enforcement responsibilities shortly after the enactment of the LMRDA, 
but those forms have remained substantially unchanged for four decades, 
and simply have not kept pace with changes in financial practices and 
with the growth in size of unions and their financial transactions. 
Major changes were attempted in 1992. 57 FR 49282 (October 30, 1992). 
Pursuant to that rule, unions were required to report total 
disbursements in eight categories and then to allocate those 
disbursements among six ``functional'' categories. The Department, 
however, rescinded this rule on December 21, 1993. 58 FR 67594.
    Since 1993, significant improvements in the software available to 
facilitate accounting make it possible to make a new attempt to change 
the form LM-2 in ways that will provide additional useful information 
to union members and the public without unduly burdening reporting 
unions. Accordingly, in the process of making changes to take advantage 
of advances in electronic recordkeeping, filing and disclosure 
technology, it is appropriate to consider changes that will enable 
union members to obtain more accurate information about the financial 
operations of their unions. For example, union members currently have 
no meaningful way to evaluate the appropriateness of large expenditures 
for generalized purposes. Recent form LM-2 reports filed with the 
Department disclosed, for example, expenditures of $7,805,827 for 
``Civic Organizations,'' $3,927,968 for ``Sundry Expenses,'' and 
$7,863,527 for ``Political Education.'' Amounts reported as ``Other 
Disbursements'' and described generally have been equally difficult to 
identify. For example, recent reports disclosed disbursements of 
$68,712,248 for grants to joint projects with state and local 
affiliates; $22,991,729 for financial

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assistance paid to local and district lodges; and $19,322,938 for 
organizing and servicing. While the activities described appear to be 
those for which a union might be expected to spend money, the current 
form does not require the union to disclose the identity of the 
recipient of the funds, making it difficult to determine whether these 
amounts were actually spent for the described activities.
    The large dollar amount and vague description of such entries make 
it essentially impossible for members to determine whether or not their 
dues were spent appropriately, which is precisely the reason that the 
statute requires reporting. The Senate Report on the version of the 
bill later enacted as the LMRDA stated clearly, ``the members who are 
the real owners of the money and property of the organization are 
entitled to a full accounting of all transactions involving their 
property.'' A full accounting was described as ``full reporting and 
public disclosure of union internal processes and financial 
operations.'' Senate Report No. 187 on S. 1555, submitted by Senator 
John F. Kennedy from the Committee on Labor and Public Welfare, 86th 
Cong., 1st Sess., reprinted in 1959 U.S. Code Cong. & Admin. News 2318, 
pp. 2324 & 2318.
    Technological advances have made it possible to provide the level 
of detail necessary to give union members a more accurate picture of 
their union's financial condition and operations without imposing an 
unwarranted burden on reporting unions. Although no specific data exist 
regarding the extent to which unions have already embraced the 
technology necessary to provide reports in electronic form, OLMS staff 
who review the filed reports and provide compliance assistance have 
determined that the vast majority of unions required to file form LM-2 
use computerized recordkeeping systems. Several OLMS field offices have 
noted that even smaller unions that file form LM-3 keep electronic 
books. In addition, in the first year in which software was available 
to prepare the current forms for filing, approximately 40% of all 
filers (forms LM-2, LM-3 and LM-4) have used the software. Information 
regarding the burden imposed by making the proposed changes and the 
benefit to be gained is most likely to be obtained by proposing the 
changes for comment so that unions who file these reports, union 
members, and other groups that represent workers can express their 
views.
    Software to be provided by the Department will facilitate use of 
the proposed revised form LM-2. The software will offer filers two 
options to complete and submit the form. A union that chooses the first 
option will be able to ``copy and paste,'' or manually type, 
information from their own record keeping system directly into the form 
using a commercial off-the-shelf form filler application. A union that 
chooses the second option will use technical standards provided by the 
Department to make adjustments to their own accounting programs that 
will enable them to seamlessly export data from the union's accounting 
system into the form. Once the data reconfiguration is complete, the 
union will simply use the reconfigured format for its normal 
bookkeeping. This method will be particularly helpful to larger form 
LM-2 filers inasmuch as each transaction will not have to be reentered 
by hand. Whether the union enters the information by hand into the 
form, or exports data at the end of the year to the filing software, 
the software provided by the Department will check for typographical 
and mathematical errors, and other discrepancies, which must be 
corrected before the union may file the report electronically.
    OLMS case files demonstrate that union members would also benefit 
from changes in the way financial information is reported by the 
largest labor organizations on form LM-2 since the availability of more 
detailed information would provide a deterrent to fraud and 
embezzlement by corrupt officials. Over the past five fiscal years (FY 
1998 to FY 2002), OLMS investigations of alleged fraud and embezzlement 
by union officials and related parties resulted in over 640 criminal 
convictions. Although courts ordered the responsible officials to pay 
$15,446,896 in restitution, in addition to debarring them from union 
service for a combined total of almost ten thousand years, unions and 
their members lost far more money as a result of this criminal activity 
than could be recovered by the Department on behalf of aggrieved 
members. In many of the serious cases investigated by OLMS, the broad 
aggregated categories on the existing forms made it possible to hide 
embezzlements, self-dealing, overspending and financial mismanagement. 
For example, accountants recently pled guilty to criminal charges 
related to the falsification of form LM-2 reports filed by an 
international union. In order to avoid detailed reporting, officials 
had shifted disbursements from the ``Office and Administrative 
Expenses'' category, which has a supporting schedule that requires some 
detail, to the ``Educational and Publicity Expense'' category, in which 
expenses are reported as a single aggregated total with no description. 
Although the fraudulent reporting was ultimately uncovered, the lack of 
supporting detail in the latter category enabled the officials to hide 
in excess of $1.5 million in personal dining, drinking and 
entertainment expenses from 1992 to 1999. This case demonstrates that 
detailed reporting can be an effective deterrent, and that more detail 
throughout the form LM-2 would further discourage malfeasance.
    The foregoing changes will be made only to the form LM-2, which 
must be filed by the largest labor organizations. An additional change, 
which is needed to ensure that union members the government, and the 
public can obtain information on organizations affiliated with unions, 
as the statute requires, will apply to all labor organizations. The 
current forms LM-2 and LM-3 require that unions report ``subsidiary'' 
organizations and define such organizations as ``wholly owned, wholly 
controlled, and wholly financed by the reporting union.'' Because 
unions may also have substantial financial dealings with, or through, 
funds or organizations that are not wholly owned, but that meet the 
statutory definition of a ``trust in which a labor organization is 
interested,'' the proposed revision will require all unions to report 
the assets, liabilities, receipts, and disbursements of all such other 
organizations that have annual receipts of $200,000 or more on a new 
form T-1 (Trusts Annual Report) in order to fulfill the purpose of the 
statutory reporting requirements.
    These separate organizations pose the same transparency challenges 
as ``off-the-books'' accounting procedures in the corporate setting: 
large-scale, potentially unattractive financial transactions can be 
shielded from public disclosure and accountability through artificial 
structures, classification and organizations. The proposed reform would 
substantially improve transparency of significant organizations that 
are financially connected to reporting labor organizations. Currently, 
if a union transfers funds to another organization, but does not 
disclose disbursements made by that organization, union members may 
have no way to determine whether the funds in question were actually 
spent for the benefit of members. Union members have a similar interest 
in obtaining information about funds provided for the benefit of 
members by employers pursuant to collective bargaining agreements, even 
if those funds are provided to a separate, jointly administered account 
rather than

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directly to the union. Since the money an employer contributes to such 
a ``trust'' for union members' benefit might otherwise have been paid 
directly to workers in the form of increased wages and benefits, the 
members on whose behalf the financial transaction was negotiated have a 
right to know what funds were contributed, how the money is managed and 
how it is being spent.
    However, if annual audits or financial reports providing the same 
information and a similar level of detail are otherwise available for 
organizations that meet the statutory definition of a trust, the only 
additional information a union would be required to report on form LM-2 
is a statement that such a report or audit has been filed and is freely 
available on demand, and where it can be obtained. Thus, if reports are 
filed pursuant to 26 U.S.C. 527, or the requirements of the Employee 
Retirement Income Security Act of 1974, 29 U.S.C. 1023 (ERISA), or if 
annual audits are available under Sec.  302(c)(5)(B) of the Labor 
Management Relations Act, 29 U.S.C. 186(c)(5)(B) (LMRA), or if the 
organization files publicly available reports with a Federal or state 
agency as a Political Action Committee (PAC), no form T-1 will be 
required. The reporting labor organization will be required to state 
where the specific alternative reports are available for inspection, 
however. Only those reports listed in the Instructions as satisfying 
the disclosure requirement will be considered sufficient to relieve a 
union of the obligation to file a form T-1 for a trust in which a labor 
organization is interested that meets the reporting threshold. The 
Department invites comments on whether these reports, or others, 
provide sufficient information to dispense with the requirement that 
the labor organization also file a form T-1 for a trust or other fund 
in which it is interested.
    Members have a direct financial interest in obtaining detailed, 
reliable information on significant trusts' financial operations, so 
they can determine whether funds are being spent in ways that benefit 
the members for whom they were created. There have been reports, for 
example, that joint training funds have been used to pay union 
officials supplementary salaries or host extravagant parties for 
trustees. Without adequate financial disclosure, it is impossible for 
union members to assess these trusts and fully exercise their self-
governing democratic membership rights.
    OLMS case files also indicate that there are a number of 
organizations about which union members have requested information 
without success because the organizations were not wholly owned by the 
union and, therefore, the union was not required to report the 
organization as a subsidiary. In one example, OLMS found that 29 local 
unions contributed an average of $62,000 per month to a statewide 
strike fund. Although union members are likely to have an interest in 
how such funds are invested and spent, no single union wholly owned the 
fund, and therefore no union was required to report disbursements made 
by the fund. Strike funds typically fall within the statutory 
definition of a ``trust in which a labor organization is interested,'' 
but may not be required to report under ERISA or the LMRA. Under the 
proposed revision, each union that contributes $10,000 or more to such 
a fund will be required to file a form T-1 with respect to the fund, if 
the strike fund has annual receipts of $200,000 or more, thereby 
providing union members much more information about the financial 
activities of their union and the fund in which it has an interest.
    In another case, local union officials had established a building 
fund financed partly with union members' pension funds. The union was 
not required to report financial information about the building fund, 
because the union did not wholly own it; part of the building fund's 
financing was provided by the union's pension fund. Whether or not the 
separate contributions made by the pension fund are required to be 
reported under ERISA, the building fund itself is a ``trust in which a 
labor organization is interested'' under the definition in the LMRDA. 
The proposed revision of form LM-2 will require that information for 
such entities be reported on form T-1, if the union's contribution 
during the reporting year is $10,000 or more and the entity's annual 
receipts from all sources total $200,000 or more.
    A third case illustrates the current barriers to disclosure: one 
union local accounted for 97% of the funds on deposit at a credit 
union; membership in the credit union was limited to members of the 
Local and two other union locals, and all of the credit union directors 
were Local officials and employees. The credit union made large loans, 
many near $20,000, to union officials, employees and their family 
members. Four loan officers, three of whom were officers of the Local, 
received 61% of the credit union's loans. Union members did not have 
ready access to information about these loans because the Local did not 
wholly own the credit union. Again, the members had an interest in the 
financial operations of the organization in question but, under the 
existing rules, their union was not required to report these activities 
in its form LM-2. Under the proposed reform, a credit union established 
by a union primarily for the benefit of its members is an organization 
that meets the statutory definition of a ``trust in which a labor 
organization is interested'' and the union will be required to report 
financial information for the benefit of members on form T-1.
    These reforms will provide union members, the public, and the 
government the information they need to properly ensure union 
democracy, fiscal integrity and transparency in a manner consistent 
with the intent of Congress in enacting the LMRDA. The revised form LM-
2 will provide detailed information about financial transactions of 
labor organizations in an easily understood format. The new reports 
will be usefully organized according to the services and functions 
provided to union members and the members will be able to identify 
major receipts and disbursements for a variety of activities. The new 
form LM-2 strengthens enforcement of the LMRDA by giving members, the 
government, and the public a full account of their union's financial 
operations, which is made much more feasible and less costly by 
technological advances that enable electronic recordkeeping, filing and 
disclosure of financial information. Because the information will be 
provided electronically and in more detail than the current forms 
require, the proposed revision will substantially enhance the 
Department's ability to review the information provided and to enforce 
other provisions of the LMRDA. Finally, the proposed reform will also 
require additional reporting by all unions for trusts in which a labor 
organization is interested, providing substantially more information 
than is now available to union members, the public, and the government.

II. Authority

A. Legal Authority

    The legal authority for the notice of proposed rule-making is 
sections 201, 208, and 301 of the Labor-Management Reporting and 
Disclosure Act of 1959, as amended (LMRDA), 29 U.S.C. 431, 438, and 
461.

B. Departmental Authorization

    Section 208 of the LMRDA 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 and

[[Page 79284]]

such other reasonable rules and regulations as she may find necessary 
to prevent the circumvention or evasion of the reporting requirements. 
Secretary's Order 4-2001, issued May 24, 2001, and published in the 
Federal Register on May 31, 2001 (66 FR 29656), continued the 
delegation of authority and assignment of responsibility to the 
Assistant Secretary for Employment Standards in Secretary's Order 5-96 
of those functions to be performed by the Secretary of Labor under the 
LMRDA.

III. Overview of the Revised Form LM-2 and Instructions

    This is a ``section-by-section'' discussion of the sections, items 
and schedules of the form LM-2 and instructions to which significant 
revisions are proposed:
    Section I. Who Must File: The instructions to form LM-2 adopt the 
recent holding of the U.S. Court of Appeals for the Ninth Circuit in 
Chao v. Bremerton Metal Trades Council, AFL-CIO, 294 F.3d 1114 (2002), 
interpreting section 3(j) of the LMRDA, because that interpretation 
gives full meaning to the plain language of the statute. In that case, 
the Court ruled that an intermediate labor organization that has no 
dealings itself with private employers and no members who are employed 
in the private sector may nevertheless be a labor organization engaged 
in commerce within the meaning of section 3(j) of the LMRDA if the 
intermediate body is ``subordinate to a national or international labor 
organization which includes a labor organization engaged in commerce.'' 
Accordingly, the Instructions will clarify that any ``conference, 
general committee, joint or system board, or joint council'' that is 
subordinate to a national or international labor organization will be 
required to file an annual financial form if the national or 
international labor organization is a labor organization engaged in an 
industry affecting commerce within the meaning of section 3(j) of the 
LMRDA.
    Section IV. How to File: This section replaces Section IV. Where to 
File in the existing form LM-2 instructions to implement mandatory 
electronic filing. Mandatory electronic filing will minimize the 
burdens for unions that file form LM-2, and increase efficiency for the 
Department of Labor as it processes the reports and makes the reports 
available to union members and the public. The software necessary to 
record information in the form will be provided by the Department to 
all reporting unions. A union will be permitted to file a paper format 
form LM-2, however, if it claims a temporary hardship exemption or 
applies for and is granted a continuing hardship exemption. The 
hardship exemption procedures are modeled after the procedures used by 
the Securities and Exchange Commission (17 CFR 232.201-202) and are 
explained in the instructions to the form that accompany this notice. 
The Department invites comments regarding whether the hardship 
exemption procedures are appropriate and whether there are any 
alternative procedures that might better address legitimate problems 
without permitting unions to avoid electronic filing where it is 
feasible for them to file electronically.
    Section X. Trusts in Which a Labor Organization is Interested: 
Labor organizations must disclose certain financial information of a 
significant trust in which the labor organization is interested in 
order to fulfill and prevent the circumvention of the statutory 
reporting requirements. Similarly, financial information concerning 
significant funds placed under a labor organization's control, for the 
benefit of its members, must be made available to members if they are 
to have a complete and reliable picture of the organization's financial 
condition and operation.
    A trust in which a labor organization is interested is defined by 
statute as

a trust or other fund or organization (1) which was created or 
established by a labor organization, or one or more of the trustees 
or one or more members of the governing body of which is selected or 
appointed by a labor organization, and (2) a primary purpose of 
which is to provide benefits for the members of such labor 
organization or their beneficiaries.

29 U.S.C. 402(l). This definition of a trust in which a labor 
organization is interested may include, but is not limited to: joint 
funds administered by a union and an employer pursuant to a collective 
bargaining agreement, educational or training institutions, credit 
unions created for the benefit of union members, and redevelopment or 
investment groups established by the union for the benefit of its 
members. The determination of whether a particular entity is a trust in 
which a labor organization is interested must be based on the facts in 
each case. A trust will be considered significant, and therefore must 
be reported, if it has annual receipts of $200,000 or more.
    In some instances, a union may have a limited interest in a trust, 
but not extensive control over the trust, or complete information 
regarding all of the financial transactions of the trust. For example, 
some smaller unions may provide limited funding for a training center 
or other enterprise created by other, larger unions. Those smaller 
unions may not, therefore, be in a position to require the entity to 
provide information necessary on the financial operations of the trust. 
In such circumstances, provided that a union's financial contribution 
to a trust, or a contribution made on the union's behalf or as a result 
of a negotiated agreement to which the union is a party, is less than 
$10,000 during the union's reporting year, the union need only report 
the existence of the trust and the amount of the contribution. A labor 
organization that is providing significant funds to a trust, on the 
other hand, should be able to require the trust to provide a more 
detailed accounting of the trust's financial activities. Accordingly, 
if the contribution of the reporting union, or the contribution made on 
the union's behalf or as a result of a negotiated agreement to which 
the union is a party, to the trust is $10,000 or more during the 
union's reporting year, the labor organization will be required to 
report certain financial information of the trust on the proposed new 
separate form (form T-1), if the trust has annual receipts of $200,000 
or more.
    Form T-1 must be filed within 90 days of the end of the trust's 
fiscal year. The Department welcomes comments regarding alternative 
deadlines for filing the trust report.
    Form T-1 contains various types of financial information that is 
intended to discourage circumvention or evasion of the reporting 
requirements in title II while imposing minimal burden. In particular, 
the reporting union will be required to report the amount of its 
contribution and of any contribution made on its behalf, as well as the 
total receipts and liabilities of the trust. Unions will be required to 
separately identify any individual or entity from which the trust 
receives $10,000 or more during the reporting year, any individual 
disbursement of $10,000 or more during the reporting period, as well as 
any entity or individual that received disbursements that aggregate to 
$10,000 or more from the trust during the reporting period.
    Consideration was given to requiring a union to file separate form 
LM-2 reports for trusts or other organizations in which it has an 
interest or to require a union to separately identify disbursements in 
the same amounts as ``major'' disbursements that unions themselves are 
required to report. In order to reduce the burden on unions that may 
not have as ready access to trust records as to their own, it was 
decided to place the reporting threshold sufficiently high that a union 
might be

[[Page 79285]]

expected to require its trusts or other organizations to provide it 
with information about financial transactions in these amounts. The 
Department invites comments on whether a union that contributes $10,000 
to an organization meeting the statutory definition of a trust should 
be required to file a form T-1 or whether the necessary information 
regarding trusts will be disclosed if such a report is required only if 
the amount contributed by or on behalf of the reporting union is a 
significant percentage (for example, 5%, 10% or 25%) of the total 
receipts of the organization. The Department also invites comments on 
whether the threshold for separately identifying receipts and 
disbursements of trusts is placed at the appropriate level.
    No separate report will be required for Political Action Committee 
(PAC) funds if publicly available reports on the PAC funds are filed 
with a Federal or State agency, or for a political organization for 
which reports are filed with the Internal Revenue Service pursuant to 
26 U.S.C. 527, or for a fund described in sections 302(c)(5) through 
(9) of the LMRA, 29 U.S.C. 186(c)(5) through (9), or for a plan that 
filed complete annual financial reports, returns and schedules pursuant 
to the requirements of ERISA, 29 U.S.C. 1023 and 29 CFR 2520.103-1, for 
the plan year ending with or within the year preceding the year covered 
by the reporting union's LM-2, LM-3 or LM-4, or if annual audits are 
made freely available on demand for inspection by interested persons 
under section 302(c)(5)(B) of the LMRA, 29 U.S.C. 186(c)(5)(B)).
    The Department invites comments with respect to whether the 
procedures for reporting trusts are appropriate and sufficient, and 
whether there are alternate or additional means to achieve full 
disclosure while minimizing the burden on reporting entities. In 
particular, the Department has considered whether information about the 
immense numbers of financial transactions that currently go unreported, 
but in which union members have a substantial personal interest, could 
be better obtained by expanding the definition of subsidiaries for 
which unions are required to report assets, liabilities, receipts, and 
disbursements. Under the current rule, labor organizations are required 
to report on the finances of only those subsidiary organizations that 
are 100% owned, controlled and financed by the labor organization. 
Commenters are invited to comment on whether information that is useful 
to union members, the government, and the public might be more readily 
obtained if unions were required to report the assets, liabilities, 
receipts, and disbursements of entities that are dominated or 
controlled by the labor organization to such a degree that assets, 
liabilities, receipts and disbursements of the entity effectively are 
those of the union itself. Whether the putatively reporting entity is, 
in fact, a ``single entity'' with the union would be determined by the 
degree to which there is common ownership, common directors and/or 
officers, de facto exercise of control, unity of personnel policies 
emanating from a common source, and dependency of operations. Under 
this analysis, unions would be required to report financial information 
for any entity with respect to which there is such a substantial degree 
of integration of operations and common management. Similar analyses 
are used to determine whether multiple companies constitute a ``single 
entity'' pursuant to Executive Order 11246 (See, e.g., Beverly 
Enterprises, Inc. v. Herman, 130 F. Supp. 2d 1, 22 (D.D.C. 2000)), and 
to determine whether two or more companies constitute a single employer 
for the purpose of imposing obligations under the National Labor 
Relations Act (See, e.g., N.L.R.B. v. Browning-Ferris Industries of 
Pennsylvania, Inc., 691 F.2d 1117 (3d Cir. 1982); Local 627, Int'l 
Union of Operating Engineers v. N.L.R.B., 518 F.2d 1040, 1045-46 (D.C. 
Cir. 1975), aff'd on this issue sub nom. South Prairie Construction Co. 
v. Local 627, Int'l Union of Operating Engineers, 425 U.S. 800 (1976)).
    Commenters are invited to address, in particular, whether requiring 
unions to report the financial activities of entities that meet a 
``single entity'' test would provide better information to union 
members than the requirement to report the financial activities of 
trusts in which unions have an interest, and whether it would be easy 
for a union to identify entities that meet such a test. Commenters 
addressing this issue may also wish to comment on the fact that since 
assets and receipts of a ``single entity'' with the union would be 
reportable as assets and receipts of the union itself (rather than 
assets of an organization in which the union has an interest), unions 
that might not otherwise have $200,000 in receipts would have to use 
the proposed form LM-2 to file their annual report if their receipts 
plus those of the organization with which the union is determined to be 
a ``single entity'' exceed $200,000.
    Section XI. Completing form LM-2. Information items 1 through 24.
    Item 3. Amended, Hardship Exempted, or Terminal Report: This item 
was revised to include a new box that must be checked for labor 
organizations filing a report according to the hardship exemption 
procedures, and to eliminate the box for ``subsidiary organizations.'' 
The new entry will help union members and members of the public discern 
whether a report filed after the deadline was delinquent or was filed 
according to the hardship exemption procedures. It will also help OLMS 
process the reports. The subsidiary box was eliminated because 
subsidiary organizations are replaced by trusts in the new form LM-2.
    Schedules 1 Through 12: Discussion of the new and revised schedules 
follows.
    Schedule 1--Accounts Receivable Aging Schedule: This new schedule, 
which does not exist in the current form LM-2, requires labor 
organizations to report: (1) The individual accounts that are valued at 
$1,000 or more and that are more than 90 days past due at the end of 
the reporting period or were liquidated, reduced or written off during 
the reporting period; and (2) the total aggregated value of all other 
accounts (that is, those that are less than $1,000) that are more than 
90 days past due at the end of the reporting period or were liquidated, 
reduced or written off during the reporting period. The threshold of 
$1,000 eliminates the burden of individually reporting routine 
collections of dues and other fees.
    This schedule will provide information to union members regarding 
how effectively the union collects debts owed to the union. For 
example, union members have an interest in knowing whether their union 
continues to do business with an entity or individual that does not pay 
its debts. The Department specifically invites comments regarding the 
question whether $1,000 is an appropriate level at which to require 
that such accounts be individually reported.
    Schedule 5--Investments Other Than U.S. Treasury Securities: This 
revised schedule, which is schedule 2 of the current form LM-2, changes 
the thresholds for reporting the book value of individual marketable 
securities and other investments from those that have a book value of 
at least $1,000 and exceed 20% of the total book value of all 
marketable securities or other investments of the labor organization to 
$5,000 and 5% respectively. The change is necessary because $1,000 can 
now be considered a de minimis amount and 20% of book value is 
unreasonably high. It would be possible for unions to invest a 
significant amount of money and still not exceed 20% of the total book 
value of the union's investments. For example, an international union 
with

[[Page 79286]]

$20 million in investments may own $1 million in stock of a certain 
company, which would be 5% of the total book value of the union's 
investments. Under the existing requirements, the investment would not 
be reported because it does not exceed 20% of the total book value, and 
yet $1 million is certainly a significant investment of union members' 
assets. The dollar threshold was raised to prevent unnecessary 
reporting of small investments that might be picked up as a result of 
lowering the percentage threshold to 5%. The Department invites 
comments with respect to whether the thresholds for reporting the value 
of investments are appropriate.
    Schedule 8--Accounts Payable Aging Schedule: This new schedule, 
which does not exist in the current form LM-2, requires labor 
organizations to report: (1) The individual accounts that are valued at 
$1,000 or more that are more than 90 days past due at the end of the 
reporting period or were liquidated, reduced or written off during the 
reporting period; and (2) the total aggregated value of all other 
accounts (that is, those that are less than $1,000) that are more than 
90 days past due at the end of the reporting period or were liquidated, 
reduced or written off during the reporting period.
    This schedule will provide critical information to union members 
regarding the solvency and financial reliability of their union. OLMS 
case files reveal that when a union local falls behind in paying its 
debts, it is often having cash flow problems and these problems may be 
due to embezzlement, overspending or mismanagement. In one case, an 
international union reported that an intermediate body was placed in 
trusteeship because the union had repeatedly failed to pay its per 
capita tax. An OLMS investigation subsequently found that the 
intermediate union was delinquent on a wide range of accounts because 
an officer of the union had been embezzling funds. Under the new 
schedule, these accounts would have been disclosed, in detail, on the 
annual report and the problem may have been discovered and addressed 
before the international was forced to put the local in trusteeship. 
The Department believes this new schedule is a vital ``early warning 
system'' to help union members assess the financial viability of their 
union and detect cases of mismanagement and malfeasance in time to 
prevent substantial and unrecoverable losses of union members' funds. 
The Department invites comments regarding whether $1,000 is an 
appropriate level at which to require that such accounts be 
individually reported.
    Schedule 11--All Officers and Disbursements to Officers: There are 
two significant changes to this schedule in the new form LM-2: (1) The 
reporting union will be required to estimate the percentage (rounded to 
the nearest 10%) of time spent performing duties related to the 
categories listed in schedules 15 through 22, and to allocate the 
relevant percentage of the total disbursement to that officer to the 
appropriate category; and (2) the categories of disbursements to 
officers are broadened so that all withholdings will be allocated to 
the disbursement schedules with the relevant percentage of the net 
salary of the officer. The time allocated among the categories for each 
officer should total 100% of that officer's time. The existing forms 
list the compensation for each officer of the union, but there is no 
indication of what services the officer provided for the members of the 
union.
    Salary and other forms of compensation to officers are often a 
significant percentage of the total disbursements of the union and, as 
fiduciaries of the union, the officers take an active role in the 
services provided by the union to its members. Union members should 
therefore be able to find out from the form LM-2 how their elected 
officers are spending their time, so they can be held properly 
accountable to the interests and priorities of the members. These 
changes will give union members much more useful and detailed 
information on the services performed by the union and the operations 
of the union during the reporting period.
    This proposal varies significantly from the rule promulgated in 
1992 and rescinded in 1993 in that labor organizations are not required 
to determine with precision what portion of each officer's time is 
spent on each activity. Rather, the reporting labor organization need 
only estimate, to the nearest 10%, the time spent by each officer on 
duties that fall within one of the categories and to allocate the 
appropriate percentage of the officer's gross salary to that category. 
This proposal does not present the difficulties inherent in the 1992 
rule with respect to determining how to allocate the ``incidental'' 
activities in which union officers might engage on their own time or 
while spending the major portion of a workday on activities that fall 
within a different category, since the amount of time spent on each 
activity is estimated and reported only as a percentage of total 
salary.
    The Department invites comments regarding whether the allocation of 
salaries based on estimated time spent on activities provides 
sufficient information or whether there is an alternative means of 
allocating the salaries of officers that would provide as much or more 
information to union members without imposing undue burden on the 
filers. In particular, the Department invites comments on whether labor 
organizations should be required to exactly calculate the time spent by 
officers in performing duties related to specific categories in order 
to provide information that is useful to members, rather than rounding 
to 10% estimates.
    Schedule 12--Disbursements to Employees: This schedule is used to 
report the salaries, allowances, and disbursements to each employee of 
the labor organization who received more than $10,000 in the aggregate, 
during the reporting period, from the labor organization and any other 
labor organization affiliated with it or with which it is affiliated, 
or which is affiliated with the same national or international labor 
organization. There are two primary changes to this schedule in the new 
form LM-2: (1) The reporting union will be required to estimate the 
percentage (rounded to the nearest 10%) of time spent performing duties 
related to the categories listed in schedules 15 through 22, and to 
allocate the relevant percentage of the total disbursement to that 
employee to the appropriate category; and (2) the categories of 
disbursements to employees are broadened so that all withholdings will 
be allocated to the disbursement schedules with the relevant percentage 
of the net salary of the employee. The time allocated among the 
categories for each employee should total 100% of that employee's time. 
The existing forms list the compensation for each employee of the union 
who earned $10,000 or more during the reporting period, but there is no 
indication of what services the employee provided for the members of 
the union.
    The reasons for this change are essentially the same as in schedule 
11. Salary and other forms of compensation to employees are often a 
significant percentage of the total disbursements of the union, and 
union employees take an active role in the services provided by the 
union to its members. Union members should therefore be able to find 
out from the form LM-2 how the union's employees are spending their 
time, so the employees can be held accountable to the members' 
interests and priorities. These changes are an integral part of 
providing reports to union members that reflect the services performed 
by the union and further

[[Page 79287]]

explain the operations of the union during the reporting period.
    This proposal varies significantly from the rule promulgated in 
1992 and rescinded in 1993 in that labor organizations are not required 
to determine with precision what portion of each employee's time is 
spent on each activity. Rather, the reporting labor organization need 
only estimate, to the nearest 10%, the time spent by each employee on 
duties that fall within one of the categories and to allocate the 
appropriate percentage of the employee's gross salary to that category. 
This proposal does not present the difficulties inherent in the 1992 
rule with respect to determining how to allocate the ``incidental'' 
activities in which union employees might engage on their own time or 
while spending the major portion of a workday on activities that fall 
within a different category, since the amount of time spent on each 
activity is estimated and reported only as a percentage of total 
salary.
    The Department invites comments regarding whether the allocation of 
salaries based on estimated time spent on activities provides 
sufficient information or whether there is an alternative means of 
allocating the salaries of union employees that would provide as much 
or more information to union members without imposing undue burden on 
the filers. In particular, the Department invites comments on whether 
labor organizations should be required to exactly calculate the time 
spent by employees in performing duties related to specific categories 
in order to provide information that is useful to members, rather than 
rounding to 10% estimates.
    Schedule 13--Membership Status Information: This new schedule 
requires that unions report the total number of union members by type 
of membership. The membership categories include active members, 
inactive members, associate members, apprentice members, retired 
members, other members, and agency fee payers. Unions will enter ``0'' 
or ``N/A'' for any category in the schedule that does not apply. The 
existing forms do not provide a breakdown of any kind, and the 
definition of ``member'' in the instructions is too broad to ensure 
consistency. ``Member'' is currently defined as ``all categories of 
members who pay dues.'' Consequently, a union member has no way of 
knowing what criteria the union is using to define ``member,'' and 
there is no way to discern the demographics of the membership or to 
compare these statistics to other unions. The new schedule will provide 
specific information to union members who want to know the breakdown of 
the union's membership by specific categories.
    A detailed breakdown of membership will help union members obtain a 
clear understanding of the financial condition and operations of the 
union, and enable members to assess the union's financial stability 
today and in the future. For example, it would be useful for union 
members to know if the union has a high percentage of retired members 
compared to active members, because this may be indicative of the 
union's future financial viability. The number of apprentice members 
may provide a useful prospective on how many new members the union 
acquired. This can be critical information because a union with few new 
members may be less likely to prosper; therefore members might want 
their union to allocate more resources to recruit new members. It is 
also important to know how many members are inactive due to seasonal 
unemployment or layoffs, which are often affected by the terms of a 
collective bargaining agreement. Associate members are similar to 
retired members in that they pay dues but are not represented by the 
union in a collective bargaining agreement; however, they do represent 
a category of dues-paying member and may exercise influence in a union. 
Finally, agency fee payers are not members of the union, but the union 
represents them in the collective bargaining process and they make 
payments to the union for that representation. Accordingly, agency fee 
payers are not included in the total number of members of the union but 
they are an important source of revenue, and the schedule would be 
incomplete if it omitted the number of such individuals. Each category 
provides unique information that will help union members determine the 
current position of the union, its relative member interests and 
influence, and its likely future directions, in a way that is not clear 
by simply examining current financial data.
    In rescinding the 1992 rule, the Department asserted that ``it 
would be burdensome and confusing to attempt to require labor 
organizations to clarify the reported information by eliminating 
certain categories or breaking the total number of dues paying members 
into component parts.'' 58 FR 67598. No support was provided for this 
assertion, however, and it seems to be at odds with the fact that 
unions must already track this information in order to collect dues, 
conduct union elections, and calculate per capita taxes. All unions 
must currently know who can vote on a new contract or in a union 
election, and voting status may vary by type of membership. Most local 
unions must pay per capita tax to a parent body, and per capita tax 
rates may vary by type of membership. In each case, the union must 
already track membership information by categories.
    The Department invites comments regarding the question whether this 
information should be required and whether certain membership 
categories should be included or excluded from the list. The Department 
also invites comments on the question whether a labor organization 
should also be required to report the total amount of dues paid by each 
of the various categories of members and fee payers and the amount that 
the union paid or received in per capita for each category.
    Schedules 14 Through 22: Schedules 14 through 22 will greatly 
improve the quality and quantity of information provided to union 
members regarding the financial operation of their union.
    Schedule 14 requires labor organizations to report the total amount 
of ``other'' receipts during the reporting period (``other receipts'' 
are all receipts other than those that must be reported elsewhere in 
statement B of form LM-2). The labor organization will also be required 
to separately identify any ``major'' receipts during the reporting 
period. A ``major'' receipt includes: (1) Any individual receipt of 
$5,000 or more; or (2) total receipts from any single entity or 
individual that aggregate to $5,000 or more during the reporting 
period.
    Schedules 15 through 22 require labor organizations to report the 
total amount of disbursements made during the reporting period for each 
of the following categories: Contract negotiation and administration; 
organizing; political activities; lobbying; contributions, gifts and 
grants; benefits; general overhead; and other disbursements. Labor 
organizations will also be required to separately identify all 
``major'' disbursements during the reporting period in the various 
categories. A ``major'' disbursement includes: (1) Any individual 
disbursement of a certain amount, which should be from $2,000 to 
$5,000; or (2) total disbursements to any single entity or individual 
that aggregate to the same amount during the reporting period. The 
Department requests comments on the actual amount, in the $2,000 to 
$5,000 range, at which a disbursement should be considered ``major.'' 
If an entity or individual receives a number of payments from the union 
during the reporting period that are properly allocated to separate

[[Page 79288]]

categories, the union need only separately identify those payments of 
the specified amount ($2,000-$5,000) or more in the specific category. 
For example, if a union pays a total of $10,000 to a printer during the 
reporting year and determines that $9,000 of that bill should be 
allocated to lobbying costs, that amount must be identified in schedule 
18. If the remaining $1,000 paid to the same printer over the course of 
the year was attributable to contract administration expenses, that 
amount will be reported in the total under schedule 15, but need not be 
separately identified.
    The Department specifically invites comments regarding whether the 
definition of a ``major'' receipt, as an individual receipt that is 
$5,000 or more, or receipts from the same entity or individual that 
aggregate to $5,000 or more during the reporting period, is either too 
high or too low. The Department also specifically invites comments 
regarding the exact threshold, within the $2,000 to $5,000 range, that 
should be used to determine whether a disbursement is ``major,'' either 
as an individual disbursement, or with respect to disbursements to the 
same entity or individual that aggregate to a certain amount during the 
reporting period. The Department also requests comments on the question 
whether a union should be required to separately identify disbursements 
that, in the aggregate, total less than that threshold amount in a 
particular category to an individual or entity once the threshold has 
been reached either in another category or in a combination of 
categories.
    This individual identification of receipts and disbursements will 
enable union members to meaningfully assess the financial operations of 
the union, but will not require unnecessary reporting of all minor 
receipts and disbursements. The existing forms provide only aggregate 
totals of receipts and disbursements that offer an unhelpful and vague 
picture of the financial condition and operations of the union. The new 
form LM-2 will organize these receipts and disbursements in useful 
categories that more accurately reflect the services provided to the 
members by the union. Moreover, this form of reporting is facilitated 
by modern developments in electronic recordkeeping, filing, and 
disclosure that will increase the accountability and responsiveness of 
unions to their members. Because electronic recordkeeping is now 
relatively simple and the software required is inexpensive, it is used 
routinely even by very small organizations. Based on the experience of 
OLMS field offices, it is expected that unions large enough to be 
required to report using the form LM-2 already perform most, or all, 
financial recordkeeping electronically.
    As explained above and in the Instructions for filling out form LM-
2, unions will be able to choose either to type in or copy and paste 
disbursements manually or to seamlessly export financial data from the 
union's recordkeeping system by using software that will be made 
available by OLMS. The Department assumes that labor organizations with 
annual receipts of $200,000 follow standard business practices and keep 
track of the purposes for which money is spent. The Department, 
therefore, has endeavored to identify specific categories that are 
likely to describe the most common important purposes for which unions 
spend money and that are likely to be useful and meaningful to the 
labor organization and to its members. The Department does not believe 
that this requirement will impose any undue burden on reporting labor 
organizations because this sort of allocation is consistent with 
standard business practices and is already required to some degree in 
the existing forms. Unions must already track the purpose for each 
disbursement in order to appropriately aggregate them into the 
categories on the current form. Unions are also required to categorize 
disbursement in order to complete Internal Revenue Service form 990 or 
form 990-EZ, which all labor organizations that file form LM-2 are also 
required to file if they are exempt from taxation under 26 U.S.C. 
501(c)(5).
    The proposed new categories are reflected in the following new 
disbursement schedules:
    Schedule 15--Contract Negotiation and Administration: The proposed 
schedule for contract negotiation and administration will include 
preparation for, and participation in, the negotiation of collective 
bargaining agreements and the administration and enforcement of 
collective bargaining agreements, including the administration and 
arbitration of union member grievances.
    Schedule 16--Organizing: The proposed schedule for organizing will 
include disbursements for efforts to become the exclusive bargaining 
representative for any unit of employees, or to keep from losing a unit 
in a decertification election or to another labor organization, or to 
recruit new members. The Department is sensitive to the anticipated 
concerns of labor organizations that the disclosure of information 
regarding amounts spent in specific organizing campaigns may be 
detrimental to the union in those or future campaigns. At the same 
time, if no itemization were required with respect to such a major 
category of expenditures by unions, the category could easily become 
susceptible to abuse. Because unions are expected to spend large 
amounts for organizing, it would be relatively easy to hide fraud and 
embezzlement within the lump sum reported for organizing disbursements. 
In addition, the fact that union members should expect their unions to 
spend money on organizing does not diminish their interest in knowing 
how that money is spent. In order to minimize any impact of reporting 
on the success of organizing efforts, however, neither the name of the 
employer nor the specific bargaining unit that is the subject of the 
organizing activity need be identified. The Department invites comments 
regarding any other means by which unions' legitimate interests may be 
safeguarded while at the same time advancing the twin goals of enhanced 
enforcement and complete transparency.
    Schedule 17--Political Activities: The proposed schedule for 
political activities will include political disbursements or 
contributions that are intended to influence the selection, nomination, 
election, or appointment of anyone to a Federal, State, or local 
executive, legislative or judicial public office, or office in a 
political organization, or the election of Presidential or Vice 
Presidential electors, and support for or opposition to ballot 
referenda. It does not matter whether the attempt succeeds. Included 
are disbursements for political communications with members (or agency 
fee paying nonmembers) and their families, registration, get-out-the-
vote and voter education campaigns, the expenses of establishing, 
administering and soliciting contributions to union segregated 
political funds (or PACs), and other political disbursements.
    Schedule 18--Lobbying: The proposed schedule for lobbying will 
include dealing with the executive and legislative branches of the 
Federal, State, and local governments and with independent agencies and 
staffs to advance the repeal of existing laws, or the passage or defeat 
of new legislation, or the promulgation of rules or regulations 
(including litigation expenses). It does not matter whether the 
lobbying attempt succeeds.
    Schedule 21--General Overhead: The proposed schedule for general 
overhead will include disbursements for overhead that do not support a 
specific function, such as support personnel at the union's

[[Page 79289]]

headquarters, and that, therefore, cannot be reasonably allocated to 
the other disbursement schedules.
    The Department invites comments on the question whether the 
categories added to form LM-2 by the proposed revision would provide 
information to union members that will be useful and will assist them 
in participating in the governance of their unions. In addition, the 
Department invites comments on whether other categories should be added 
to, or whether any categories should be eliminated from, form LM-2.
    Statement B--Receipts and Disbursements: Cash Disbursements:
    Item 65. Strike Benefits: The proposed category of strike benefits 
will include all disbursements made to the members (or agency fee 
paying nonmembers) of the labor organization associated with strikes 
(including recognitional strikes), work stoppages and lockouts, 
including payments to or on behalf of members and others.

IV. Overview of the Revised Form LM-3 and Instructions

    Section I. Who Must File: The instructions to form LM-3 also adopt 
the recent holding of the U.S. Court of Appeals for the Ninth Circuit 
in Chao v. Bremerton Metal Trades Council, AFL-CIO, 294 F.3d 1114 
(2002), interpreting section 3(j) of the LMRDA. Accordingly, the 
Instructions will clarify that any ``conference, general committee, 
joint or system board, or joint council'' that is subordinate to a 
national or international labor organization will be required to file 
an annual financial form if the national or international labor 
organization is a labor organization engaged in an industry affecting 
commerce within the meaning of section 3(j) of the LMRDA.
    The only other change that is proposed to the form LM-3 used by 
labor organizations that have gross annual receipts of between $10,000 
and $200,000 is the elimination of the question whether they have a 
wholly owned, controlled, or financed subsidiary. Instead, such a union 
will be required to report financial information for any significant 
trust in which it has an interest. If the reporting union contributes 
$10,000 or more to the trust during the union's reporting year, or a 
contribution of $10,000 or more is made on the union's behalf or as a 
result of a negotiated agreement to which the union is a party during 
the union's reporting year, and the trust has annual receipts of 
$200,000 or more, the union will be required to file a form T-1 for the 
trust. According to year 2000 report data, 545 unions with receipts 
less than $200,000 that filed a form LM-3 reported having an interest 
in a trust, but were not required to quantify their interest, or to 
report any financial information with respect to these entities. 
Commenters are invited to comment on the question whether the 
Department's proposal strikes an appropriate balance between the need 
for transparency with respect to the financial relationships that 
involve significant amounts of union funds and the burden on smaller 
unions.

V. Overview of the Revised Form LM-4 and Instructions

    Section I. Who Must File: The Instructions to form LM-4 also adopt 
the recent holding of the U.S. Court of Appeals for the Ninth Circuit 
in Chao v. Bremerton Metal Trades Council, AFL-CIO, 294 F.3d 1114 
(2002), interpreting section 3(j) of the LMRDA. Accordingly, the 
Instructions will clarify that any ``conference, general committee, 
joint or system board, or joint council'' that is subordinate to a 
national or international labor organization will be required to file 
an annual financial form if the national or international labor 
organization is a labor organization engaged in an industry affecting 
commerce within the meaning of section 3(j) of the LMRDA.
    The only other change that is proposed to the form LM-4 used by 
labor organizations that have gross annual receipts of less than 
$10,000 is the addition of a question whether the union created or 
participated in the administration of a trust, as defined above and in 
the instructions. Such a labor organization will also be required to 
file a form T-1 for any trust in which it has an interest that has 
annual receipts of $200,000 or more if it contributes $10,000 or more 
to the trust during the union's reporting year, or a contribution of 
$10,000 or more is made on the union's behalf or as a result of a 
negotiated agreement to which the union is a party during the union's 
reporting year. Since unions that qualify to file a form LM-4 have less 
than $10,000 in annual receipts, it is unlikely that such a union would 
contribute $10,000 to a trust in which they have an interest, although 
$10,000 might be contributed on their behalf by another organization. 
Commenters are invited to comment on the question whether form LM-4 
filers should be required to file a form T-1 for any trust in which 
they have an interest.

VI. Effective Date

    In order to provide sufficient time to develop and test the 
required software, as well as enhancements to the Electronic Labor 
Organization Reporting System (e.LORS), and to assist all labor 
organizations in making any necessary adjustments to their own 
bookkeeping systems that may be required to use the new software, the 
Department proposes to make the use of revised forms LM-2, LM-3, and 
LM-4 and form T-1 mandatory for reports for fiscal years that commence 
after the publication of a final rule revising the form. If a final 
rule revising these forms were published on May 30, 2003, for example, 
no union would be required to use the revised form for any report that 
is due before August 29, 2004. For purposes of example, Table 1 shows 
when unions with specific filing due dates would be required to use the 
revised form if the final rule were published on May 30, 2003. 
Similarly, a reporting union will be required to file a form T-1 for 
any significant trust in which it has a qualifying interest for fiscal 
years of the trust that commence after the publication of a final rule.

                                                     Table 1
----------------------------------------------------------------------------------------------------------------
                                      Due dates for filing using
     End of union's fiscal year       the current form LM-2, LM-   Due dates for the union's first report using
                                              3, or LM-4               the revised form LM-2, LM-3, or LM-4
----------------------------------------------------------------------------------------------------------------
March 31, 2003.....................  June 29, 2003 & June 29,     June 29, 2005.
                                      2004.
June 30, 2003......................  September 28, 2003.........  September 28, 2004.
September 30, 2003.................  December 29, 2003..........  December 29, 2004.
December 31, 2003..................  March 31, 2004.............  March 31, 2005.
----------------------------------------------------------------------------------------------------------------


[[Page 79290]]

    The Department invites comments on whether one year is an 
appropriate time period before labor organizations are required to use 
the new form and whether labor organizations should be required to use 
the revised form to report information for a fiscal year that begins 
within 30 days of the date that a final rule is issued.

VII. Regulatory Procedures

Executive Order 12866

    This proposed rule has been drafted and reviewed in accordance with 
Executive Order 12866, section 1(b), Principles of Regulation. The 
Department has determined that this proposed rule is not an 
``economically significant'' regulatory action under section 3(f)(1) of 
Executive Order 12866. Based on a preliminary analysis of the data the 
rule is not likely to: (1) Have an annual effect on the economy of $100 
million or more or adversely affect in a material way the economy, a 
sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or state, local, or tribal 
governments or communities; (2) create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency; 
or (3) materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof. As a result, the Department has concluded that a full economic 
impact and cost/benefit analysis is not required for the rule under 
section 6(a)(3) of the Order. However, because of its importance to the 
public the rule was treated as a significant regulatory action and was 
reviewed by the Office of Management and Budget.

Small Business Regulatory Enforcement Fairness Act

    For similar reasons, the Department has concluded that this 
proposed rule is not a ``major'' rule under the Small Business 
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.). It 
will not likely result in (1) an annual effect on the economy of $100 
million or more; (2) a major increase in costs or prices for consumers, 
individual industries, Federal, State or local government agencies, or 
geographic regions; or (3) significant adverse effects on competition, 
employment, investment, productivity, innovation, or on the ability of 
United States-based enterprises to compete with foreign-based 
enterprises in domestic or export markets.

Unfunded Mandates Reform

    For purposes of the Unfunded Mandates Reform Act of 1995, this rule 
does not include a Federal mandate that might result in increased 
expenditures by State, local, and tribal governments, or increased 
expenditures by the private sector of more than $100 million in any one 
year.

Executive Order 13132 (Federalism)

    The Department has reviewed this rule in accordance with Executive 
Order 13132 regarding federalism and has determined that the rule does 
not have federalism implications. Because the economic effects under 
the rule will not be substantial for the reasons noted above and 
because the rule has no direct effect on States or their relationship 
to the Federal government, the rule does not have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.''

Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., 
requires agencies to prepare regulatory flexibility analyses, and to 
develop alternatives wherever possible, in drafting regulations that 
will have a significant impact on a substantial number of small 
entities. The Small Business Administration (SBA) determined, in a 
regulation that became effective on October 1, 2000, that the maximum 
annual receipts allowed for a labor union or similar labor organization 
and its affiliates to be considered a small organization or entity 
under section 601(4), (6) of the Regulatory Flexibility Act was $5 
million. 13 CFR 121.201 (Code Listing 813930). This amount was adjusted 
for inflation to $6 million by a regulation that became effective on 
February 22, 2002. Thus, while most of the changes proposed by this 
rule will apply to only the largest labor organizations, which are 
required to file form LM-2, it is estimated that many of these labor 
organizations would be classified as small entities under the SBA 
regulation because nearly all have annual receipts of between $200,000 
and $6 million.
    It does not appear that any party has challenged the SBA 
determination that labor organizations with receipts of over $200,000 a 
year should be considered ``small,'' nor does it appear that any party 
has requested that the SBA make an individualized inquiry into the 
appropriateness of that standard. The Department believes that the $6 
million standard set by the SBA seems unreasonably high since 
approximately 80% of all labor organizations in the United States have 
annual receipts of less than $200,000 a year. In fact, the largest 
unions--those that have over $1 million in annual receipts--control 
over 83.7% of the total receipts of all unions; 92.9% of the total 
dollar receipts reported by all labor organizations in 2000 were 
received by labor organizations that filed their annual report on form 
LM-2. It would seem more accurate to characterize the approximately 
21,000 labor organizations that have less than $200,000 in annual 
receipts and, therefore, are not required to use form LM-2 as ``small'' 
organizations. Nevertheless, the Department determined that performing 
a regulatory flexibility analysis with respect to this proposed rule is 
a better use of Department resources than proceeding with a formal 
request to change the SBA standard determination. Accordingly, the 
following analysis assesses the impact of these regulations on small 
entities as defined by the applicable SBA size standards.
(1) Reasons Why Action by Agency Is Being Considered
    The Department is proposing to revise the forms labor organizations 
use to file the annual financial reports required by the Labor-
Management Reporting and Disclosure Act of 1959, as amended (LMRDA or 
Act). This proposed rule modifies form LM-2, which is the report 
required to be filed by the largest labor organizations, and makes 
minor changes to forms LM-3 and LM-4, which are used by smaller labor 
organizations. All of these forms are prescribed by the Secretary of 
Labor to implement the Act and incorporated by reference in the 
applicable regulations.
    Over the past 40 years, the functions and operations of unions have 
evolved while the forms used by unions to file annual financial reports 
required by the LMRDA have remained substantially unchanged. This has 
undermined the goal of the statute because the forms are insufficient 
to solicit information that is relevant in light of the financial 
complexity of modern unions. As noted previously, it is impossible for 
union members to evaluate in any meaningful way the management of their 
unions when the financial disclosure reports filed with OLMS simply 
report large expenditures (e.g., $62 million) for broad, general 
categories like ``Grants to Joint Projects with State and Local 
Affiliates.'' The large dollar amount and vague description of such 
entries make it essentially impossible for anyone to

[[Page 79291]]

determine with any degree of specificity what their dues are spent on, 
which is precisely what the Act was intended to provide.
    Today's union members, more than ever before, need relevant 
information provided in a usable format in order to make the decisions 
necessary to exercise their rights as members of democratic 
institutions. The Department is committed to maintaining accountability 
and promoting full and fair disclosure by labor organizations. 
Institutions, such as labor organizations, in which the public places 
its trust, should not be permitted to utilize technicalities of 
structure to avoid disclosure. Providing additional detail on form LM-2 
and requiring disclosure on the new form T-1 of trusts in which the 
labor organization has an interest is necessary to give union members 
an accurate picture of their labor organization's finances.
    The revision of form LM-2 is also necessary to improve its 
usefulness as a deterrent to financial fraud and mismanagement. OLMS 
case files repeatedly demonstrate that this goal of the Act is not 
being met. Over the past five years, OLMS investigations resulted in 
over 640 criminal convictions. As a remedy, the courts ordered the 
responsible officials to pay $15,446,896 in restitution, in addition to 
debarring them from union service for a combined total of almost ten 
thousand years. In many cases the broad aggregated categories on the 
existing forms enabled union officers to hide embezzlements and 
financial mismanagement. More detailed reporting of all financial 
transactions is likely to discourage and reduce corruption because it 
would be more difficult to hide financial mismanagement from members.
(2) Objectives of and Legal Basis for Rule
    The legal authority for the notice of proposed rule-making is 
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.
    The objective of this proposal is to require that labor 
organizations that use form LM-2 file their annual financial reports 
electronically unless they obtain a hardship exemption and to update 
and revise the LMRDA disclosure forms to take advantage of modern 
technology and to increase the transparency of union financial 
reporting for labor organizations with annual receipts of $200,000 or 
more. This will enable workers to be responsible, informed, and 
effective participants in the governance of their unions; discourage 
embezzlement and financial mismanagement; prevent the circumvention or 
evasion of the statutory reporting requirements; and strengthen the 
effective and efficient enforcement of the Act by OLMS.
(3) Number of Small Entities Covered Under Rule
    The primary impact of this notice of proposed rule-making will be 
on the largest labor organizations, defined as those that have $200,000 
or more in annual receipts. There are approximately 5,514 labor 
organizations of this size that are required to file form LM-2 reports 
under the LMRDA. Smaller unions that file form LM-3 or LM-4 will be 
affected only by the requirement to file a form T-1 for certain trusts 
in which they have an interest. The Department estimates that 490 labor 
organizations that are permitted to use form LM-3 to file their annual 
financial report will file a form T-1 and that 25 labor organizations 
that are permitted to use form LM-4 to file their annual financial 
report will file a form T-1.
(4) Reporting, Recordkeeping and Other Compliance Requirements of the 
Rule
    This proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities. The LMRDA is 
primarily a reporting and disclosure statute. It establishes various 
reporting requirements for labor organizations, labor organization 
officers, employers, and employer consultants pursuant to title II of 
the Act. Accordingly, the primary economic impact of the proposed rule 
will be the cost to reporting unions of compiling, recording, and 
reporting additional information. The proposed rule establishes a new 
set of reporting categories for those labor organizations with receipts 
of $200,000 or more. In order to comply with the requirement that 
reports be filed electronically, reporting unions will be required to 
use software provided by OLMS. Reporting unions may also need to make 
adjustments in their bookkeeping procedures and, in some instances, to 
make changes in computing hardware or software. None of these expenses 
are expected to be substantial, in large part because labor 
organizations, like most small entities following standard business 
practices, already maintain records of their receipts and expenditures. 
Labor organizations may not now be estimating the percentage of time 
spent on various types of functions by officers and employees, as they 
will be required to do in order to complete the revised form LM-2. 
Although the estimation required is only a rough approximation, rounded 
to the nearest 10%, the Department has considered both the time that 
will be required to make this estimation, and additional training that 
may be necessary to do so, in calculating the burden that will likely 
be imposed by the use of the new form LM-2. Once the necessary 
adjustments have been made to existing accounting systems, the 
Department estimates that the average recordkeeping and reporting 
burden, and costs associated with such recordkeeping, will increase. 
See the following Paperwork Reduction Act section for greater detail. 
The changes may also have economic significance that is difficult to 
measure because increased transparency in union financial affairs will 
result in less embezzlement and financial mismanagement, and increased 
public trust.
(5) Relevant Federal Requirements Duplicating, Overlapping or 
Conflicting With the Rule
    To the extent that there are federal rules that duplicate, overlap, 
or conflict with this proposed rule, a specific exemption from the 
requirements of this rule has been provided, with one exception. Labor 
organizations are currently required to report some similar information 
to the Internal Revenue Service on form 990 or form 990-EZ if they are 
exempt from taxation under 26 U.S.C. 501(c)(5). A copy of the labor 
organization's filed form LM-2 may currently be submitted in lieu of 
answering certain questions on form 990 or form 990-EZ. The Department 
anticipates that a similar arrangement will be possible with respect to 
the revised form LM-2. Aside from those areas of potential duplication 
mentioned in the notice of proposed rulemaking, there is no duplication 
of existing labor organization reporting requirements, nor is similar 
information required by any other federal agency or statute.

[[Page 79292]]

(6) Differing Compliance or Reporting Requirements for Small Entities
    The reporting, recordkeeping, and other compliance requirements 
apply equally to all labor organizations that are required to file a 
form LM-2 under the LMRDA. The Department expects that only the largest 
labor organizations will have to make significant changes in the level 
of detail with which financial activity is reported in order to comply 
with the requirements of the proposed rule. Differences between the 
smaller labor organizations that are large enough to be required to 
file form LM-2 and the largest labor organizations are more likely to 
result from differences in the financial practices of the unions 
themselves. Only the largest filers, those that have annual receipts in 
the millions, are likely to have extensive financial transactions and 
will require substantial changes in their accounting practices in order 
to report these transactions on the new form. Unions with receipts of 
between $200,000 and $2 million, which account for over 4,400 of the 
5,514 form LM-2 filers, are likely to have less difficulty using the 
revised form.
    Smaller unions with total annual receipts of less than $200,000 
(79.5 percent of all LMRDA covered unions) can still elect to file a 
simplified report. Over 49% of all labor organizations may file either 
a form LM-2 or a form LM-3, a form that entails a lesser recordkeeping 
and reporting burden than form LM-2. The only change to form LM-3 made 
by the proposed rule is the elimination of the requirement that the 
union filing such a form report the existence of a subsidiary. In 
addition, form LM-3 filers will now have to file a form T-1 reflecting 
expenditures and receipts of any trusts or other organizations in which 
they have an interest, if $10,000 or more is contributed to the trust 
or other organization on the reporting union's behalf during the 
reporting year, and if the trust has $200,000 or more in annual 
receipts. The very smallest unions, with total annual receipts of less 
than $10,000 (30.1 percent of all LMRDA covered unions), can elect to 
file an abbreviated report, form LM-4, which further reduces their 
recordkeeping and reporting burden. Although form LM-4 filers will also 
be required to file form T-1 for any significant trusts or other funds 
in which they have an interest, if $10,000 or more is contributed to 
the trust or other fund on the reporting union's behalf during the 
reporting year, the Department expects that the number of form LM-4 
filers that will be required to file these forms will be extremely 
small.
(7) Clarification, Consolidation and Simplification of Compliance and 
Reporting Requirements for Small Entities
    OLMS has developed an electronic labor organization reporting 
system (e.LORS) that utilizes electronic technology to collect, 
maintain, and disclose the information it collects. The objectives of 
e.LORS are: The electronic filing of forms LM-2, LM-3, and LM-4 via the 
Internet; LMRDA program enhancements to improve accuracy, completeness, 
and timeliness of forms LM-2, LM-3, and LM-4; and the public disclosure 
of reports with a searchable database via the Internet. Labor 
organizations are directed to use an electronic reporting format and 
are provided a CD-ROM disk by OLMS that will enable them to maintain 
financial information that can be electronically compiled in the proper 
format for electronic filing.
    OLMS will provide compliance assistance for any questions or 
difficulties that may arise from using the software. A help desk is 
staffed during normal business hours and can be reached by calling a 
toll-free telephone number.
    The use of electronic forms makes it possible to download 
information from previous 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.
(8) The Use of Performance Rather Than Design Standards
    The Department considered a number of alternatives to the proposed 
rule that could minimize the impact on small entities. One alternative 
would be not to change the existing forms LM-2, LM-3, and LM-4. This 
alternative was rejected because OLMS case files demonstrate that the 
goals of the Act are not being met and that the broad aggregated 
reporting categories on the existing forms enable some union officers 
to hide embezzlements and financial mismanagement. As noted above, it 
is impossible to quantify the actual amount of money that unions and 
their members lost as a result of criminal activity that might have 
been prevented, or discovered sooner, if form LM-2 provided more useful 
information than it currently does. Nor is it possible to accurately 
quantify the cost of having less transparency and accountability to 
union members and the impact on union democracy and the economy.
    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 union members, particularly since such lower levels of 
union 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 union members. Of the 5,514 labor organizations that are 
required to file form LM-2, just 141 are national and international 
labor organizations. Limiting the new reporting requirements to these 
141 labor organizations would save the other form LM-2 filers 
approximately $14 million over three years. However, nearly all of the 
OLMS investigations cited above involve labor organizations other than 
the 141 that would be subject to the improved reporting requirements. 
Requiring only national and international organizations to file more 
detailed reports would not provide any deterrent to fraud and 
embezzlement by local and regional officials. The additional 
approximately $14 million cost over three years of applying the new 
reporting requirements to all unions with annual receipts of $200,000 
or more should be offset by savings to union members as a result of 
this deterrent effect.
    Another alternative could be to adjust the form LM-2 $200,000 
filing threshold for inflation since it was last adjusted in 1994. This 
would increase the threshold to approximately $250,000 and exclude 
about 650 labor organizations from having to file the new form LM-2 
(although they would still have to file a form LM-3). These 650 unions 
would save an annual average $293 in reporting and recordkeeping costs, 
or a total of nearly $190,000, by filing form LM-3 instead of the new 
form LM-2. The total difference in reporting and recordkeeping costs 
would be just 0.1 percent of their total annual revenue (assuming each 
union has $225,000 in

[[Page 79293]]

receipts). The Department has concluded that these relatively low cost-
savings do not justify eliminating the availability of thorough 
financial information from these local labor organizations, which may 
have far greater impact on and relevance to union members, particularly 
given the typical role of such lower levels of union organizations in 
setting and collecting dues and providing representational and other 
services for their members. Because the current reporting threshold 
significantly reduces the reporting burden for smaller unions, no 
change in the threshold is proposed at this time. The existing $200,000 
threshold exempts 79.5 percent of all labor organizations that file 
annual reports (forms LM-2, LM-3, and LM-4) from the requirement of 
filing the more detailed form LM-2. Moreover, the current $200,000 
threshold is already higher than the 1959 ($20,000), 1962 ($30,000), 
and 1981 ($100,000) thresholds when those thresholds are adjusted for 
inflation. However, the Department requests public comments on what is 
the appropriate level of the dollar threshold for the largest unions 
that file form LM-2.
    Another alternative would be to phase-in the effective date for the 
form LM-2 changes that would 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 one-year 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. In addition, a review of 
the proposed revisions was undertaken to reduce paperwork burden for 
all form LM-2 filers and an effort was made during the review to 
identify ways to reduce the impact on small entities. The Department 
believes it has minimized the economic impact of the form revision on 
small unions to the extent possible while recognizing workers' and the 
Department's need for information to protect the rights of union 
members under the LMRDA.
    Another alternative considered, and described in more detail above, 
was to retain the requirement that labor organizations report financial 
information for their subsidiaries, but redefine the term 
``subsidiary'' in a broader manner more consistent with its use under 
other statutes. As explained above, this alternative was rejected, but 
comments have been requested concerning this alternative.
(9) Exemption From Coverage of the Rule for Small Entities
    The current dollar threshold for form LM-2 excludes 79.5 percent of 
all labor organizations that file LMRDA annual reports with OLMS. As 
noted above, smaller unions with total annual receipts of less than 
$200,000, but more than $10,000, (49.4 percent of all LMRDA covered 
unions) can elect to file a simplified report (form LM-3) that would 
reduce their average recordkeeping and reporting burden by 69.6 
percent, from 21.81 hours to 6.64 hours per respondent in the third 
year (even more the first two years the proposed form would be in 
effect). The very smallest unions with total annual receipts of less 
than $10,000 (30.1 percent of all LMRDA covered unions) can elect to 
file an abbreviated report (form LM-4) that reduces their recordkeeping 
and reporting burden by 95.9 percent, from 21.81 hours to 0.90 hours 
per respondent.

Paperwork Reduction Act

    Summary: This proposed rule modifies the annual reports required to 
be filed by the largest labor organizations, prescribed by the 
Secretary of Labor to implement the Act and incorporated by reference 
in the applicable regulations. The revised paperwork requirements are 
necessary to enable workers to be responsible, informed, and effective 
participants in the governance of their unions; discourage embezzlement 
and financial mismanagement; prevent the circumvention or evasion of 
the statutory reporting requirements; and strengthen the effective and 
efficient enforcement of the Act by the Department.
    Published at the end of this notice are four proposed forms and 
their instructions that will implement the new reporting requirements. 
One form is the revised form LM-2, one is the revised form LM-3, one is 
the revised form LM-4, and the other is a new form T-1 for unions to 
report the assets, receipts, liabilities, and disbursements of trusts 
in which a labor organization has an interest. The proposed revisions 
to form LM-2 are designed to take advantage of technology that makes it 
possible to increase the detail with which information required to be 
reported can be provided, while at the same time making it easier to 
file and publish the contents of the reports. Union members are thus 
able to obtain a more accurate picture of their union's financial 
condition and operations without imposing an unwarranted burden on 
reporting unions. Supporting documentation need not be submitted with 
the forms, but labor organizations are required to maintain, assemble, 
and produce such documentation in the event of an inquiry from a union 
member or an audit by an OLMS investigator.
    The Department estimates the average reporting and recordkeeping 
burden for the revised form LM-2 to be 104.03 hours per respondent in 
the first year, 24.96 hours per respondent in the second year, and 
21.81 hours per respondent in the third year. The Department estimates 
the average reporting and recordkeeping burden for the revised form LM-
3 and revised form LM-4 to be 6.64 hours and 0.90 hours per respondent 
in all three years. The Department estimates the average reporting and 
recordkeeping burden for the new form T-1 to be 12.89 hours per 
respondent in the first year, 5.79 hours per respondent in the second 
year, and 5.15 hours per respondent in the third year. The Department 
estimates the annual cost to respondents for the revised form LM-2 to 
be $14.618 million in the first year, $3.281 million in the second 
year, and $2.867 million in the third year. The Department estimates 
the annual cost to respondents for the revised form LM-3 and form LM-4 
to be $1.797 million and $180,903 in all three years. The Department 
estimates the annual cost to respondents for the new form T-1 to be 
$1.218 million in the first year, $518,427 in the second year, and 
$454,448 in the third year. The annualized federal cost associated with 
the revised form LM-2, LM-3, LM-4, and the new form T-1 is estimated to 
be $7.187 million.
    Pursuant to the Paperwork Reduction Act of 1995, the information 
collection requirements contained in this NPRM have been submitted to 
the Office of Management and Budget for approval.
    Background: Every labor organization whose total annual receipts 
are $200,000 or more and those organizations that are in trusteeship 
must file an annual financial report on form LM-2, Labor Organization 
Annual Report, within 90 days after the end of its fiscal year, to 
disclose its financial condition and operations for its preceding 
fiscal year. Form LM-2 is also used by labor organizations with total 
annual receipts of $200,000 or more that cease to exist to file a 
terminal report.
    The current form LM-2 consists of 24 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;

[[Page 79294]]

a statement of receipts and disbursements; and 15 supporting schedules. 
The information that is reported includes: Whether the union has any 
subsidiary organizations; whether the union has a political action 
committee; whether the union 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 16 
categories of receipts such as dues and interest; and the dollar amount 
for 18 categories of disbursements such as payments to officers and 
repayment of loans obtained. Five of the supporting schedules include a 
detailed itemization of loans receivable and payable, the sale and 
purchase of investments and fixed assets, and payments to officers. 
There are also 10 supporting schedules for receipts and disbursements 
that provide union members with more detailed information by general 
groupings or bookkeeping categories to identify their purpose.
    In 2001, 5,932 labor organizations filed form LM-2 and the 
Department estimates the recordkeeping and reporting burden to average 
15.25 hours per respondent for a total of 82,564 hours and $1.784 
million. In developing these estimates, the Department carefully 
considered the amount of time it takes to: (a) Read the reporting 
instructions; (b) gather books and records to complete the report; (c) 
organize the books and records to respond to various reporting 
requirements; (d) complete the form; and (e) check the responses. The 
recordkeeping requirements are minimal because the majority of 
financial books and records required to complete the reports are those 
that the reporting organizations maintain in the normal course of 
business and are, therefore, not factored into the burden hours. 
Moreover, any capital investment including computers and software that 
are usual and customary expenses incurred by persons in the normal 
course of their business are excluded from the regulatory definition of 
burden.
    The Department's developed electronic reporting system, e.LORS, 
uses information technology to perform some of the administrative 
functions of the reporting system. The objectives of e.LORS are 
electronic filing of forms LM-2, LM-3, and LM-4, 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 will reduce the 
burden on reporting organizations, provide increased information to 
union members, and enhance LMRDA enforcement by OLMS. The Department is 
working towards to integrating other LMRDA disclosure documents into 
e.LORS in the future. The OLMS Internet Disclosure site is available 
for public use. The site contains a copy of each labor organization's 
annual financial report as well as an indexed computer database on the 
information for each report that is searchable through the Internet.
    To ease the transition to electronic disclosure, OLMS will include 
e.LORS information in its outreach program through the OLMS Help Desk 
and through formal group sessions conducted for union officials 
regarding compliance. The new and revised forms will be provided on CD-
ROM discs at no cost to labor organizations. The electronic form will 
also be available from OLMS field offices and from the OLMS National 
Office. Unions will be required, however, to pay a minimal fee to 
obtain electronic signature capability for the two officers who sign 
the form. OLMS has implemented a system to permit union officers to 
sign electronically submitted forms with digital signatures. 
Information about this system can be obtained on the OLMS website at 
http://www.dol.gov/esa/regs/compliance/olms/digital-signatures.htm. 
Digital signatures ensure the authenticity of form LM-2 reports without 
compromising efficiency.
    Filing labor organizations will find several advantages to 
electronic filing. With e.LORS, information from previously filed 
reports and officer or employee information can be directly imported to 
form LM-2. Not only is entry of the information eased, the software 
also makes mathematical calculations and checks for errors or 
discrepancies. The efficiency gains from electronic submission will 
alleviate much of the burden of revised form LM-2's new information 
requirements.
    Ready acceptance of the benefits of electronic filing is 
predictable based on experience with software that OLMS has developed 
and distributed to labor organizations for completing the current forms 
LM-2, LM-3, and LM-4. Approximately 40% of unions that currently file 
form LM-2, LM-3, and LM-4 take advantage of the ability to enter data 
electronically on a computerized form. Enhancements of e.LORS will make 
it possible for all labor organizations to submit the new and revised 
forms electronically, although it is expected that some labor 
organizations will obtain hardship exemptions and file paper form LM-2 
reports while they update their bookkeeping procedures.

Overview of Changes to Form LM-2

    The updated form LM-2 includes: Three fewer questions (21 instead 
of 24) 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; an updated statement of receipts and 
disbursements that asks for information on fewer categories of receipts 
(13 instead of 16) and disbursements (17 instead of 18); and seven 
additional supporting schedules (22 instead of 15). The updated 
statement of receipts and disbursements also drops seven old categories 
of disbursements and adds six new categories that will provide more 
useful information to union members on the amount of union funds spent 
on contract negotiation and administration, organizing, strike 
benefits, general overhead, political activities, and lobbying.
    Many of the supporting schedules are not changing; over half (8) of 
the 15 current supporting schedules are either unchanged (7) or have 
been dropped from the updated form (1). Four of the current supporting 
schedules have only minor changes involving information that is 
maintained in the normal course of business. For example, on the 
schedule for itemizing investments the reporting threshold has changed 
from $1,000 and 20 percent of the total book value of the union's 
investments to $5,000 and 5 percent of the total. On the two schedules 
for disbursements to officers and employees the reporting of gross 
salary is changing to net salary and two new dollar amounts for direct 
taxes withheld and other withheld amounts have been added. On the 
fourth schedule that currently itemizes all benefit disbursements, the 
reporting of name, description, and amount has been expanded to include 
address, purpose, and date of the disbursement.
    One important change to form LM-2 is the addition of three new 
separate schedules. The new schedules require the reporting of (1) the 
name of any entity or individual with which the labor organization had 
an account payable valued at $1,000 or more that was more than 90 days 
past due at the end of the reporting period or that was liquidated, 
reduced or written off during the reporting period; (2) the name of any 
entity or individual with which the labor organization had an account 
receivable valued at $1,000 or more that was more than 90 days past due 
at the

[[Page 79295]]

end of the reporting period or that was liquidated, reduced or written 
off during the reporting period; and (3) the number of union members by 
seven different membership categories. The Department believes that all 
of this reported information is maintained in the normal course of 
business. While labor organizations have not previously been required 
to report all of this information, the development of electronic 
software that will permit unions that keep their records electronically 
to import data from their programs to the form LM-2 software should 
reduce the burden of the revised reporting requirement. Labor 
organizations that do not currently maintain electronic books, or that 
use accounting software that proves incompatible with the software 
developed by the Department will experience modest increased burden. 
Another important change to form LM-2 is the individual identification 
of various receipts and disbursements for three of the current 
supporting schedules and five of the new supporting schedules. 
Currently, three of these supporting schedules provide some detail 
about various receipts and disbursements by general groupings or 
bookkeeping categories to identify their purpose. The updated form LM-2 
will require these eight supporting schedules to individually identify 
receipts of $5,000 or more or total receipts from an entity or 
individual that aggregate to $5,000 or more during the reporting 
period, and disbursements of a certain amount ($2,000-$5,000) or total 
disbursements to an entity or individual that aggregate to a certain 
amount ($2,000-$5,000) during the reporting period.
    The last major change to form LM-2 will require unions to report 
the major receipts and disbursements of trusts in which the labor 
organization has an interest. If a union's financial contribution to a 
trust, or a contribution made on the union's behalf, is less than 
$10,000, the union only has to report the existence of the trust and 
the amount of the union's contribution or the contribution made on the 
union's behalf. If the contribution is $10,000 or more, the labor 
organization will be required to report the receipts and disbursements 
of the trust on the proposed new form T-1. Unions will be required to 
separately identify each amount received by a trust from the same 
entity or individual of $10,000 or more during the reporting period, as 
well as receipts from the same entity or individual that aggregate to 
$10,000 or more during the reporting period. Unions will also be 
required to separately identify any individual disbursement of $10,000 
or more during the reporting period, as well as any disbursements to 
the same entity or individual that aggregate to $10,000 or more during 
the reporting period. If annual audits or financial reports are already 
made available for organizations that meet the statutory definition of 
a trust, the only additional information that a union will be required 
to report on form LM-2 is a statement that such a report or audit has 
been filed or is available, and where union members can obtain the 
information.
    Technological advances have made it possible to provide the level 
of detail necessary for union members to have a more accurate picture 
of their union's financial condition and operations without imposing an 
unwarranted burden on reporting unions. OLMS staff who review the 
reports filed and provide compliance assistance have found that a 
majority of unions required to file form LM-2 use computerized 
recordkeeping systems and have embraced the technology necessary to 
provide reports in electronic form. Several OLMS field offices report 
that even smaller unions that file form LM-3 reports keep electronic 
books. The development of electronic software that will permit unions 
that keep their records electronically to import data from their 
programs to the form LM-2 software should reduce the burden of 
reporting financial information with the specificity required by the 
proposed rule. While labor organizations have not previously been 
required to report all of this information, they have been required to 
make judgments regarding the appropriate characterization of 
expenditures in order to report those expenditures by category in the 
current form. Once the necessary adjustments have been made to 
electronic recordkeeping systems, no additional burden will be entailed 
by the need to make similar judgments with respect to fewer categories. 
Labor organizations that do not currently maintain electronic books, or 
that use accounting software that proves incompatible with the software 
developed by the Department, will experience an increased burden.
    Finally, as noted previously, the instructions to form LM-2 adopt 
the recent holding of the U.S. Court of Appeals for the Ninth Circuit 
in Chao v. Bremerton Metal Trades Council, AFL-CIO, 294 F. 3d 1114 
(2002), and clarify that any ``conference, general committee, joint, or 
system board, or joint council'' that is subordinate to a national or 
international labor organization is itself a labor organization under 
the LMRDA and will be required to file an annual financial form if the 
national or international labor organization is a labor organization 
engaged in an industry affecting commerce within the meaning of section 
3(j) of the LMRDA.

Overview of Changes to Forms LM-3 and LM-4

    Changes proposed to forms LM-3 and LM-4 involve a single question 
on each form, and the additional requirement of filing a form T-1 under 
certain circumstances. The proposed revision of form LM-3 is simply the 
elimination of a question whether the union has a subsidiary. The 
proposed revision of form LM-4 is simply the addition of a question 
whether the union has created or participated in the administration of 
a trust, as defined in the Instructions, during the reporting year. The 
form T-1 filing requirement is the same for form LM-3 and form LM-4 
filers as it is for form LM-2 filers.
    The instructions to both form LM-3 and LM-4 also adopt the recent 
holding of the U.S. Court of Appeals for the Ninth Circuit in Chao v. 
Bremerton Metal Trades Council, AFL-CIO, 294 F.3d 1114 (2002), and 
clarify that any ``conference, general committee, joint or system 
board, or joint council'' that is subordinate to a national or 
international labor organization is itself a labor organization under 
the LMRDA and will be required to file an annual financial form if the 
national or international labor organization is a labor organization 
engaged in an industry affecting commerce within the meaning of section 
3(j) of the LMRDA.

Overview of the New Form T-1

    The new form T-1 is structured similarly to the revised form LM-2. 
It includes: 21 questions that identify the trust, provide basic 
information (in a yes/no format), and the total amount of assets 
liabilities, receipts and disbursements of the trust; a schedule that 
separately identifies any individual or entity from which the trust 
receives $10,000 or more during the reporting year; a schedule that 
separately identifies any entity or individual that received 
disbursements that aggregate to $10,000 or more from the trust during 
the reporting period; a schedule of disbursements to officers and 
employees of the trust; and a schedule of loans receivable.
    Estimated Recordkeeping and Reporting Burden: The burden hour 
estimates associated with forms LM-2, LM-3, LM-4, and T-1 are based on 
the latest available data and OLMS staff

[[Page 79296]]

estimates. In developing these estimates, the Department carefully 
considered the amount of time it takes to: (1) Read and review the new 
reporting instructions; (2) gather books and records to complete the 
report; (3) organize the books and records to respond to various 
reporting requirements; (4) complete the form; and (5) check the 
responses for each form. The Department has also allotted an average 
burden hour estimate associated with the first-year implementation of 
the electronic form LM-2 and the new form T-1 for each respondent. In 
developing this estimate, the Department accounted for the additional 
time in the first year to: (a) Install software; (b) test and review 
software; (c) implement electronic signatures; (d) modify current 
accounting systems; and (e) train employees. Although an OLMS survey of 
its district offices reveals that the large majority of form LM-2 
respondents already keep their records electronically, the Department 
has allotted an average burden hour estimate associated with the first-
year implementation of electronic recordkeeping and reporting.
    As part of the ongoing e.LORS project, OLMS plans to develop and 
distribute to labor organizations software for form LM-2 that will 
electronically import data from their accounting systems into the form 
and then transmit it electronically to OLMS. The process will be 
similar to the popular off-the-shelf tax filing software packages that 
are widely used by businesses, accountants, and individuals. OLMS also 
plans to increase the staff available for its compliance assistance 
outreach efforts and to utilize its Help Desk and conferences to 
address any questions or difficulties filers may have using the 
software.
    The on-going recordkeeping burden associated with both forms are 
minimal because most of the information and records that are required 
to complete the reports are maintained in the normal course of business 
by the reporting organizations. The time for normal recordkeeping 
functions are not factored into the burden hours except to estimate the 
time it would take an auditing clerk to make electronic entries 
regarding the reporting category for a disbursement and the source of 
non-dues receipts. Moreover, any capital investment that is a usual and 
customary expense incurred by persons in the normal course of their 
business, including computers and software, is excluded from the 
regulatory definition of burden.
    Estimated Burden for Form LM-2: The Department estimates the time 
to complete form LM-2 will initially increase compared to previous 
years because of the implementation of the new reporting system. 
However, once the new reporting system is in place the Department 
anticipates that the burden will significantly decrease and will be 
marginally higher than the present estimated burden. The decrease in 
burden will be a direct consequence of the efficiencies gained using 
the OLMS electronic system for filing the forms.
    The Department determined the burden hours by estimating the time 
required to complete each report and the recordkeeping hours associated 
with each report. First year burden hour and cost estimates are broken 
out separately from ongoing burden hour and cost estimates. See Table 2 
below for a summary of the burden hour estimates associated with 
revised form LM-2.
    The number of responses for revised form LM-2 is based on the 
number of forms submitted in calendar year 2001 by labor organizations 
that submitted form LM-2 and the latest available data. For the revised 
form LM-2, the Department estimates an initial increase in burden 
associated with installing, testing, and reviewing software, as well as 
adapting existing recordkeeping systems to the new reporting 
categories. There also is an increase in reporting burden for the 
additional information associated with individually identifying 
receipts and disbursements and training officers and employees. These 
increases are partially offset by the timesaving features of the 
software. In the first year, the Department estimates an average 104.03 
hours of reporting burden per respondent and 1.0 hours of recordkeeping 
burden per respondent. As noted above, the Department assumes that the 
information required to be reported is already maintained by labor 
organizations in the normal course of business. The Department's 
estimate of the recordkeeping burden includes only minimal time for 
keeping records regarding the calculation of the percentage of 
officers' and employees' salaries attributable to specific categories, 
which may not ordinarily be reflected in records already maintained, 
because that calculation is based only on an estimate and need not be 
demonstrated by actual records of time spent in each category.
    The reporting burden decreases in the second year and continues to 
decrease significantly in the third year because of the time saved from 
electronic filing. The Department estimates the average reporting 
burden to be 24.96 hours per respondent in the second year and 21.81 
hours per respondent in the third year. The average recordkeeping 
burden remains at 1.0 hour per respondent in each year because most 
records required to complete the reports are maintained in the normal 
course of business.
    The Department estimates that 5 percent of form LM-2 filers will 
submit a Continuing Hardship Exemption Request in the first year and 
that it will take 1 hour to prepare this request. The Department 
further estimates that 3 percent of form LM-2 filers will submit a 
hardship request in the second year and that 1 percent will submit a 
request in the third year.
    The Department also estimates the annualized cost to respondents to 
be $14.618 million in the first year, $3.281 million in the second 
year, and $2.867 million in the third year. The average cost per 
respondent is estimated to be $2,651 in the first year, $595 in the 
second year, and $520 in the third year. The cost estimates are based 
on wage-rate data obtained from the Department's Bureau of Labor 
Statistics for personnel employed in service industries (i.e. 
accountant, bookkeeper, etc.). The estimates used for salaries of labor 
organization officers and employees are obtained from the annual 
financial reports filed with OLMS.
    The annualized federal cost associated with revised forms LM-2, LM-
3, and LM-4 and the new form T-1 is estimated to be $7.187 million. 
This includes operational expenses such as equipment, overhead, and 
printing as well as salaries and benefits for the OLMS staff in the 
National Office and field offices that are involved with reporting and 
disclosure activities. The estimate also includes the annualized cost 
for redesigning the forms, developing and implementing the electronic 
software, and implementing digital signature capability.
    Estimated Burden for Forms LM-3 and LM-4: The Department estimates 
a small decrease in burden associated with the elimination of the 
question on form LM-3 regarding whether the union has a subsidiary. The 
Department also estimates a small increase in burden associated with 
the addition of a question on form LM-4 regarding whether the union has 
created or participated in the administration of a trust, as defined in 
the instructions, during the reporting year, both because answering 
this question will take little time and because unions that are small 
enough to file a form LM-4 are unlikely to have an interest in many 
trusts. See Table 2, below, for a summary.
    Estimated Burden for Form T-1: Like form LM-2, the time to complete 
form T-1 will initially be higher for the first year compared to the 
second and third years because of the implementation of the new 
reporting system and electronic

[[Page 79297]]

filing. See Table 2 below for a summary of the burden hour estimates 
associated with the new form T-1.
    For the new form T-1 five assumptions were made to estimate the 
number of responses. First, it was assumed that 10 percent of the 2,309 
LM-2 filers with annual revenues of from $200,000 to $499,999 would 
file one form T-1. Second, it was assumed that 35 percent of the 3,162 
form LM-2 filers with annual revenues of from $500,000 to $49.999 
million would file an average of 2.3 form T-1s. Third, it was assumed 
that 100 percent of the 43 form LM-2 filers with annual revenues of $50 
million or more would file an average of five T-1 reports each. Fourth, 
it was assumed that 90 percent of the 545 form LM-3 filers that report 
having a trust, and that 90 percent of the estimated 50 intermediate 
labor organizations that will file form LM-3 as a result of the recent 
decision of the U.S. Court Appeals for Ninth Circuit in Chao v. 
Bremerton Metal Trades Council, AFL-CIO, would have trusts that meet 
the $10,000 contribution and $200,000 annual receipt threshold 
reporting requirements. Finally, it was assumed that just 0.3 percent 
of form LM-4 filers would have trusts that meet the $10,000 
contribution and $200,000 annual receipt threshold reporting 
requirements. Because labor organizations have not previously reported 
information regarding many entities that fall within the definition of 
trusts or funds in which they have an interest, it is difficult to 
estimate how many of such entities exist. Accordingly, the Department 
invites comment on these assumptions and the potential number of 
responses to the new form T-1.
    For the new form T-1, the Department estimates a higher initial 
burden associated with installing, testing, and reviewing software, as 
well as adapting existing recordkeeping systems to the new reporting 
categories. There also is a reporting burden for the information 
associated with individually identifying receipts and disbursements of 
the trust. These burdens are partially offset by the timesaving 
features of the software. Finally, although a labor organization that 
is significantly involved in directing the operations of a trust or 
other fund in which it is interested is likely to maintain records 
regarding such a fund, other labor organizations may be required to 
obtain and maintain records that they have not previously kept. In the 
first year, the Department estimates an average 12.39 hours of 
reporting burden per respondent and 0.5 hours of recordkeeping burden 
per respondent.
    The reporting burden decreases significantly in the second year and 
continues to decrease significantly in the third year because of the 
time saved from electronic filing. The Department estimates the average 
reporting to be 5.29 hours per respondent in the second year and 4.65 
hours per respondent in the third year. The average recordkeeping 
burden remains at 0.5 hours per respondent in each year because most 
records required to complete the reports are maintained in the normal 
course of business.

                  Table 2.--Reporting and Recordkeeping Burden Hours for Form LM-2 and Form T-1
----------------------------------------------------------------------------------------------------------------
                                              Reporting      Total     Recordkeeping      Total         Total
                                 Number of    hours per    reporting     hours per    recordkeeping     burden
                                 responses    respondent     hours       respondent       hours         hours
----------------------------------------------------------------------------------------------------------------
Revised Form LM-2:
    First Year................        5,514       104.03      573,621          1.00          5,514       579,135
    Second Year...............        5,514        24.96      137,629          1.00          5,514       143,143
    Third Year................        5,514        21.81      120,260          1.00          5,514       125,774
Revised Form LM-3:
    First Year................       13,290         6.39       84,923          0.25          3,323        88,246
    Second Year...............       13,290         6.39       84,923          0.25          3,323        88,246
    Third Year................       13,290         6.39       84,923          0.25          3,323        88,246
Revised Form LM-4:
    First Year................        8,108         0.87        7,054          0.03            270         7,324
    Second Year...............        8,108         0.87        7,054          0.03            270         7,324
    Third Year................        8,108         0.87        7,054          0.03            270         7,324
New Form T-1:
    First Year................        3,551        12.39       43,997          0.50          1,776        45,772
    Second Year...............        3,551         5.29       18,785          0.50          1,776        20,560
    Third Year................        3,551         4.65       16,512          0.50          1,776        18,288
----------------------------------------------------------------------------------------------------------------

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 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 rule in accordance with Executive 
Order, and has determined that it does not have ``tribal 
implications.'' The 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 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 regulation has been drafted and reviewed in accordance with 
Executive Order 12988, Civil Justice Reform, and will not unduly burden 
the Federal court system. The regulation has been written so as to 
minimize litigation and provide a clear legal standard for affected 
conduct, and has been reviewed carefully to eliminate drafting errors 
and ambiguities.

[[Page 79298]]

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 rule is not subject to Executive Order 13211, because it will 
not have a significant adverse effect on the supply, distribution, or 
use of energy.

List of Subjects in 29 CFR Parts 403 and 408

    Labor unions, Reporting and recordkeeping requirements.

Text of Proposed Rule

    In consideration of the foregoing, the Office of Labor-Management 
Standards, Employment Standards Administration, Department of Labor 
hereby proposes to amend parts 403 and 408 of title 29 of the Code of 
Federal Regulations as set forth below.

PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS

    1. The authority citation for part 403 is revised to read as 
follows:

    Authority: Secs. 202, 207, 208, 73 Stat. 525, 529 (29 U.S.C. 
432, 437, 438); Secretary's Order No. 4-2001, 66 FR 29656, May 31, 
2001.

    2. Section 403.2 is amended by:
    a. Removing the words ``together with a true copy thereof'' at the 
end of paragraph (a) and removing the comma preceding those words.
    b. Adding paragraph (d) to read as follows:


Sec.  403.2  Annual financial report.

* * * * *
    (d) Every labor organization shall, except as otherwise provided, 
file a report on form T-1 for every trust in which the labor 
organization is interested, as defined in section 3(l) of the Act, 29 
U.S.C. 402(l), that has gross annual receipts of $200,000 or more, and 
to which $10,000 or more was contributed during the reporting period by 
the labor organization or on the labor organization's behalf or as a 
result of a negotiated agreement to which the labor organization is a 
party. A separate report shall be filed on form T-1 for each such trust 
within 90 days after the end of the trust's fiscal year in the detail 
required by the instructions accompanying the form and constituting a 
part thereof, and shall be signed by the president and treasurer, or 
corresponding principal officers, of the labor organization. No form T-
1 need be filed for a trust if an annual audit or financial report 
providing the same information and a similar level of detail is 
otherwise available pursuant to federal or state law, as specified in 
the instructions accompanying form T-1. If, on the date for filing the 
annual financial report of such trust, such labor organization is in 
trusteeship, the labor organization that has assumed trusteeship over 
such subordinate labor organization shall file such report as provided 
in Sec.  408.5 of this chapter.
    3. Section 403.5 is amended by:
    a. In paragraph (a), removing the words ``and one copy'' and 
removing the commas preceding and following those words.
    b. In paragraph (b), removing the words ``and one copy'' and 
removing the commas preceding and following those words.
    c. Adding a new paragraph (d) to read as follows:


Sec.  403.5  Terminal financial report.

* * * * *
    (d) If a trust in which a labor organization is interested loses 
its identity through merger, consolidation, or otherwise, the labor 
organization shall, within 30 days after such loss, file a terminal 
report on form T-1, with the Office of Labor-Management Standards, 
signed by the president and treasurer or corresponding principal 
officers of the labor organization. For purposes of the report required 
by this paragraph, the period covered thereby shall be the portion of 
the trust's fiscal year ending on the effective date of the loss of its 
reporting identity.

PART 408--LABOR ORGANIZATION TRUSTEESHIP REPORTS

    4. The authority citation for part 408 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. 4-2001, 66 FR 29656, May 31, 
2001.


Sec.  408.5  [Amended]

    5. Section 408.5 is amended by:
    a. Adding the words ``and any form T-1 reports'' after the words 
``on behalf of the subordinate labor organization the annual financial 
report'' and before the words ``required by part 403 of this chapter''.
    b. Removing the words ``together with one true copy thereof'' at 
the end of the section and removing the comma preceding those words.

    Signed in Washington, DC, this 19th day of December, 2002.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.

Appendix

    Note: This appendix, which will not appear in the Code of 
Federal Regulations, revises forms LM-2, LM-3, and LM-4, and 
proposes a new form T-1 and revises or provides instructions for 
each form, provided in part 403, to read as follows:

BILLING CODE 4510-CP-P

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[FR Doc. 02-32445 Filed 12-23-02; 2:44 pm]
BILLING CODE 4510-CP-C