[Federal Register Volume 84, Number 104 (Thursday, May 30, 2019)]
[Proposed Rules]
[Pages 25130-25171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10971]
[[Page 25129]]
Vol. 84
Thursday,
No. 104
May 30, 2019
Part II
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 for Trusts in Which a
Labor Organization Is Interested, Form T-1; Proposed Rules
Federal Register / Vol. 84 , No. 104 / Thursday, May 30, 2019 /
Proposed Rules
[[Page 25130]]
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DEPARTMENT OF LABOR
Office of Labor-Management Standards
29 CFR Parts 403
RIN 1245-AA09
Labor Organization Annual Financial Reports for Trusts in Which a
Labor Organization Is Interested, Form T-1
AGENCY: Office of Labor-Management Standards, Department of Labor.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: The Department of Labor proposes to promulgate a rule that
establishes a form to be used by labor organizations to file trust
annual financial reports with the Department's Office of Labor-
Management Standards (``OLMS''), provides appropriate instructions, and
revises relevant sections relating to such reports. The Department
makes the proposed changes pursuant to section 208 of the Labor-
Management Reporting and Disclosure Act (``LMRDA''). The proposed rule
would apply prospectively.
DATES: The Department will consider all written comments submitted on
or before July 29, 2019. In addition to filing comments on any aspect
of this proposed rule directly with the agency, interested parties may
submit comments under the Paperwork Reduction Act (PRA) regarding the
information collections in this proposed rule and an accompanying
Information Collection Request (ICR) to the Office of Management and
Budget. The opportunity to comment to OMB is limited to the information
collections only and comments to OMB must be submitted on or before
July 1, 2019 and reference OMB control number 1245-0003 in order to
ensure proper consideration.
ADDRESSES: You may submit comments, identified by RIN 1245-AA09, only
by the following method: Internet--Federal eRulemaking Portal.
Electronic comments may be submitted through http://www.regulations.gov. To locate the proposed rule, use key words such as
``Labor-Management Standards'' or ``Labor Organization Annual Financial
Reports'' to search documents accepting comments. Follow the
instructions for submitting comments. Please be advised that comments
received will be posted without change to http://www.regulations.gov,
including any personal information provided.
Submit comments under the Paperwork Reduction Act by mail to the
Office of Information and Regulatory Affairs, Attn: OMB Desk Officer
for DOL-OLMS, Office of Management and Budget, Room 10235, 725 17th
Street NW, Washington, DC 20503; by Fax: 202-395-5806 (this is not a
toll-free number); or by email: [email protected]. Commenters
are encouraged, but not required, to send a courtesy copy of any such
comments to OLMS.
FOR FURTHER INFORMATION CONTACT: Andrew Davis, Chief of the Division of
Interpretations and Standards, Office of Labor-Management Standards,
U.S. Department of Labor, 200 Constitution Avenue NW, Room N-5609,
Washington, DC 20210, (202) 693-0123 (this is not a toll-free number),
(800) 877-8339 (TTY/TDD).
SUPPLEMENTARY INFORMATION:
I. Statutory Authority
The Department's statutory authority is set forth in section 208 of
the Labor-Management Reporting and Disclosure Act (``LMRDA''), 29
U.S.C. 438. Section 208 of the LMRDA provides that the Secretary of
Labor ``shall have authority to issue, amend, and rescind rules and
regulations prescribing the form and publication of reports required to
be filed under [the Act] and such other reasonable rules and
regulations . . . as he may find necessary to prevent the circumvention
or evasion of such reporting requirements.''
The Secretary has delegated his authority under the LMRDA to the
Director of the Office of Labor-Management Standards and permitted re-
delegation of such authority. See Secretary's Order 03-2012 (Oct. 19,
2012), published at 77 FR 69375 (Nov. 16, 2012).
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''). Historically,
this information has largely gone unreported despite the significant
impact such trusts have on labor organization (hereinafter ``labor
organization'' and ``union'' are used interchangeably) 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 disclose
financial information as required by the LMRDA. By reviewing a labor
organization's financial 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 bring 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 complex in their structure and scope than labor
organizations of the past. In response to an increasingly complicated
and sophisticated global marketplace, unions are hiring professional
staffs and leveraging their financial capital to hire external
economic, financial, legal, political, and public relations expertise
not traditionally and, even now, not readily available to them
internally. For example, 2010 data from a long-term survey-based study
of union administrative practices indicate that 34% of unions relied on
outside economic analysis services, 37% on outside financial planning
services, and 49% on outside public relations services.\1\
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\1\ See a BLS summary of the study and its findings at https://www.bls.gov/opub/mlr/2016/article/pdf/evolution-of-administrative-practices-in-american-unions.pdf.
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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
[[Page 25131]]
retirement decisions; evaluate options; and exercise legally guaranteed
rights.
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(b). 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'' because ``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 201(b) of the Act, 29 U.S.C. 431(b) (Form LM-2, Form LM-3,
and Form LM-4), contain information about a labor organization's
assets; liabilities; receipts; disbursements; loans to officers,
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.
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.
C. History of the Form T-1
The Department first proposed the Form T-1 report on December 27,
2002, as one part of a proposal to extensively change the Form LM-2. 67
FR 79280 (Dec. 27, 2002). The rule was proposed under the authority of
section 208, which permits the Secretary to issue such rules
``prescribing reports concerning trusts in which a labor organization
is interested'' as he may ``find necessary to prevent the circumvention
or evasion of [the LMRDA's] reporting requirements.'' 29 U.S.C. 438.
Following consideration of public comments, on October 9, 2003, the
Department published a final rule enacting extensive changes to the
Form LM-2 and establishing a Form T-1. 68 FR 58374 (Oct. 9, 2003) (2003
Form T-1 rule). The 2003 Form T-1 rule eliminated the requirement that
unions report on subsidiary organizations on the Form LM-2, but it
mandated that each labor organization filing a Form LM-2 report file a
separate report to
[[Page 25132]]
``disclose assets, liabilities, receipts, and disbursements of a
significant trust in which the labor organization is interested.'' 68
FR at 58477. The reporting labor organization would make this
disclosure by filing a separate Form T-1 for each significant trust in
which it was interested. Id. at 58524.
To conform to the statutory requirement that trust reporting is
``necessary to prevent the circumvention or evasion of [the LMRDA's]
reporting requirements,'' the 2003 Form T-1 rule developed the
``significant trust in which the labor organization is interested''
test. It did so by utilizing the section 3(l) statutory definition of
``a trust in which a labor organization is interested'' and an
administrative determination of when a trust is deemed ``significant.''
68 FR at 58477-78. The LMRDA defines a ``trust in which a labor
organization is interested as:
A trust or other fund or organization (1) which was created or
established by a labor organization, or one or more of the trustees
or one or more members of the governing body of which is selected or
appointed by a labor organization, and (2) a primary purpose of
which is to provide benefits for the members of such labor
organization or their beneficiaries. Id. (quoting 29 U.S.C. 402(l)).
The 2003 Form T-1 rule set forth an administrative determination
that stated that a ``trust will be considered significant'' and
therefore subject to the Form T-1 reporting requirement under the
following conditions:
(1) The labor organization had annual receipts of $250,000 or
more during its most recent fiscal year, and (2) the labor
organization's financial contribution to the trust or the
contribution made on the labor organization's behalf, or as a result
of a negotiated agreement to which the labor organization is a
party, is $10,000 or more annually. Id. at 58478.
The portions of the 2003 rule relating to the Form T-1 were vacated
by the D.C. Circuit in AFL-CIO v. Chao, 409 F.3d 377, 389-391 (D.C.
Cir. 2005). The court held that the form ``reaches information
unrelated to union reporting requirements and mandates reporting on
trusts even where there is no appearance that the union's contribution
of funds to an independent organization could circumvent or evade union
reporting requirements by, for example, permitting the union to
maintain control of the funds.'' Id. at 389. The court also held that
the significant trust test failed to establish reporting based on
domination or managerial control of assets subject to LMRDA Title II
jurisdiction. The court reasoned that the Department failed to explain
how the test--i.e., selection of one member of a board and a $10,000
contribution to a trust with $250,000 in receipts--could result in
union domination and control sufficient to give rise to circumvention
or evasion of Title II reporting requirements. Id. at 390. In so
holding, the court emphasized that section 208 authority is the only
basis for LMRDA trust reporting, that this authority is limited to
preventing circumvention or evasion of Title II reporting, and that
``the statute doesn't provide general authority to require trusts to
demonstrate that they operate in a manner beneficial to union
members.'' Id. at 390.
However, 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 had made
findings in support of its rule of 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. 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 light of the decision by the D.C. Circuit and guided by its
opinion, the Department issued a revised Form T-1 final rule on
September 29, 2006. 71 FR 57716 (Sept. 29, 2006) (2006 Form T-1 rule).
The U.S. District Court for the District of Columbia vacated this rule
due to a failure to provide a new notice and comment period. AFL-CIO v.
Chao, 496 F. Supp. 2d 76 (D.D.C. 2007). The district court did not
engage in a substantive review of the 2006 rule, but the court noted
that the AFL-CIO demonstrated that ``the absence of a fresh comment
period . . . constituted prejudicial error'' and that the AFL-CIO
objected with ``reasonable specificity'' to warrant relief vacating the
rule. Id. at 90-92.
The Department issued a proposed rule for a revised Form T-1 on
March 4, 2008. 73 FR 11754 (Mar. 4, 2008). After notice and comment,
the 2008 Form T-1 final rule was issued on October 2, 2008. 73 FR
57412. This rule attempted to remedy the failings of the Department's
2003 and 2006 efforts in implementing a Form T-1. 73 FR at 57413. The
2008 Form T-1 rule took effect on January 1, 2009. Under this rule,
Form T-1 reports would be filed no earlier than March 31, 2010, for
fiscal years that began no earlier than January 1, 2009.
Pursuant to AFL-CIO v. Chao, the 2008 Form T-1 rule stated that
labor organizations with total annual receipts of $250,000 or more must
file a Form T-1 for those section 3(l) trusts in which the labor
organization, either alone or in combination with other labor
organizations, had management control or financial dominance. 73 FR at
57412. For purposes of the rule, a labor organization had management
control if the labor organization alone, or in combination with other
labor organizations, selected or appointed the majority of the members
of the trust's governing board. Further, for purposes of the rule, a
labor organization had financial dominance if the labor organization
alone, or in combination with other labor organizations, contributed
more than 50 percent of the trust's receipts during the annual
reporting period. Significantly, the rule treated contributions made to
a trust by an employer pursuant to a collective bargaining agreement as
constituting contributions by the labor organization that was party to
the agreement.
Additionally, the 2008 Form T-1 rule provided exemptions to the
Form T-1 filing requirements. No Form T-1 was required for a trust:
Established as a political action committee (PAC) fund if publicly
available reports on the PAC fund are filed with Federal or state
[[Page 25133]]
agencies; established as a political organization for which reports are
filed with the IRS under section 527 of the Internal Revenue Code;
required to file a Form 5500 under ERISA; or constituting a federal
employee health benefit plan subject to the provisions of the FEHBA.
Similarly, the rule clarified that no Form T-1 was required for any
trust that meets the statutory definition of a labor organization and
files a Form LM-2, Form LM-3, or Form LM-4 or is from an entity that
the LMRDA exempts from reporting, such as an organization composed
entirely of state or local government employees or a state or local
central body.
In the Spring 2009 and Fall 2009 Regulatory Agendas, the Department
notified the public of its intent to initiate rulemaking proposing to
rescind the Form T-1 and to require reporting of wholly owned, wholly
controlled, and wholly financed (``subsidiary'') organizations on their
Form LM-2 or LM-3 reports. See http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=200904&RIN=1215-AB75 and http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=200904&RIN=1215-AB75.
Due to the proposed rescission, on December 3, 2009, the Department
issued a notice of proposed extension of filing due date to delay for
one calendar year the filing due dates for Form T-1 reports required to
be filed during calendar year 2010. 74 FR 63335. On December 30, 2009,
following comment, the Department published a rule extending for one
year the filing due date of all Form T-1 reports required to be filed
during calendar year 2010. 74 FR 69023.
Subsequently, on February 2, 2010, the Department published the
Notice of Proposed Rulemaking (NPRM) proposing to rescind the Form T-1.
75 FR 5456. After notice and comment, the Department published the
final rule on December 1, 2010. In its rescission, the Department
stated that it considered the reporting required under the rule to be
overly broad and not necessary to prevent circumvention and evasion of
Title II reporting requirements. The Department concluded that the
scope of the 2008 Form T-1 rule was overbroad because it covered many
trusts, such as those funded by employer contributions, without an
adequate showing that reporting for such trusts is necessary to prevent
the circumvention or evasion of the Title II reporting requirements.
See 75 FR 74936.
III. Proposal
A. Introduction
Congress has determined that labor organization members should have
access to information about the financial condition and operation of
their labor organizations, and has established reporting obligations
accordingly. 29 U.S.C. 431(b). Occasionally, however, such labor
organizations establish and maintain trusts primarily to provide
benefits to the members and/or their beneficiaries that are not
themselves subject to reporting obligations. 29 U.S.C. 402(l). These
trusts, commonly referred to as section 3(l) trusts or ``trusts in
which a labor organization is interested,'' are created for myriad
purposes; common examples include credit unions, strike funds,
redevelopment or investment groups, training funds, apprenticeship
programs, 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. While these trusts can serve valid
purposes, they can also be used to circumvent the reporting
requirements for labor organizations. Thus, Congress authorized the
Secretary to issue rules ``prescribing reports concerning trusts in
which a labor organization is interested'' where the Secretary finds
such reports are necessary to prevent the circumvention or evasion of
the labor organization reporting requirements. 29 U.S.C. 438.
As explained in more detail below, this proposal is an exercise of
that authority and will serve the overall purposes of the LMRDA. 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. Any labor
organizations or trust officials who place 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, under certain
circumstances, 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''). Such labor organizations would trigger
the Form T-1 reporting requirements 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 receipts. When applying this financial or managerial
dominance test, contributions made pursuant to a collective bargaining
agreement shall be considered the labor organization's contributions.
As explained further below, this test is consistent with the court's
holding in AFL-CIO v. Chao, 409 F.3d at 389-391, as well as the 2008
final Form T-1 rule.
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, etc.) 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 to officers
and employees of the trust who received more than $10,000.
Two threshold requirements contained in the 2003 and 2006 rules,
but not the 2008 rule, relating to the amount of a labor organization's
contributions to a trust ($10,000 per
[[Page 25134]]
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, consistent with the D.C. Circuit's decision in AFL-CIO
v. Chao, the labor organization's 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.
The proposal includes a number of exemptions. These exemptions
include trusts organized as political action committees (``PAC'') or
political organizations (the latter within the meaning of 26 U.S.C.
527), that submit timely, complete, and publicly available reports
required by federal or state law with government agencies; federal
employee health benefit plans subject to the provision of the Federal
Employees Health Benefits Act (FEHBA); and any for-profit commercial
bank established or operating pursuant to the Bank Holding Act of 1956,
12 U.S.C. 1843. Similarly, no Form T-1 is required for any trust that
meets the statutory definition of a labor organization and files a Form
LM-2, Form LM-3, or Form LM-4 or is from an entity that the LMRDA
exempts from reporting, such as an organization composed entirely of
state or local government employees \2\ or a state or local central
body.\3\ Consistent with the 2008 rule, but in contrast to the 2003 and
2006 rules, the Department's proposal also includes 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 of 1974 (``ERISA''). And a partial exemption is provided
for a trust for which an audit was conducted in accordance with
prescribed standards and the audit is made publicly available. A labor
organization choosing to use this option must complete the first page
of the Form T-1 and file it along with a copy of the audit.
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\2\ Note: The Department has stated, in its Fall 2018 Regulatory
Agenda, its proposal to return to its 2003 interpretation that
intermediate bodies that are subordinate to a national or
international labor organization that includes a labor organization
are covered by the LMRDA. See: https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201810&RIN=1245-AA08.
\3\ A ``state or local central body'' is defined in 29 CFR 451.5
as:
(a) The definition of ``labor organization'' in section 3(i) and
the examples of labor organizations deemed to be engaged in an
industry affecting commerce in section 3(j)(5) both except from the
term ``labor organization'' a ``State or local central body.'' As
used in these two sections, the phrase State or local central body
means an organization that:
(1) Is chartered by a federation of national or international
unions; and
(2) Admits to membership local unions and subordinate bodies of
national or international unions that are affiliated with the
chartering federation within the State or local central body's
territory and any local unions or subordinate bodies directly
affiliated with the federation in such territory; and
(3) Exists primarily to carry on educational, legislative and
coordinating activities.
(b) The term does not include organizations of local unions or
subordinate bodies (1) of a single national or international union;
or (2) of a particular department of a federation or similar
association of national or international unions.
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The Department proposes two additional exemptions not included in
the 2008 rule. First, the Department proposes to exempt unions from
reporting on the Form T-1 concerning their subsidiary organizations,
retaining the requirement that unions must report their subsidiaries on
the union's Form LM-2 report. See Part X of the Form LM-2 instructions
(that defines a ``subsidiary organization'' as ``any separate
organization of which the ownership is wholly vested in the reporting
labor organization or its officers or its membership, which is governed
or controlled by the officers, employees, or members of the reporting
labor organization, and which is wholly financed by the reporting labor
organization.''). Second, the Department proposes that only the parent
union (i.e., the national/international or intermediate union) would
need to file the Form T-1 report for covered trusts in which both the
parent union and its affiliates meet the financial or managerial
domination test.\4\ The affiliates would continue to identify the trust
in their Form LM-2 report, and, under the proposal, would also state in
their Form LM-2 report that the parent union will file a Form T-1
report for the trust.
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\4\ If the purported trust actually constitutes a subsidiary of
the parent union, then the parent union would need to include the
subsidiary within its Form LM-2 report, pursuant to Part X of the
Form LM-2 Instructions. See OLMS Interpretative Manual Sec. 215.200
(Holding of Stock by District Council and Member Locals) and 215.300
(Holding of Stock by Member Locals).
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The Department invites comment on any aspect of its proposal.
C. Reasons for the T-1 Form
The proposed Form T-1 closes a reporting gap whereby labor
organizations are required to report only on the funds that they
exclusively control, but not those funds over which they exercise
domination. The proposed rule thus helps prevent the circumvention or
evasion of the LMRDA's reporting requirements by making it more
difficult for a 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. Further, Form T-1 disclosure of
employer funds given to Taft-Hartley trusts may also prevent the
circumventing or evading of LMRDA employer and union officer/employee
reporting requirements.
In preventing this circumvention, the proposed rule ensures that
labor organization members have access to a proper accounting of how
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 members' particular or collective
benefit whether solely administered by labor organizations or a
separate, jointly administered governing board. Such disclosure helps
deter fraud and corruption involving such trusts.
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 labor
organizations, or pursuant to a collective bargaining agreement,
represent greater than 50 percent of the revenue of the trust. The
proposed rule thus follows the conclusion in AFL-CIO v. Chao 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.
Moreover, Form T-1 disclosure of employer funds given to Taft-
Hartley trusts may also prevent the circumventing or evading of LMRDA
employer and union officer/employee reporting requirements. While 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
[[Page 25135]]
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 and 433. Requiring labor organizations to
report the information requested by the Form T-1 rule provides an
essential check on these individual reporting requirements. The new
form would allow both labor organization members and the Department to
ensure that labor organizations, their officials, and employers
accurately and completely fulfill their reporting duties under the Act,
obligations that can more 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 Form T-1 identifies a $15,000 payment from the
trust to a company for printing 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 will be able to identify
any failure of the official to accurately report this payment on a Form
LM-30. Additional information from the labor organization's Form LM-2
might allow a labor organization member or the government 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 help 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.
In reviewing submitted Form LM-2 reports, the Department located
several instances in which labor organizations disbursed large sums of
money to trusts. As an example, one local disbursed over $700,000 to
one trust and over $1.2 million to another of its trusts, in fiscal
year 2017. In 2017, a national labor organization disbursed almost
$400,000 to one of its trusts. Several locals each reported on their FY
17 Form LM-2 reports varying ownership interests in a building
corporation that owns the unions' hall. These disbursements are
publicly known due to this reporting, but the trusts' ultimate uses of
the funds are not. The Form T-1 would prevent the unions from
circumventing or evading their reporting requirements, by establishing
comparable reporting for their trusts, thus, ensuring financial
transparency for all funds dominated by the unions.
The Form T-1 would also have the salutary benefit of deterring
potential labor-management fraud and corruption. Labor organization
officials and trustees both owe a fiduciary duty to their labor
organization and the trust, respectively, but there are nonetheless
examples of embezzlement of funds held by both labor organizations and
their section 3(l) trusts.\5\ 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.
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\5\ The fiduciary duty of the trustees to refrain from taking a
proscribed action has never been thought sufficient in and of itself
to protect the interests of a trust's beneficiaries. Although a
fiduciary's own duty to the trust's grantors and beneficiaries
includes disclosure and accounting components, 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. 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).
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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. 69 FR 79280, 79280 (December 27, 2002). 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.'' President's Commission on Organized Crime,
Report to the President and Attorney General, The Edge: Organized
Crime, Business, and Labor Unions 12 (1986). Specifically, the
Commission found that the two most successful criminal ploys for
plundering unions ``are the payment of excessive salaries and benefits
to organized crime connected labor organization officials and the
plunder of workers' health and pension funds.'' Id. (emphasis added).
The enactment of ERISA has ameliorated many of the historical
problems, but many section 3(l) trusts are not covered by ERISA. The
most disconcerting example of the corruption and evasion of reporting
that the Form T-1 would combat is the ongoing
[[Page 25136]]
investigation of the company-funded United Auto Workers International
Union (UAW)/Fiat Chrysler Detroit labor management cooperation
committee, established under section 302(c)(9) of the Labor Management
Relations Act of 1947 (LMRA), as amended, 29 U.S.C. 186(c)(9).\6\ In
2018, an investigation of auto industry corruption involving the UAW in
Detroit, Michigan, and the city's automakers produced seven criminal
convictions in the United States District Court for the Eastern
District of Michigan. The investigations focused on a conspiracy
involving Fiat Chrysler executives bribing labor officials to influence
labor negotiations.\7\ These convictions involved Fiat Chrysler
officials illegally channeling funds from the UAW/Chrysler National
Training Center, which like many other company-funded training centers
would be covered by the Form T-1 reporting obligation, to the personal
use of certain union officials and employees. This example provides
compelling justification for the Form T-1, as the disclosure created by
the form would help protect the financial integrity of union training
centers and other union funds set up to benefit rank-and-file members.
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\6\ The Department's Employee Benefits Security Administration
(EBSA), which administers ERISA, has determined that labor-
management cooperation committees established under LMRA section
302(c)(9) that do not provide ERISA-covered benefits to participants
or beneficiaries do not constitute an ERISA-covered employee benefit
plans. Thus, they do not file the EBSA Form 5500. See: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/2012-06a.
\7\ See https://www.dol.gov/olms/regs/compliance/enforce_2018.htm.
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The following examples illustrate other recent situations in which
funds held in section 3(l) trusts have been misused: \8\
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\8\ The trusts in these examples constitute apprenticeship and
training funds established under LMRA section 302(C)(6), 29 U.S.C.
186(c)(6). EBSA does not require such funds to file the Form 5500.
See 29 CFR 2520.104-22 (apprenticeship and training plans).
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In 2011, a former secretary for a union was convicted for
embezzling $412,000 from the union and its apprenticeship and training
fund.\9\
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\9\ See https://www.wilx.com/home/headlines/Former_Union_Secretary_Sentenced_for_Embezzlement_126151908.html,
July 25, 2011.
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In 2015, an employee of a union pled guilty to embezzling
over $160,000 from a joint apprenticeship trust fund account that was
used to train future union members.\10\
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\10\ See https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/newsroom/criminal-releases/11-24-2015.pdf,
November 24, 2015.
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In 2017, a former business manager and financial secretary
for a Rhode Island union local plead guilty to charges that he
embezzled between $250,000 and $550,000 in union funds from an
operational account and from an apprentice fund.\11\
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\11\ See https://www.justice.gov/usao-ri/pr/union-officer-plead-guilty-embezzlement-identity-theft, November 27, 2017.
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In 2018, a former trustee of a trust fund for apprentice
and journeyman education and training was sentenced for submitting a
false reimbursement request in connection with training events. In his
plea, the former trustee admitted that the amount owed to the training
fund totaled $12,000.\12\
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\12\ See https://www.dol.gov/newsroom/releases/ebsa/ebsa20180323, March 23, 2018.
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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 that meets the significant contribution test, as
outlined in the 2008 rule. In each instance, the labor organization's
contribution to the trust, including contributions made pursuant to a
collective bargaining agreements, 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 individually 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; the date of the receipt or
disbursement; and the amount of the receipt or disbursement. 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; 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.
These recent examples are not isolated incidents; the Department
received additional examples in information submitted by the public
during previous rulemakings in this area. In its comments on the 2006
proposal, for example, 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 employee of an international labor organization
embezzled over $350,000 from a job training fund; (4) a local labor
organization president embezzled an undisclosed amount from the locals'
disaster relief fund; and (5) 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. 71 FR 57716, 57722.
Although the comments received from labor organizations on previous
proposals generally opposed any reporting obligation concerning trusts,
many labor organization members recommended greater scrutiny of labor
organization trust funds. For example, several members of an
international labor organization expressed such concerns in comments on
the Department's 2006 proposal. 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.'' 71
FR 57716, 57722. 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.
Id.
If the Department's proposed rule had been in place, the members of
the affected labor organizations from these comments, aided by the
information disclosed in the labor organizations' Form T-1s, would have
been in a much better position to discover any potential improper use
of the trust funds and thereby minimize the injury to their stake in
the trust. Further, the fear of
[[Page 25137]]
discovery may have deterred the alleged wrongdoers from engaging in the
reported conduct in the first place.
For all of these reasons, the Department finds that the proposed
Form T-1 rule will add necessary safeguards to deter circumvention and
evasion of the LMRDA's reporting requirements. In particular, with the
Form T-1 in place, it will be more difficult for labor organizations,
employers, and union officers and employees to avoid the disclosure
required by the LMRDA. Further, labor organization members will be able
to review financial information they may not otherwise have had,
empowering them to better monitor their labor organization's officials
and finances.
D. Specific Aspects of the Proposed T-1 Form
1. Determining Management Control or Financial Domination
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.'' AFL-CIO v. Chao, 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 a majority 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 the 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 be similarly directed to preventing multiple labor
organizations from also possibly 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 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 could reasonably be expected to know how
the other members are selected and whether 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. Such
``pooled receipts'' would include the total annual receipts of the
trust, as the Department defines that term for purposes of the Form LM-
2. The trust can determine whether labor organizations have financial
dominance by examining their usual accounting records; a trust would
add all income received from labor organizations within its most recent
fiscal year, divide that sum by the figure representing Net Income from
the Income Statement from its most recent fiscal year, and if the
dividend is more than .50, then the trust has established that labor
organizations have financial dominance.
Application of the financial or managerial dominance test does not
require that the trust disclose individualized information related to
voting or contributions. 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 contacting the 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, 2006, and 2008 rules and reflects feedback
that the Department received on its 2002 proposed rule. In 2002, the
Department had proposed that all labor organizations that contributed
$10,000 or more to a ``significant'' section 3(l) trust file a Form T-1
and had defined a ``significant trust'' 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, which 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 commenters 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, the Department excused from the Form T-1 reporting
obligation any labor organization with annual receipts of less than
$250,000 in the final rule. For the same reasons, the Department again
proposes a Form T-1 filing threshold of $250,000 in annual receipts for
the labor organization.
3. 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
[[Page 25138]]
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.
The Department's proposal also requires that a labor organization
aggregate 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.
Itemization is an essential component of the Form LM-2 and also is
integral to the 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;
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 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 in 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.
As to aggregation, 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. Developments in electronic recordkeeping, however, should
minimize this burden. 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 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 imposed by the Form LM-2,
which are generally more demanding than those posed by the Form T-1.
4. 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 by subjecting the Form T-1 to the same confidentiality
provisions contained in the Form LM-2 regulations, 29 CFR 403.8. 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 options 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'' (persons having
sought and attained employment at a company in order to organize its
workers), or its prospective negotiation strategy. Consistent with the
instructions provided, this information may be reported without
itemization.
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 statutory right to access such
financial information. 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 that are subject to federal or state laws
forbidding the disclosure of the information are not subject to the per
se disclosure rule.
5. Exemptions and Alternative Means of Compliance
The Department proposes to exempt from the labor organization's
Form T-1 reporting requirement a PAC or an organization exempt under
Internal Revenue Code section 527 (section 527 political organization),
if the entity, assuming it meets the definition of an LMRDA section
3(l) trust, files timely, complete and publicly-available reports with
federal or state agencies, as required by federal or state law.
Additionally, the Department proposes to exempt a labor
organization from filing a Form T-1 for a section 3(l) trust if the
trust was part of an employee benefit plan that under ERISA files a
Form 5500. The purpose of limiting the filing requirements in this way
is to
[[Page 25139]]
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. The
Department asks for comment on whether to retain such Form T-1
exemptions tied to ERISA.
Each of these alternative methods for meeting the labor
organization's Form T-1 obligations 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.\13\ These reports provide a level of transparency similar
to the proposed Form T-1.
---------------------------------------------------------------------------
\13\ 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 https://www.fec.gov/resources/cms-content/documents/fecfrm3xi.pdf (last visited Dec. 4, 2018); IRS,
Instructions for Form 8872, available at https://www.irs.gov/pub/irs-pdf/i8872.pdf (last visited Dec. 4, 2018).
---------------------------------------------------------------------------
The proposed rule also leaves in place the Form LM-2 requirement
that labor organizations report their subsidiaries on the union's Form
LM-2 report. See Form LM-2 Instructions, Part X (defining a
``subsidiary organization'' as ``any separate organization of which the
ownership is wholly vested in the reporting labor organization or its
officers or its membership, which is governed or controlled by the
officers, employees, or members of the reporting labor organization,
and which is wholly financed by the reporting labor organization.'').
Such reporting framework reduces burden on labor organizations, while
simultaneously providing greater disclosure for the public. There is
greater disclosure in general because the Form LM-2 report requires
greater detail than the proposed Form T-1 and greater disclosure
concerning itemization in particular; the Form LM-2 has a lower
threshold ($5,000 as opposed to $10,000) and subsidiaries will not be
able to avoid aggregating expenditures they made separately with those
of the labor organization because both are reported on the same form.
Further, leaving subsidiary reporting with the Form LM-2 will alleviate
confusion on the part of the public, as many would expect to see all
funds of the union reported on its Form LM-2 report.
The Department proposes accepting an audit, in lieu of the Form T-1
filing, modeled after a similar provision in ERISA. 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 alternative for reducing the
overall reporting burden on the labor organization and the section 3(l)
trust. Under the audit option, 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 the 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.
The Department requests comment on whether it should exempt
financial institutions affiliated with labor organizations, such as
credit unions, from the final rule. Federally insured credit unions are
already subject to extensive reporting requirements pursuant to the
Federal Credit Union Act, 12 U.S.C. 1751, as well as other laws and
regulations. The 2008 Final T-1 Rule exempted labor organizations from
submitting a Form T-1 for a union-owned bank's financial
operations.\14\ In that Final Rule, the Department wrote that the bank
engaged in a much larger number of potentially reportable transactions
and all but a few, if any, involved section 3(l) trusts. The Department
also wrote that the bank was subject to strict state and federal
regulations that temper the need for reporting obligations. However,
the 2008 rule did not exempt credit unions from Form T-1 reporting. See
73 FR 57433.
---------------------------------------------------------------------------
\14\ Labor organizations are no longer permitted to own banks
and only one union-owned bank exists by virtue of a grandfather
provision in the Bank Holding Act of 1956. See 12 U.S.C. 1843.
---------------------------------------------------------------------------
6. Reporting When Multiple Labor Organizations With Annual Receipts of
at Least $250,000 Participate in a Section 3(l) Trust
The Department proposes that only the parent union (i.e., the
national/international or intermediate union) would need to file the
Form T-1 report for covered trusts in which both the parent union and
its affiliates meet the financial or managerial domination test. The
affiliates would continue to identify the trust in their Form LM-2
report, and, under the proposal, would also state in their Form LM-2
report that the parent union will file a Form T-1 report for the
trust.\15\
---------------------------------------------------------------------------
\15\ See the Information Collection Request (ICR) associated
with this notice, which contains corresponding changes to the Form
LM-2 Instructions, Part XI (Completing Form LM-2), Item 10 (Trusts
or Funds). Specifically, the instructions state that the Form LM-2
filing labor organization must identify whether a Form T-1 will be
filed for the labor organization's trust, providing the Form T-1
file number.
---------------------------------------------------------------------------
But where multiple labor organizations are interested in the same
covered trust, the Department proposes that each and every Form LM-2
labor organization that meets the financial or managerial domination
test files a Form T-1 report, provided that such labor organization is
not affiliated with another parent labor organization that shares this
reporting requirement. In this respect, 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
[[Page 25140]]
contributions made to the trust by other labor organizations.
This proposal reflects information received in part during earlier
rulemakings. In response to the Department's 2006 proposal, for
example, 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. 71 FR 57716,
57724. As an example, the labor organization discussed a fund with
annual contributions over $300,000 in which seven locals participated.
Id. The contributions from each local ranged from about $10,000 to
about $100,000. Id. 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. Id. 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. Id. 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. Id.
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 receipts. 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.
Thus, in order to prevent evasion of a labor organization's
reporting requirements, this proposal may require multiple labor
organizations to report on a single trust. As 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.
The Department is interested in streamlining this proposal's filing
requirements in order to eliminate duplication and requests comments on
how best to accomplish this. The Department requests comments on
alternatives such as fixing the obligation on the labor organization
with the greatest stake in the trust or allowing either one of the
participating labor organizations or a parent union of one or more of
the participating labor organizations to voluntarily take on this
responsibility.
A consideration that led the Department to this proposal where
multiple labor organizations may be required to report on a single
trust is the recognition that the section 3(l) trust, not the reporting
labor organizations, will compile most of the necessary information.
This information, in large part, will be identical for each
participating labor organization. This will also 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 requiring that multiple labor organizations
file when they share a section 3(l) trust, the Department seeks to
avoid penalizing the labor organization which contributes the most to
the trust. The Department requests comments on these aspects of its
proposal.
In response to the 2006 Proposed T-1 Rule, several commenters
expressed concern that a section 3(l) trust could refuse to provide the
information needed to complete the Form T-1. 71 FR 57716, 57726.
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 seeks comment on this aspect of the proposal.
7. 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 90 days after the labor organization's fiscal year
ending date, rather than requiring it to be filed within 90 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.
Paperwork Reduction Act
This statement is prepared in accordance with the Paperwork
Reduction Act of 1995, 44 U.S.C. 3501 (``PRA'').\16\
---------------------------------------------------------------------------
\16\ See 5 CFR 1320.9. 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 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).
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[[Page 25141]]
A. Summary
The LMRDA entitles union members to important information about
union funds that are directed to other entities, for the members'
benefit, when the Secretary finds that such reporting would be
necessary to prevent the circumvention or evasion of the reporting
requirements. See 29 U.S.C. 438. Examples include joint funds
administered by a union and an employer pursuant to a collective
bargaining agreement, educational or training institutions, credit
unions, and redevelopment or investment groups. The Form T-1 is
necessary to close the information gap that exists for these trusts and
thereby prevent certain trusts from being used to evade the LMRDA Title
II reporting requirements, which are designed to provide union members
with information about financial transactions involving a significant
amount of money relative to the union'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 union's financial condition and operations, including a full
accounting to union members whose work obtained the payments to the
trust. It is also necessary to prevent circumvention and evasion of the
reporting requirements imposed on officers and employees of unions and
on employers.
Union members thus will be able to obtain a more accurate and
complete picture of their union'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 union member or a compliance audit by an OLMS investigator.
This NPRM is based upon improvements from previous efforts to
institute the Form T-1, and this PRA has been adjusted according to the
Department's more accurate understanding of the Form LM-2 filers that
will actually be subject to this revised Form T-1.
The Department estimates that a maximum of 2070 Form T-1 reports
will be submitted annually by 810 labor organizations as a result of
the proposed rule. The Department derives this estimate from a review
of 2018 LM-2 reports from labor organizations that identified having a
trust. The Department recognizes that this number of Form T-1 filers is
an over estimation due to the Department's current proposal that only
the parent union (i.e., the national/international or intermediate
union) should file the Form T-1 report for covered trusts in which both
the parent union and its affiliates meet the financial or managerial
domination test.
Each of these 810 labor organizations will file at least one Form
T-1 annually. Given that the Department estimates a maximum of 2070
Form T-1 reports will be submitted annually, the 810 labor
organizations will file ~2.56 reports on average.
Based on the calculations of the 2008 Form T-1 Final Rule, 73 FR
57436-57445, the Department estimates that, on average, labor
organizations will expend 86.21 hours on recordkeeping the first year
and 69.70 hours on recordkeeping each subsequent year for each Form T-1
filed. Additionally, on average, labor organizations will expend 35.17
hours on reporting the first year and 14.42 hours on reporting each
subsequent year for each Form T-1 filed. Therefore, Form T-1 filers
will spend 121.38 hours (86.21 + 35.17 = 121.38) on each T-1 report in
the first year, and 84.12 hours (69.70 + 14.42 = 84.12) on each Form T-
1 report in subsequent years.
On any given report in the first year, the Form T-1 filers would
spend approximately 121.38 hours per report (see Form T-1
Instructions), which results in a total of 251,256.6 additional burden
hours (121.38 x 2,070 = 251,256.6 hours). In subsequent years, T-1
filers would spend approximately 84.12 hours per report (see Form T-1
Instructions), which would result in 174,128.4 additional burden hours
(84.12 x 2,070 = 174,128.4), a 30.70% decrease from the first year.
The Department estimates that the total burden averaged over the
first three years to comply with the Form T-1 to be 199,837.8 hours per
year.
B. Hours To Complete and File Form T-1
The Department modeled its current analysis on the analysis in the
2008 Form T-1 final rule. The Department estimates 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 additional nonrecurring and recurring burden
hours associated with the final rule. See 73 FR 57436-57445.
The Department estimates that, on average, labor organizations will
expend 1.83 reporting hours each year completing page one of the Form
T-1. To complete the first page of the Form T-1, the labor organization
will have to train new staff on the reporting software; enter trust
information; answer questions 9, 14, and 15; provide addition
information (if necessary); and sign the report. The labor
organization's information should be automatically filled by the
reporting software when the Form T-1 is downloaded. The remaining
information provided on the first page of the Form T-1 is very similar
to the information provided on the first page of the Form LM-3 (10
items that identify the labor organization and one yes/no question
addressing whether or not the organization's records are kept at its
mailing address). Experience with the Form LM-3 has indicated that LM-3
filers expend approximately 15 minutes each year training new staff on
how to fill out the first page of the Form LM-3. Additionally, LM-3
filers spend approximately 5 minutes on each item and question on the
Form LM-3. Therefore, the Department has determined that Form T-1
filers will spend 50 minutes filling out the trust information and
answering the 3 yes/no questions. If additional information is
required, the Department has determined that the labor organization
should be able to fill out the mailing address for the records of the
trust and labor organization in 10 minutes. Finally, the labor
organization president
[[Page 25142]]
and treasurer will be able to sign the Form T-1 in 20 minutes once they
have reviewed the report. The president and treasurer will already have
the signature software setup for the LM-2. In most cases, it will be a
matter of pressing a button to apply the signature.
There is no unique recordkeeping burden associated with the first
page of the Form T-1. Under the LMRDA, and pursuant to the Form LM-2
Instructions, Part XI (Completing Form LM-2), Item 10 (Trusts or Funds,
the labor organization should already keep records on itself and trusts
in which it is interested to complete the Form LM-2, including the
trust's name, address, purpose, and EIN. Further, neither the trust nor
the labor organization will have to make any changes to its accounting
systems to report the information required on page 1 of the Form T-1.
The Department estimates that, on average, labor organizations will
expend 1.33 reporting hours each year completing page two of the Form
T-1. The labor organization will have to train new staff, answer five
questions, enter the total assets and liabilities, and enter additional
information as necessary. Like the first page of the Form T-1, the
second page of the Form T-1 is relatively straight forward. The
Department has determined that labor organizations can train staff to
complete the second page of the Form T-1 in 15 minutes. The majority of
the reporting burden is attributable to questions 16 through 20.
Although rare, the types of losses and transactions captured by
questions 16 through 20 are of significant importance to both labor
organizations and trusts. Each of these losses or transactions is
tracked closely by the trust to ensure that the trust is properly
managed and free from preferential insider transactions. Therefore, the
trust should be able easily to identify and provide details on any loss
or transaction that falls within questions 16 through 20. The
Department estimates that the trust should be able to provide the labor
organization with answers to questions 16 through 20 in 25 minutes, 5
minutes per question. Further, the Department estimates that the labor
organization will spend approximately 30 minutes entering the details
of the transaction or loss in item 25. Finally, the Department
estimates that it will take 10 minutes to find and enter the total
assets and liabilities in items 21 and 22.
There is no recordkeeping burden associated with the second page of
the Form T-1. The answers to questions 16 through 20 are tracked by the
trust along with receipts and disbursements. Therefore, the
recordkeeping burden associated with questions 16 through 20 has been
included in the recordkeeping burden for the receipts and disbursements
schedules. There is no recordkeeping burden associated with items 21
through 24. Information provided in items 21, total assets, and 22,
total liabilities, are kept in the normal course of the trust's
recordkeeping. Items 23, total receipts, and 24, total disbursements,
will be automatically calculated and entered by the reporting software.
Trusts are already tracking most receipts, disbursements, and
payments to officers and employees in the regular course of business,
but it is unlikely they are tracking the information in the detail or
structure required by Form T-1 reporting. Therefore, covered 3(l)
trusts will have to change their accounting systems to track the
necessary information in a format that can be provided to the
interested labor organization to complete the Form T-1. In 2003, Form
LM-2 filers had to change their accounting systems to capture
information very similar to the information reported on the Form T-1.
Experience with the Form LM-2 indicates that, on average, T-1
respondents will expend 9.75 (of nonrecurring burden) hours developing,
testing, and reviewing revisions to the account software; preparing the
download methodology; and training personnel on each of the schedules.
The Form 5500 exemption significantly reduces the variability of
3(l) trusts covered by the Form T-1. A careful analysis of the
remaining trusts, used in the analysis above, indicates that most of
the Form T-1s will be filed for building trusts, strike funds, labor-
management cooperation committees, and apprenticeship and training
funds. Unlike pension and health plans, these trusts, on average, will
have few disbursements, receipts, officers, and employees. For example,
strike funds are likely to have no disbursements unless the labor
organization is striking. Further, many of these trusts, including
building trusts, are closely associated with the labor organization and
function in a similar fashion. Therefore, similar to the 2008 rule, the
Department uses the Form LM-2 experience to estimate the number of
disbursements, receipts, officers, and employees listed on the Form T-
1.
In terms of recordkeeping, the Department estimates that, on
average, Form T-1 filers will expend 5.43 hours a year on recordkeeping
to document the information necessary to complete the Form T-1 receipts
schedule. Additionally, for the Form T-1 disbursement schedule, the
Department estimates that, on average, filers will expend 54.13 hours a
year on recordkeeping. Further, the Department estimates Form T-1
filers will expend 10.07 hours on recordkeeping to compile the
information necessary to complete the officers and employees schedule.
Finally, the Department estimated that Form T-1 filers will spend
3.75 hours on each schedule inputting the data. Inputting the
information into the Form T-1 is very similar to inputting data into
the Form LM-2. Experience with the Form LM-2 in previous rulemakings
indicates that a labor organization will spend 15 minutes a year
training new staff; 60 minutes preparing the download; 90 minutes
preparing and testing the data file; and 60 minutes editing, validating
and importing the data.
Therefore, the Department estimates that, on average, labor
organizations will expend 86.21 hours on recordkeeping the first year
and 69.70 hours on recordkeeping each subsequent year on each Form T-1
filed. Additionally, on average, labor organizations will expend 35.17
hours on reporting the first year and 14.42 hours on reporting each
subsequent year on each Form T-1 filed. Therefore, Form T-1 filers will
spend 121.38 hours (86.21 + 35.17 = 121.38) on each T-1 report in the
first year, and 84.12 hours (69.70 + 14.42 = 84.12) on each T-1 report
in subsequent years.
C. Estimated Number of Form T-1 Reports
The following charts were used to calculate the various figures
necessary to do the above calculations.
The first chart (Table 1) generated the total number of Form T-1s
by averaging the known number of Form T-1s that would be generated in
the top 10% and bottom 10% of Form LM-2 filers with at least one (1)
trust.
The second chart (Table 2) generated the actual number of Form T-1
filers by averaging out the number of Form T-1 filers that exist in the
top 10% and bottom 10% of Form LM-2 filers with at least one (1) trust.
The final chart (Table 3) generated the average number of Form T-1s
that would be filed per Form T-1 filer in each decile and overall.
[[Page 25143]]
Table 1--Total Number of Form T-1s by Decile
----------------------------------------------------------------------------------------------------------------
Decile of LM-2s with at least 1 3(l)
trust Formula * Variable Number of T-1s
----------------------------------------------------------------------------------------------------------------
10 (Top 10%).......................... Y........................ Y 330
9..................................... (W + Y) / 2.............. .......................... 299.25
8..................................... (Z + Y) / 2.............. W 268.5
7..................................... (W + Z) / 2.............. .......................... 237.75
6..................................... (X + Y) / 2.............. Z 207
5..................................... (X + Y) / 2.............. Z 207
4..................................... (T + Z) / 2.............. .......................... 176.25
3..................................... (Z + X) / 2.............. T 145.5
2..................................... (T + X) / 2.............. .......................... 114.75
1 (Bottom 10%)........................ X........................ X 84
------------------
Total............................. ......................... .......................... 2070
----------------------------------------------------------------------------------------------------------------
* These formulae represent the process by which the Department calculated the average number of T-1 reports
likely to be produced in each decile. X and Y were not calculations; these variables were figures determined
from extensive, time-consuming reviews of all LM-2 filers with trusts in the bottom and top deciles by annual
revenue size, respectively. Decile 5 and 6, being the middle deciles, were represented by a simple arithmetic
mean, averaging X and Y together to find Z, the average number of T-1 reports in those deciles.
Given the divide in the number of T-1 reports between the top
decile consisting of the largest LM-2 filers and the bottom consisting
of the smallest, namely that the top decile has over twice as many T-1
reports likely to be filed as the bottom decile, the Department assumes
that using the simple arithmetic mean Z to represent the number of T-1
reports by decile would misrepresent the number of reports in those
deciles. Z would be an overestimation of reports in the lower deciles
and an underestimation in the top deciles. Instead, in order to
represent the gradual decline in T-1 reports that is expected in each
decile, and thus represent the number of T-1 reports generated in each
decile more accurately, the Department calculated the average of Z & Y
and then the average of Z & X in order to calculate W and T,
respectively, where W is the number of T-1 reports expected for the
middle decile in the top deciles (Decile 8) and T is the middle decile
in the bottom deciles (Decile 3).
With W and T, the remaining deciles were determined. The number of
T-1 reports for Decile 9 was calculated by averaging Y (the number of
T-1 reports in Decile 10) and W (the number of T-1 reports in Decile
8). Decile 7 by averaging W (the number of T-1 reports in Decile 8) and
Z (the number of T-1 reports in Decile 6). Decile 4 by averaging Z (the
number of T-1 reports in Decile 5) and T (the number of T-1 reports in
Decile 3). Decile 2 by averaging T (the number of T-1 reports in Decile
3) and X (the number of T-1 reports in Decile 1).
Table 2--Number of Unions Filing at Least 1 Form T-1
----------------------------------------------------------------------------------------------------------------
Number of unions
Decile of LM-2s with at least 1 3(l) Formula * Variable filing at least 1
trust T-1
----------------------------------------------------------------------------------------------------------------
10 (Top 10%).......................... Y........................ Y 100
9..................................... (W + Y) / 2.............. .......................... 95.25
8..................................... (Z + Y) / 2.............. W 90.5
7..................................... (W + Z) / 2.............. .......................... 85.75
6..................................... (X + Y) / 2.............. Z 81
5..................................... (X + Y) / 2.............. Z 81
4..................................... (T + Z) / 2.............. .......................... 76.25
3..................................... (Z + X) / 2.............. T 71.5
2..................................... (T + X) /2............... .......................... 66.75
1 (Bottom 10%)........................ X........................ X 62
------------------
Total............................. ......................... .......................... 810
----------------------------------------------------------------------------------------------------------------
* These formulae represent the process by which the Department calculated the average number of labor
organizations filing at least 1 (one) T-1 report in each decile. X and Y were not calculations; these
variables were figures determined from extensive, time-consuming reviews of all LM-2 filers with trusts in the
bottom and top deciles by annual revenue size, respectively. Decile 5 and 6, being the middle deciles, were
represented by a simple arithmetic mean, averaging X and Y together to find Z, the average number of unions
filing at least 1 (one) T-1 report in those deciles.
Given the divide in the number of labor organizations filing at
least 1 (one) T-1 report between the top decile consisting of the
largest LM-2 filers and the bottom consisting of the smallest, namely
that the top decile has nearly twice as many labor organizations likely
to file a T-1 report as the bottom decile, the Department assumes that
using the simple arithmetic mean Z to represent the number of labor
organizations likely to file a T-1 report in the remaining deciles
would significantly misrepresent the number of such organizations
likely in those deciles. Z would be an overestimation of labor
organizations in the lower deciles and an underestimation in the top
deciles. Instead, in order to represent the gradual decline in labor
organizations filing at least 1 (one) T-1 report that is expected in
each decile, and thus represent the number of labor organizations
filing the T-1 report in each decile more accurately, the Department
calculated the average of Z & Y and then the average of Z & X in
[[Page 25144]]
order to calculate W and T, respectively, where W is the number of
labor organizations filing the T-1 report expected for the middle
decile in the top deciles (Decile 8) and T is the number of such labor
organizations for the middle decile in the bottom deciles (Decile 3).
With W and T, the remaining deciles were determined. The number of
labor organizations filing at least 1 (one) T-1 report for Decile 9 was
calculated by averaging Y (the number of such labor organizations in
Decile 10) and W (the number of such labor organizations in Decile 8).
Decile 7 by averaging W (the number of such labor organizations in
Decile 8) and Z (the number of such labor organizations in Decile 6).
Decile 4 by averaging Z (the number of such labor organizations in
Decile 5) and T (the number of such labor organizations in Decile 3).
Decile 2 by averaging T (the number of such labor organizations in
Decile 3) and X (the number of such labor organizations in Decile 1).
Table 3--Number of Form T-1 Reports per Union Filing at Least 1 Form T-1
----------------------------------------------------------------------------------------------------------------
Number of Average number
Decile of LM-2s with at least 1 3(l) Formula * Number of T-1s unions filing of T-1s per
Trust at least 1 T-1 union **
----------------------------------------------------------------------------------------------------------------
10 (Top 10%).......................... X / Y = Z............... 330 100 3.3
9..................................... X / Y = Z............... 299.25 95.25 3.14
8..................................... X / Y = Z............... 268.5 90.5 2.97
7..................................... X / Y = Z............... 237.75 85.75 2.77
6..................................... X / Y = Z............... 207 81 2.56
5..................................... X / Y = Z............... 207 81 2.56
4..................................... X / Y = Z............... 176.25 76.25 2.31
3..................................... X / Y = Z............... 145.5 71.5 2.03
2..................................... X / Y = Z............... 114.75 66.75 1.72
1 (Bottom 10%)........................ X / Y = Z............... 84 62 1.35
-----------------------------------------------
Total............................. ........................ 2070 810 *** 2.56
----------------------------------------------------------------------------------------------------------------
* = Where ``X'' represents the Number of Form T-1s, ``Y'' represents the Number of Unions Filing at Least 1 Form
T-1, and Z represents the Average number of Form T-1s per Union.
** = Rounded to the Nearest 100th.
*** = This represents the overall average number of reports Form T-1 filers must file.
As the proposed rule requires an information collection, the
Department is submitting, contemporaneous with the publication of this
notice, an information collection request (ICR) to revise the Paperwork
Reduction Act (PRA) clearance to address the clearance term. The ICR
includes a new form, the Form T-1, which the Department has drafted
that LM-2 filing labor organizations must complete and submit,
consistent with this proposed rule. The ICR also contains corresponding
changes to the Form LM-2 Instructions, Part XI (Completing Form LM-2),
Item 10 (Trusts or Funds). A copy of this ICR, with applicable
supporting documentation, including among other items a description of
the likely respondents, proposed frequency of response, and estimated
total burden may be obtained free of charge from the RegInfo.gov Web
site at http://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201903-1245-001 (this link will only become active on the day following
publication of this notice) or from the Department by contacting Andrew
Davison 202-693-0123 (this is not a toll-free number) / email: [email protected].
As mentioned in DATES and ADDRESSES sections of this preamble, the
Department invites interested parties to comment on any aspect of this
revised information collection, In addition, interested parties may
also submit comments on the ICR directly with OMB for a period of 30
days after publication of this proposed rule. PRA comments should
reference OMB control number 1245-0003. 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 proposed 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., permitting
electronic submission of responses.
Type of Review: Revision of an existing collection.
Agency: OLMS.
Title: Labor Organization and Auxiliary Reports.
OMB Number: 1245-0003.
Affected Public: Private Sector--not-for-profit institutions.
Total Estimated Number of Annual Respondents: 2,070.
Total Estimated Number of Responses: 33,571.
Frequency of Response: On occasion.
Estimated Total Annual Burden Hours: 4,754,243.
Estimated Total Annual Other Burden Cost: $0.
Executive Orders 12866 (Regulatory Planning and Review) and 13563
(Improving Regulation and Review)
Under Executive Order (E.O.) 12866, the Office of Management and
Budget (OMB)'s Office of Information and Regulatory Affairs determines
whether a regulatory action is significant and, therefore, subject to
the requirements of the E.O. and review by OMB. 58 FR 51735. Section
3(f) of E.O. 12866 defines a ``significant regulatory action'' as an
action that is likely to result in a rule that (1) has an annual effect
on the economy of $100 million or more, or adversely affects in a
material way a sector of the economy, productivity, competition, jobs,
the environment, public health or safety, or State, local or tribal
governments or communities (also referred to as economically
significant); (2) creates serious inconsistency or otherwise interferes
with an action
[[Page 25145]]
taken or planned by another agency; (3) materially alters the budgetary
impacts of entitlement grants, user fees, or loan programs, or the
rights and obligations of recipients thereof; or (4) raises novel legal
or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the E.O. Id. OMB has
determined that this proposed rule is not an economically significant
regulatory action under section 3(f) of E.O. 12866.
E.O. 13563 directs agencies to propose or adopt a regulation only
upon a reasoned determination that its benefits justify its costs; the
regulation is tailored to impose the least burden on society,
consistent with achieving the regulatory objectives; and in choosing
among alternative regulatory approaches, the agency has selected those
approaches that maximize net benefits. E.O. 13563 recognizes that some
benefits are difficult to quantify and provides that, where appropriate
and permitted by law, agencies may consider and discuss qualitatively
values that are difficult or impossible to quantify, including equity,
human dignity, fairness, and distributive impacts.
E.O. 13771, titled Reducing Regulation and Controlling Regulatory
Costs, was issued on January 30, 2017. This proposed rule is expected
to be an EO 13771 regulatory action. Details on the estimated costs of
this proposed rule can be found in the rule's economic analysis.
A. Costs of the Form T-1 for Labor Organizations
The Form T-1 will be filed by Form LM-2 filing labor organizations
with trusts that meet the dominance test if those labor organizations
are not otherwise exempted from filing. Using data from LM-2 filings,
the Department estimates that there are at least 810 total affected
labor organizations (i.e., LM-2 filers with trusts for which they must
submit at least 1 Form T-1). The average form LM-2 filer will spend
approximately 121.38 hours on average in the first year, and 84.12
hours each subsequent year to fill out the report. Based on current
filings, the average hourly wage at LM-2 filers for an accountant is
$35.42, $17.37 for a bookkeeper or clerk, $21.54 for a secretary or
treasurer, and $26.10 for the president, respectively. The weighted
average hourly wage for LM-2 filers is $33.87. To account for fringe
benefits and overhead costs, as well as any other unknown costs or
increases in the wage average, the average hourly wage has been
doubled, so the fully loaded hourly wage is $67.74 ($33.87 x 2 =
$67.74).
Therefore, the cost for each T-1 filer to complete a T-1 is
estimated to be $8,222.28 ($67.74 x 121.38 hours = $8,222.28). This
number, however, should be multiplied by the average number of reports
that each T-1 filer will be responsible for (2.56), for a total of
$21,049. This number should have a one-time regulation familiarization
cost of $13.05 per filer (0.25 hours x $52.20 = $13.05) included as
well. Doing so brings the first year costs per filer to $21,063 ([2.56
x 121.38 x $67.74] + $13.05 = $21,063). In subsequent years, the cost
for each T-1 filer would be $14,588 (2.56 x 84.12 x $67.74 = $14,588).
Thus, the total annual cost in the first year for all 810 T-1
filers is estimated to be $17,061,030 (810 x $21,063 = $17,061,030),
and the total annual cost in subsequent years is estimated to be
$11,816,280 (810 x $14,588 = $11,816,280 $).
Regulatory familiarization costs represent direct costs to LM-2
labor organizations associated with reviewing the new regulation to see
if it applies to them. The Department calculated this cost by
multiplying the estimated time to review the rule by the hourly
compensation of the president of the LM-2 filing labor organization.
Using the same fringe benefit and overhead costs rationale as above,
the fully loaded hourly wage for the president is $52.20 ($26.10 x 2 =
$52.20). The Department estimates that the president of each labor
organization will spend 15 minutes to review the rule.
Therefore, the one-time familiarization cost for all remaining
1,200 LM-2 filing labor organizations with trusts (2010 LM-2 filers
with trusts minus the 810 T-1 filers that are already accounted for =
1,200) is estimated to be $38,237 ($52.20 x 1,200 LM-2 filers with
trusts x .25 hours = $15,660) in the first year.
B. Summary of Costs
The total expected first-year costs would be $17,076,690
($17,061,030 + 15,660 = $17, 076,690) In subsequent years, the total
cost would be $11,816,280. The 10-year annualized cost is expected to
be $12,414,999 at a 3 percent discount rate and $12,516,2464 at a 7
percent discount rate. The annualized perpetual cost at a 7 percent
discount rate is expected to be $9,110,275.
C. Benefits
As explained more fully in the preamble to this proposed rule, the
Department is considering this rule in order to prevent the
circumvention or evasion of the LMRDA reporting requirements, which
Congress created as part of its efforts to ``eliminate or prevent
improper practices'' in labor organizations, protect the rights and
interests of workers, and prevent union corruption. 29 U.S.C. 401(b),
(c). Specifically, to curb embezzlement and other improper financial
activities of labor organizations, Congress required labor
organizations to file detailed annual financial reports with the
Secretary of Labor, which must also be made available to labor
organization members. 29 U.S.C. 431(b). The reporting provisions of the
LMRDA were devised to safeguard democratic procedures within labor
organizations and protect the basic democratic rights of union members.
By mandating that labor organizations disclose their financial
operations to employees they represent, Congress intended to promote
labor organization self-government, which would be advanced by labor
organization members receiving sufficient information to permit them to
take effective action in regulating internal union affairs. This
proposed rule would ensure that those reporting obligations are not
evaded and thus expand the benefits of labor organization financial
transparency to the members of all LM-2 filing labor organizations that
utilize trusts to expend funds for the members' benefit.
Recent cases of corruption and the continued potential for
corruption within those trusts only confirms the Secretary's
determination that additional financial reporting is necessary to avoid
the type of circumvention and evasion that Congress authorized him to
prevent. As recognized in the LMRDA, private sector labor organization
members and the public have an interest in how labor organizations
spend their member dues or employer funds through a CBA for their
benefit. This interest is no less great when the money is expended by a
trust rather than the labor organization directly. Extending LMRDA
reporting requirements to bring additional transparency to the
activities of section 3(l) trusts serves the public interest in
disclosure and financial integrity.
Regulatory Flexibility Analysis
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq.,
establishes ``as a principle of regulatory issuance that agencies shall
endeavor, consistent with the objectives of the rule and of applicable
statutes, to fit regulatory and informational requirements to the scale
of the business, organizations, and governmental jurisdictions subject
to regulation.'' Public Law 96-354. To achieve that objective, the RFA
requires
[[Page 25146]]
agencies promulgating final rules to prepare a certification and a
statement of the factual basis supporting the certification, when
drafting regulations that will not have a significant economic impact
on a substantial number of small entities. The RFA requires the
consideration of the impact of a regulation on a wide range of small
entities, including small businesses, not-for-profit organizations, and
small governmental jurisdictions.
Agencies must perform a review to determine whether a proposed or
final rule would have a significant economic impact on a substantial
number of small entities. See 5 U.S.C. 603. If the determination is
that it would, the agency must prepare a regulatory flexibility
analysis as described in the RFA. Id. However, if an agency determines
that a proposed or final rule is not expected to have a significant
economic impact on a substantial number of small entities, section
605(b) of the RFA provides that the head of the agency may so certify
and a regulatory flexibility analysis is not required. See 5 U.S.C.
605. The certification must include a statement providing the factual
basis for this determination, and the reasoning should be clear.
According to the Small Business Administration (SBA), organizations
under NAICS 813930 are considered small entities if they have average
annual receipts of less than $7.5 million.\17\ For this analysis, based
on previous standards utilized in other regulatory analyses, the
threshold for significance is 3% of annual receipts, while a
substantial number of small entities would be 20%.
---------------------------------------------------------------------------
\17\ See https://www.sba.gov/document/support_table-size-standards.
---------------------------------------------------------------------------
The Department conducted this initial regulatory flexibility
analysis to aid stakeholders in understanding the small entity impacts
of the proposed rule and to obtain additional information on the small
entity impacts. The Department invites interested persons to submit
comments on the number of small entities affected by the proposed
rule's requirements, the compliance cost estimates, and whether
alternatives exist that will reduce the burden on small entities.
All numbers used in this analysis are based on 2018 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, and Bureau of Labor Statistics (BLS) wage
data.
A. Why the Department is Considering Action
As explained more fully in the preamble to today's proposed rule,
the Department is considering today's proposed rule to avoid
circumvention and evasion of the reporting requirements established by
Congress in the LMRDA to ``eliminate or prevent improper practices'' in
labor organizations, protect the rights and interests of workers, and
prevent labor organization corruption. 29 U.S.C. 401(b), (c), 431(b).
These reporting provisions of the LMRDA were intended to safeguard
democratic procedures within labor organizations and protect the basic
democratic rights of union members. But recent cases of corruption have
highlighted the potential for circumvention and evasion of these
requirements through the use of section 3(l) trusts. The Form T-1 will
prevent such evasion and thereby enable labor organization members to
be responsible, informed, and effective participants in the governance
of their labor organizations; discourage embezzlement and financial
mismanagement; and strengthen the effective and efficient enforcement
of the Act by the Department.
The Form T-1 is specifically designed to close a reporting gap
where labor organization finances related to LMRDA section 3(l) trusts
were not disclosed to members, the public, or the Department. The Form
T-1 would 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 and
prevent certain trusts from being used to evade the Title II reporting
requirements. It will 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. For example,
the 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 businesses will then be able to determine whether the
business and the labor organization official have made required reports
concerning that relationship. This proposal thus serves the fundamental
purpose of the LMRDA disclosure requirements to prevent financial
malfeasance on the part of those handling labor organization money. 67
FR 79282-83.
B. Objectives of and Legal Basis for the Proposed Rule
Congress enacted the LMRDA after an extensive investigation of
``the labor and management fields . . . [found] that there ha[d] 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 . . . .'' 29 U.S.C.
401(b). Congress intended the Act to ``eliminate or prevent improper
practices'' in labor organizations, to protect the rights and interests
of employees, and to prevent union corruption. 29 U.S.C. 401(b), (c).
As part of the statutory scheme designed to accomplish these goals,
the Act required labor organizations to file annual financial reports
with the Secretary of Labor. 29 U.S.C. 431(b). Congress sought full and
public disclosure of a labor organization's financial condition and
operations in order to curb embezzlement and other improper financial
activities by union officers and employees. See S. Rep. No. 86-187
(1959), reprinted in 1 NLRB, Legislative History of the Labor-
Management Reporting and Disclosure Act of 1959, at 398-99.
The legal authority for this rule 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 he 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.''
C. Compliance Requirements of the Proposed Rule, Including Reporting
and Recordkeeping
This proposed rule requires that labor organizations subject to the
Labor-Management Reporting and Disclosure Act, as amended (LMRDA), the
Civil Service Reform Act (CSRA), or the
[[Page 25147]]
Foreign Service Act (FSA), as well as labor organizations representing
employees of the U.S. Postal Service, with total annual receipts of
$250,000 or more, must file Form T-1 each year for each trust in which
it is interested, as defined in the LMRDA at 29 U.S.C. 402(l), if the
following conditions exist:
The labor organization alone, or in combination with other labor
organizations, either:
Appoints or selects a majority of the members of the
trust's governing board; or
contributes greater than 50% of the trust's receipts
during the one-year reporting period.
D. Estimating the Number of Small Businesses Affected by the Rulemaking
As stated in the Paperwork Reduction Act analysis (PRA), this rule
will apply to the 2,009 labor organizations with at least one trust
\18\ and that are at least $250,000 in size by annual receipts. This
will result in the submission of approximately 2070 Form T-1 reports.
---------------------------------------------------------------------------
\18\ While 2,036 Form LM-2 filing unions reported having trusts,
27 of these LM-2 filers had receipts under $250,000 and were removed
in calculating the deciles, bringing the number to 2009. These 27
presumably consist of unions under trusteeship for which a parent
organization files an LM-2 (organizations that are likely not small
entities), unions mistakenly filing an LM-2, and possibly unions
filing terminal reports. They were removed because it is likely that
they would not file a T-1; any that might be covered consist of a
markedly small portion that is already covered by the extra T-1s
captured in the Department's overestimation of 2,070 reports.
---------------------------------------------------------------------------
E. Cost To Complete and File Form T-1
Based on current filings, the average hourly wage at LM-2 filers
for an accountant is $35.42, $17.37 for a bookkeeper or clerk, $21.54
for a secretary or treasurer, and $26.10 for the president,
respectively. The weighted average hourly wage for LM-2 filers is
$33.87. To account for fringe benefits and overhead costs, as well as
any other unknown costs or increases in the wage average, the average
hourly wage has been doubled, so the fully loaded hourly wage is $67.74
($33.87 x 2 = $67.74).
As discussed in the regulatory impact analysis above, the average
cost per respondent to complete the Form T-1 is $21,063 in the first
year, and is $14,588 in each subsequent year.
F. Calculating Impact of Proposed Rule on Small Business Firms
For this analysis, a small union is defined as one in which annual
receipts are less than $7.5 million dollars. This rule impacts 2009
labor organizations at least $250,000 in size by annual receipts, with
at least one trust. Of these organizations, only 1648 have annual
receipts less than $7.5 million. The data cited for the following
calculations came from a query of the Department's database containing
all submitted 2018 Form LM-2 union financial disclosure reports. The
query asked for all Form LM-2 filers with at least one trust. It
returned a list of each such filer along with various discrete
informational fields, including each Form LM-2 filer's annual receipts
information, which was used to identify all of the Form LM-2 filers
with less than $7.5 million in annual receipts that inform this RFA
analysis.
A threshold of 3% of revenues has been used in prior rulemakings
for the definition of significant economic impact. See, e.g., 79 FR
60634 (October 7, 2014, Establishing a Minimum Wage for Contractors)
and 81 FR 39108 (June 15, 2016, Discrimination on the Basis of Sex).
This threshold is also consistent with thresholds used by other
agencies. See, e.g., 79 FR 27106 (May 12, 2014, Department of Health
and Human Services rule stating that, under its agency guidelines for
conducting regulatory flexibility analyses, actions that do not
negatively affect costs or revenues by more than three percent annually
are not economically significant). The Department believes that its use
of a 3% of revenues significance criterion is appropriate.
The Department believes that its use of a 20% of affected small
business entities substantiality criterion is appropriate given prior
rulemakings.
There are only 376 LM-2 filers with at least one trust whose annual
receipts were small enough that the Form T-1 costs would amount to more
than a 3% impact. The largest of the 376 had annual receipts of
$700,249 for a 3.01% impact. The smallest of the filers had $253,475 in
annual receipts for an 8.31%% impact.
Under this rule 376 unions would have costs representing more than
3% of their annual receipts (at most 8.31%). The proposed rule thus
impacts 22.82% of small business entities, which exceeds the 20%
standard set for this NPRM.
Significant Impact on Small Unions--$7.5 Million Size Standard
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Percentage of
Number of Average Average T-1 Burdenas % of Percentage of small unions small unions
Size (by receipts) small unions annual rule burden annual small unions subject to subject to
affected receipts ($) per union ($) receipts affected significant significant
impact * impact **
--------------------------------------------------------------------------------------------------------------------------------------------------------
$5M--$7.5M.............................. 145 $6,072,570 $21,063 0.34 8.80 0 ..............
$2.5M--$4.99M........................... 377 3,542,277 21,063 0.59 22.88 0 ..............
$1M--$2.49M............................. 543 1,642,770 21.063 1.28 32.95 0 ..............
$500K--$999,999......................... 368 740,460 21,063 2.84 22.33 161 ..............
$250K--$499,999......................... 215 380,192 21,063 5.54 13.05 215 ..............
---------------------------------------------------------------------------------------------------------------
Total............................... 1,648 .............. .............. .............. 100 376 22.82
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The Revenue test for significant impact on small unions is set at 3% for this NPRM.
** The standard for substantial number is set at 20% of small unions overall for this NPRM.
The Department welcomes comments on the data, factors, and
assumptions used in this analysis.
G. Relevant Federal Rules Duplicating, Overlapping, or Conflicting With
the Rule
To the extent that there are federal rules that duplicate, overlap,
or conflict with this rule, a specific exemption from the requirements
of this rule has been provided. Specifically, no union with a 3(l)
trust would need to file a Form T-1 if the trust has filed a complete
and timely Form 5500 with EBSA.
[[Page 25148]]
The Department is not aware of any other relevant federal rules
that conflict with this NPRM.
H. Alternative to the Proposed Rule.
The Department has considered and here presents three regulatory
alternatives: (1) no regulatory action, (2) a similar proposal, but
with a modified test for when a Form T-1 is required for a given 3(l)
trusts, and (3) a similar proposal, but modifying the Form T-1 in order
to reduce its scope.
If the Department were not to take this regulatory action, it would
avoid any new burden on labor organizations and thus ensure no new
significant economic impact on small entities, but it would at the same
time prevent realization of the many benefits of the Form T-1 detailed
in this proposed rule. Regulatory inaction would leave open the current
avenue for circumvention or evasion of reporting requirements through
moving funds into union-controlled trusts and would eliminate the
associated benefits to union financial transparency. The Department
invites comments on this alternative, but has not pursued it because
the prevention of circumvention or evasion of union financial reporting
is a responsibility of the Department pursuant to the LMRDA.
Modifying the proposed financial or managerial domination test
would serve to reduce the burden on small labor organizations because
fewer trusts would be covered under that alternative to the proposed
rule. However, it would be critical to somehow ensure that the trusts
that are no longer covered do not serve as possible tools for
circumventing or evading financial reporting. The test already limits
coverage based on one or more labor organizations having control over
the trust in question, so viable exemptions are those that retain
coverage for trusts over which unions hold sufficient control or that
carve out exemptions for certain trusts. As to exemptions, the
Department has already incorporated some exemptions into the proposed
rule as it currently stands where trusts already report sufficient
financial information to another agency, e.g., exempting trusts that
file the Form 5500 with the Department. Further, the Department has
proposed to exempt subordinate labor organizations from having to file
a Form T-1 when the parent labor organization files one covering the
subordinate's trust. The Department invites comments on such
alternatives, but has not pursued these alternatives because the
control test has already been narrowed and tailored throughout the
history of the Form T-1 to ensure it does not extend the Form T-1
reporting requirement to any more trusts than necessary while still
fully serving the purpose of preventing circumvention or evasion of
reporting obligations.
Simplifying and reducing the scope of the Form T-1 could alleviate
the burden on small entities by reducing the burden hours of completing
each Form T-1, but the Department would be doing so at the cost of
losing important information on every single Form T-1 filed. Potential
alternatives to the current Form T-1 with reduced scope could include
fewer schedules or further limit the category of disbursements that
must be itemized. The Department invites comments on such alternatives,
but has not pursued them in this proposal because the schedules and
itemization requirements are already greatly reduced compared to the
Form LM-2 that the covered labor organizations complete and because
further modification could impede the prevention of circumvention or
evasion of LMRDA reporting requirements.\19\
---------------------------------------------------------------------------
\19\ Form T-1 includes only three (3) schedules compared to the
twenty (20) schedules of the Form LM-2 and has a higher threshold of
$10,000 for itemization compared to $5,000 for the Form LM-2.
---------------------------------------------------------------------------
I. Differing Compliance and Reporting Requirements for Small Entities
This NPRM provides for no differing compliance requirements or
reporting requirements for small entities. Under the rule, 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.
J. Clarification, Consolidation, and Simplification of Compliance and
Reporting Requirements for Small Entities
This NPRM was drafted to clearly state the compliance and reporting
requirements for all small entities subject to this proposed rule.
OLMS will update the e.LORS system to allow labor organizations to
file the Form T-1 as they file the Form LM-2.
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 any given filer
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.
Small Business Regulatory Enforcement Fairness Act of 1996
This proposed rule is not a major rule as defined by section 804 of
the Small Business Regulatory Enforcement Fairness Act of 1996. This
rule will not result in an annual effect on the economy of $100,000,000
or more; a major increase in costs or prices; or significant adverse
effects on competition, employment, investment, productivity,
innovation, or on the ability of the United States-based companies to
compete with foreign-based companies in domestic and export markets.
List of Subjects in 29 CFR Part 403
Labor Organization, Trusts, Reporting and Recordkeeping
Requirements.
Accordingly, for the reasons provided above, the Department
proposes to amend part 403 of title 29, chapter IV of the Code of
Federal Regulations as set forth below:
PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS
0
1. The authority citation for part 403 continues to read as follows:
Authority: Secs. 201, 207, 208, 301, 73 Stat. 524, 529, 530 (29
U.S.C. 431, 437, 438, 461); Secretary's Order No. 03-2012, 77 FR
69376, November 16, 2012.
0
2. Amend Sec. 403.2, by adding paragraph (d) 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 the labor organization or
the 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:
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(A) Appoints or selects a majority of the members of the trust's
governing board; or
(B) Makes contributions to the trust that exceed 50 percent of the
trust's receipts during the trust's fiscal year; and
(ii) None of the exemptions discussed in paragraph (d)(3) of this
section apply.
(iii) For purposes of paragraph (d)(1)(i)(B) of this section,
contributions by an employer pursuant to a collective bargaining
agreement with a labor organization 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. Only the parent labor organization (i.e., the national/
international or intermediate labor organization) must file the Form T-
1 report for covered trusts in which both the parent labor organization
and its affiliates satisfy the financial or managerial domination test
set forth in paragraph (d)(1)(i) of this section. The affiliates must
continue to identify the trust in their Form LM-2 Labor Organization
Annual Report, and include a statement that the parent labor
organization will file a Form T-1 report for the trust.
(3) No Form T-1 should be filed for any trust (or a plan of which
the trust is part):
(i) That meets the statutory definition of a labor organization and
already files a Form LM-2, Form LM-3, Form LM-4, or simplified LM
report,
(ii) That the LMRDA exempts from reporting, such as an organization
composed entirely of state or local government employees or a state or
local central body,
(iii) That meets the definition of a subsidiary organization
pursuant to Part X of the instructions for the Form LM-2 Labor
Organization Annual Report,
(iv) 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,
(v) 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 (IRS),
(vi) Constitutes a federal employee health benefit plan subject to
the provisions of the Federal Employees Health Benefits Act (FEHBA),
(vii) Constitutes any for-profit commercial bank established or
operating pursuant to the Bank Holding Act of 1956, 12 U.S.C. 184, or
(viii) That files a Form 5500 under 29 U.S.C. section 1021 and/or
1024. Filing the Form 5500-SF is not included within this exemption,
unless the plan is required to file an annual form with the Employee
Benefits Security Administration (EBSA).
(4) A labor organization may complete only Items 1 through 15 and
Items 26 through 27 (Signatures) of Form T-1 if an annual audit
prepared according to standards set forth in the Form T-1 instructions
was performed and a copy of that audit is filed with the Form T-1.
(5) 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.
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3. Amend Sec. 403.5 by adding 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.
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4. In Sec. 403.8, revise paragraph (b)(3) to read as follows:
Sec. 403.8 Dissemination and verification of reports.
* * * * *
(b) * * *
(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, or that would consist of individually identifiable health
information the trust is required to protect under the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) Privacy Regulation.
Signed in Washington, DC.
Arthur F. Rosenfeld
Director, Office of Labor-Management Standards.
Appendix
Note: This appendix, which will not appear in the Code of
Federal Regulations, contains Form T-1 and instructions.
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[FR Doc. 2019-10971 Filed 5-29-19; 8:45 am]
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