[Federal Register Volume 69, Number 245 (Wednesday, December 22, 2004)]
[Proposed Rules]
[Pages 76628-76632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27971]


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FEDERAL ELECTION COMMISSION

11 CFR Part 114

[Notice 2004-18]


Payroll Deductions by Member Corporations for Contributions to a 
Trade Association's Separate Segregated Fund

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Election Commission requests comments on proposed 
amendments to its rules regarding contributions to the separate 
segregated fund (``SSF'') of a trade association by employee-
stockholders and executive and administrative personnel (collectively, 
``restricted class employees'') of corporations that are members of the 
trade association. Currently, the Commission's regulations prohibit any 
corporate member of a trade association from using a payroll deduction 
or check-off system for employee contributions to the trade 
association's SSF. The Commission proposes to amend its regulations to 
permit a corporate member of a trade association to provide incidental 
services to collect and forward contributions from its restricted class 
employees to the SSF of the trade association, including a payroll

[[Page 76629]]

deduction or check-off system, upon written request of the trade 
association. In addition, the proposed regulations would require any 
corporate member of a trade association that provides incidental 
services for contributions to the trade association's SSF also to 
provide the same services for contributions to the SSF of any labor 
organization that represents employees of the corporation, upon written 
request of the labor organization and at a cost not to exceed actual 
expenses incurred. The Commission has not made any final decisions on 
the amendments proposed in this Notice and requests comments on them. 
Further information appears below.

DATES: Comments must be received on or before January 21, 2005. If the 
Commission receives sufficient requests to testify, it may hold a 
hearing on these proposed rules. Commenters wishing to testify at the 
hearing must so indicate in their written or electronic comments.

ADDRESSES: All comments should be addressed to Mr. Brad C. Deutsch, 
Assistant General Counsel, and must be submitted in either electronic 
or written form. Commenters are strongly encouraged to submit comments 
electronically to ensure timely receipt and consideration. Electronic 
mail comments should be sent to [email protected] and may also be 
submitted through the Federal eRegulations Portal at 
www.regulations.gov. All electronic comments must include the full 
name, electronic mail address, and postal service address of the 
commenter. Electronic comments that do not contain the full name, 
electronic mail address, and postal service address of the commenter 
will not be considered. If the electronic comments include an 
attachment, the attachment must be in the Adobe Acrobat (.pdf) or 
Microsoft Word (.doc) format. Faxed comments should be sent to (202) 
219-3923, with printed copy follow-up. Written comments and printed 
copies of faxed comments should be sent to the Federal Election 
Commission, 999 E Street, NW., Washington, DC 20463. The Commission 
will post public comments on its Web site. If the Commission decides 
that a hearing is necessary, the hearing will be held in the 
Commission's ninth floor meeting room, 999 E Street NW., Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Mr. Brad C. Deutsch, Assistant General 
Counsel, or Ms. Amy L. Rothstein, Attorney, 999 E Street NW., 
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: With this notice, the Commission is 
publishing and seeking comments on a proposed amendment to its 
regulations regarding corporate use of payroll deduction or check-off 
systems\1\ to collect and forward voluntary employee contributions to 
the SSF of a trade association of which the corporation is a member. 
The Commission's regulations currently prohibit member corporations 
from making payroll deduction or check-off systems available for 
employee contributions to a trade association's SSF. See 11 CFR 
114.8(e)(3).
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    \1\ The term ``check-off system'' as used here means a method by 
which an employee affirmatively designates a portion of his or her 
salary to be collected through payroll deductions and contributed to 
a trade association's SSF, by checking that designation on a pre-
printed form or card.
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    The Commission is publishing this proposed rule in response to a 
petition for rulemaking. See Notice of Availability, 68 FR 60887 
(October 24, 2003). The Commission emphasizes, however, that it has not 
made any final decision on whether to amend the existing rules on this 
subject, and invites comments on the proposed rulemaking.
    The Commission proposes to amend 11 CFR 114.8(e)(3) to remove the 
current prohibition on corporate use of a payroll deduction or check-
off system for employee contributions to the SSF of a trade association 
of which the corporation is a member. The proposed rule would add a new 
paragraph 114.8(e)(4), which would specifically authorize a member 
corporation to provide incidental services to collect and forward 
contributions from its restricted class employees to a trade 
association's SSF, including a payroll deduction or check-off system, 
upon written request of the trade association. Further, the proposed 
rule would require any corporation that provides these incidental 
services also to make the same services available to a labor 
organization representing members who work for the corporation, upon 
written request by the labor organization and at a cost not to exceed 
any actual expenses incurred. Finally, the proposed rule would make a 
conforming change to 11 CFR 114.2(f), to clarify that the provision of 
incidental services pursuant to proposed 11 CFR 114.8(e)(4) is not a 
prohibited corporate facilitation.

Legal Context

    The Federal Election Campaign Act of 1971, as amended (the 
``Act''), and the Commission's regulations permit any trade association 
to solicit contributions to the trade association's SSF from the 
stockholders and executive and administrative personnel, and their 
families, of the trade association's member corporations, if the member 
corporation involved has separately and specifically approved the 
solicitation and has not approved a solicitation by any other trade 
association for the same calendar year. See 2 U.S.C. 441b(b)(4)(D); 11 
CFR 114.8(c). Once these conditions are met, ``[t]here is no limitation 
on the method of soliciting voluntary contributions or the method of 
facilitating the making of voluntary contributions which a trade 
association may use.'' 11 CFR 114.8(e)(3).
    Although the regulations do not limit the methods that a trade 
association may use to solicit and facilitate the making of voluntary 
contributions to its SSF from the restricted class employees of 
consenting member corporations, the regulations do limit the methods 
that a consenting member corporation may use to collect and distribute 
those contributions. Specifically, a ``member corporation may not use a 
payroll deduction or check-off system for executive or administrative 
personnel contributing to the separate segregated fund of the trade 
association.'' Id. The Commission has interpreted this prohibition to 
extend to all employees of the corporation that may be solicited by the 
trade association (i.e., restricted class employees), including the 
member corporation's employee-stockholders. See Advisory Opinion 1989-
3.
    In recent years, the Commission has given corporations some 
latitude in collecting and transmitting contributions to a trade 
association's SSF, so long as the collection did not involve employee 
payroll deductions. For instance, in Advisory Opinion 2003-22, the 
Commission interpreted the regulations to permit a corporate member of 
a trade association to collect voluntary contributions in the form of 
paper checks from its executive and administrative personnel, and to 
transmit the contributions to the trade association's SSF. In that 
opinion, the Commission also interpreted the regulations to permit 
corporate executives who were collecting employee contribution checks 
to use the member corporation's inter-office mail system to help 
collect the checks, and to provide envelopes and postage in which 
contributors could send their contributions to the trade association's 
SSF.
    Moreover, the Commission has permitted member corporations to 
deduct contributions electronically to a trade association's SSF, so 
long as the member corporations did not deduct the

[[Page 76630]]

contributions from employee payrolls. See Advisory Opinions 2000-4 and 
1998-19. In addition, the Commission has permitted a trade association 
to pay for electronically deducting monthly contributions to its SSF 
from the personal checking accounts of restricted class employees of 
consenting member corporations. See Advisory Opinion 1999-35. The 
Commission also has permitted State leagues of a federation of trade 
associations and the leagues' local corporate members to serve as 
collecting agents for contributions to the federation's SSF, and to pay 
expenses incurred in connection with that activity. See Advisory 
Opinion 1998-19; compare to Advisory Opinion 2000-4.

The Petition for Rulemaking

    On September 3, 2003, the Commission received a Petition for 
Rulemaking (the ``Petition'') from America's Community Bankers and its 
SSF, the America's Community Bankers Community Campaign Committee 
(collectively, ``Petitioners''). Petitioners asked the Commission to 
amend the regulations to permit, rather than to prohibit, a member 
corporation to use a payroll deduction or check-off system for 
contributions by its restricted class employees to a trade 
association's SSF.
    Petitioners advanced four arguments in support of their request. 
First, Petitioners asserted that the Act does not require the exclusion 
of payroll deduction and check-off systems from permissible methods of 
collecting and forwarding contributions to a trade association's SSF. 
Second, Petitioners asserted that the prohibition on payroll deduction 
and check-off systems is inconsistent with Commission advisory opinions 
and other Commission regulations. Third, Petitioners asserted that the 
concerns that prompted the prohibition in the first place, as discussed 
at a June 29, 1976 Commission meeting, (1) resulted from a 
misunderstanding on the part of some of the commissioners at the 
meeting, (2) are inconsistent with later Commission actions, and (3) 
could have been addressed by means other than the prohibition.\2\ 
Finally, Petitioners asserted that factual and legal changes that have 
occurred since the prohibition was promulgated in 1976 warrant a change 
in the regulations.
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    \2\ Petitioners identified several concerns as having prompted 
the prohibition, including a concern that labor unions be given 
equal access to fundraising methods used by corporations, and a 
concern that corporate facilitation of contributions to a trade 
association's SSF would be prohibited by the Act. These issues are 
addressed further in the text of this Notice.
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    In accordance with its usual procedures, the Commission published a 
notice stating that the Petition was available for public review and 
comment. See Notice of Availability, 68 FR 60887 (October 24, 2003). 
The comment period closed on November 24, 2003. The Commission received 
30 comments in response to the Notice of Availability: 22 from trade 
associations, six from corporate members of one of the trade 
associations that submitted comments, one from a professional 
association, and one from a Member of Congress. The comments submitted 
by the six corporations were substantially identical both to each other 
and to comments submitted by the trade association to which the 
corporations belonged.

Summary of Comments on the Petition for Rulemaking

    All of the comments received by the Commission supported the 
Petition for Rulemaking. The commenters' arguments in favor of the 
Petition fell into three categories: legal, policy and practical.

1. Legal Arguments

    Almost all of the commenters addressed the question of whether the 
Act prohibits member corporations from using payroll deduction and 
check-off systems to collect voluntary contributions to a trade 
association's SSF from restricted class employees. All of the 
commenters that addressed the question concluded that the Act does not 
prohibit the use of payroll deduction and check-off systems.
    Moreover, several commenters asserted that eliminating the 
prohibition would be consistent with the Act's broad grant of authority 
to trade associations to solicit contributions to their SSFs from the 
restricted class of consenting member corporations, as set out in 2 
U.S.C. 441b(b)(4)(D). Several commenters also asserted that eliminating 
the regulatory prohibition would be consistent with the Act's exclusion 
of corporate, trade association and labor union payments for 
establishing, administering and soliciting contributions to an SSF from 
the definition of ``contribution or expenditure,'' as set out in 2 
U.S.C. 441b(b)(2)(C).
    With respect to the regulation itself, a few commenters perceived 
an inconsistency between the first sentence of 11 CFR 114.8(e)(3), 
which permits a trade association to use any method to solicit and 
facilitate the making of voluntary contributions from restricted class 
employees of consenting member corporations, and the second sentence of 
11 CFR 114.8(e)(3), which contains the prohibition on member 
corporations' use of payroll deduction and check-off systems at issue 
here. The commenters opined that only the first sentence is consistent 
with the Act.
    Several commenters indicated that the Commission's own advisory 
opinions support eliminating the prohibition. Specifically, the 
commenters argued that the prohibition is inconsistent with (1) 
Advisory Opinion 2003-22, which permits a member company to collect and 
forward employee contributions in the form of checks to a trade 
association's SSF; (2) Advisory Opinions 1995-28, 1995-17, 1989-18 and 
1980-89, which allow a member corporation to contribute to a trade 
association to help defray the costs of establishing, administering and 
soliciting for the trade association's SSF; and (3) Advisory Opinions 
1999-35, 1998-19, 1997-9 and 1986-7, which permit contributions to a 
trade association's SSF or a membership association's SSF to be 
automatically debited from contributors' accounts.

2. Policy Arguments

    Several commenters perceived a lack of a policy rationale for the 
prohibition on corporate use of payroll deductions to collect voluntary 
employee contributions to a trade association's SSF. They argued that 
the lack of an underlying policy purpose was demonstrated by the 
Commission's issuance of advisory opinions permitting other methods of 
collecting contributions to a trade association's SSF.
    In addition, a number of commenters asserted that any underlying 
policy rationale for the prohibition has been rendered obsolete by the 
growth in the use of electronic methods for making and receiving 
payments since 1976, including by federal government agencies such as 
the Internal Revenue Service and the Social Security Administration. 
The commenters noted the decreasing role of paper checks in American 
society. They cited to the growing prevalence of electronic payroll 
deductions in the workplace, the large number of employees who 
currently use payroll deductions and the variety of goods and services 
paid through payroll deductions, such as health and life insurance 
premiums, flexible spending accounts, retirement savings plans, 
charitable contributions, loan and mortgage payments, gym memberships 
and club dues.
    One commenter stated that questions regarding the permissibility of 
various forms of electronic deductions are likely to increase, both in 
number and in

[[Page 76631]]

complexity, as technology advances and as corporations provide more 
innovative financial services to their employees. This commenter 
suggested that amending the regulations to permit payroll deductions 
would eliminate the need for the Commission to answer these questions 
on a case-by-case basis through the advisory opinion process.
    Several commenters also indicated that removing the regulatory 
prohibition could help to promote fairness. According to one commenter, 
the current regulation disadvantages SSFs sponsored by smaller trade 
associations that try to compete in the political arena against SSFs 
sponsored by larger trade associations, presumably because larger trade 
associations and their SSFs have greater resources to devote to SSF 
fundraising efforts. This commenter suggested that removing the 
regulatory prohibition on payroll deductions could help smaller trade 
associations' SSFs to raise funds and thus to compete with larger trade 
associations' SSFs in representing their members' political interests.
    In addition, several commenters complained that SSFs sponsored by 
trade associations are at a disadvantage compared to SSFs sponsored by 
corporations and labor organizations, not only because the regulations 
permit payroll deductions of contributions to corporate and labor 
organization SSFs, but also because they require trade association SSFs 
to obtain prior approval before soliciting restricted class employees, 
without imposing any analogous prior approval requirement on corporate 
and labor organization SSFs. These commenters suggested that removing 
the prohibition on member corporations' use of payroll deductions to 
collect employee contributions to a trade association's SSF could help 
to rectify a perceived inequality in the fundraising abilities of trade 
association SSFs on the one hand, and corporate and labor organization 
SSFs on the other hand.
    Finally, some commenters pointed out that not all corporate members 
of trade associations have their own SSFs, and that these companies may 
rely on their trade association's SSF to serve as their political 
voice. According to these commenters, a trade association's SSF is one 
of the most accessible mechanisms for political participation by 
restricted class employees of companies that do not have their own 
SSFs, and allowing payroll deduction and check-off systems would allow 
restricted class employees to spread out their contributions easily 
over time.

3. Practical Arguments

    A number of commenters addressed the practical advantages of 
permitting member corporations to make payroll deductions available to 
their restricted class employees for contributions to a trade 
association's SSF. The commenters described payroll deductions as, 
among other things, widely available, reliable, simple to administer, 
convenient and imposing minimal or no cost on the corporations that 
offer them.
    According to these commenters, the benefits of permitting a member 
corporation to collect voluntary employee contributions to a trade 
association's SSF through a payroll deduction or check-off system would 
extend to every party to the transaction. Contributing employees would 
find it more convenient and affordable to have smaller, regular 
contributions automatically deducted from their paychecks than to write 
a single check for a larger sum. Member corporations would find it more 
efficient and less costly to collect employee contributions through 
automatic payroll deductions, and those that did not would be free to 
use other methods of collecting contributions. Trade associations would 
be able to reduce their SSF fundraising expenses, and their SSFs would 
find it easier to track and document both contributing individuals and 
individual contributions. The end result, according to these 
commenters, would be increased participation by individuals in the 
political process and enhanced reporting of their contributions.

Analysis

    The Petition and comments raise a reasonable question as to whether 
the regulatory prohibition against payroll deduction and check-off 
systems continues to make sense. Accordingly, the Commission concludes 
that the goals of the Act and the interests of the regulated community 
would be best served by further examination of this issue and invites 
public comments on it.

1. Proposed Changes to 11 CFR 114.8(e)

    The Commission proposes amending 11 CFR 114.8(e) to remove the 
prohibition on a corporation's use of a payroll deduction or check-off 
system for contributions by restricted class employees to the SSF of a 
trade association of which the corporation is a member. The Commission 
proposes to effect this change by deleting the second sentence of 11 
CFR 114.8(e)(3) in its entirety and by adding a new paragraph 
114.8(e)(4). Existing paragraph 114.8(e)(4) would be redesignated as 
114.8(e)(5).
    As proposed, new paragraph 114.8(e)(4) would permit, but not 
require, a corporation to provide incidental services to collect and 
forward contributions from its restricted class employees to the SSF of 
a trade association of which the corporation is a member, upon written 
request of the trade association. Based on information in the Petition 
and in the comments regarding the wide availability and minimal cost of 
payroll deductions, the proposed regulation would expressly authorize 
the use of a payroll deduction or check-off system as an incidental 
service. The Commission invites public comments on this issue.
    In addition to permitting a member corporation to provide 
incidental services to collect and forward employee contributions to a 
trade association's SSF, proposed paragraph 114.8(e)(4) would require 
any corporation that provides these services to make the same services 
available to a labor organization representing employees of the 
corporation, upon written request of the labor organization and at a 
cost that does not exceed any actual expenses incurred. The Commission 
considers this requirement to be necessary to prevent circumvention of 
provisions in the Act and Commission regulations that seek to prevent 
corporate SSFs from gaining an unfair fundraising advantage over labor 
organization SSFs. See 2 U.S.C. 441b(b)(6) and 11 CFR 114.5(k)(1).
    The Petitioners and some of the commenters noted that a corporation 
without its own SSF might rely exclusively on its trade association's 
SSF to represent its corporate interests in the political arena. Absent 
the requirement in proposed paragraph 114.8(e)(4) that a member 
corporation make incidental services available to a labor organization 
representing employees of the corporation if the corporation makes 
those services available to a trade association, a corporation could 
allow restricted class employees to contribute through payroll 
deductions to the corporation's proxy SSF administered by a trade 
association, without permitting employees who are members of a labor 
organization to contribute to their labor organization's SSF through 
payroll deductions. This outcome would create an inequality that could 
subvert the careful balance struck in the Act and Commission 
regulations between corporate SSFs and labor organization SSFs. The 
Commission invites public comments on this issue.
    The only distinction in the proposed rule between providing 
incidental

[[Page 76632]]

services to collect and forward employee contributions to a trade 
association's SSF on the one hand, and providing incidental services to 
collect and forward employee contributions to a labor organization's 
SSF on the other hand, is in the area of reimbursement. The proposed 
rule would not require a trade association or its SSF to reimburse the 
corporation for any actual expenses that the corporation incurs in 
providing the incidental services. As the Commission has stated 
previously, ``incidental services by corporate members would not 
require reimbursement by the trade association since, in any event, 
reimbursement if required would come from membership dues paid to the 
trade association by its corporate members.'' Advisory Opinion 1979-8 
at 2, citing to Federal Election Regulations, Explanation and 
Justification, House Document No. 95-44, page 114. See also Advisory 
Opinion 1978-13.
    A labor organization or its SSF that receives incidental services 
from a corporate employer of members of the labor organization, by 
contrast, would be required to reimburse the corporation for the cost 
of providing those services. The Commission has previously found that a 
prohibited corporate contribution would result from a failure by a 
labor organization to reimburse a corporation for actual expenses 
incurred by the corporation in providing a payroll deduction or check-
off system for contributions to the labor organization's SSF. See 
Advisory Opinions 1981-39 and 1979-21. The Commission invites public 
comments on this issue.

2. Proposed Changes to 11 CFR 114.2(f)

    The Commission proposes making a conforming change to the 
regulation that currently prohibits a corporation from facilitating the 
making of contributions to political committees, other than to the 
corporation's own SSF. See 11 CFR 114.2(f)(1). The term 
``facilitation'' means using corporate resources or facilities to 
engage in fundraising activities in connection with any federal 
election. Id. Facilitation does not include, however, enrollment by a 
corporation or labor organization of members of the corporation's or 
labor organization's restricted class in a payroll deduction plan or 
check-off system to make contributions to the corporation's or labor 
organization's SSF. See 11 CFR 114.2(f)(4)(i).
    The Commission proposes adding a new paragraph (5) to 11 CFR 
114.2(f), to specify that facilitation also would not include the 
provision of incidental services by a corporation to collect and 
forward voluntary contributions from its restricted class employees to 
the SSF of a trade association of which the corporation is a member, 
pursuant to 11 CFR 114.8(e)(4), as revised. The new paragraph would 
state that a corporation could collect the contributions through a 
payroll deduction or check-off system. The Commission invites public 
comments on this proposal.

Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory 
Flexibility Act)

    The attached proposed rules, if promulgated, would not have a 
significant economic impact on a substantial number of small entities. 
The basis for this certification is that the proposed rules permit, but 
do not require, a corporation to provide incidental services to collect 
and forward contributions from its restricted class employees to the 
separate segregated fund of a trade association of which the 
corporation is a member, including the use of a payroll deduction or 
check-off system. Under current law, a corporation is permitted to 
collect and transmit contributions manually to the SSF of a trade 
association to which the corporation belongs. If promulgated, the 
proposed rule should enable those corporations that wish to transmit 
employee contributions to trade association SSFs to do so more 
efficiently and using fewer resources.

List of Subjects in 11 CFR Part 114

    Business and industry, elections, labor.

    For the reasons set out in the preamble, the Federal Election 
Commission proposes to amend subchapter A of chapter 1 of title 11 of 
the Code of Federal Regulations as follows:

PART 114--CORPORATE AND LABOR ORGANIZATION ACTIVITY

    1. The authority citation for part 114 continues to read as 
follows:

    Authority: 2 U.S.C. 431(8)(B), 431(9)(B), 432, 434, 437d(a)(8), 
441b.

    2. Amend Sec.  114.2 by adding new paragraph (f)(5), to read as 
follows:


Sec.  114.2  Prohibitions on contributions and expenditures.

* * * * *
    (f) * * *
    (5) Facilitating the making of contributions also does not include 
the provision of incidental services by a corporation to collect and 
forward contributions from its employee stockholders and executive and 
administrative personnel to the separate segregated fund of a trade 
association of which the corporation is a member, including collection 
through a payroll deduction or check-off system, pursuant to 11 CFR 
114.8(e)(4).
    3. Amend Sec.  114.8 by revising paragraph (e)(3), by redesignating 
paragraph (e)(4) as new paragraph (e)(5), and by adding a new paragraph 
(e)(4) to read as follows:


Sec.  114.8  Trade associations.

* * * * *
    (e) * * *
    (3) There is no limitation on the method of soliciting voluntary 
contributions or the method of facilitating the making of voluntary 
contributions which a trade association may use.
    (4) A corporation may provide incidental services to collect and 
forward contributions from its employee stockholders and executive and 
administrative personnel to the separate segregated fund of a trade 
association of which the corporation is a member, including a payroll 
deduction or check-off system, upon written request of the trade 
association. Any corporation that provides such services shall make 
those services available to a labor organization representing any 
members working for the corporation, upon written request of the labor 
organization and at a cost sufficient only to reimburse the corporation 
for the expenses incurred thereby.
* * * * *

    Dated: December 17, 2004.
Bradley A. Smith,
Chairman, Federal Election Commission.
[FR Doc. 04-27971 Filed 12-21-04; 8:45 am]
BILLING CODE 6715-01-P