[Federal Register Volume 73, Number 43 (Tuesday, March 4, 2008)]
[Proposed Rules]
[Pages 11754-11801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-3853]



[[Page 11753]]

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Part III





Department of Labor





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Office of Labor-Management Standards



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29 CFR Part 403



Labor Organization Annual Financial Reports; Proposed Rule

  Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / 
Proposed Rules  

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 403

RIN 1215-AB64


Labor Organization Annual Financial Reports

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

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: The Department of Labor's Employment Standards Administration 
(``ESA'') proposes to promulgate a rule that establishes a form to be 
used by labor organizations to file trust annual financial reports with 
ESA's Office of Labor-Management Standards (``OLMS''), provides 
appropriate instructions, and revises relevant sections of 29 CFR Part 
403 relating to such reports. The proposed changes are made pursuant to 
section 208 of the Labor-Management Reporting and Disclosure Act 
(``LMRDA''), 29 U.S.C. 438. The proposed rule will apply prospectively.

DATES: Comments must be received on or before April 18, 2008.

ADDRESSES: You may submit comments, identified by RIN 1215-AB64, only 
by the following methods:
    Internet--Federal eRulemaking Portal. Electronic comments may be 
submitted through www.regulations.gov. To locate the proposed rule, use 
key words such as ``Labor-Management Standards'' or ``Labor 
Organization Annual Financial Reports'' to search documents accepting 
comments. Follow the instructions for submitting comments. Please be 
advised that comments received will be posted without change to 
www.regulations.gov, including any personal information provided.
    Mail: Mailed comments should be sent to: Kay H. Oshel, Director of 
the Office of Policy, Reports and Disclosure, Office of Labor-
Management Standards, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Room N-5609, Washington, DC 20210.
    Because of security precautions the Department continues to 
experience delays in U.S. mail delivery. You should take this into 
consideration when preparing to meet the deadline for submitting 
comments.
    OLMS recommends that you confirm receipt of your mailed comments by 
contacting (202) 693-0123 (this is not a toll-free number). Individuals 
with hearing impairments may call (800) 877-8339 (TTY/TDD).
    Only those comments submitted through www.regulations.gov, hand-
delivered, or mailed will be accepted.
    Comments will be available for public inspection during normal 
business hours at the above address.

FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director of the Office 
of Policy, Reports and Disclosure, at: Kay H. Oshel, U.S. Department of 
Labor, Employment Standards Administration, Office of Labor-Management 
Standards, 200 Constitution Avenue, NW., Room N-5609, Washington, DC 
20210, (202) 693-1233 (this is not a toll-free number), (800) 877-8339 
(TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Statutory Authority

    This proposed rule is issued pursuant to section 208 of the LMRDA, 
29 U.S.C. 438. Section 208 authorizes the Secretary of Labor to issue, 
amend, and rescind rules and regulations to implement the LMRDA's 
reporting provisions. Secretary's Order 4-2007, issued May 2, 2007, and 
published in the Federal Register on May 8, 2007 (72 FR 26159), 
contains the delegation of authority and assignment of responsibility 
for the Secretary's functions under the LMRDA to the Assistant 
Secretary for Employment Standards and permits re-delegation of such 
authority. The proposal implements section 201 of the LMRDA, which 
requires covered labor organizations to file annual, public reports 
with the Department, detailing the labor organization's cash flow 
during the reporting period, and identifying its assets and 
liabilities, receipts, salaries and other direct or indirect 
disbursements to each officer and all employees receiving $10,000 or 
more in aggregate from the labor organization, direct or indirect loans 
(in excess of $250 aggregate) to any officer, employee, or member, 
loans (of any amount) to any business enterprise, and other 
disbursements. 29 U.S.C. 431(b). The statute requires that such 
information shall be filed ``in such detail as may be necessary to 
disclose [a labor organization's] financial conditions and 
operations.'' Id.
    Section 208 directs the Secretary to issue rules ``prescribing 
reports concerning trusts in which a labor organization is interested'' 
as she ``may find necessary to prevent the circumvention or evasion of 
[the LMRDA's] reporting requirements.'' 29 U.S.C. 438. Section 3(l) of 
the LMRDA provides:

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

29 U.S.C. 402(l).

II. Background

A. Introduction

    The Department proposes to establish a Form T-1 to capture 
financial information pertinent to ``trusts in which a labor 
organization is interested'' (``section 3(l) trusts''), information 
that historically has largely gone unreported despite the trusts' 
significant effect on labor organization financial operations and their 
members' own interests. This proposal is part of the Department's 
continuing effort to better effectuate the reporting requirements of 
the LMRDA. The LMRDA's various reporting provisions are designed to 
empower labor organization members by providing them the means to 
maintain democratic control over their labor organizations and ensure a 
proper accounting of labor organization funds. Labor organization 
members are better able to monitor their labor organization's financial 
affairs and to make informed choices about the leadership of their 
labor organization and its direction when labor organizations provide 
financial information required by the LMRDA. By reviewing the reports, 
a member may ascertain the labor organization's priorities and whether 
they are in accord with the member's own priorities and those of fellow 
members. At the same time, this transparency promotes both the labor 
organization's own interests as a democratic institution and the 
interests of the public and the government. Furthermore, the LMRDA's 
reporting and disclosure provisions, together with the fiduciary duty 
provision, 29 U.S.C. 501, which directly regulates the primary conduct 
of labor organization officials, operate to safeguard a labor 
organization's funds from depletion by improper or illegal means. 
Timely and complete reporting also helps deter labor organization 
officers or employees from embezzling or otherwise making improper use 
of such funds.
    The proposed rule helps brings the reporting requirements for labor 
organizations and section 3(l) trusts in line with contemporary 
expectations for the disclosure of financial information. Today labor 
organizations are more like

[[Page 11755]]

modern corporations in their structure, scope, and complexity than the 
labor organizations of 1959.\1\ The balance between wages/salaries paid 
to workers and their ``other compensation'' has changed significantly 
during this time. For example, in 1966, over 80 percent of total 
compensation consisted of wages and salaries, with less than 20 percent 
representing benefits. U.S. Department of Labor, Report on the American 
Workforce (2001) 76, 87. By 2007, wages dropped to 71.8 percent of 
total compensation and benefits grew to 29.2 percent of the 
compensation package. U.S. Department of Labor, Bureau of Labor 
Statistics Chart on Total Benefits, available at http://data.bls.gov/cgi-bin/surveymost. Moreover, labor organization members today are 
better educated, more empowered, and more familiar with financial data 
and transactions than ever before. Labor organization members, no less 
than consumers, citizens, or creditors, expect access to relevant and 
useful information in order to make fundamental investment, career, and 
retirement decisions, evaluate options, and exercise legally guaranteed 
rights.
    In August and September of 2007, Department officials met with 
representatives of the community that would be affected by the proposed 
Form T-1, including officials of labor organizations and their legal 
counsel, to hear their views on the need for reform and the likely 
impact of changes that might be made. The Department developed its 
proposal with these discussions in mind and it requests comments from 
this community and other members of the public on any and all aspects 
of the proposal.
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    \1\ There are now more large labor organizations affiliated with 
a national or international body then ever before. In 2006, 4,452 
labor organizations, including 95 national and international labor 
organizations, reported $250,000 or more in total annual receipts.
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B. The LMRDA's Reporting and Other Requirements

    In enacting the LMRDA in 1959, a bipartisan Congress made the 
legislative finding that in the labor and management fields ``there 
have been a number of instances of breach of trust, corruption, 
disregard of the rights of individual employees, and other failures to 
observe high standards of responsibility and ethical conduct which 
require further and supplementary legislation that will afford 
necessary protection of the rights and interests of employees and the 
public generally as they relate to the activities of labor 
organizations, employers, labor relations consultants, and their 
officers and representatives.'' 29 U.S.C. 401(a). The statute was 
designed to remedy these various ills through a set of integrated 
provisions aimed at labor organization governance and management. These 
include a ``bill of rights'' for labor organization members, which 
provides for equal voting rights, freedom of speech and assembly, and 
other basic safeguards for labor organization democracy, see 29 U.S.C. 
411-415; financial reporting and disclosure requirements for labor 
organizations, their officers and employees, employers, labor relations 
consultants, and surety companies, see 29 U.S.C. 431-436, 441; detailed 
procedural, substantive, and reporting requirements relating to labor 
organization trusteeships, see 29 U.S.C. 461-466; detailed procedural 
requirements for the conduct of elections of labor organization 
officers, see 29 U.S.C. 481-483; safeguards for labor organizations, 
including bonding requirements, the establishment of fiduciary 
responsibilities for labor organization officials and other 
representatives, criminal penalties for embezzlement from a labor 
organization, a prohibition on certain loans by a labor organization to 
officers or employees, prohibitions on employment by a labor 
organization of certain convicted felons, and prohibitions on payments 
to employees, labor organizations, and labor organization officers and 
employees for prohibited purposes by an employer or labor relations 
consultant, see 29 U.S.C. 501-505; and prohibitions against 
extortionate picketing, retaliation for exercising protected rights, 
and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529, 
530.
    The LMRDA was the direct outgrowth of a Congressional investigation 
conducted by the Select Committee on Improper Activities in the Labor 
or Management Field, commonly known as the McClellan Committee, chaired 
by Senator John McClellan of Arkansas. In 1957, the committee began a 
highly publicized investigation of labor organization racketeering and 
corruption; and its findings of financial abuse, mismanagement of labor 
organization funds, and unethical conduct provided much of the impetus 
for enactment of the LMRDA's remedial provisions. See generally 
Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of 
1959, 73 Harv. L. Rev. 851, 851-55 (1960). During the investigation, 
the committee uncovered a host of improper financial arrangements 
between officials of several international and local labor 
organizations and employers (and labor consultants aligned with the 
employers) whose employees were represented by the labor organizations 
in question or might be organized by them. Similar arrangements were 
also found to exist between labor organization officials and the 
companies that handled matters relating to the administration of labor 
organization benefit funds. See generally Interim Report of the Select 
Committee on Improper Activities in the Labor or Management Field, S. 
Report No. 85-1417 (1957); see also William J. Isaacson, Employee 
Welfare and Benefit Plans: Regulation and Protection of Employee 
Rights, 59 Colum. L. Rev. 96 (1959).
    Financial reporting and disclosure were conceived as partial 
remedies for these improper practices. As noted in a key Senate Report 
on the legislation, disclosure would discourage questionable practices 
(``The searchlight of publicity is a strong deterrent.''); aid labor 
organization governance (Labor organizations will be able ``to better 
regulate their own affairs. The members may vote out of office any 
individual whose personal financial interests conflict with his duties 
to members''); facilitate legal action by members against ``officers 
who violate their duty of loyalty to the members''; and create a record 
(The reports will furnish a ``sound factual basis for further action in 
the event that other legislation is required''). S. Rep. No. 187 (1959) 
16 reprinted in 1 NLRB Legislative History of the Labor-Management 
Reporting and Disclosure Act of 1959 412.
    The Department has developed several forms for implementing the 
LMRDA's financial reporting requirements. The annual reports required 
by section 202(b) of the Act, 29 U.S.C. 432(b) (Form LM-2, Form LM-3, 
and Form LM-4), contain information about a labor organization's 
assets, liabilities, receipts, disbursements, loans to officers and 
employees and business enterprises, payments to each officer, and 
payments to each employee of the labor organization paid more than 
$10,000 during the fiscal year. The reporting detail required of labor 
organizations, as the Secretary has established by rule, varies 
depending on the amount of the labor organization's annual receipts. 29 
CFR 403.4.
    Labor organizations with annual receipts of at least $250,000 and 
all labor organizations in trusteeship (without regard to the amount of 
their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4. 
This form may be filed voluntarily by any other labor organization. The 
Form LM-2 now requires receipts and disbursements to

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be reported by functional categories, such as representational 
activities; political activities and lobbying; contributions, gifts, 
and grants; union administration; and benefits. Further, the form 
requires filers to allocate the time their officers and employees spend 
according to functional categories, as well as the payments that each 
of these officers and employees receive, and it compels the itemization 
of certain transactions totaling $5,000 or more. This form must be 
electronically signed and filed with the Department.\2\
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    \2\ The Form LM-2 and its instructions are published at 68 FR 
58449-523 (Oct. 9, 2003) and are available at http://www.olms.dol.gov. Copies of the Form LM-3 and Form LM-4 are also 
available at http://www.olms.dol.gov.
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    The labor organization's president and treasurer (or its 
corresponding officers) are personally responsible for filing the 
reports and for any statement in the reports known by them to be false. 
29 CFR 403.6. These officers are also responsible for maintaining 
records in sufficient detail to verify, explain, or clarify the 
accuracy and completeness of the reports for not less than five years 
after the filing of the forms. 29 CFR 403.7. A labor organization 
``shall make available to all its members the information required to 
be contained in such reports'' and ``shall * * * permit such member[s] 
for just cause to examine any books, records, and accounts necessary to 
verify such report[s].'' 29 CFR 403.8(a).
    The reports are public information. 29 U.S.C. 435(a). The Secretary 
is charged with providing for the inspection and examination of the 
financial reports, 29 U.S.C. 435(b); for this purpose, OLMS maintains: 
(1) A public disclosure room where copies of such reports filed with 
OLMS may be reviewed and; (2) an online public disclosure site, where 
copies of such reports filed since the year 2000 are available for the 
public's review.

III. Proposal

A. Introduction

    Labor organization members need to be provided with information 
about the finances and operation of section 3(l) trusts, which, by 
statutory definition are established and maintained primarily to 
provide benefits to the members and/or their beneficiaries. 29 U.S.C. 
402(l). Section 3(l) trusts are created for a myriad of purposes; 
common examples include credit unions, strike funds, redevelopment or 
investment groups, training funds, apprenticeship programs, pension and 
welfare plans, building funds, and educational funds. These trusts are 
funded in a number of different ways. Some may be funded with employer 
contributions and jointly administered by trustees appointed by labor 
organizations and employers. By requiring that labor organizations file 
the Form T-1, labor organization members and the public will receive 
the same benefit of transparency they now receive under the Form LM-2. 
Under this proposal, any labor organization or trust official who 
places their own personal financial interests above their duty to the 
labor organization and the trust--and third parties complicit with 
these officials--will find it more difficult to circumvent and evade 
their legal obligations.
    The Department proposes to require a labor organization with total 
annual receipts of $250,000 or more to file a Form T-1 for each trust 
of the type defined by section 3(l) of the LMRDA, 29 U.S.C. 402(l) 
(defining ``trust in which a labor organization is interested'') where 
the labor organization during the reporting period, either alone or in 
combination with other labor organizations, (1) selects or appoints the 
majority of the members of the trust's governing board, or (2) 
contributes more than 50 percent of the trust's revenue; contributions 
made on behalf of the labor organization or its members shall be 
considered the labor organization's contribution.
    The proposed Form T-1 uses the same basic template as prescribed 
for the Form LM-2. Both forms require the labor organization to provide 
specified aggregated and disaggregated information relating to the 
financial operations of the labor organization and the trust. 
Typically, a labor organization will be required to provide information 
on the Form T-1 explaining certain transactions by the trust (such as 
disposition of property by other than market sale, liquidation of 
debts, loans or credit extended on favorable terms to officers and 
employees of the trust); and identifying major receipts and 
disbursements by the trust during the reporting period. The proposed 
Form T-1, however, is shorter and requires less information than the 
Form LM-2. As proposed, the Form T-1, unlike the Form LM-2, does not 
require that receipts and disbursements be identified by functional 
category. The proposed Form T-1 includes: 14 questions that identify 
the trust, six yes/no questions covering issues such as whether any 
loss or shortage of funds was discovered during the reporting year and 
whether the trust had made any loans to officers or employees of the 
labor organizations at terms below market rates, statements regarding 
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, individually or 
in the aggregate, during the reporting period; a schedule that 
separately identifies any entity or individual that received 
disbursements that aggregate to $10,000 or more, individually or in the 
aggregate, from the trust during the reporting period and the purpose 
of disbursement; and a schedule of disbursements of $10,000 or more to 
officers and employees of the trust. Under the proposal, exceptions are 
provided for labor organizations with section 3(l) trusts where the 
trust, as a political action committee (``PAC'') or a political 
organization (the latter within the meaning of 26 U.S.C. 527), submits 
timely, complete and publicly available reports required of them by 
federal or state law with government agencies. A partial exception is 
provided for a trust for which an audit was conducted in accordance 
with prescribed standards and the audit is made publicly available. As 
proposed, a labor organization choosing to use this option must 
complete and file the first page of the Form T-1 and a copy of the 
audit.
    The Department specifically invites comments on whether the trust's 
``employer identification number'' (``EIN'') should be reported on the 
first page of the Form T-1. This number could be used by members of 
labor organizations to cross-check the information on the Form T-1 with 
other reports submitted by the trust, such as its filings with the 
Internal Revenue Service (``IRS'').
    This proposal contains many of the same features proposed by the 
Department in 2002 and incorporates some changes in the 2003 and 2006 
final rules, which are discussed below. The proposal limits the 
reporting obligation to those labor organizations that alone or in 
combination with other labor organizations maintain management control 
or financial domination over a section 3(l) trust. For purposes of 
measuring a labor organization's financial dominance, as discussed 
below, funds paid into the trust by an employer on behalf of the labor 
organization or its members are treated the same as contributions made 
from the labor organization's own funds.
    Two threshold requirements that were contained in the 2003 and 2006 
rules relating to the amount of a labor organization's contributions to 
a trust ($10,000 per annum) and the amount of the contributions 
received by a trust ($250,000 per annum) are not included in the 
proposal. The Department believes that the labor organization's

[[Page 11757]]

control over the trust either alone or with other labor organizations, 
measured by its selection of a majority of the trust's governing body 
or its majority share of receipts during the reporting period, provides 
the appropriate gauge for determining whether a Form T-1 must be filed 
by the participating labor organization. In contrast to the 2003 and 
2006 rules, the Department's proposal does not include an exemption for 
section 3(l) trusts that are part of employee benefit plans that file a 
Form 5500 Annual Return/Report under the Employee Retirement Income 
Security Act (``ERISA'').

B. Judicial Review of Earlier Form T-1 Rulemaking

    This proposal follows the Department's earlier efforts to implement 
a Form T-1 reporting obligation. The proposal is an outgrowth of these 
earlier efforts and takes into account the guidance provided by the 
United States Court of Appeals for the District of Columbia Circuit in 
its 2005 review of the 2003 Form T-1 rule, 68 FR 58374 (American 
Federation of Labor and Congress of Industrial Organizations v. Chao, 
409 F.3d 377 (2005)).
    In November 2003, the American Federation of Labor and Congress of 
Industrial Organizations (``AFL-CIO'') filed a complaint against the 
Department, challenging the combined Form LM-2 and Form T-1 rule. The 
suit was filed with the U.S. District Court for the District of 
Columbia; through this action, the AFL-CIO asked the court to order 
temporary, preliminary, and permanent relief to enjoin and vacate the 
Department's rule. The rule was upheld on its merits by the district 
court (AFL-CIO v. Chao, 298 F.Supp.2d 104 (D.D.C. 2004). On appeal, the 
D.C. Circuit in its 2005 opinion unanimously upheld the Form LM-2 rule 
as a reasonable exercise of the Department of Labor's LMRDA rulemaking 
authority. In a divided decision, however, the court vacated the Form 
T-1 rule because, in its view, the Department exceeded its authority by 
``requiring general trust reporting.'' 409 F.3d at 378-79, 391. The 
court framed the issue before it as ``whether Form T-1 comports with 
the statutory requirements that the Department `find [such rule is] 
necessary to prevent' evasion of LMRDA Title II reporting 
requirements.'' Id. at 386 (quoting section 208 of the LMRDA, 29 U.S.C. 
438).
    Given what it viewed as the ambiguity inherent in the word 
``necessary'' as used in section 208 (authorizing reports ``necessary 
to prevent circumvention or evasion of * * * reporting requirements''), 
the court examined the Form T-1 portion of the rule to determine 
whether the Department's interpretation of the statute was permissible. 
Id. at 386-87; see also Chevron U.S.A., Inc. v. Natural Resources 
Defense Council, Inc., 467 U.S. 837, 843 (1984). The AFL-CIO argued 
that the Department's Form T-1 rule was impermissible, in part, because 
it encompassed joint trusts, which by operation of statute were 
independent of a labor organization's control. 409 F.3d at 388; see 29 
U.S.C. 186(c). In rejecting this argument, the court noted that the 
statutory definition of ``trust in which a union is interested,'' 29 
U.S.C. 402(l), included joint trusts, such as Taft-Hartley employer-
funded benefit plans, and agreed with the Department's interpretation 
that such trusts could be used to evade the reporting requirements. 409 
F.3d at 387-88. The court agreed with the Department's reasoning that 
``[s]ince the money an employer contributes to such a `trust' * * * 
might otherwise have been paid directly to the workers in the form of 
increased wages and benefits, the members * * * have a right to know 
what funds were contributed, how the money is managed and how it is 
being spent.'' Id. at 387. The court held that ``[s]ection 208 does not 
limit the [Department] to requiring reporting only in order to disclose 
transactions involving the misuse of labor organization members' funds 
because leaving the decision about disclosure to such trusts * * * 
would allow unions to circumvent or evade reporting on the use of 
members' funds diverted to the trust.'' Id. at 388-89.
    The court recognized that reports on trusts that reflect a labor 
organization's financial condition and operations are within the 
Department's rulemaking authority, including trusts ``established by 
one or more unions or through collective bargaining agreements calling 
for employer contributions, [where] the union has retained a 
controlling management role in the organization,'' and also those 
``established by one or more unions with union members' funds because 
such establishment is a reasonable indicium of union control of that 
trust.'' Id. The court acknowledged that the Department's findings in 
support of its rule were based on particular situations where reporting 
about trusts would be necessary to prevent evasion of the related labor 
organizations' own reporting obligations. Id. at 387-88. One example 
included a situation where ``trusts [are] funded by union members' 
funds from one or more unions and employers, and although the unions 
retain a controlling management role, no individual union wholly owns 
or dominates the trust, and therefore the use of the funds is not 
reported by the related union.'' Id. at 389 (emphasis added). In citing 
these examples, the court explained that ``absent circumstances 
involving dominant control over the trust's use of union members' funds 
or union members' funds constituting the trust's predominant revenues, 
a report on the trust's financial condition and operations would not 
reflect on the related union's financial condition and operations.'' 
Id. at 390. For this reason, while acknowledging that there are 
circumstances under which the Secretary may require a report, the court 
disapproved of a broader application of the rule to require reports by 
any labor organization simply because the labor organization satisfied 
a reporting threshold (a labor organization with annual receipts of at 
least $250,000 that contributes at least $10,000 to a section 3(l) 
trust with annual receipts of at least $250,000). Id.
    In reaching its conclusion, the court rejected an underlying 
premise of the rule that a labor organization's appointment of a single 
member to a trust's governing board could trigger a reporting 
obligation, even though the labor organization's contribution to the 
trust constituted a fraction of the trust's total revenues. Id. The 
court explained that ``[w]here a union has minimal control over trust 
fund spending and a union's contribution is so small a part of the 
trust's revenues, and the trust is not otherwise controlled by unions 
or dominated by union members' funds, the trust lacks the 
characteristics of the unreported transactions in the examples on which 
the [Department] based the final rule.'' Id. at 391. In these 
circumstances, in contrast to the examples relied upon by the 
Department, the element of management control or financial dominance is 
missing. Id.
    In light of the decision by the D.C. Circuit and guided by its 
opinion, the Department again reviewed the proposal as it related to 
the Form T-1 and the comments received on the proposal. The Department 
then issued a final rule on September 29, 2006, but the rule was 
vacated on procedural grounds by the U.S. District Court for the 
District of Columbia in AFL-CIO v. Chao, 496 F.Supp.2d 76 (D.D.C. 
2007). In light of this court decision, the Department provides this 
new proposal for notice and comment.

[[Page 11758]]

C. Reasons for the Form T-1

     The proposed Form T-1 closes a reporting gap under the 
Department's former rule whereby labor organizations were only required 
to report on ``subsidiary organizations.'' This proposal is designed to 
provide labor organization members a proper accounting of how their 
labor organization's funds are invested or otherwise expended by the 
trust. Labor organization members have an interest in obtaining 
information about funds provided to a trust for the member's particular 
or collective benefit whether solely administered by the labor 
organization or a separate, jointly administered governing board. 
Because the money an employer contributes to such a trust for the labor 
organization members' benefit might otherwise have been paid directly 
to a labor organization's members 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. By reviewing the Form T-1, 
labor organization members will receive information on funds that would 
be accounted for on Form LM-2 but for their management through the 
section 3(l) trust.
    The proposed rule will make it more difficult for a labor 
organization, its officials, or other parties with influence over the 
labor organization to avoid, simply by transferring money from the 
labor organization's books to the trust's books, the basic reporting 
obligation that would apply if the funds had been retained by the labor 
organization. Although the proposal will not require a Form T-1 to be 
filed for all section 3(l) trusts in which a labor organization 
participates, it will be required where a labor organization, alone or 
in combination with other labor organizations, appoints or selects a 
majority of the members of the trust's governing board or where 
contributions by or on behalf of labor organizations or their members 
represent greater than 50 percent of the revenue of the trust. Thus, 
the rule follows the instruction in AFL-CIO v. Chao, where the D.C. 
Circuit concluded that the Secretary had shown that trust reporting was 
necessary to prevent evasion or circumvention where ``trusts [are] 
established by one or more unions with union members' funds because 
such establishment is a reasonable indicium of union control of the 
trust,'' as well as where there are characteristics of ``dominant union 
control over the trust's use of union members' funds or union members' 
funds constituting the trust's predominant revenues.'' 409 F.3d at 389, 
390.
    Labor organization officials and trustees both owe a fiduciary duty 
to their labor organization and the trust, respectively, but the 
Department's case files reveal numerous examples of embezzlement of 
funds held by both labor organizations and their section 3(l) 
trusts.\3\ The Form T-1, by disclosing information to labor 
organization members, the true beneficiaries of such trusts, will 
increase the likelihood that wrongdoing is detected and may deter 
individuals who might otherwise be tempted to divert funds from the 
trusts. See Archibald Cox, Internal Affairs of Labor Organizations 
Under the Labor Reform Act of 1959, 58 Mich. L. Rev. 819, 827 (1960) 
(``The official whose fingers itch for a `fast buck' but who is not a 
criminal will be deterred by the fear of prosecution if he files no 
report and by fear of reprisal from the members if he does'').
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    \3\ The fiduciary duty of the trustees to refrain from taking a 
proscribed action has never been thought to be sufficient by itself 
to protect the interests of a trust's beneficiaries. Although a 
fiduciary's own duty to the trust's grantors and beneficiaries 
include disclosure and accounting components (see Restatement 
(Third) of Agency Sec.  8.01 (T.D. No. 6, 2005) et seq.; see also 1 
American Law Institute, Principles of Corporate Governance Sec.  
1.14 (1994)), public disclosure requirements, government regulation, 
and the availability of civil and criminal process, complement these 
obligations and help ensure a trustee's observance of his or her 
fiduciary duty.
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    Because the labor organization's obligation to submit a Form T-1 
overlaps with the responsibility of labor organization officials to 
disclose payments received from the trust, the prospect that one party 
may report the payment increases the likelihood that a failure by the 
other party to report the payment will be detected. Moreover, given the 
increased transparency that results from the Form T-1 reporting, in 
some instances the proposed rule may cause the parties to reconsider 
the primary conduct that would trigger the reporting requirement. As 
discussed above, the LMRDA's primary reporting obligation (Forms LM-2, 
LM-3, and LM-4) applies to labor organizations as institutions; other 
important reporting obligations under the LMRDA apply to officers and 
employees of labor organizations (Form LM-30), requiring them to report 
any conflicts between their personal financial interests (and the duty 
they owe to the labor organization they serve) and to employers and 
labor relations consultants who must report payments to labor 
organizations and their representatives (Form LM-10). See 29 U.S.C. 
432; 29 U.S.C. 433. Thus, requiring labor organizations to report the 
information requested by the Form T-1 rule provides an essential check 
for labor organization members and the Department to ensure that labor 
organizations, their officials, and employers are accurately and 
completely fulfilling their reporting duties under the Act, obligations 
that can easily be ignored without fear of detection if reports related 
to trusts are not required.
    As an illustration of how this check will work, consider an 
instance in which a trust identifies a $15,000 payment to a company for 
duplicating services. Under the proposal, the labor organization must 
identify the company and the purpose of the payment. With this 
information, coupled with information about a labor organization 
official's ``personal business'' interests in the company, a labor 
organization member or the Department may discover whether the official 
has reported this payment on a Form LM-30. Additional information from 
the labor organization's Form LM-2 might allow a labor organization 
member to ascertain whether the trust and the labor organization have 
used the same printing company and whether there was a pattern of 
payments by the trust and the labor organization from which an 
inference could be drawn that duplicate payments were being made for 
the same services. Upon further inquiry into the details of the 
transactions, a member or the government might be able to determine 
whether the payments masked a kickback or other conflict-of-interest 
payment, and, as such, reveal an instance where the labor organization, 
a labor organization official, or an employer may have failed to comply 
with their reporting obligations under the Act. Furthermore, the 
proposal will provide a missing piece to one part of the Department's 
crosscheck system that correlates reported holdings and transactions by 
party, description, and reporting period and thereby helps identify any 
deviations in the reported details, including instances where the 
reporting obligation appears reciprocal, but one or more parties have 
not reported the matter.
    Under the instructions in effect prior to the 2003 rule, a labor 
organization was obliged to provide financial information about a 
section 3(l) trust only if the trust was a ``subsidiary'' of the 
reporting labor organization, i.e., an entity, as defined by the 
Department, that is wholly owned, wholly controlled, and wholly 
financed by the labor organization. Thus, the former rule, which was 
crafted shortly after the

[[Page 11759]]

LMRDA's enactment, required reporting by only a portion of the labor 
organizations that contributed to section 3(l) trusts, and, in many 
cases, no reporting at all. Currently, there is no enforceable form for 
trust reporting and the largest labor organizations, Form LM-2 filers, 
report only very limited and opaque information concerning trusts. This 
proposal will better effectuate the full disclosure intended under the 
LMRDA.
    Many labor organizations now manage benefit plans for their 
members, maintain close business relationships with financial service 
providers such as insurance companies and investment firms, operate 
revenue-producing subsidiaries, and participate in foundations and 
charitable activities. As more labor organizations conduct their 
financial activities through sophisticated trusts, increased numbers of 
businesses have commercial relationships with such trusts, creating 
financial opportunities for labor organization officers and employees 
who may operate, receive income from, or hold an interest in, such 
businesses. The labor organizations' business relationships with 
outside firms and vendors that provide benefits and financial services 
to the labor organization and its members also increase the possibility 
that labor organization officers and employees may have financial 
interests in these businesses that might conflict with fiduciary 
obligations they owe to the labor organization and its members. In 
addition, employers also have fostered multi-faceted business 
interests, creating further opportunities for financial relationships 
between labor organizations, labor organization officials, employers, 
and other entities, including section 3(l) trusts.
    Both historical and recent examples demonstrate the vulnerability 
of trust funds to misuse and misappropriation by labor organization 
officials and others. The McClellan Committee, as discussed above, 
provided several examples of labor organization officials using funds 
held in trust for their own purposes rather than for their labor 
organization and its members. Additional examples of the misuse of 
labor organization benefit funds and trust funds for personal gain may 
be found in the 1956 report of the Senate's investigation of welfare 
and pension plans, completed as the McClellan Committee was beginning 
its investigation. See Welfare and Pension Plans Investigation, Final 
Report of the Comm. of Labor and Public Welfare, S. Rep. No. 1734 
(1956); see also Note: Protection of Beneficiaries Under Employee 
Benefit Plans, 58 Colum. L. Rev. 78, 85-89, 96, 107-08 (1958). Such 
problems continued, even after the passage of the LMRDA and ERISA. In 
the most comprehensive report concerning the influence of organized 
crime in some labor organizations, a presidential commission concluded 
that ``the plunder of labor organization resources remains an 
attractive end in itself.* * * The most successful devices are the 
payment of excessive salaries and benefits to organized crime-connected 
labor organization officials and the plunder of workers' health and 
pension funds.'' President's Commission on Organized Crime, Report to 
the President and Attorney General, The Edge: Organized Crime, 
Business, and Labor Unions 12 (1986).
    The enactment of ERISA has ameliorated many of the historical 
problems, but many section 3(l) trusts are not covered by ERISA and 
even those that are covered do not file financial reports that provide 
transparency for LMRDA disclosures comparable to what will be provided 
by the proposed Form T-1. The Department has discovered numerous 
situations, as illustrated by the following examples, where funds held 
in section 3(l) trusts have been used in a manner that, if reported, 
would have been scrutinized by the members of the labor organization 
and this Department:
     A case in which no information was publicly disclosed 
about the disposition of tens of thousands of dollars (over $60,000 on 
average per month) by participating locals into a trust established to 
provide statewide strike benefits. No information was disclosed because 
the trust was established by a group of labor organization locals and 
not wholly controlled by any single labor organization.
     A case in which a credit union trust largely financed by a 
local labor organization had made large loans to labor organization 
officials but had not been required to report them because the trust 
was not wholly owned by any single local. (One local accounted for 97 
percent of the credit union's funds on deposit). Membership in the 
credit union was limited to members of three locals; all of the credit 
union directors were local officials and employees. Four loan officers, 
three of whom were officers of the Local, received 61 percent of the 
credit union's loans.
    Under the proposed rule, each labor organization in these examples 
would have been required to file a Form T-1 because each of these funds 
is a 3(l) trust. In each instance, the labor organization's 
contribution to the trust, including contributions made on behalf of 
the organization or its members, made alone or in combination with 
other labor organizations, represented greater than 50 percent of the 
trust's revenue in the one-year reporting period. The labor 
organizations would have been required to annually disclose for each 
trust the total value of its assets, liabilities, receipts, and 
disbursements. For each receipt or disbursement of $10,000 or more 
(whether singly or in the aggregate), the labor organization would have 
been required to provide: the name and business address of the 
individual or entity involved in the transaction(s), the type of 
business or job classification of the individual or entity; the purpose 
of the receipt or disbursement; its date, and amount. Further, the 
labor organization would have been required to provide additional 
information concerning any trust losses or shortages, the acquisition 
or disposition of any goods or property other than by purchase or sale; 
the liquidation, reduction, or write off of any liabilities without 
full payment of principal and interest, and the extension of any loans 
or credit to any employee or officer of the labor organization at terms 
below market rates, and any disbursements to officers and employees of 
the trust.
    In developing this proposal, the Department also relies, in part, 
on information it received from the public on the 2002 proposal. In its 
comments on that proposal, a labor policy group identified multiple 
instances where labor organization officials were charged, convicted, 
or both, for embezzling or otherwise improperly diverting labor 
organization trust funds for their own gain, including the following: 
(1) Five individuals were charged with conspiring to steal over $70,000 
from a local's severance fund; (2) two local labor organization 
officials confessed to stealing about $120,000 from the local's job 
training funds; (3) an administrator of a local's retirement plan was 
convicted of embezzling about $300,000 from the fund; (4) a local labor 
organization president embezzled an undisclosed amount from the local's 
disaster relief fund; (5) an employee of an international labor 
organization embezzled over $350,000 from a job training fund; (6) a 
former international officer, who had also been a director and trustee 
of a labor organization benefit fund, was convicted of embezzling about 
$100,000 from the labor organization's apprenticeship and training 
fund; (7) a former officer of a national labor organization was 
convicted of embezzling about $15,000 from the labor organization and 
about

[[Page 11760]]

$20,000 from the labor organization's welfare benefit fund; and (8) a 
former training director of a labor organization's pension and welfare 
fund was charged and convicted of receiving gifts and kickbacks from a 
vendor that provided training for labor organization members.
    The comments received from labor organizations and their members on 
the 2002 proposal generally opposed any reporting obligation concerning 
trusts (beyond the requirement then applicable to the ``wholly-owned'' 
subset of section 3(l) trusts). Labor organization members, however, 
recommended generally greater scrutiny of labor organization trust 
funds. These commenters included several members of a single 
international labor organization. They explained that under the labor 
organization's collective bargaining agreements, the employer sets 
aside at least $.20 for each hour worked by a member and that this 
amount was paid into a benefit fund known as a ``joint committee.'' The 
commenters asserted that some of the funds were ``lavished on junkets 
and parties'' and that the labor organization used the joint committees 
to reward political supporters of the labor organization's officials. 
They stated that the labor organization refused to provide information 
about the funds, including amounts paid to ``union staff.'' From the 
perspective of one member, the labor organization did not want ``this 
conflict of interest'' to be exposed.
    The need for this proposal is also demonstrated by additional 
examples of improper administration and diversion of funds from section 
3(l) trusts. Labor organization officials in New York were convicted in 
a ``pension-fund fraud/kickback scheme'' where labor organization 
officials were bribed by members of organized crime to invest pension 
fund assets in corrupt investment vehicles. The majority of the funds 
were to be invested in legitimate securities, but millions of dollars 
were placed into a sham investment, the body of which was to be used to 
fund kickbacks to the labor organization officers with the hope that 
the return on investment from the majority of the legitimately invested 
assets would cover the amounts lost as kickbacks. U.S. v. Reifler, 446 
F.3d 65 (2d Cir. 2006); see The Final Report of the New York State 
Organized Crime Task Force: Corruption and Racketeering in the New York 
City Construction Industry (1990) 27-29, 91-92, 182-84 (describing 
devices typically used by labor organization officials and third 
parties to divert trust funds for their own enrichment). In another 
case, nepotism and no-bid contracts depleted a labor organization's 
health and welfare funds of several million dollars. The problems 
associated with the fund included, among others, paying the son-in-law 
of a board member, a local labor organization official, a salary of 
$119,000 to manage a scholarship program that gave out $28,000 per 
year; paying a daughter of this board member $111,799 a year as a 
receptionist; and paying $123,000 for claims review work that required 
only a few hours of effort a week. See Steven Greenhouse, Laborers' 
Union Tries to Oust Officials of Benefits Funds, N.Y. Times, June 13, 
2005, at B5.\4\ If the Department's proposed rule had been in place, 
the members of the affected labor organizations, aided by the 
information disclosed in the labor organizations' Form T-1s, would have 
been in a much better position to discover the improper use of the 
trust funds and thereby minimize the injury to their stake in the 
trust. Further, the fear of discovery may have deterred the wrongdoers 
from engaging in the offending conduct in the first place.
---------------------------------------------------------------------------

    \4\ Various concerns about the administration of joint trusts 
are addressed in legal periodicals such as Note: Conflict of 
Interest Problems Arising from Union Pension Fund Loans, 67 Colum. 
L. Rev. 162 (1967), 162-63; and Stephen Fogdall, Exclusive Union 
Control of Pension Funds: Taft-Hartley's Ill-considered Prohibition, 
4 U. Pa. J. Lab. & Emp. L. 215 (2001-2002), 228-31 (providing 
examples of misuse and exemplary use of trust funds). See also 
Stephen Brill, The Teamsters, 151, 201-16, 221-60 (discussing 
problems with administration of Teamster funds, especially the 
Central States Pension Fund); James B. Jacobs, Mobsters, Unions, and 
Feds (2006) 181 (describing the looting of Teamster Local 560's 
benefit funds); Robert Fitch, Solidarity for Sale (2006), 149-52 
(misuse of New York Mason Tenders pension fund).
---------------------------------------------------------------------------

    As the foregoing discussion makes clear, the proposed Form T-1 rule 
will add necessary safeguards to deter circumvention and evasion of the 
LMRDA's reporting requirements.
     Under the proposal, it will be more difficult for labor 
organizations and complicit trusts to avoid the disclosure required by 
the LMRDA. Labor organization members will be able to review financial 
information they may not otherwise have had, empowering them to better 
oversee their labor organization's officials and finances as 
contemplated by Congress.

D. Specific Aspects of the Proposed Form T-1

1. Determining Management Control or Financial Domination
    In 2002, the Department proposed to require that any labor 
organization, regardless of its size or the proportion of the trust's 
receipts represented by its payments, file a Form T-1 if, among other 
conditions, it contributed $10,000 or more to a section 3(l) trust 
during the reporting period. The proposal, however, invited comment on 
whether adequate disclosure could be achieved instead by expanding the 
definition of ``subsidiary'' to include trusts that were closely 
related to the labor organization but not ``100% owned, controlled and 
financed by the [union].'' 67 FR 79285. The Department suggested that 
this alternative would borrow from the test, used in other contexts, to 
determine whether multiple companies constitute a ``single entity.'' 
The Department explained that this approach would be based on various 
factors, including an assessment as to the integration of the 
companies' operations and their common management.
    In the 2003 rule, the Department explained that it had received 
only a few comments on the ``single entity'' test. After considering 
the comments, the Department determined that the test would be less 
effective than other approaches, because it could be easily evaded by 
labor organizations seeking to conceal their relationship with a trust. 
The Department further explained that even if information concerning 
the relationship between the trust and the labor organization was 
readily available, the test could prove difficult to apply and thus was 
a poor substitute for a ``bright line'' standard pegged to a specified 
dollar threshold. Several comments received by the Department suggested 
that the labor organization's control over, not merely its 
participation in, a trust should fix any reporting obligation, and thus 
objected to the Department's proposal imposing a general reporting 
obligation on all large labor organizations. The AFL-CIO's objection to 
the proposal was twofold: ``If the union does not control the trust, 
the trust cannot be used to circumvent the reporting requirements; and 
if the union does not control the trust it cannot compel the trust to 
divulge the detailed financial information [required].'' It explained: 
``[T]he Department's proposal does not require that the union have 
effective control over the trust. Without de facto, or actual, control 
over a trust's financial management, a labor organization has no 
mechanism by which it can circumvent or evade the Act's reporting 
requirements.'' Further, even though the AFL-CIO did not embrace the 
``single entity'' approach, it viewed this approach as ``a helpful 
starting point.'' While disagreeing with the mechanisms suggested by 
the Department, it acknowledged that the Department

[[Page 11761]]

possessed the authority ``for developing an analytical framework for 
identifying 'significant trusts'' as to which financial disclosure 
should be required.'' A local labor organization, while generally 
opposed to the Form T-1, stated that ``it seems reasonable that 
ownership or control can only be attributed to parties holding over 50% 
ownership of an organization.''
    The ``single entity'' alternative was mentioned in the D.C. 
Circuit's opinion in AFL-CIO v. Chao, but the court did not approve or 
disapprove of this approach. 409 F.3d at 390-91. Instead, the court 
focused its inquiry on the extent of the labor organizations' 
relationship with section 3(l) trusts and indicia of their management 
control or financial domination of the trusts. Id. at 388-89. As 
discussed previously, the appeals court found that the Secretary had 
not demonstrated how a labor organization's contribution of $10,000, an 
amount that could be infinitesimal given the trust's other 
contributions, could be indicative of the labor organization's ability 
to exercise any effective control over the trust.
    The court indicated that the Secretary could require a labor 
organizations to file a Form T-1 where labor organizations exercise 
management control or financial domination over a trust. The court did 
not establish a control test, leaving the Department to fashion a test 
consistent with the LMRDA and its policy preferences. After considering 
various alternatives, including a case-by-case determination, or one 
based on whether a labor organization or labor organizations hold the 
largest but not predominant share of the trust's interests (or the 
contributions to the trust during a reporting period), the Department 
is proposing a bright line approach. Under the proposal, a labor 
organization is required to file a report only where it alone or in 
combination with other labor organizations (1) selects or appoints the 
majority of the members of the trust's governing board, or (2) 
contributes more than 50 percent of the trust's revenue during the 
annual reporting period; contributions made on behalf of the 
organization or its members shall be considered contributions by the 
labor organization.\5\ The test is responsive to the concerns expressed 
by the D.C. Circuit in that the test looks to the relationship between 
the labor organization or labor organizations and the trust and relies 
on principles of management control and financial domination.
---------------------------------------------------------------------------

    \5\ As a result, multiple unions may be required to report on a 
single trust. This aspect of the rule is discussed in detail below 
in section II D.7.
---------------------------------------------------------------------------

    Under this proposal, Form T-1 reports would be required on Taft-
Hartley trusts where the contributions by or on behalf of the labor 
organization or its members comprise a majority of the trust's 
receipts.\6\ Taft-Hartley trusts are statutorily defined trusts, 
established by a labor organization for the sole and exclusive benefit 
of the contributing employer's employees, their families, and 
dependents that meet several prescribed conditions, including a written 
agreement with the employer(s) concerning the basis on which such 
payments are to be made and joint administration by an equal number of 
employee and employer representatives. See section 302(c) of the Labor 
Management Relations Act, 29 U.S.C. 186(c); see Steven J. Sacher, James 
S. Singer, et al., editors, Employee Benefits Law (2d ed. BNA 2001) 
179-83, 642-43, 1177-03. Typically the establishment of such trusts and 
their funding is set through collective bargaining. Such payments 
comprise a portion of the employer's labor expenses, along with 
salaries, wages, and employer administered benefits. Thus, the money 
paid into the trusts reflects payments that otherwise could be made 
directly to employees as wages, benefits, or both, but for their 
assignment to the trusts.
---------------------------------------------------------------------------

    \6\ A labor organization's obligation to report on section 3(l) 
trusts is based on the majority control and financial domination 
tests embodied in the proposed rule. Thus, the designation of a 
trust as a ``Taft-Hartley Trust,'' a ``welfare benefit trust,'' or 
other designation will not control the coverage question. Examples 
of trusts for which a Form T-1 may be required include training or 
educational funds, strike funds, and redevelopment or investment 
funds. Other examples, depending upon their particular 
characteristics, would include trusts such as Multiple Employer 
Welfare Arrangements, Multi-Employer Plans, Voluntary Employees' 
Beneficiary Associations, or other similar plans. This is not an 
exhaustive list. At the same time, a labor organization should also 
be mindful that a designation of an entity as something other than a 
trust or its description as a particular kind of trust does not 
except the labor organization from filing a Form T-1 for the entity 
if it meets the filing standards. Again, the coverage question is to 
be based on the majority control and financial domination tests 
embodied in the proposed rule.
---------------------------------------------------------------------------

    The administration of a Taft-Hartley fund is under the control of 
the labor organization and employer trustees, not the employees or 
their beneficiaries. While the disbursements from the funds often 
represent individual payments to employees or their beneficiaries by 
reason of health or other claims, payments also often reflect more 
collective interests of employees such as developing apprenticeship or 
vocational training programs or operating job targeting programs, 
payments that serve the interests of the labor organization. In such 
instances, the funds cover expenses that otherwise would be paid from 
the labor organization's general treasury and reported on the Form LM-
2.
    Under this proposal, management domination or financial control is 
determined by looking at the involvement of all labor organizations 
contributing to or managing the trust. As discussed above, the 
Department's experience, as noted by the D.C. Circuit in its 2005 
opinion, demonstrates that participating labor organizations may 
``retain a controlling management role, [even though] no individual 
union wholly owns or dominates the trust.'' 409 F.3d at 389. This 
occurs, for example, where a trust is created from the participation of 
several labor organizations with common affiliation, industry, or 
location, but none alone holds predominant management control over or 
financial stake in the trust. Absent the Form T-1, the contributing 
labor organizations, if so inclined, would be able to use the trust as 
a vehicle to expend pooled labor organization funds without the 
disclosure required by Form LM-2 and the members of these labor 
organizations would continue to be denied information vital to their 
interests. If a single labor organization may circumvent its reporting 
obligations when it retains a controlling management role or 
financially dominates a trust, then a group of labor organizations may 
also be capable of doing so. A rule directed to preventing a single 
labor organization from circumventing the law must, in all logic, be 
similarly directed to preventing multiple labor organizations from also 
evading their legal obligations.
    Because labor organizations filing the Form LM-2 already are 
required to identify section 3(l) trusts on the Form LM-2, the proposed 
rule will not add any significant reporting burden with respect to 
identifying the section 3(l) trusts. The Form LM-2 requires labor 
organizations to provide the full name, address, and purpose of each 
section 3(l) trust in which it participates. The Form T-1 will be filed 
for only a subset of the labor organization's section 3(l) trusts. No 
Form T-1 will be required for any trust not required to be listed on 
the Form LM-2.
    In most cases labor organizations already possess information to 
determine whether a Form T-1 is required for a particular section 3(l) 
trust. If a labor organization selects or appoints a member of the 
trust's governing board, it will know how the other members are 
selected and whether

[[Page 11762]]

the majority control prong of the reporting test is satisfied. In other 
situations, the section 3(l) trust in question will consist entirely of 
units of the same national or international labor organization. Here 
too, each labor organization participating in the trust will know 
whether the majority control prong of the test is satisfied and likely 
will possess information to determine whether the alternative financial 
domination prong of the test is met.
    In some situations, the Department expects that labor organizations 
will have to contact the trusts to obtain information about whether the 
trust's ``pooled receipts'' from labor organizations constitute a 
majority of the trust's receipts during a reporting period. The trust 
can easily determine whether labor organizations have financial 
dominance by examining their accounting records. Finally, no specific 
information as to voting or contributions need be disclosed by the 
trust at this phase. Therefore, the trust will not be required to 
release any confidential information pertaining to financial 
contributions or control. The Department expects that labor 
organizations that do not already possess the information to determine 
whether they need to file a Form T-1 will be able to obtain this 
information simply by calling the trust. The Department invites 
comments on its assumptions concerning the information already 
possessed by labor organizations that will enable them to readily 
determine whether they must file a Form T-1 for their section 3(l) 
trusts and the relative ease by which they may obtain additional 
information from the section 3(l) trusts.
    By tying the proposed reporting obligation to instances in which a 
labor organization (or labor organizations) selects (or select) a 
majority of the members on the trust's governing board or contributes a 
majority of its receipts during the reporting period, the Department 
has stayed well within the bounds established by the appeals court. At 
the same time, the Department recognizes that in other contexts, 
effective, de facto, or practical control is an appropriate measure of 
control and one that also would be consistent with the court's opinion. 
The Department is aware that some legal writers have suggested that 
labor organizations exercise effective control over many Taft-Hartley 
trusts notwithstanding the legal requirement that there be equal 
representation by labor organizations and employers on their governing 
boards. See Ronald H. Malone, Criminal Abuses in the Administration of 
Private Welfare and Pension Plans: A Proposal for a National 
Enforcement Plan, 1 S. Ill. U. L.J. (1976) 400, 406 (``An * * * alleged 
benefit of the Taft-Hartley plan is that joint control of the trust 
assets makes misappropriation less likely. However, experience 
indicates that the labor organization trustees will often functionally 
wrest control of such a fund from the employer trustees and destroy the 
theoretical benefits of joint-administration.''); Fogdall, Exclusive 
Union Control of Pension Funds: Taft-Hartley's Ill-considered 
Prohibition, 4 U. Pa. J. Lab. & Emp. L. at 221 (``A [multi-employer] 
fund * * * is easier for a union to dominate [than a joint plan with a 
single employer] because `it puts the union in a position of having 
more trustees on a board than any single employer, creating de facto 
control of the fund by the union.' ''); Protection of Beneficiaries, 58 
Colum. L. Rev. at 86 (``A significant contributing cause of many * * * 
irregularities is management's abdication of responsibility in jointly 
administered plans. Employer representatives all too often have taken 
the position that since payments to an employee fund are in lieu of 
wages, the money is the property of the employees to deal with as they 
will. Thus, the theoretical safeguard of joint control is dissipated, 
allowing those union administrators who may be unscrupulous or 
incompetent greater freedom to divert or mismanage funds.''). The 
Department invites comment on whether the observations made by these 
authors are accurate and, if so, for this reason or other independent 
reasons, whether the Department should establish a reporting threshold 
that is based on less than predominant union control over a section 
3(l) trust.
2. Form T-1 Reporting Requirement Only Applies to the Largest Labor 
Organizations
    The Department's proposal to require only labor organizations with 
annual receipts of at least $250,000 to file a Form T-1 tracks the 
mandatory filing threshold for the Form LM-2. This proposal is 
consistent with the 2003 and 2006 vacated rules. In 2002, however, the 
Department proposed that all labor organizations that contributed 
$10,000 or more to a ``significant'' section 3(l) trust file a Form T-
1. A ``significant trust'' was defined as one having annual receipts of 
at least $200,000. Thus, under the 2002 proposal it was the size of the 
trust, not the size of the labor organization, that triggered the 
reporting obligation. In this regard, the 2002 proposal departed from 
the model proposed for the Form LM-2, where only labor organizations 
with annual receipts of at least $200,000 ($250,000 in the final rule) 
would be obliged to provide the kind of detailed reporting comparable 
to the Form T-1.
    Many of the comments on the 2002 proposal expressed the view that 
the Form T-1 would impose a substantial burden on small labor 
organizations because they are usually staffed with part-time 
volunteers, with little computer or accounting experience and limited 
resources to hire professional services. In the 2003 rule, the 
Department explained that it had been persuaded by the comments that 
the relative size of a labor organization, as measured by its overall 
finances, would affect its ability to comply with the proposed Form T-1 
reporting requirements. For this reason in the 2003 final rule, the 
Department excused from the Form T-1 reporting obligation any labor 
organization with annual receipts of less than $250,000. And, for the 
same reasons, this proposal establishes $250,000 in annual receipts for 
the labor organization as the mandatory filing threshold for the Form 
T-1.
    The Department acknowledges that because the section 3(l) trust, 
not the reporting labor organization, will undertake the bulk of the 
recordkeeping burden, the size of the reporting labor organization may 
be less significant than it is in the Form LM-2 context. However, 
because only labor organizations with annual receipts of $250,000 or 
greater, as a general rule, will have had any direct experience with 
the recordkeeping and reporting software utilized in preparing the Form 
LM-2, the Department believes it appropriate to limit this particular 
reporting obligation to organizations with annual receipts of $250,000 
or greater.
3. Elimination of Threshold Requirements In Prior Rules
    This proposal does not include the requirement in the earlier 
rulemaking efforts that limited the mandatory Form T-1 filing to labor 
organizations that contributed $10,000 or more to the trust in a 
reporting year. As discussed below, given the structure of this 
proposal, this requirement has become superfluous and transparency will 
be improved by its removal. This requirement had been based on the 
Department's concern that labor organizations might have difficulty 
persuading trusts to provide a detailed accounting of the trust's 
financial activities if their stake in the trust was insubstantial in 
comparison with other contributions. However, under this proposal, no 
labor organization will need to file a Form T-

[[Page 11763]]

1 unless it alone or together with other labor organizations holds 
management control or financial domination over a trust. Thus, under 
these circumstances it is unlikely that any participating labor 
organization should have difficulty in obtaining from the trust the 
information needed to complete the Form T-1.
    Additionally, OLMS's review of section 3(l) trusts has found that a 
number of such trusts do not receive any yearly contributions from a 
labor organization during a reporting period but still hold large 
amounts of labor organization-derived money. For example, one building 
trust had less than $200 in receipts other than investment income but 
held $802,323 in assets, in this case investments. The trust and the 
labor organization the trust was created to benefit had many of the 
same individuals serving as officers (five officers of the labor 
organization are among the seven individuals identified as officers and 
directors of the trust). Although this trust was reported on an IRS 
Form 990, it does not appear on any report filed with the Department. 
But for a Form T-1 reporting obligation, many of the labor 
organization's members would not even be aware of such a trust or its 
Form 990, and likely would remain uninformed if the Form T-1 reporting 
obligation was contingent on the labor organization's $10,000 
contribution to the trust.
    In the vacated rules, the Department limited the Form T-1 reporting 
obligation to only a subset of section 3(l) trusts: only those trusts 
that received $250,000 or more in annual receipts. Based on the 
Department's recent experience with section 3(l) trusts, however, it 
has determined that the retention of this requirement could operate to 
deny information about trusts to labor organization members whose labor 
organizations have a substantial investment in the trust 
notwithstanding the absence of significant contributions by the labor 
organization during the reporting period. For example, one section 3(l) 
trust reported on its IRS Form 990 assets of $434,501, but its only 
source of receipts was rent, $46,285, which was more than offset by its 
rental expenses of $75,483, i.e., its net receipts were -$29,198. 
Another trust, on its Form 990, reported $123,573,716 in assets, and 
$1,354,258 in annual receipts only because it sold a single asset worth 
over $1.1 million. This trust's sole source of annual receipts is rent 
in the amount of $203,858. It is assumed that the labor organization 
has managerial control over the trusts in the above examples. These 
trusts would not be reported on a Form T-1 if the reporting obligation 
was tied solely to the labor organization's contributions to the trust 
during the reporting period. For this reason, the Department's 
proposal, in a departure from earlier rulemakings, does not tie a labor 
organization's reporting obligation to the level of the contributions 
made to a trust during the reporting period.
    The elimination of this condition from the Department's proposal 
may require a labor organization to report on some trusts that contain 
only insubstantial amounts of money. However, a labor organization will 
be required to report very little for a trust with insubstantial 
receipts and therefore will only be subject to a slight burden. This 
slight drawback is countered by the transparency gained by members in 
those situations where the value of the trust is substantial. The 
Department, however, invites comments on whether the alternatives 
considered or others should be established to eliminate a reporting 
obligation where a trust, in effect, is so small or insignificant that 
the burden of preparing a Form T-1 plainly outweighs any benefit that 
transparency would provide to the union's members. In this connection, 
it would be helpful to receive comments about whether it would be 
appropriate to establish a threshold based on the amount of assets held 
by a trust and, if so, the amount that would be appropriate for this 
purpose and any problems that would be posed by such an approach.
4. Itemization of Receipts and Disbursements
     The Department proposes that itemization should be required for 
``major disbursements'' and ``major receipts'' of the section 3(l) 
trust. The Department defines ``major disbursements'' and ``major 
receipts'' for Form T-1 purposes as $10,000 or more. Thus, under the 
proposal a labor organization would report payments of $10,000 or more 
from any individual or entity to the trust and payments of $10,000 or 
more to any individual or entity from the trust. In completing the Form 
T-1, the labor organization would specify the amount of the receipt or 
disbursement, its purpose, and other information pertinent to the 
transaction, including the name and address of the entity or individual 
involved. Itemization is an essential component of Form LM-2 and also 
is integral to Form T-1 as a means to prevent circumvention or evasion 
of the reporting obligations imposed on labor organizations and labor 
organization officials. Itemization not only provides members with 
information pertinent to the trusts, but allows them to better monitor 
the other reporting obligations of their labor organization and its 
officials under the LMRDA and to detect and thereby help prevent 
circumvention or evasion of the LMRDA's reporting requirements. Among 
other requirements under this proposal, Form T-1 requires a labor 
organization to identify:
     The names of all the trust's officers and all employees 
making more than $10,000 in salary and allowances and all direct and 
indirect disbursements to them;
     Disbursements to any individual or entity that aggregate 
to $10,000 or more during a reporting period and provide for each 
individual or entity their name, business address, type of business or 
job classification, and the purpose and date of each individual 
disbursement of $10,000 or more; and
     Any loans made at favorable terms by the trust to the 
labor organization's officers or employees, the amount of the loan, and 
the terms of repayment.
    Where certain payments from a business that buys, sells or 
otherwise deals with a trust in which a labor organization is 
interested are made to a labor organization officer or employee or his 
or her spouse, or minor child, the LMRDA imposes on the labor 
organization officer or employee a separate obligation to report such 
payments (Form LM-30, as required by 29 U.S.C. 432). Thus, the Form T-1 
operates to deter a labor organization official from evading this 
reporting obligation.
    The proposed $10,000 figure is an outgrowth of the earlier 
rulemaking efforts and is shaped by the concerns there expressed and 
the Department's accommodation to those concerns. This amount is a 
higher amount than the itemization threshold provided for the Form LM-2 
($5,000). As the Department has stated in the past, ``The Department 
will continue to monitor this threshold, as well as all other 
thresholds established by this rule, and may make future adjustments if 
economic conditions warrant such a change.'' 68 FR 58374, 58421. In 
proposing the $10,000 threshold, the Department considered but rejected 
alternative approaches to triggering itemization. A threshold tied to a 
particular percentage of a trust's assets or other benchmark could deny 
members information about substantial transactions where a trust holds 
substantial assets. Furthermore, a percentage-based threshold that is 
subject to annual fluctuation lacks predictability and would complicate 
a year-to-year comparison of reports. If a percentage test was used, 
information

[[Page 11764]]

concerning large trusts would be disclosed in much higher dollar 
amounts and information from smaller trusts would be reported in 
smaller amounts. For example, if you have two trusts, one with $100,000 
in disbursements and the other with $10,000,000 and the itemization 
threshold was 1 percent then the first trust would report any 
disbursements that aggregate to $1,000 or more while the second trust 
would only report disbursements that aggregate to $100,000 or more. To 
ensure a uniform level of disclosure regardless of the size of the 
trust, the Department is proposing a flat dollar threshold of $10,000 
for itemization purposes. The Department seeks comments on the 
appropriateness of using a dollar value threshold in general, and a 
$10,000 threshold in particular.
    The Department's proposal requires that a labor organization 
aggregates the trust's receipts from, or disbursements to, a particular 
entity or individual during the reporting period. Aggregation provides 
a more accurate picture of a labor organization's disbursements because 
it focuses on the total amount of money the labor organization pays a 
particular entity or individual, rather than only on ``major'' 
individual receipts or disbursements. It is the Department's opinion 
that insofar as such payments are of interest to a labor organization 
member, there is no difference between a single $10,000 (or more) 
receipt or disbursement from one source and several receipts or 
disbursements from one source totaling $10,000 or more. Furthermore, 
aggregation reduces the incentive to break up a ``major'' disbursement 
to a single entity or individual in order to avoid itemizing the 
payment and thereby circumvent the Form T-1 reporting requirements.
    The Department recognizes that tracking multiple payments from a 
specific source throughout the fiscal year imposes some additional 
burden on a reporting labor organization and a section 3(l) trust. 
Modern developments in electronic recordkeeping, however, minimize 
these demands. Electronic recordkeeping is now relatively simple and 
used routinely even by very small organizations and by individuals. 
Moreover, given the nature of their day-to-day operations, section 3(l) 
trusts are likely to already possess the technology and expertise to 
provide relevant information without undue burden. The recent Form LM-2 
filing experience demonstrates the ability of labor organizations, 
often without the same level of recordkeeping sophistication possessed 
by most trusts, to satisfy the requirements posed by the Form LM-2, 
requirements generally more demanding than those posed by the Form T-1.
    Comments on the 2002 proposal suggested that itemization could 
``bury'' members in unnecessary detail, forcing them to plow through 
hundreds of pages to review a labor organization's finances. The 
Department's proposal is based on its belief that this concern is 
overstated. Labor organization members will be able to utilize the 
advantages of computer technology to review Form T-1s (and other 
documents required to be filed under the LMRDA). Electronic filing 
permits the reviewer to focus his or her review using a search engine 
to guide the inquiry, allowing review of a potentially large number of 
itemization reports with relative ease compared to review of the same 
documents in hard copy. However, the Department seeks comments from the 
public on this issue.
    The Department specifically invites comments on whether reported 
loans should be limited to those which were made to union officers and 
employees at a favorable term. The Department seeks comments on whether 
to expand trust reporting requirements to include all loans to officer 
and employee regardless of the terms.
5. Protection of Sensitive Information
    This proposal protects the disclosure of personal information about 
members of labor organizations and the disclosure of sensitive 
information about a labor organization's negotiating or bargaining 
strategies. In the earlier rulemaking, several labor organizations 
raised privacy concerns about the itemization requirements of the 
proposed Form T-1; specifically, they expressed the concern that the 
disclosure of the name and address of individuals receiving trust funds 
(as well as the date, purpose, and amount of the transfer)might be 
unlawful under federal privacy laws or might pose risk to the 
individuals' health or safety. The Department took those concerns into 
account in fashioning the Form LM-2 and the approach there taken is 
embodied in this proposal. These confidentiality provisions, as 
described herein and in greater detail in the accompanying 
instructions, are also contained in the regulatory provision applicable 
to Form LM-2, section 403.8(b)(1). The only difference between the 
provisions relating to the Form LM-2 and this proposal for the Form T-1 
is that each addresses the distinct itemization thresholds for the two 
reports ($5,000 for Form LM-2 and $10,000 for Form T-1).
    The Department also proposes to provide labor organizations the 
same reporting option available under the Form LM-2 for reporting 
certain major transactions in situations where a labor organization, 
acting in good faith and on reasonable grounds, believes that reporting 
the details of the transaction would divulge information relating to 
the labor organization's prospective organizing strategy, the 
identification of individuals working as ``salts,'' or its prospective 
negotiation strategy. Reporting labor organizations may withhold such 
information provided they do so in the manner prescribed by the 
instructions. Thus this information may be reported without 
itemization; however, as discussed below, this information must be 
available for inspection by labor organization members with ``just 
cause.''
    Under the proposal, a labor organization that elects to file only 
aggregated information about a particular receipt or disbursement, 
whether to protect an individual's privacy or to avoid the disclosure 
of sensitive negotiating or organizing activities, must so indicate on 
the Form T-1. A labor organization member has the statutory right ``to 
examine any books, records, and accounts necessary to verify'' the 
labor organization's financial report if the member can establish 
``just cause'' for access to the information. 29 U.S.C. 431(c); 29 CFR 
403.8. Information reported only in aggregated form remains subject to 
a labor organization's member's just cause right. Such aggregation will 
constitute a per se demonstration of ``just cause,'' and thus the 
information must be available to a member for inspection. By invoking 
the option to withhold such information, the labor organization is 
required to undertake reasonable, good faith actions to obtain the 
requested information from the trust and facilitate its review by the 
requesting member. Payments that are aggregated because of risk to an 
individual's health or safety or where federal or state laws forbid the 
disclosure of the information are not subject to the per se disclosure 
rule.
    The Department specifically invites comments on this approach, 
including whether transactions involving a section 3(l) trust would 
pose a genuine risk to a labor organization's organizing or negotiating 
strategy. The Department seeks comments on whether to narrow, clarify, 
or remove the confidentiality exception from the Form T-1 instructions. 
For example, comments are requested on whether all transactions greater 
than $10,000 should be identified by amount and date on the report, 
permitting, however, labor organizations, where acting in good faith 
and on reasonable grounds, to

[[Page 11765]]

withhold information that otherwise would be reported, in order to 
prevent the divulging of information relating to the labor 
organization's prospective organizing or negotiation strategy.
6. Exemptions and Alternative Means of Compliance
     The Department proposes to except from the labor organization's 
Form T-1 reporting requirement a trust that is established as a PAC or 
an organization exempt under Internal Revenue Code section 527 (section 
527 political organization) if the trust files timely, complete and 
publicly available reports with federal or state agencies, as required 
by federal or state law. The Department also proposes a partial 
exception where an independent audit of the trust has been conducted in 
accordance with proposed standards discussed below and the audit is 
filed with OLMS along with page 1 of Form T-1. The purpose of limiting 
the filing requirements in this way is to minimize any overlapping 
reporting obligations that exist under certain other laws where such 
reports are publicly available and provide information roughly 
comparable to that required by the Form T-1. Additionally, an audit 
that satisfies the proposed standards and that is submitted along with 
page 1 of the Form T-1 similarly would be an acceptable substitute. 
Each of these alternative methods for meeting the labor organization's 
Form T-1 obligation provides significant, timely financial information 
about the trust that is updated on a regular basis (for PAC and section 
527 reports, typically more frequently than the Form T-1) and requires 
the itemization of receipts and expenditures.\7\ These reports provide 
a level of transparency similar to the proposed Form T-1.
---------------------------------------------------------------------------

    \7\ Significantly, these forms set the itemization threshold 
below the $10,000 amount proposed for the Form T-1. They require 
aggregation of receipts and disbursements; itemization is required 
for any receipts from or disbursements to an individual or entity 
that total $200 or more during prescribed reporting cycles. See 
Federal Election Commission, Instructions for FEC Form 3X and 
Related Schedules, available at http://www.fec.gov/pdf/forms/fecfrm3xi_06.pdf (last visited Nov. 8, 2007); IRS, Instructions for 
Form 8872, available at http://www.irs.gov/pub/irs-pdf/i8872.pdf 
(last visited Nov. 8, 2007).
---------------------------------------------------------------------------

    The Department proposes that the audit must meet the requirements 
(modeled on section 103 of ERISA, 29 U.S.C. 1023, and 29 CFR 2520.103-1 
(relating to annual reports and financial statements required to be 
filed under ERISA)) described in the Form T-1 instructions. The 
Department recognizes that the audit option may not provide the same 
detail as required by the Form T-1, but it believes that this approach 
is an acceptable trade-off for reducing the overall reporting burden on 
the labor organization and the section 3(l) trust. The Department 
invites comments on this proposed alternative. Under the audit 
alternative, a labor organization need only complete the first page of 
the Form T-1 (Items 1-15 and the signatures of the organizations' 
officers) and submit a copy of an audit of the trust that meets all the 
following standards:
     The audit is performed by an independent qualified public 
accountant, who after examining the financial statements and other 
books and records of the trust, as the accountant deems necessary, 
certifies that the trust's financial statements are presented fairly in 
conformity with Generally Accepted Accounting Principles or Other 
Comprehensive Basis of Accounting.
     The audit includes notes to the financial statements that 
disclose, for the preceding twelve-month period:
     Losses, shortages, or other discrepancies in the trust's 
finances;
     The acquisition or disposition of assets, other than by 
purchase or sale;
     Liabilities and loans liquidated, reduced, or written off 
without the disbursement of cash;
     Loans made to labor organization officers or employees 
that were granted at more favorable terms than were available to 
others; and
     Loans made to officers and employees that were liquidated, 
reduced, or written off.
     The audit is accompanied by schedules that disclose, for 
the preceding twelve-month period:
     A statement of the assets and liabilities of the trust, 
aggregated by categories and valued at current value, and the same data 
displayed in comparative form for the end of the previous fiscal year 
of the trust; and
     A statement of trust receipts and disbursements aggregated 
by general sources and applications, which must include the names of 
the parties with which the trust engaged in $10,000 or more of commerce 
and the total of the transactions with each party.
    Under the earlier proposal and rules, a labor organization was not 
required to file a Form T-1 for a section 3(l) trust if the trust was 
part of an employee benefit plan required under ERISA to file a Form 
5500. Although the Department acknowledged that this option would not 
provide labor organization members and the public with all the 
information required by the Form T-1, it appeared that the disclosure 
purposes of the LMRDA could be satisfied under this approach. After 
further consideration, the Department has determined that the use of 
the Form 5500 as a substitute for the Form T-1 would not meet these 
purposes, and thus this proposal does not include the filing of the 
Form 5500 covering the section 3(1) trust as an exemption to the Form 
T-1 filing requirement.
    The Form 5500 Annual Return/Report is a system of forms and 
schedules filed by employee benefit plans subject to ERISA. A common 
misconception is that Form 5500 reports are filed for all section 3(l) 
trusts. They are not. Since there is no uniform filing obligation under 
ERISA for section 3(1) trusts, labor organization members, the public, 
and OLMS investigators would have to expend considerable time and 
resources to determine whether a section 3(l) trust has filed the Form 
5500 and, if so, whether it filed all the information and schedules 
required of it under ERISA.
    Although a section 3(1) trust may form part of an ``employee 
pension benefit plan'' or ``employee welfare benefit plan'' subject to 
ERISA, the ERISA statute does not apply to all section 3(1) trusts. 
Strike funds, recreational plans, and hiring hall arrangements are 
examples of funds in which labor organizations participate that fall 
outside ERISA coverage. See 29 CFR 2510.3-1. Further, under the 
Department's ERISA regulations, some section 3(l) trusts that are part 
of employee benefit plans subject to ERISA are not required to file the 
Form 5500 or are allowed to file abbreviated financial schedules. See 
29 CFR 2520.104-20 (simplified reporting for plans with fewer than 100 
participants) and 29 CFR 2520.104-22 (conditional exemption for 
apprenticeship and training plans). For general information on ERISA's 
Form 5500 annual reporting requirements, see U.S. Department of Labor, 
Reporting and Disclosure Guide for Employee Benefit Plans, (reprinted 
2004) available at http://www.dol.gov/ebsa/pdf/rdguide.pdf (last 
visited Nov, 8. 2007).
    Moreover, the focus of the financial reporting required on the Form 
T-1 and the Form 5500 are not identical. As noted above, the Form T-1 
implements section 201 of the LMRDA, which requires covered labor 
organizations to file annual, public reports with the Department, 
detailing the labor organization's cash flow during the reporting 
period, and identifying its assets and liabilities, receipts, salaries 
and other direct or indirect disbursements to each officer and all 
employees receiving $10,000 or more in aggregate from the labor 
organization;

[[Page 11766]]

direct or indirect loans (in excess of $250 aggregate) to any officer, 
employee, or member; loans (of any amount) to any business enterprise; 
and other disbursements. Although there may be some overlap with the 
Form T-1 in cases where a section 3(1) trust is part of an employee 
benefit plan required to file a Form 5500 with detailed financial 
schedules a Form 5500 filing would not include the itemization of 
disbursements or receipts required by the Form T-1.
    Further, the Form T-1 must be filed within 90 days of the end of 
the labor organization's fiscal year and must cover the section 3(1) 
trust's most recent fiscal year, i.e., the fiscal year ending on or 
before the closing date of the labor organization's own fiscal year. 
This requirement is mandated by the LMRDA's requirement that a labor 
organization file its financial reports within 90 days of the close of 
the labor organization's fiscal year. 29 U.S.C. 437(b). The Form 5500 
is not due, by comparison, until the end of the seventh month following 
the end of the plan's fiscal year, with an available extension of up to 
an additional two and one half months. In the case of a labor 
organization and a section 3(1) trust that have the same fiscal year, 
the Form T-1 would be due well in advance of the Form 5500 due date. On 
the other hand, if a trust's fiscal year ends three months after the 
labor organization's fiscal year, the Form T-1 will not be due until 
twelve months after the end of the trust's fiscal year. It should be 
noted, however, that the trust's fiscal year is established by the 
trust and will be the same for both Form T-1 and Form 5500 reporting 
purposes.
    The persons required to sign the Form T-1 and Form 5500 also are 
not identical. Under the proposed Form T-1, the form must be signed by 
the president and treasurer, or corresponding principal officers, of 
the labor organization. By comparison, the Form 5500 filed for an 
employee benefit plan that includes a section 3(1) trust is signed by 
the plan's ``administrator,'' as defined in section 3(16) of ERISA.\8\ 
For these reasons, the Form 5500 does not appear to be an adequate 
substitute for the Form T-1.
---------------------------------------------------------------------------

    \8\ Section 3(16)(A) of ERISA, 29 U.S.C. 1002 (3)(16)(A), 
defines the term ``administrator'' to mean: ``(i) the person 
specifically so designated by the terms of the instrument under 
which the plan is operated; (ii) if an administrator is not so 
designated, the plan sponsor; or (iii) in the case of a plan for 
which an administrator is not designated and a plan sponsor cannot 
be identified, such other person as the Secretary may by regulation 
prescribe.''
---------------------------------------------------------------------------

    The Department invites comments on
     Whether any labor organizations now require section 3(l) 
trusts to provide reports to the labor organization, on a regular 
basis, at least annually and in comparable or greater detail to the 
Form T-1, including an itemization of receipts and disbursements, and, 
if so
    [cir] Whether the itemization threshold is higher or lower than 
$10,000; and
    [cir] Whether the report is mailed to each member or made publicly 
available to members by other means;
     Whether documents provided for internal use by the 
trustees of a section 3(l) trust, if publicly disclosed, would 
adequately meet the disclosure requirements of the LMRDA;
     Whether the proposed rule enables labor organizations and 
section 3(l) trusts sufficient time to compile and report on 
information needed to complete the Form T-1 in those instances where 
the labor organization and the trust have the same fiscal year, i.e., 
where the Form T-1 must be filed within 90 days of the close of the 
trust's fiscal year; and
     If the proposed rule will impose substantial difficulties 
for labor organizations and trusts in the instances discussed in the 
preceding bullet point, and, if so, how these difficulties may be 
ameliorated in a way that ensures the timely receipt of information 
about such trusts by members of labor organizations and the public.
    Labor organizations or other members of the public are encouraged 
to submit representative copies of any such reports or other documents 
of the type described.
7. Each Labor Organization With Annual Receipts of at Least $250,000 
Participating in a Section 3(L) Trust With Other Labor Organizations 
Must File a Form T-1
    The proposal does not differentiate among the reporting obligations 
of labor organizations contributing to the same trust. Any labor 
organization that satisfies the reporting threshold will have to submit 
the Form T-1, even though the labor organization's share may only 
represent a relatively small portion of the total contributions made to 
the trust by labor organizations.
    In response to the Department's 2002 proposal, an international 
labor organization explained that it was not uncommon for several 
locals to participate in an apprenticeship and training fund that would 
be funded by payments from employers pursuant to negotiated agreements 
providing for ``a cents per hour'' contribution for hours worked by 
each of their employees. As an example, the labor organization 
discussed a fund with annual contributions over $300,000 in which seven 
locals participated. The contributions from, or on behalf of, each 
local ranged from about $10,000 to about $100,000. The fund had four 
management and four labor trustees; three from different locals 
contributing to the trust and a fourth from the labor organizations' 
parent organization. The labor organization also explained that it is 
common for local labor organizations in different crafts (affiliated 
with different parent bodies) to participate in a fund. It explained 
that in these instances, it would be unusual for a single craft or 
local to represent a majority of the labor organization trustees. It 
stated that in such circumstances it is unrealistic to suggest that any 
single labor organization or craft controls the trust.
    As suggested by the Department's proposal and the apprenticeship 
and training fund just discussed, it is not uncommon for multiple labor 
organizations to participate in a section 3(l) trust without any single 
labor organization contributing a majority of the trust's revenues. In 
some trusts, such as strike funds, labor organizations may be the sole 
contributors to the fund; in others, such as Taft-Hartley trusts, the 
trust will be funded by employers, but such funds are established 
through collective bargaining agreements and the employer contributions 
are made for the benefit of the members of the participating labor 
organizations or their beneficiaries.
    Trusts in which several labor organizations participate typically 
will consist solely of funds that are contributed on behalf of their 
members. In many instances, none of the participating labor 
organizations contributes a majority of the trust's revenues. Thus, 
unless a reporting obligation is imposed on one or more of the labor 
organizations on some basis other than majority contributions, no labor 
organization members will receive any information on the trust's 
finances. In its 2002 proposal, the Department illustrated the need for 
reporting on section 3(l) trusts with four examples in which labor 
organizations had evaded their reporting obligations through their 
involvement with such trusts. (These same examples are discussed in 
this proposal.) One of these examples involved the improper diversion 
of funds from a strike fund in which no single labor organization held 
a controlling interest. The absence of any labor organization reporting 
obligations facilitated the improper disposition of thousands of 
dollars (over $60,000 per month) from the strike fund. As

[[Page 11767]]

discussed above, a single labor organization may circumvent its Form 
LM-2 reporting obligations when it retains a controlling management 
role or financially dominates a trust; there is no basis to conclude 
that a group of labor organizations is not equally capable of doing so. 
Disbursements from a trust of pooled labor organization money reflect 
the contributing labor organizations' financial conditions and 
operations as clearly as the disbursements from a trust funded by a 
single labor organization. A rule directed to preventing a single labor 
organization from circumventing or evading the law should not permit 
the same conduct when it is undertaken by more than one labor 
organization.
    Under the proposal, multiple labor organizations may be required to 
report on a single trust. In fashioning this proposal, the Department 
considered two alternatives: fixing the obligation on the labor 
organization with the greatest stake in the trust; or allowing one of 
the participating labor organizations to voluntarily take on this 
responsibility. While these alternatives may provide an appropriate 
basis for fairly and roughly allocating the reporting burden, each 
suffers from the same basic infirmity--labor organization members are 
not likely to view reports filed by other labor organizations when 
searching for information on the financial activities of their own 
labor organization and its trusts. Members of other labor organizations 
participating in the trust would have more difficulty obtaining 
information no less vital to their interests than the information 
provided to members of the reporting labor organization. Furthermore, 
this reporting gap could allow some labor organizations and individuals 
to evade their reporting obligations under the LMRDA.
    Improper payments would be much easier to conceal if the Form T-1 
were filed only by some of the participating labor organizations (some 
vendors or contributors to the section 3(l) trust may only be known by 
members of a particular labor organization). For these reasons, the 
Department has determined that where multiple labor organizations 
appoint a majority of the members of the trust's governing board, or 
their contributions constitute greater than 50 percent of the trust's 
annual revenues, each will be required to file a Form T-1. In making 
this determination, the Department recognizes that the section 3(l) 
trust, not the reporting labor organizations, will compile most of the 
necessary information and that this information, in large part, will be 
identical for each participating labor organization. This will operate 
to allocate the reporting costs among the labor organizations, as 
determined by the trust, and will keep their total costs only 
marginally higher than if a Form T-1 was required to be filed by only 
one of the participating labor organizations.
    In earlier rulemaking efforts, several commenters expressed concern 
that a section 3(l) trust could refuse to provide the information 
needed to complete the Form T-1. Several commenters expressed concern 
about a labor organization's liability for failure to file a timely 
report, given that the trust might refuse to provide the information 
and the labor organization may be unable to compel production. The 
Department acknowledges that this may remain a possibility under this 
proposal. However, given that the reporting obligation under the 
proposal only arises where a labor organization, alone or in 
combination with other labor organizations, maintains management 
control or financial domination over a trust, the possibility of such 
intransigence appears remote. The Department's view is supported by the 
public comments received about the 2002 proposal. No comment suggested 
that any administrator of a section 3(l) trust had expressed an 
intention to withhold from a labor organization information required to 
complete the Form T-1. Further, although there were some statements 
that a trust would be bound by its own fiduciary obligations in 
determining whether to make the information available, there was no 
suggestion that any trust held the view that it would violate such duty 
by providing the information required by the form. Thus, the Department 
expects that trusts will routinely and voluntarily comply in providing 
such information to reporting labor organizations. Nevertheless, in 
those rare instances where a trust balks at providing the necessary 
information, the labor organization may request that the Department use 
its available investigatory authority to assist the reporting labor 
organization to obtain information necessary to complete the Form T-1. 
The Department expects that labor organizations and labor organization 
officials will take timely, reasonable, and good faith actions to 
obtain the necessary information from section 3(l) trusts and, where 
they have done so, the Department will not assert a willful and knowing 
violation of the filing requirement against the labor organization, its 
president, or secretary-treasurer.
8. Requirement of Electronic Filing
    For several years, and with Congressional urging and financial 
assistance, the Department has pursued the development and 
implementation of electronic filing of annual reports required by the 
LMRDA, along with an indexed and easily searchable computer database of 
the information submitted, accessible by the public over the Internet. 
See H.R. Conf. Rep. 105-390, 1997 U.S.C.C.A.N. 2061; H.R. Conf. Rep. 
105-825; H.R. Conf. Rep. 106-419; H.R. Conf. Rep. 106-479; H.R. Conf. 
Rep. 106-1033; H.R. Conf. Rep. 107-342, 2002 U.S.C.C.A.N. 1690; H.R. 
Conf. Rep. 108-10, 2003 U.S.C.C.A.N. 4.
    The Department has had in place systems for electronic submission 
and disclosure since 2001 (the systems were later augmented for 
submissions under the 2003 final rule). There have been no significant 
problems with the system. Where minor problems have arisen, the 
Department has taken steps to successfully resolve the problems. 
Moreover, the existing system was originally designed for the 
submission of both Form LM-2 and Form T-1.
    This proposal will utilize this existing system for electronic 
submissions, minimizing any difficulty by labor organizations in 
submitting the reports electronically. This system will allow the 
Department to make the reports available for electronic disclosure, and 
enable labor organization members and others to search and otherwise 
utilize data in the Department's Form T-1 database. Despite the 
familiarity of users with the existing system, the Department 
recognizes that some labor organizations nonetheless may encounter some 
temporary problems in electronically submitting the Form T-1. Thus, 
under the proposal, a labor organization that must file a Form T-1 may 
assert a temporary hardship exemption or apply for a continuing 
hardship exemption to prepare and submit the report in paper format. If 
a labor organization files both Form LM-2 and Form T-1, the exemption 
must be separately asserted for each report, although in appropriate 
circumstances the same reasons may be used to support both exemptions. 
As proposed, if it is possible to file Form LM-2, or one or more Form 
T-1s, electronically, no exemption should be claimed for those reports, 
even though an exemption is warranted for a related report. The key 
aspects of the proposed hardship exemption follow:
    Temporary Hardship Exemption:
     If a labor organization experiences unanticipated 
technical difficulties that prevent the timely preparation and 
submission of an electronic Form T-1, it may be filed in paper format 
by the required due date. An electronic format copy of the filed paper 
format document

[[Page 11768]]

shall be submitted to the Department within 10 business days after the 
required due date. Unanticipated technical difficulties that may result 
in additional delays should be brought to the attention of the OLMS 
Division of Interpretations and Standards.
     The applicant must comply with special instructions for 
submitting the Form T-1 in paper format.
     If neither the paper filing nor the electronic filing is 
received in the timeframe specified, the report will be considered 
delinquent.
    Continuing Hardship Exemption:
     A labor organization may apply in writing for a continuing 
hardship exemption if Form T-1 cannot be filed electronically without 
undue burden or expense. Such written application shall be received at 
least thirty days prior to the required due date of the report(s). The 
written application shall include, but not be limited to, the 
following: (1) The justification for the requested time period of the 
exemption; (2) the estimated burden and expense that the labor 
organization would incur if it was required to make an electronic 
submission; and (3) the reasons for not submitting the report(s) 
electronically. The applicant must specify a time period not to exceed 
one year.
     The continuing hardship exemption shall not be deemed 
granted until the Department notifies the applicant in writing. If the 
Department denies the application for an exemption, the labor 
organization shall file the report(s) in electronic format by the 
required due date.
     If the request is granted, the labor organization shall 
submit the report(s) in paper format by the date prescribed by OLMS. 
The applicant must comply with special instructions for submitting the 
Form T-1 in paper format.
     The filer may be required to submit Form T-1 in electronic 
format upon the expiration of the period for which the exemption is 
granted.
     If neither the paper filing nor the electronic filing is 
received in the timeframe specified, the report will be considered 
delinquent.
9. Effective Date
    The Department proposes to provide labor organizations significant 
lead time to prepare for submitting the initial Form T-1. Under the 
proposal, the final rule will take effect no less than 30 days after 
its publication in the Federal Register. Furthermore, at the earliest, 
no report will be due until 15 months after the rule's effective date. 
Thus, labor organizations whose fiscal years begin after the rule's 
effective date will have more than 15 months before their initial Form 
T-1 is due. As stated in the proposal:

    Form T-1 must be filed within 90 days of the end of the labor 
organization's fiscal year. The Form T-1 shall cover the trust's 
most recent fiscal year, i.e., the fiscal year ending on or before 
the closing date of the labor organization's own fiscal year.

    Under the proposal, labor organizations will file a Form T-1 and 
Form LM-2 together. The filing will be due 90 days after the labor 
organization's fiscal year ends. The Form T-1 will be based on the 
latest available information for the trust's most recent fiscal year 
reported to the labor organization by the trust or from a qualifying 
audit. The Department's intention in permitting a labor organization to 
file Form T-1 within ninety days after the labor organization's fiscal 
year ending date, rather than requiring it to be filed within ninety 
days after the trust's fiscal year ending date, is to ease the burden 
for both the trust and the labor organization. The Department 
anticipates that a trust will be able to more readily provide necessary 
information to the reporting labor organization at the conclusion of 
the trust's fiscal year and that a labor organization will have 
correspondingly less difficulty in obtaining information at that time. 
The Department intends to include in the instructions that are 
published as part of the final rule examples of the rule's application 
to trusts and labor organizations that have the same or different 
fiscal years.

IV. Regulatory Procedures

Executive Order 12866

    This proposed rule has been drafted and reviewed in accordance with 
Executive Order 12866, section 1(b), Principles of Regulation. The 
Department has determined that this proposed rule is not an 
``economically significant'' regulatory action under section 3(f)(1) of 
Executive Order 12866. Based on a preliminary analysis of the data, the 
rule is not likely to: (1) Have an annual effect on the economy of $100 
million or more or adversely affect in a material way the economy, a 
sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or state, local, or tribal 
governments or communities; (2) create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency; 
(3) materially alter the budgetary impact of entitlements, grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof, or (4) raise novel legal or policy issues. As a result, the 
Department has concluded that a full economic impact and cost/benefit 
analysis is not required for the rule under Section 6(a)(3) of the 
Order. However, because of its importance to the public, the rule was 
treated as a significant regulatory action and was reviewed by the 
Office of Management and Budget.

Unfunded Mandates Reform

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

Executive Order 13132 (Federalism)

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

Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980 (``RFA''), 5 U.S.C. 601 et 
seq., requires agencies to prepare an initial regulatory flexibility 
analyses in drafting regulations that will have a significant economic 
impact on a substantial number of small entities.
    In the 2003 and 2006 Form T-1 rules, the Department undertook 
regulatory flexibility analyses, utilizing the Small Business 
Administration's (``SBA'') ``small business'' standard for ``Labor 
Unions and Similar Labor Organizations.''. Specifically, the Department 
used the $5 million standard established in 2000 (as updated in 2005 to 
$6.5 million) for purposes of its regulatory flexibility analyses. See 
65 FR 30836 (May 15, 2000); 70 FR 72577 (Dec. 6, 2005). This same 
standard has been used for the Department's initial regulatory 
flexibility analysis in this proposed rule.
    The Department recognizes that the SBA has not established fixed, 
financial thresholds for ``organizations,'' as distinct from other 
entities. See A Guide for Federal Agencies: How to Comply with the 
Regulatory Flexibility Act,

[[Page 11769]]

Office of Advocacy, U.S. Small Business Administration at 12-13, 
available at http://www.sba.gov. The Department further recognizes that 
under SBA guidelines, the relationship of an entity to a larger entity 
with greater receipts is a factor to be considered in determining the 
necessity of conducting a regulatory flexibility analysis. In this 
regard, the affiliation between a local labor organization and a 
national or international labor organization, a widespread practice 
among labor organizations subject to the LMRDA, presents a unique 
circumstance in determining whether and, if so, how, receipts of labor 
organizations should be aggregated, if at all, in assessing whether a 
regulatory flexibility analysis is required and how it should be 
conducted. It is the Department's view, however, that it would be 
inappropriate, given the past rulemaking concerning the Form T-1 and 
the Form LM-2, to depart from the $6.5 million receipts standard in 
preparing this initial regulatory flexibility analysis. Comments are 
invited to address this question of whether the use of the $6.5 million 
figure, without aggregation among affiliated labor organizations, is 
appropriate and if not, to suggest alternative approaches for this 
purpose. Accordingly, the following analysis assesses the impact of 
these regulations on small entities as defined by the applicable SBA 
size standards.
    All numbers used in this analysis are based on 2005 data taken from 
the Office of Labor-Management Standards e.LORS data base, which 
contains records of all labor organizations that have filed LMRDA 
reports with the Department.
1. Statement of the Need for, and Objectives of, the Proposed Rule
    The following is a summary of the need for and objectives of the 
proposed rule. A more complete discussion is found in the preamble.
    The objective of this proposed rule is to increase the transparency 
of labor organization financial reporting by creating a new form for 
labor organization trust reporting (Form T-1) to enable workers to be 
responsible, informed, and effective participants in the governance of 
their labor organizations; discourage embezzlement and financial 
mismanagement; prevent the circumvention or evasion of the statutory 
reporting requirements; and strengthen the effective and efficient 
enforcement of the Act by the Department. The Form T-1 is designed to 
close a reporting gap where labor organization finances in relation to 
LMRDA section 3(l) trusts were not disclosed to members, the public, or 
the Department.
    One of the LMRDA's primary reporting obligations (Forms LM-2, LM-3, 
and LM-4) applies to labor organizations, as institutions; other 
important reporting obligations apply to officers and employees of 
labor organizations (Form LM-30), requiring them to report any 
conflicts between their personal financial interests and the duty they 
owe to the union they serve, and to employers and labor relations 
consultants who must report payments to labor organizations and their 
representatives (Form LM-10). See 29 U.S.C. 432, 433. Requiring labor 
organizations to report the information required by the proposed Form 
T-1 provides an essential check for labor organization members and the 
Department to ensure that labor organizations, labor organization 
officials, and employers are accurately and completely fulfilling their 
reporting duties under the Act, obligations that can easily be ignored 
without fear of detection if reports relating to trusts are not 
required.
    Under the Department's former rule (superseded by the revised 2003 
Form LM-2), a reporting obligation concerning section 3(l) trusts would 
arise only if the trust was a ``subsidiary'' of the reporting labor 
organization and met other requirements previously set by the 
Department. See Form LM-2 instructions in effect prior to the 2003 
final rule; see also 68 FR 58413. Thus, the former rule, which was 
crafted shortly after the Act's enactment, required reporting by only a 
portion of the labor organizations that contributed to section 3(l) 
trusts. During the intervening decades, the financial activities of 
individuals and organizations have increased exponentially in scope, 
complexity, and interdependence. 67 FR 79280-81. For example, many 
labor organizations manage benefit plans for their members, maintain 
close business relationships with financial service providers such as 
insurance companies and investment firms, operate revenue-producing 
subsidiaries, and participate in foundations and charitable activities. 
67 FR 79280. The complexity of labor organization financial practices, 
including business relationships with outside firms and vendors, 
increases the likelihood that labor organization officers and employees 
may have interests in, or receive income from, these businesses. As 
more labor organizations conduct their financial activities through 
sophisticated trusts, increased numbers of businesses have commercial 
relationships with such trusts, creating financial opportunities for 
labor organization officers and employees who may operate, receive 
income from, or hold an interest in such businesses. In addition, 
employers also have fostered multi-faceted business interests, creating 
further opportunities for financial relationships between labor 
organizations, labor organization officials, employers, and other 
entities, including section 3(l) trusts.
    Such trusts ``pose the same transparency challenges as `off-the-
books' accounting procedures in the corporate setting: large scale, 
potentially unattractive financial transactions can be shielded from 
public disclosure and accountability through artificial structures, 
classification and organizations.'' 67 FR 79282. The Department's 
former rule required labor organizations to report on only a subset of 
such trusts. This approach allowed a gap in the reporting of financial 
information concerning these trusts. The trust funds, if they had been 
retained by the labor organization, would have appeared on the labor 
organization's Form LM-2. Despite the close relationship between the 
labor organization and the trust and the purpose of the funds to 
benefit the members of the labor organization, transparency ended once 
the funds left the labor organization and thereby limited 
accountability. Thus, Form T-1 would essentially follow labor 
organization funds that remain in closely connected trusts, but which 
would otherwise go unreported. As a result of non-disclosure of these 
funds, members have long been denied important information about labor 
organization funds that were being directed to other entities, 
ostensibly for the members' benefit, such as joint funds administered 
by a labor organization and an employer pursuant to a collective 
bargaining agreement, educational or training institutions, credit 
unions, and redevelopment or investment groups. See 67 FR 79285. The 
Form T-1 is necessary to close this gap, prevent certain trusts from 
being used to evade the Title II reporting requirements, and provide 
labor organization members with information about financial 
transactions involving a significant amount of money relative to the 
labor organization's overall financial operations and other reportable 
transactions. 68 FR 58415. The proposed Form T-1 will also identify the 
trust's significant vendors and service providers. A labor organization 
member who is aware that a labor organization official has a financial 
relationship with one or more of these

[[Page 11770]]

businesses will be able to determine whether the business and the labor 
organization official have made required reports. The purpose of the 
LMRDA disclosure requirements is to prevent financial malfeasance of 
labor organization money. 67 FR 79282-83. This purpose is demonstrably 
frustrated when existing reporting obligations fail to disclose, for 
example, opportunities for fraud. (Examples of situations where money 
in section 3(l) trusts was being used to circumvent or evade the 
reporting requirements can be found in the preamble and at 67 FR 
79283.)
    As explained in the preamble, additional trust reporting is 
necessary to ensure, as intended by Congress, the full and 
comprehensive reporting of a labor organization's financial condition 
and operations, including a full accounting to labor organization 
members from whose work the payments were earned. 67 FR 79282-83. The 
proposed rule will prevent circumvention and evasion of these reporting 
requirements by providing labor organization members with financial 
information concerning their labor organization's trusts when the labor 
organization, alone or in combination with other labor organizations, 
selects the majority of the directors or provides the majority of the 
funds.
2. Legal Basis for Rule
    The legal authority for the notice of proposed rule-making is 
section 208 of the LMRDA, 29 U.S.C. 438. Section 208 provides that the 
Secretary of Labor shall have authority to issue, amend, and rescind 
rules and regulations prescribing the form and publication of reports 
required to be filed under title II of the Act, including rules 
prescribing reports concerning trusts in which a labor organization is 
interested, and such other reasonable rules and regulations as she may 
find necessary to prevent the circumvention or evasion of the reporting 
requirements. Section 3(l) of the Act, 29 U.S.C. 402(l), defines a 
``trust in which a labor organization is interested.''
3. Number of Small Entities Covered Under the Rule
    The Department estimates that of the 4,452 labor organizations 
subject to this proposed rule, 4,228 of these, or 94.97 percent of the 
total will have receipts less than $6.5 million, the SBA small business 
size standard for ``Labor Unions and Similar Labor Organizations.'' 
These labor organizations have annual average receipts of $1.3 million. 
The Department estimates that only some of these 4,228 labor 
organizations will have to file Form T-1 reports; the Department 
estimates that these organizations will file approximately 2,077 
reports annually (on average about .49 reports per labor organization).
    The affiliation among labor organizations may have an impact on the 
number of organizations that should be counted as ``small 
organizations'' under section 601(4) of the RFA, 5 U.S.C. 601(4). 
Section 601(4) provides in part: ``the term `small organization' means 
any not-for-profit enterprise which is independently owned and operated 
and is not dominant in its field.'' However, for purposes of analysis 
here and for ready comparison with the RFA analyses in its earlier Form 
T-1 rulemakings, the Department has used the $6.5 million receipts test 
for ``small businesses,'' rather than the ``independently owned and 
operated and not dominant'' test for ``small organizations.'' 
Application of the latter test likely would reduce the number of labor 
organizations that would be counted as small entities under the RFA. We 
are seeking comment on the accuracy of this assumption.\9\
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    \9\ As discussed in greater detail in the PRA analysis, the 
primary impact of this proposed rule will be on the largest labor 
organizations, defined as those that have $250,000 or more in annual 
receipts. Based on information in its electronic labor organization 
reporting system (``e.LORS''), the Department estimates 
[10] that there are approximately 4,452 labor 
organizations of this size that have $250,000 or more in annual 
receipts (just 18.5 percent of the 24,065 labor organizations 
covered by the LMRDA).
---------------------------------------------------------------------------

4. 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. It should be noted, 
however, that some section 3(l) trusts, i.e., those that are part of 
employee benefit plans subject to ERISA coverage and disclosure 
requirements, are currently required to report some similar information 
to the Employee Benefits Security Administration on an annual report 
Form 5500. However, this information does not include certain 
information captured by the proposed Form T-1 that is specifically 
focused on disclosures under section 201 of the LMRDA.
5. Differing Compliance or Reporting Requirements for Small Entities
    Under the proposal, the reporting, recordkeeping, and other 
compliance requirements apply equally to all labor organizations that 
are required to file a Form T-1 under the LMRDA. Only the largest 
filers, those that have annual receipts in the millions, are likely to 
have multiple trusts which will require substantial changes in their 
accounting practices in order to report these trusts on the new form. 
Labor organizations with receipts of between $250,000 and $2 million, 
which account for over 3,441 of the 4,452 Form LM-2 filers, are likely 
to have fewer trusts for which they will have to file a Form T-1 than 
the organizations with greater annual receipts.
6. Clarification, Consolidation and Simplification of Compliance and 
Reporting Requirements for Small Entities
    OLMS has updated the e.LORS system to allow labor organizations to 
file Form T-1 as they file the current Form LM-2. Under the proposed 
rule, labor organizations are directed to use an electronic reporting 
format to maintain financial information. This information can then 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 reporting software. A help 
desk is staffed during normal business hours and can be reached by 
telephone.
    The use of electronic forms makes it possible to download 
information from previously filed reports directly into the form; 
enables officer and employee information to be imported onto the form; 
makes it easier to enter information; and automatically performs 
calculations and checks for typographical and mathematical errors and 
other discrepancies, which reduces the likelihood of having to file an 
amended report. The error summaries provided by the software, combined 
with the speed and ease of electronic filing, will also make it easier 
for both the reporting labor organization and OLMS to identify errors 
in both current and previously filed reports and to file amended 
reports to correct them.
7. 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 create a Form T-1. As stated above, this alternative 
was rejected because OLMS case files and experience demonstrate that 
the goals of the Act are not being met insofar as the finances of labor 
organizations are held in section 3(l) trusts. As explained further in 
the preamble, labor organization members have no information on their 
labor

[[Page 11771]]

organization's 3(l) trusts. Labor organization members need this 
information to make informed decisions on labor organization 
governance.
    Another alternative would be to limit the proposed 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 a far greater impact 
on and relevance to labor organization members, particularly since such 
lower levels of labor organizations generally set and collect dues and 
provide representational and other services for their members. Such a 
limitation would reduce the utility of the information to a significant 
number of labor organization members. Of the estimated 4,452 labor 
organizations subject to Form T-1 filing requirements under the 
proposal, just 101 are national and international labor organizations. 
Requiring only national and international organizations to file Form T-
1 would not effectively increase labor organization transparency nor 
provide any deterrent to fraud and embezzlement by local and regional 
officials.
    Another alternative would be to propose a phase-in of the effective 
date of the Form T-1, which would provide some labor organizations 
additional time to modify their recordkeeping systems in order to 
comply with the new reporting requirement. The Department has 
concluded, however, that the proposed rule allows all Form T-1 filers 
sufficient time to adapt to the proposed disclosure requirements and 
make any necessary adjustments to their recordkeeping and reporting 
systems. OLMS also plans to provide compliance assistance to any labor 
organization or section 3(l) trust that requests it. The Department 
believes it has minimized the economic impact of the form on small 
labor organizations to the extent possible while recognizing workers' 
and the Department's need for information to protect the rights of 
labor organization members under the LMRDA.
8. Reporting, Recording and Other Compliance Requirements of the Rule 
\10 \
---------------------------------------------------------------------------

    \10\ The estimated burden on labor organizations is discussed in 
detail in the section concerning the Paperwork Reduction Act. The 
figures discussed in the text are derived from the figures explained 
in that section.
---------------------------------------------------------------------------

    This analysis only considers unions within Tier I and a portion of 
the unions within Tier II. There is no analysis of Tier III unions 
because all unions within Tier III are outside the coverage of the 
Regulatory Flexibility Act. This proposed rule is not expected to have 
a significant economic impact on a substantial number of small 
entities. The LMRDA is primarily a reporting and disclosure statute. 
Accordingly, the primary economic impact of the proposed rule will be 
the cost of obtaining and reporting required information.
    The Department assumes that each Tier I labor organization (those 
with between $250,000 and $499,999 in annual receipts) will spend, on 
average, about .75 hours contacting all the section 3(l) trusts listed 
on their Form LM-2s to determine whether a Form T-1 is required.\11\ 
The Department estimates that this will cost each Tier I labor 
organization, on average, $11.92 a year or .003 percent of annual 
receipts. Each Tier II labor organization that is a ``small entity'' 
(those with between $500,000 and $6.5 million in annual receipts) will 
spend approximately 1.5 hours contacting all the section 3(l) trusts 
listed on their LM-2 to determine whether a Form T-1 is required. This 
will cost each Tier II labor organization on average $52.79 a year or 
.003 percent of annual receipts. Of those trusts contacted, only some 
will meet the Form T-1 filing requirements. For those that meet the 
filing requirements, the labor organizations will incur the 
recordkeeping and reporting burden associated with the Form T-1.
---------------------------------------------------------------------------

    \11\ This assumption is premised on the following: Only some 
labor organizations will have any section 3(l) trusts; some of those 
labor organizations will not need additional information to 
determine a particular trust's coverage under the proposed rule; the 
number of inquiries will be proportional to the estimated number of 
trusts for the three tiers of labor organizations based on the 
amount of their annual receipts; and typically only a telephone call 
or email will be needed to make the coverage inquiry with the trust. 
The costs are based on the wage rates for labor organizations. See 
Table 4. Comments are invited on the methodology and assumptions 
underlying this assumption and other assumptions and estimates 
utilized in the Department's burden analysis.
---------------------------------------------------------------------------

    The first year cost of the proposed Form T-1 (including first year 
non-recurring implementation costs) for the estimated 1,347 labor 
organizations with annual receipts between $250,000 and $499,999 who 
actually file a T-1 is $1,139.31, or 0.32 percent of average annual 
receipts (see Table 1).\12\ The first year cost of the proposed Form T-
1 (including first year non-recurring implementation costs) for the 
estimated 2,881 labor organizations with annual receipts between 
$500,000 and $6,500,000 who actually file a Form T-1 is $2,523.12, or 
0.15 percent of total annual receipts (see Table 1). Further, under the 
Department's analysis, the costs fall during the second and third year 
as the reporting infrastructure is completed and filers become more 
familiar with the form. The Department estimates a 52.72 percent 
reduction in the second year and another 10.32 percent reduction in the 
third year. Filing costs in the third year for labor organizations with 
between $250,000 and $499,999 in annual receipts are estimated to be 
$483.06 or 0.13 percent of their average annual receipts. Filing costs 
in the third year for labor organizations with between $500,000 and 
$6,500,000 in annual receipts are estimated to be $1,069.78 or .06 
percent of their average annual receipts.
---------------------------------------------------------------------------

    \12\ The burden hours and costs are identified in the Paperwork 
Reduction Act section that follows.

        Table 1.--Summary of T-1 Regulatory Flexibility Analysis
------------------------------------------------------------------------
                                           Total burden     Total  cost
  For labor organizations that meet the     hours  per          per
       SBA small entities standard          respondent      respondent
------------------------------------------------------------------------
First Year Cost of Proposed Form T-1 for            71.7       $1,139.31
 Labor organizations with $250,000 to
 $499,999 in Annual Receipts............
    Percent of Average Annual Receipts..            n.a.           0.32%
Second Year Cost of Proposed Form T-1               33.9         $538.67
 for Labor organizations with $250,000
 to $499,999 in Annual Receipts.........
    Percent of Average Annual Receipts..            n.a.           0.15%
    Percentage Reduction in Cost From               n.a.          52.72%
     Previous Year......................
Third Year Cost of Proposed Form T-1 for            30.4         $483.06
 Labor organizations with $250,000 to
 $499,999 in Annual Receipts............
    Percent of Average Annual Receipts..            n.a.           0.13%
    Percentage Reduction in Cost From               n.a.          10.32%
     Previous Year......................

[[Page 11772]]

 
First Year Cost of Proposed Form T-1 for            71.7       $2,523.12
 Labor organizations with $500,000 to
 $6,500,000 in Annual Receipts..........
    Percent of Average Annual Receipts..            n.a.           0.15%
Second Year Cost of Proposed Form T-1               33.9       $1,192.94
 for Labor organizations with $500,000
 to $6,500,000 in Annual Receipts.......
    Percent of Average Annual Receipts..            n.a.           0.07%
    Percentage Reduction in Cost From               n.a.          52.72%
     Previous Year......................
Third Year Cost of Proposed Form T-1 for            30.4       $1,069.78
 Labor organizations with $500,000 to
 $6,500,000 in Annual Receipts..........
    Percent of Average Annual Receipts..            n.a.           0.06%
Percentage Reduction in Cost From                   n.a.          10.32%
 Previous Year..........................
------------------------------------------------------------------------

    As noted in section 3 above, the proposed rule will apply to 4,228 
labor organizations that meet the SBA standard for small entities, or 
just 17.6 percent of the 24,065 labor organizations that must file an 
annual financial report under the LMRDA. The proposed rule is not 
expected to have a significant economic impact on these entities. For 
the estimated 1,347 labor organizations with annual receipts between 
$250,000 and $499,999 that actually file a Form T-1 under the proposed 
rule, the first year costs (including first year non-recurring 
implementation costs) are $1,139.31, or 0.32 percent of average annual 
receipts (see Table 1).\13\ For the estimated 2,881 labor organizations 
with annual receipts between $500,000 and $6,500,000 that actually file 
a Form T-1 under the proposed rule, the first year costs (including 
first year non-recurring implementation costs) are $2,523.12, or 0.15 
percent of total annual receipts (see Table 1). Therefore, the 
Department has decided that the proposed rule will not have a 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \13\ The burden hours and costs are identified in the Paperwork 
Reduction Act section that follows.
---------------------------------------------------------------------------

Paperwork Reduction Act

    This statement is prepared in accordance with the Paperwork 
Reduction Act of 1995, 44 U.S.C. 3501 (``PRA''). See 5 CFR 1320.9. As 
discussed in the preamble to this proposed rule, the analysis under the 
Regulatory Flexibility Act, and the analysis that follows, the rule 
implements an information collection that meets the requirements of the 
PRA in that: (1) The information collection has practical utility to 
labor organizations, their members, other members of the public, and 
the Department; (2) the rule does not require the collection of 
information that is duplicative of other reasonably accessible 
information; (3) the provisions reduce to the extent practicable and 
appropriate the burden on labor organizations that must provide the 
information, including small labor organizations; (4) the form, 
instructions, and explanatory information in the preamble are written 
in plain language that will be understandable by reporting labor 
organizations; (5) the disclosure requirements are implemented in ways 
consistent and compatible, to the maximum extent practicable, with the 
existing reporting and recordkeeping practices of labor organizations 
that must comply with them; (6) this preamble informs labor 
organizations of the reasons that the information will be collected, 
the way in which it will be used, the Department's estimate of the 
average burden of compliance, which is mandatory, the fact that all 
information collected will be made public, and the fact that they need 
not respond unless the form displays a currently valid OMB control 
number; (7) the Department has explained its plans for the efficient 
and effective management and use of the information to be collected, to 
enhance its utility to the Department and the public; (8) the 
Department has explained why the method of collecting information is 
``appropriate to the purpose for which the information is to be 
collected''; and (9) the changes implemented by this rule make 
extensive, appropriate use of information technology ``to reduce burden 
and improve data quality, agency efficiency and responsiveness to the 
public.'' See 5 CFR 1320.9; 44 U.S.C. 3506(c).
    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the PRA. This helps to ensure that the 
public understands the Department's collection instructions, 
respondents can provide the requested data in the desired format, the 
reporting burden (time and financial resources) is minimized, and the 
Department can properly assess the impact of collection requirements on 
respondents.
    In this proposed rulemaking, the Department has sought to improve 
the usefulness and accessibility of information to members of labor 
organizations subject to the LMRDA. The LMRDA reporting provisions were 
devised to protect the basic rights of members of labor organizations 
and to guarantee the democratic procedures and financial integrity of 
labor organizations. The 1959 Senate report on the version of the bill 
later enacted as the LMRDA stated clearly that ``the members who are 
the real owners of the money and property of the organization are 
entitled to a full accounting of all transactions involving their 
property.'' A full accounting was described as ``full reporting and 
public disclosure of union internal processes and financial 
operations.''
    As labor organizations have become more multifaceted and have 
created hybrid structures for their various activities, the form used 
to report financial information with respect to these activities had 
until recently remained relatively unchanged and had become a barrier 
to the complete and transparent reporting of labor organizations' 
financial information intended by the LMRDA. 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 members of labor

[[Page 11773]]

organizations. If members had more complete, understandable information 
about their labor organizations' financial transactions, investments, 
and solvency, they would be in a much better position than they are 
today to protect their personal financial interests and to exercise 
their rights of self-governance. The purpose of the proposed rule is to 
provide them with such information. The information collection achieved 
by this proposed rule is integral to this purpose. The paperwork 
requirements associated with the rule are necessary to enable workers 
to be responsible, informed, and effective participants in the 
governance of their labor organizations; discourage embezzlement and 
financial mismanagement; prevent the circumvention or evasion of the 
statutory reporting requirements; and strengthen the effective and 
efficient enforcement of the LMRDA by the Department.
    As discussed in the preamble, members have long been denied 
important information about labor organization funds that were being 
directed to other entities, ostensibly for the members' benefit, such 
as joint funds administered by a labor organization and an employer 
pursuant to a collective bargaining agreement, educational or training 
institutions, credit unions, and redevelopment or investment groups. 
The proposed Form T-1 is necessary to close this gap, prevent labor 
organizations from using certain trusts to evade the Title II reporting 
requirements, and provide labor organization members with information 
about financial transactions involving a significant amount of money 
relative to the labor organization's overall financial operations and 
other reportable transactions. Trust reporting is necessary to ensure, 
as intended by Congress, the full and comprehensive reporting of a 
labor organization's financial condition and operations, including a 
full accounting to labor organization members for payments to the 
trust, payments made because of the work of these members. Trust 
reporting is also necessary to prevent circumvention and evasion of the 
reporting requirements imposed on officers and employees of labor 
organizations and on employers.
    The proposed Form T-1 is designed to take advantage of technology 
that reduces the burden of providing detailed information, while at the 
same time making it easier to file and publish the contents of the 
reports. Members of labor organizations thus will be able to obtain a 
more accurate and complete picture of their organization's financial 
condition and operations without imposing an unwarranted burden on 
respondents. Supporting documentation need not be submitted with the 
forms, but labor organizations are required, pursuant to the LMRDA, to 
maintain, assemble, and produce such documentation in the event of an 
inquiry from a member of a labor organization or an audit by an OLMS 
investigator.
    Based upon the analysis presented below, the Department estimates 
that the total first year burden to comply with the proposed Form T-1 
will be 183,361 hours. The total first year compliance costs associated 
with this burden is estimated to be $6,172,047. Therefore, this 
proposed rule will not be a major economic rule. Both the burden hours 
and the compliance costs associated with Form T-1 decline in subsequent 
years. The Department estimates that the total burden averaged over the 
first three years to comply with the Form T-1 to be 117,995 hours per 
year. The total compliance costs associated with this burden averaged 
over the first three years are estimated to be $2.6 million per year.
A. Overview of Form T-1
    The Form T-1 in this proposed rule is identical to the form 
promulgated at 71 FR 57116, but as discussed in the preamble the scope 
of the reporting requirement has been narrowed in order to conform the 
rule with the D.C. Circuit's decision in AFL-CIO v. Chao, 409 F.3d 377 
(2005). The proposed rule reiterates the Department's determination 
that no Form T-1 will be required if the trust files a report pursuant 
to 26 U.S.C. 527, or if the organization files publicly available 
reports with a Federal or state agency as a PAC. Additionally, a labor 
organization may substitute an audit that meets the criteria set forth 
in the Form T-1 instructions for the financial information otherwise 
reported on a Form T-1.
    Form T-1 consists of 14 questions that identify the labor 
organization and trust; six yes/no questions covering issues such as 
whether any loss or shortage of funds was discovered during the 
reporting year and whether the trust had made any loans to officers or 
employees of the labor organizations at terms below market rates; four 
summary numbers for total assets, liabilities, receipts, and 
disbursements; a schedule for itemizing all receipts of $10,000 or 
more, individually or in the aggregate, from any entity or individual; 
a schedule for itemizing all disbursements of $10,000 or more, 
individually or in the aggregate, to any entity or individual; and a 
schedule for listing all officers of the trust and payments to them and 
all employees of the trust who received more than $10,000 from the 
trust.
    Form T-1 and its instructions, which are modified to reflect the 
proposed filing criteria, are published as an appendix to this proposed 
rule.
B. Methodology for the Burden Estimates
    The figures used here by the Department are derived from the 
Department's computations based on assumptions, rounded to the nearest 
hundredth, published in the 2003 rule, 68 FR 58433, and the 2006 rule, 
71 FR 57116. For this proposed rule, baselines and other estimates 
(such as whether a labor organization, trust, or outside personnel will 
complete the form) for the Form T-1 are assumed to parallel those of 
the current Form LM-2. Filers of Form T-1 will be a subset of the Form 
LM-2 filers, i.e., those Form LM-2 filers that participate in a section 
3(l) trust will be required to file the Form T-1 when other criteria, 
as explained above, are met. In reaching its estimates, the Department 
considered both the one-time and recurring costs associated with the 
proposed rule. Separate estimates are included for the initial year of 
implementation as well as the second and third years. For filers, the 
Department included separate estimates, based on the relative size of 
labor organizations as measured by the amount of their annual receipts.
    This NPRM will affect the largest labor organizations, defined as 
those that have $250,000 or more in annual receipts, subject to the 
Act. Such labor organizations that are interested in a section 3(l) 
trust must file a Form T-1 when: The labor organization, alone or in 
combination with other labor organizations, (A) appoints a majority of 
the members of the trust's governing board, or (B) contributes more 
than 50 percent of the trust's annual receipts. Contributions made on 
behalf of the organization or its members shall be considered 
contributions by the labor organization. The Department assumes that 
each Form LM-2 filer will spend approximately 1.31 hours contacting all 
the section 3(l) trusts listed on their Form LM-2 to determine whether 
a Form T-1 is required. It should be noted that it is unlikely that 
labor organizations will need to contact each trust listed on its Form 
LM-2 as some obviously will or will not meet the filing threshold. For 
fiscal year 2005, the Department received approximately 4,452 Form LM-2 
reports. Therefore, the Department estimates that there are 4,452 
reporting labor organizations with

[[Page 11774]]

receipts of $250,000 or more.\14\ The Department estimates that for 
these 4,452 labor organizations, 2,476 Form T-1s will be filed. This 
cohort represents 18.5 percent of all labor organizations covered by 
the LMRDA. See Table 2. These figures differ from the Department's 2003 
estimates where it was assumed that 2,769 Form T-1s would be filed 
annually. 68 FR 58435. The differences between today's estimates and 
those used in the 2003 rule reflect the narrower reach of this rule.
---------------------------------------------------------------------------

    \14\ These estimates for the total number of labor organizations 
and the number of labor organizations by tier are somewhat higher 
than the numbers reflected in the 2006 analysis. The difference is 
due to natural variations in the universe of filers. As economic 
conditions change the number of labor organizations as a whole and 
the number of labor organizations within each tier varies.
---------------------------------------------------------------------------

    Today's estimates, like the 2002 NPRM and the 2003 and 2006 rules, 
are based on a three-tier analysis of labor organizations organized by 
receipt size. The Department first assumed that 10 percent of the 1,317 
labor organizations with annual receipts of $250,000 to $499,999.99 
(Tier I) would file one Form T-1. Second, it was assumed that 25 
percent of the 3,083 labor organizations with annual receipts of 
$500,000 to $49.9 million (Tier II) would file on average two Form T-
1s. Third, it was assumed that 100 percent of the 52 labor 
organizations with annual receipts of $50 million or more (Tier III) 
would file an average of four Form T-1 reports each. The implementation 
of a tier system is based on the underlying assumption that the size of 
a labor organization, as measured by the amount of its annual receipts, 
will affect its recordkeeping and reporting burden for Form T-1. Larger 
labor organizations have more trusts for which to account: the three 
tiers are constructed to differentiate these relative burdens among 
those labor organizations with $250,000 or more in receipts (68 FR 
58433).\15\
---------------------------------------------------------------------------

    \15\ Comments are invited on the methodology and assumptions 
underlying the Department's burden analysis. Because labor 
organizations have not previously been required to report on most 
section 3(l) trusts, the Department particularly invites comment on 
the number of section 3(l) trusts for which a particular labor 
organization will have to file a Form T-1 under the proposal and 
whether that number is likely to be consistent for labor 
organizations within the same tier as the commenting labor 
organization. Additionally, comments are requested on the 
assumption, discussed in the next paragraph of the text, relating to 
the burden that some labor organizations may face in obtaining 
information about the need to file a Form T-1 for some section 3(l) 
trusts.

                                 Table 2
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
    Tier System Based on FY 2005 Figures and Assumptions in 2006 Rule
 
Total Labor Organizations with 250,000 or more in receipts: 4,452.
Tier I ($250,000-499,999 receipts): 1,317 x 10 percent = (
 filers) x 1 ( reports) = 132.
Tier II ($500,000-49.9 mil receipts): 3,083 x 25 percent = (
 filers) x 2 ( reports) = 1,542.
Tier III ($50 mil and higher receipts): 52 x 100 percent = (
 filers) x 4 ( reports) = 208.
Estimated Annual Form T-1 Filings 1,882.
 
Tier System Based on FY 2005 Figures and Assumptions Based on Changes in
                              This Proposal
 
Total Labor Organizations with $250,000 or more in receipts: 4,452.
Tier I ($250,000-499,999 receipts): 1,317 x 13 percent = (
 filers) x 1 ( reports) = 171.
Tier II ($500,000-49.9 mil receipts): 3,083 x 33 percent = (
 filers) x 2 ( reports) = 2,035.
Tier III ($50 mil and higher receipts): 52 x 100 percent = (
 filers) x 5.2 ( reports) = 270.
Estimated Annual Form T-1 Filings 2,476.
------------------------------------------------------------------------

    These numbers are higher than the estimates in the 2003 and 2006 
rulemaking. In the current paperwork clearance (OMB  1215-
0188), the Department estimated 1,664 Form T-1s would be filed under 
the requirements published in 2006. Under the proposed requirements, 
the Department estimates that 2,476 reports will have to be filed.\16\ 
This estimate was obtained by taking the assumptions from the 2006 
final rule, adjusting these assumptions by the number of current Form 
LM-2 filers and then increasing by 30 percent per tier the anticipated 
number of Form T-1s that would be filed. This increase is due to the 
elimination of the receipts thresholds for filing and the filing 
exemption for the ERISA Form 5500 that was found in the previous 
rulemakings. These changes are reflected in the estimated percentage of 
filers, which are higher in the second data set in Table 2.
---------------------------------------------------------------------------

    \16\ The difference between the 2003 and 2006 estimates was due 
to the narrower reach of the 2006 rule, i.e., its adoption of the 
majority control rule embodied in the 2006 rule and continued in 
this proposal.
---------------------------------------------------------------------------

    The Department's cost estimates include costs for both labor and 
equipment that will be incurred by filers. The labor costs reflect the 
Department's assumption that labor organizations and trusts will rely 
upon the services of some or all of the following positions (president, 
secretary-treasurer, accountant, bookkeeper, computer programmer, 
lawyer, consultant) and the compensation costs for these positions, as 
measured by wage rates and employer costs published by the Bureau of 
Labor Statistics or derived from data in the Department's Electronic 
Labor Organization Reporting System database (``e.LORS''), which stores 
and automatically culls certain information, such as labor organization 
officer and employee salaries, from annual reports submitted by labor 
organizations. The Department also made assumptions relating to the 
time that particular tasks or activities would take. The activities 
generally involve only one of the three distinct ``operational'' phases 
of the rule: first, tasks associated with modifying bookkeeping and 
accounting practices, including the modification or purchase of 
software, to capture data needed to prepare the required reports; 
second, tasks associated with recordkeeping; and third, tasks 
associated with completing the report and all appropriate levels of 
review and signature. Where an estimate depends upon the number of 
labor organizations subject to the LMRDA or included in one of the tier 
groups, the Department has relied upon data in the e.LORS system (for 
the years stated for each example in the text or tables).
    The relative burden associated with the rule will correspond to the 
following predictable stages: determining whether a section 3(l) trust 
meets the filing requirements; review of the instructions and forms; 
adjustments to or acquisition of accounting software and computer 
hardware; changing accounting structures and developing, testing, 
reviewing, and documenting accounting software queries as well as 
designing query reports; training officers and employees involved in 
bookkeeping and accounting functions; the actual recordkeeping of data; 
and additional review by trust officials and the reporting labor 
organization's president and secretary-treasurer. As those labor 
organizations that will be required to file Form T-1 already are 
required to file Form LM-2, which requires the use of digital 
signatures, Form T-1 filers will not incur an additional cost or burden 
associated with the need to affix a digital signature to the Form T-1.
    Burden can be categorized as recurring or non-recurring, with the 
latter primarily associated with the initial implementation stages. 
Recordkeeping burden, as distinct from reporting burden, will 
predominate during the first months of implementation. Burden can be 
reasonably estimated to vary over time with the greatest burden in the 
initial year, decreasing in later years as filers gain experience. 
Estimates for each of the first three years and a three-year

[[Page 11775]]

average will provide useful information to assess the burden. Burden 
can be usefully reported as an overall total for all filers in terms of 
hours and cost. The estimated burden associated with the current LM 
forms is the appropriate baseline for estimating the burden and cost 
associated with the Form T-1 because only a subset of those labor 
organizations which file Form LM-2 will be required to file Form T-1. 
As the Form T-1 will be filed only by labor organizations with $250,000 
or more in receipts, which is the dollar threshold for the Form LM-2, 
it is presumed that many of the same labor organization and/or outside 
personnel will be performing the recordkeeping and responding duties. 
Therefore, these estimates are used as the Form T-1 baseline.
    For each of the three tiers, the Department estimated burden hours 
for the nonrecurring (first year) recordkeeping and reporting 
requirements, the recurring recordkeeping and reporting burden hours, 
and a three-year annual average for the nonrecurring and recurring 
burden hours similar to the way it has previously estimated the burden 
hours when updating financial disclosure forms required by the LMRDA. 
The Department estimates that under the proposal, on average, each 
labor organization will spend approximately 1.31 hours each year 
determining whether it has any section 3(l) trusts listed on its Form 
LM-2 that meet the Form T-1 filing requirements. As shown on Table 3, 
the Department estimates the burden required for filing the Form T-1 
for all three tiers to be 2.4 hours to provide the trust with 
information about the Form T-1, 4.3 hours for reviewing the form and 
instructions, and 8.0 non-recurring (first year) hours for installing, 
testing, and reviewing acquired software/hardware and/or implementing 
recordkeeping and/or reporting procedures. The time required to read 
and review the form and instructions is estimated to decline to 2.0 
hours the second year and 1.0 hour the third year as labor 
organizations and trusts become more familiar with the form.
    The Department estimates the average reporting burden required to 
complete pages one and two of the Form T-1 for each of the three tiers 
to be 6.1 hours and the average recordkeeping burden associated with 
the items on pages one and two to be 1.6 hours. The Department also 
estimates that trusts will spend 2.0 hours reviewing the form once it 
is completed. These estimates are proportionally based on the 
recordkeeping and reporting burden estimate for the first two pages of 
the current Form LM-4, which are very similar to the first two pages of 
the Form T-1. The first two pages of Form LM-4 have 21 items (8 
questions that identify the labor organization, four yes/no questions, 
seven summary numbers for: maximum amount of bonding, number of 
members, total assets, liabilities, receipts, and disbursements, total 
disbursements to officers, and a space for additional information). The 
first two pages of Form T-1 have 25 items (14 questions that identify 
the labor organization and trust, six yes/no questions, four summary 
numbers for total assets, liabilities, receipts, and disbursements, and 
a space for additional information).
    For the receipts and disbursements schedules, the Department 
estimates that on average Form T-1 respondents will take 9.8 hours (of 
nonrecurring burden) to develop, test, review, and document accounting 
software queries; design query reports; prepare a download methodology; 
and train personnel for each of the schedules. Further, the Department 
also estimates that on average Form T-1 respondents (a labor 
organization is counted as a respondent for each Form T-1 it files) 
will take 1.2 (recurring) hours to prepare and transmit the receipts 
schedule and 1.4 hours to prepare and transmit the disbursements 
schedule. The Department also estimates that on average Form T-1 
respondents will take 8.3 hours (recurring) of recordkeeping burden for 
each schedule to maintain the additional information required by the 
rule.
    For the Form T-1 disbursements to officers and employees of the 
trust schedule, the Department estimates that it will take respondents 
an average 2.8 hours (of nonrecurring burden) to develop, test, review, 
and document accounting software queries; design query reports; prepare 
a download methodology; and train personnel. Further, the Department 
estimates it will take on average 0.8 hours to prepare and transmit the 
schedule.
    The Department also estimates that it will take 2.0 hours for the 
trust to review the Form T-1 and 1.0 hours for this information to be 
sent to the labor organization filer. In addition, the Department 
estimates that the labor organization president and secretary-treasurer 
will take 4.0 hours to review and sign the form. The time for the 
president and secretary-treasurer to review and sign the form declines 
to 2.0 hours the second year and 1.0 hour the third year as they become 
more familiar with the form.

                           Table 3.--Summary of Average First Year Burden for Form T-1
----------------------------------------------------------------------------------------------------------------
                                                            Nonrecurring     Reporting burden    Recordkeeping
         Reporting or recordkeeping requirement             burden hours          hours           burden hours
----------------------------------------------------------------------------------------------------------------
Information on Form T-1 Provided to Trust..............                0.0                2.4                0.0
Review Form T-1 and Instructions.......................                0.0                4.3                0.0
Install, Test, and Review Software.....................                8.0                0.0                0.0
Pages 1 and 2..........................................                0.0                6.1                1.6
Individually Identified Receipts.......................                9.8                1.2                8.3
Individually Identified Disbursements..................                9.8                1.4                8.3
Disbursements to Officers and Employees................                2.8                0.8                0.0
Review by Trust........................................                0.0                2.0                0.0
Form/Information Sent to Labor Organization............                0.0                1.0                0.0
President Review and Sign Off..........................                0.0                2.0                0.0
Treasurer Review and Sign Off..........................                0.0                2.0                0.0
                                                        --------------------------------------------------------
Total First Year Burden for Form T-1...................               30.4               23.2               18.1
----------------------------------------------------------------------------------------------------------------


    Note: The burden for labor organization to determine whether a 
Form T-1 is required to be filed for its section 3(l) trusts is 
explained in the text preceding this table. This table displays the 
average burden associated with each Form T-1 that is actually filed.


    Note also: Some numbers may not add due to rounding.



[[Page 11776]]


    Source: U.S. Department of Labor, Employment Standards 
Administration, Office of Labor-Management Standards.

    The Department's cost estimates are based on wage-rate data 
obtained from BLS for personnel employed in service industries (i.e., 
accountant, bookkeeper, etc.) and adjusted to be total compensation 
estimates based on the BLS Employer Cost data from the 2006 NCS.
    The Department estimates that, on average, the completion by a 
labor organization of Form T-1 will involve an independent and/or in-
house accountant, a bookkeeper or clerk, its president, and its 
secretary-treasurer. Based on the 2006 NCS,\17\ an independent 
accountant/auditor earns on average $27.22 per hour (accountants 
employed by labor organizations are presumed to make the same average 
salary). Based on reviewed annual labor organization reports (the 
latest reports on file), labor organization personnel earn on average 
the amounts listed below, separated by tier.
---------------------------------------------------------------------------

    \17\ National Compensation Survey: Occupational Wages in the 
United States, June 2006 (BLS July 2007, p. 5.). These amounts are 
higher than the estimates in the 2006 rule, which were based on 2004 
NCS data.

                 Table 4.--Labor Organization Wage Rates
------------------------------------------------------------------------
                Position                   Tier I    Tier II    Tier III
------------------------------------------------------------------------
President..............................     $15.52     $73.06    $110.98
Secretary/Treasurer....................      15.36      58.83      94.29
Outside Accountant.....................      27.22      27.22      27.22
Bookkeeper/Clerk.......................      17.96      21.17      26.88
Weighted Average.......................      15.89      35.19      36.74
------------------------------------------------------------------------

    Given the nexus between a trust and a labor organization for 
purposes of Form T-1, the Department believes that the salary rates of 
labor organization officers and employees are applicable to 
corresponding trust positions.
    The Department estimates the average reporting and recordkeeping 
burden for Form T-1 to be 71.7 hours per respondent in the first year 
(including non-recurring implementation costs), 33.9 hours per 
respondent in the second year, and 30.4 hours per respondent in the 
third year. As stated above, the Department estimates that each Form 
LM-2 filer will spend, on average, approximately 1.31 hours each year 
determining whether it has any section 3(l) trusts listed on its Form 
LM-2 that meet the Form T-1 filing requirements. The Department 
estimates the total annual burden hours on labor organizations to 
determine whether they must file a Form T-1 for any section 3(l) trust 
listed on their Form LM-2 to be approximately 5,832 hours. The 
Department estimates that labor organizations with trusts that meet the 
filing requirement, on average, will spend 71.7 hours in the first year 
(including non-recurring implementation costs), 33.9 hours in the 
second year, and 30.4 hours in the third year fulfilling the filing 
requirements for each of its qualifying trusts. The Department 
estimates the total annual burden hours for respondents who file Form 
T-1 to be 177,529 hours in the first year, 83,936 hours in the second 
year, and 75,270 hours in the third year (see Table 5). Under this 
proposed rule, only the estimated number of filers, not the form 
itself, has changed from the 2003 and 2006 rules; therefore, the 
current burden hour estimates, per respondent, are identical to the 
2003 and 2006 estimates. See 68 FR 58446 and 71 FR 57116.
    The Department estimates the average annual cost for the Tier I 
Form T-1 filers to be $1,139.31 per Tier I respondent in the first year 
(including non-recurring implementation costs) (71.7 x $15.89 = 
$1,139.31); $538.67 per Tier I respondent in the second year (33.9 x 
$15.89 = $538.67); and $483.06 per Tier I respondent in the third year 
(30.4 x $15.89 = $483.06).
    The Department estimates the average annual cost for the Tier II 
Form T-1 filers to be $2,523.12 per Tier II respondent in the first 
year (including non-recurring implementation costs) (71.7 x $35.19 = 
$2,523.12); $1,192.94 per Tier II respondent in the second year (33.9 x 
$35.19 = $1,192.94); and $1,069.78 per Tier II respondent in the third 
year (30.4 x $35.19 = $1,069.78).
    The Department estimates the average annual cost for the Tier III 
Form T-1 filers to be $2,634.26 per Tier III respondent in the first 
year (including non-recurring implementation costs) (71.7 x $36.74= 
$2,634.26); $1,245.49 per Tier III respondent in the second year (33.9 
x $36.74= $1,245.49); and $1,116.90 per Tier III respondent in the 
third year (30.4 x $36.74= $1,116.90). These per respondent figures are 
also close to the 2003 and 2006 estimates (see 68 FR 58446 and 71 FR 
57116).
    The Department also estimates the total annual cost to respondents 
associated with Form T-1 to be $6 million in the first year, $2.9 
million in the second year, and $2.6 million in the third year. These 
estimates are similar to costs estimated in 2003 ($5.5, $2.6, and $2.3 
million), 68 FR 58466, but higher than the 2006 estimates ($3.3, $1.6, 
and $1.4 million) due to the change in the trigger for filing the form. 
See 71 FR 57116 for 2006 estimates.

                                        Table 5.--Reporting and Recordkeeping Burden Hours and Costs for Form T-1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Reporting         Total      Record-keeping                   Total burden
                  Form                       Number of       hours per       reporting       hours per     Total record-     hours per     Total burden
                                             responses      respondent         hours        respondent     keeping hours    respondent         hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form T-1/First Year.....................           2,476            23.2          57,443            48.5         120,086            71.7         177,529
Second Year.............................           2,476            15.8          39,121            18.1          44,816            33.9          83,936
Third Year..............................           2,476            12.3          30,455            18.1          44,816            30.4          75,270
Three-Year Average......................           2,476            17.1          42,340            28.2          69,823            45.3         112,163
--------------------------------------------------------------------------------------------------------------------------------------------------------



[[Page 11777]]

    Note: The burden for labor organization to determine whether a 
Form T-1 is required to be filed for its section 3(l) trusts is 
explained in the text preceding Table 3. Each table displays the 
reporting and burden associated with each Form T-1 that is actually 
filed.


    Note also: Some numbers may not add due to rounding.

    Source: U.S. Department of Labor, Employment Standards 
Administration, Office of Labor-Management Standards

    Appropriate information technology is used to reduce burden and 
improve efficiency and responsiveness. The current forms can be 
downloaded from the OLMS Web site. OLMS has also implemented a system 
to require Form LM-2 and Form T-1 filers and permit Form LM-3 and Form 
LM-4 filers to submit forms electronically with digital signatures.
    Labor organizations are currently required to pay a minimal fee to 
obtain electronic signature capability for the two officers who sign 
the form.
    The OLMS Internet Disclosure site is available for public use. The 
site contains a copy of each labor organization's annual financial 
report for reporting year 2000 and thereafter as well as an indexed 
computer database on the information in each report that is searchable 
through the Internet. Form T-1 filings will be available on the Web 
site.
    OLMS includes e.LORS information in its outreach program, including 
compliance assistance information on the OLMS Web site, individual 
guidance provided through responses to e-mail, written, or telephone 
inquiries, and formal group sessions conducted for labor organization 
officials regarding compliance.
    Information about this system can be obtained on the OLMS Web site 
at http://www.olms.dol.gov. Digital signatures ensure the authenticity 
of the reports.
    C. Federal Costs Associated With Proposed Rule
    The estimated annualized Federal cost of the proposed Form T-1 is 
$228,682.28. This represents estimated operational expenses such as 
equipment, overhead, and printing as well as salaries and benefits for 
the OLMS staff in the National Office and field offices that are 
involved with reporting and disclosure activities. These estimates 
include time devoted to: (a) Receipt and processing of reports; (b) 
disclosing reports to the public; (c) obtaining delinquent reports; (d) 
obtaining amended reports if reports are determined to be deficient; 
(e) auditing reports; and (f) providing compliance assistance training 
on recordkeeping and reporting requirements.
    Currently, the Department is soliciting comments concerning the 
information collection request (``ICR'') for the information collection 
requirements included in this proposed regulation at Sec.  403.2, 
Annual financial report which, when implemented will revise the 
existing OMB control number 1215-0188. A copy of this ICR, with 
applicable supporting documentation; including among other things a 
description of the likely respondents, proposed frequency of response, 
and estimated total burden may be obtained from the RegInfo.gov Web 
site at http://www.reginfo.gov/public/do/PRAMain or by contacting 
Darrin King on 202-693-4129 (this is not a toll-free number)/e-mail: 
[email protected]. Please note that comments submitted in response to 
this notice will be made a matter of public record.
    The Department hereby announces that it has submitted a copy of the 
proposed regulation to the Office of Management and Budget (``OMB'') in 
accordance with 44 U.S.C. 3507(d) for review of its information 
collections. The Department and OMB are particularly interested in 
comments that:
     Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., by 
permitting electronic submission of responses.
    Type of Review: Revision of a currently approved collection.
    Agency: Employee Standards Administration.
    Title: Labor Organization and Auxiliary Reports.
    OMB Number: 1215-0188.
    Affected Public: Private Sector: Not-for-profit institutions.
    Number of Annual Responses: 33,333.
    Frequency of Response: Annual for most forms.
    Estimated Total Annual Burden Hours: 3,568,180.
    Estimated Total Annual Burden Cost: $70,491,590.
    Potential respondents are hereby duly notified that such persons 
are not required to respond to a collection of information or revision 
thereof unless approved by OMB under the PRA and it displays a 
currently valid OMB control number. See 35 U.S.C. 
3506(c)(1)(B)(iii)(V). In accordance with 5 CFR 1320.11(k), the 
Department will publish a notice in the  Federal Register informing the 
public of OMB's decision with respect to the ICR submitted thereto 
under the PRA.

Executive Order 13045 (Protection of Children from Environmental Health 
Risks and Safety Risks)

    In accordance with Executive Order 13045, the Department has 
evaluated the environmental safety and health effects of the proposed 
rule on children. The Department has determined that the proposed rule 
will have no effect on children.

Executive Order 13175 (Consultation and Coordination with Indian Tribal 
Governments)

    The Department has reviewed this proposed rule in accordance with 
Executive Order 13175, and has determined that it does not have 
``tribal implications.'' The proposed rule does not ``have substantial 
direct effects on one or more Indian tribes, on the relationship 
between the Federal government and Indian tribes, or on the 
distribution of power and responsibilities between the Federal 
government and Indian tribes.''

Executive Order 12630 (Governmental Actions and Interference with 
Constitutionally Protected Property Rights)

    This proposed rule is not subject to Executive Order 12630, 
Governmental Actions and Interference with Constitutionally Protected 
Property Rights, because it does not involve implementation of a policy 
with takings implications.

Executive Order 12988 (Civil Justice Reform)

    This proposed rule has been drafted and reviewed in accordance with 
Executive Order 12988, Civil Justice Reform, and will not unduly burden 
the federal court system. The proposed rule has been written so as to 
minimize litigation and provide a clear legal standard for affected 
conduct, and has been reviewed carefully to eliminate drafting errors 
and ambiguities.

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Environmental Impact Assessment

    The Department has reviewed the proposed rule in accordance with 
the requirements of the National Environmental Policy Act (``NEPA'') of 
1969 (42 U.S.C. 4321 et seq.), the regulations of the Council on 
Environmental Quality (40 U.S.C. part 1500), and the Department's NEPA 
procedures (29 CFR part 11). The proposed rule will not have a 
significant impact on the quality of the human environment, and, thus, 
the Department has not conducted an environmental assessment or an 
environmental impact statement.

Executive Order 13211 (Actions Concerning Regulations that 
Significantly Affect Energy Supply, Distribution, or Use)

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

List of Subjects in 29 CFR Part 403

    Labor unions, Reporting and recordkeeping requirements.

Text of Proposed Rule

    Accordingly, the Department proposes to amend part 403 of 29 CFR 
Chapter IV as set forth below:

PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS

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

    Authority: Secs. 202, 207, 208, 73 Stat. 525, 529 (29 U.S.C. 
432, 437, 438); Secretary's Order No. 4-2007, May 2, 2007, 72 FR 
26159.

    2. In Sec.  403.2, paragraph (d) is revised to read as follows:


Sec.  403.2  Annual financial report.

* * * * *
    (d)(1) Every labor organization with annual receipts of $250,000 or 
more shall file a report on Form T-1 for each trust that meets the 
following conditions:
    (i) The trust is of the type defined by section 3(l) of the LMRDA, 
i.e., the trust was created or established by a labor organization or a 
labor organization appoints or selects a member of the trust's 
governing board; and the trust has as a primary purpose to provide 
benefits to the members of the labor organization or their 
beneficiaries (29 U.S.C. 402(1)); and the labor organization, alone or 
with other labor organizations, either:
    (A) Appoints or selects a majority of the members of the trust's 
governing board; or
    (B) Contributes revenues to the trust that exceed 50 percent of the 
trust's revenue during the trust's fiscal year; and
    (ii) None of the exceptions discussed in paragraph (d)(2) of this 
section apply.
    (iii) For purposes of paragraph (d)(1)(i)(B), contributions made on 
behalf of the labor organization or its members shall be considered 
contributions by the labor organization.
    (2) A separate report shall be filed on Form T-1 for each such 
trust within 90 days after the end of the labor organization's fiscal 
year in the detail required by the instructions accompanying the form 
and constituting a part thereof, and shall be signed by the president 
and treasurer, or corresponding principal officers, of the labor 
organization. No Form T-1 should be filed for any trust that meets the 
statutory definition of a labor organization and already files a Form 
LM-2, Form LM-3, or Form LM-4, nor should a report be filed for any 
entity that the LMRDA exempts from reporting. No report need be filed 
for a trust established as a Political Action Committee (``PAC'') if 
timely, complete and publicly available reports on the PAC are filed 
with a Federal or state agency, or for a trust established as a 
political organization under 26 U.S.C. 527 if timely, complete, and 
publicly available reports are filed with the Internal Revenue Service. 
An audit that meets the criteria specified in the instructions for Form 
T-1 may be substituted for all but page 1 of the Form T-1. If such 
labor organization is in trusteeship on the date for filing the annual 
financial report, 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. Amend Sec.  403.5 by revising paragraph (d) to read as follows:


Sec.  403.5.  Terminal financial report.

* * * * *
    (d) If a labor organization filed or was required to file a report 
on a trust pursuant to Sec.  403.2(d) and that trust loses its identity 
during its subsequent fiscal year through merger, consolidation, or 
otherwise, the labor organization shall, within 30 days after such 
loss, file a terminal report on Form T-1, with the Office of Labor-
Management Standards, signed by the president and treasurer or 
corresponding principal officers of the labor organization. For 
purposes of the report required by this paragraph, the period covered 
thereby shall be the portion of the trust's fiscal year ending on the 
effective date of the loss of its reporting identity.
    4. In Sec.  403.8, redesignate paragraphs (c) and (d) as paragraphs 
(d) and (e), and add a new paragraph (c) to read as follows:


Sec.  403.8  Dissemination and verification of reports.

* * * * *
    (c)(1) If a labor organization is required to file a report under 
this part using the Form T-1 and indicates that it has failed or 
refused to disclose information required by the Form T-1 concerning any 
disbursement or receipt to an individual or entity in the amount of 
$10,000 or more, or any two or more disbursements or receipts that, in 
the aggregate, amount to $10,000 or more, because disclosure of such 
information may be adverse to the organization's legitimate interests, 
then the failure or refusal to disclose the information shall be deemed 
``just cause'' for purposes of paragraph (a) of this section.
    (2) Disclosure may be adverse to a labor organization's legitimate 
interests under this paragraph if disclosure would reveal confidential 
information concerning the organization's organizing or negotiating 
strategy or individuals paid by the trust to work in a non-union 
facility in order to assist the labor organization in organizing 
employees, provided that such individuals are not employees of the 
trust who receive more than $10,000 in the aggregate in the reporting 
year from the trust.
    (3) This provision does not apply to disclosure that is otherwise 
prohibited by law or that would endanger the health or safety of an 
individual.
* * * * *

    Signed in Washington, DC, this 26th day of February 2008.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.
Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.

Appendix

    Note: This appendix, which will not appear in the Code of 
Federal Regulations, contains the proposed Form T-1 and instructions 
and related charts.

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 [FR Doc. E8-3853 Filed 3-3-08; 8:45 am]
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