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Rule

Labor Organization Annual Financial Reports

Action

Final Rule.

Summary

The Department of Labor's Employment Standards Administration (“ESA”) Office of Labor-Management Standards (“OLMS”) publishes this Final Rule to make several revisions to the current Form LM-2 (used by the largest labor organizations to file their annual financial reports) that will provide additional information on Schedules 3, 4, 11 and 12, clarify reporting under certain functional categories and add itemization schedules corresponding to categories of receipts, and establish a procedure and standards by which the Secretary of Labor may revoke a particular labor organization's privilege to file a simplified annual report, Form LM-3, where appropriate, after investigation, due notice, and opportunity for a hearing. The changes are made pursuant to section 208 of the Labor-Management Reporting and Disclosure Act (“LMRDA”), 29 U.S.C. 438. The final rule will apply prospectively.

Unified Agenda

Labor Organization Annual Financial Reports

14 actions from May 12th, 2008 to October 2009

  • May 12th, 2008
  • June 19th, 2008
  • June 26th, 2008
    • NPRM Comment Period End
  • July 11th, 2008
  • January 21st, 2009
  • February 3rd, 2009
    • NPRM Effective Date Extension (60 Days); Request Comment on Legal & Policy Questions of Final Rule
  • February 13th, 2009
    • NPRM Extension Comment Period End
  • February 20th, 2009
  • February 20th, 2009
    • Final Rule; Delaying Effective Date for 60 Days
  • March 5th, 2009
    • Legal and Policy Questions Relating to January 2009 Final Rule Comment Period End
  • March 19th, 2009
    • NPRM Effective and Applicability Date Extension (180 Days)
  • April 21st, 2009
    • Final Rule; Delaying Effective Date and Applicability Date for 180 Days
  • April 21st, 2009
    • Proposed Withdrawal of January 2009 Final Rule
  • October 2009
    • Final Rule
 

Table of Contents Back to Top

Tables Back to Top

DATES: Back to Top

Effective Date: This rule shall take effect on February 20, 2009.

Applicability Date: This rule will apply prospectively to labor organizations whose fiscal years begin on or after July 1, 2009.

FOR FURTHER INFORMATION CONTACT: Back to Top

Denise Boucher, Director of the Office of Policy, Reports and Disclosure, at: Denise M. Boucher, U.S. Department of Labor, Employment Standards Administration, Office of Labor-Management Standards, 200 Constitution Avenue, NW., Room N-5609, Washington, DC 20210, (202) 693-1185 (this is not a toll-free number). (800) 877-8339 (TTY/TDD).

SUPPLEMENTARY INFORMATION: Back to Top

I. Statutory Authority Back to Top

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

Section 208 authorizes the Secretary to establish “simplified reports for labor organizations or employers for whom [s]he finds that by virtue of their size a detailed report would be unduly burdensome.” Section 208 also authorizes the Secretary to revoke this privilege for any labor organization or employer if the Secretary determines, after such investigation as she deems proper and due notice and opportunity for a hearing, that the purposes of section 208 would be served by revocation.

II. Background Back to Top

A. Introduction

On May 12, 2008, the Department issued a notice of proposed rulemaking (73 FR 27346) proposing to modify and improve the Form LM-2 by requiring additional information about the receipt and disbursement of labor organization funds, and establish standards and procedures for revoking, where appropriate, the privilege afforded some labor organizations to file simplified annual reports, after investigation, due notice, and opportunity for hearing. As noted in the proposal, the revisions to Form LM-2 and the standards and procedures for revoking a labor organization's simplified filing privilege are part of the Department's continuing effort to better effectuate the reporting requirements of the LMRDA.

The Department initially provided for a 45-day comment period ending June 26, 2008. In response to public requests, the Department published a notice extending the comment period to July 11, 2008. (73 FR 34913). The Department received 536 comments on the LM-2/LM-3 NPRM, excluding requests for extensions. Of these comments, approximately 45 were unique comments. The remaining comments were copies of a form letter endorsing the proposal. Comments were received from labor organizations, employers, trade and public interest groups, and two Members of Congress.

The LMRDA's various reporting provisions are designed to empower labor organization members by providing them the means and information to maintain democratic control over their labor organizations and ensure a proper accounting of labor organization funds. Labor organization members are better able to monitor their labor organization's financial affairs and to make informed choices about the leadership of their labor organization and its direction when they receive the financial information required by the LMRDA. By reviewing the reports, a member may ascertain the labor organization's priorities and whether they are in accord with the member's own priorities and those of fellow members. At the same time, this transparency promotes both the labor organizations' own interests as democratic institutions and the interests of the public and the government. Furthermore, the LMRDA's reporting and disclosure provisions, together with the fiduciary responsibility provision, 29 U.S.C. 501, which directly regulates the primary conduct of labor organization officials, operate to safeguard a labor organization's funds from depletion by improper or illegal means. Timely and complete reporting also helps deter labor organization officers or employees from making improper use of such funds or embezzling assets.

The final rule brings the reporting requirements for labor organizations in line with contemporary expectations for the disclosure of financial information. Today labor organizations are more like modern corporations in their structure, scope, and complexity than the labor organizations of 1959. [1] Further, as benefits have become a larger component of compensation, information about such benefits has become more important to members. [2] Moreover, labor organization members today are better educated, more empowered, and more familiar with financial data and transactions than ever before. As labor organization members, no less than as consumers, citizens, or creditors, they expect access to relevant and useful information in order to make fundamental investment, career, and retirement decisions, evaluate options, and exercise legally guaranteed rights.

B. The LMRDA's Reporting and Other Requirements

In enacting the LMRDA in 1959, a bipartisan Congress made the legislative finding that in the labor and management fields “there have been a number of instances of breach of trust, corruption, disregard of the rights of individual employees, and other failures to observe high standards of responsibility and ethical conduct which require further and supplementary legislation that will afford necessary protection of the rights and interests of employees and the public generally as they relate to the activities of labor organizations, employers, labor relations consultants, and their officers and representatives.” 29 U.S.C. 401(a).

The statute was the direct outgrowth of a congressional investigation conducted by the Select Committee on Improper Activities in the Labor or Management Field, commonly known as the McClellan Committee, chaired by Senator John McClellan of Arkansas. In 1957, the committee began a highly publicized investigation of labor organization racketeering and corruption; and its findings of financial abuse, mismanagement of labor organization funds, and unethical conduct provided much of the impetus for enactment of the LMRDA's remedial provisions. See generally Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of 1959, 73 Harv. L. Rev. 851, 851-55 (1960). During the investigation, the committee uncovered a host of improper financial arrangements between officials of several international and local labor organizations and employers (and labor consultants aligned with the employers) whose employees were represented by the labor organizations in question or might be organized by them. See generally Interim Report of the Select Committee on Improper Activities in the Labor or Management Field, S. Rep. No. 85-1417 (1957); see also William J. Isaacson, Employee Welfare and Benefit Plans: Regulation and Protection of Employee Rights, 59 Colum. L. Rev. 96 (1959).

The statute was designed to remedy these various ills through a set of integrated provisions aimed at labor organization governance and management. These include a “bill of rights” for labor organization members, which provides for equal voting rights, freedom of speech and assembly, and other basic safeguards for labor organization democracy, see 29 U.S.C. 411-15; financial reporting and disclosure requirements for labor organizations, their officers and employees, employers, labor relations consultants, and surety companies, see 29 U.S.C. 431-36, 441; detailed procedural, substantive, and reporting requirements relating to labor organization trusteeships, see 29 U.S.C. 461-66; detailed procedural requirements for the conduct of elections of labor organization officers, see 29 U.S.C. 481-83; safeguards for labor organizations, including bonding requirements, the establishment of fiduciary responsibilities for labor organization officials and other representatives, criminal penalties for embezzlement from a labor organization, a prohibition on certain loans by a labor organization to officers or employees, prohibitions on employment and officeholding of certain convicted felons in a labor organization, and prohibitions on payments to employees, labor organizations, and labor organization officers and employees for prohibited purposes by an employer or labor relations consultant, see 29 U.S.C. 501-05; and prohibitions against extortionate picketing, retaliation for exercising protected rights, and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529, 530.

Financial reporting and disclosure was conceived as a partial remedy for these improper practices. As noted in a key Senate Report on the legislation, disclosure would discourage questionable practices (“The searchlight of publicity is a strong deterrent.”); aid labor organization governance (Labor organizations will be able “to better regulate their own affairs. The members may vote out of office any individual whose personal financial interests conflict with his duties to members.”); facilitate legal action by members against “officers who violate their duty of loyalty to the members”; and create a record (The reports will furnish a “sound factual basis for further action in the event that other legislation is required.”). S. Rep. No. 187 (1959), at 16, reprinted in 1 NLRB Legislative History of the Labor-Management Reporting and Disclosure Act of 1959, at 412.

Section 201 of the LMRDA requires labor organizations to file annual, public reports with the Department, detailing the labor organization's financial condition and operations. 29 U.S.C. 431(b). The Department has developed several forms for implementing the LMRDA's financial reporting requirements. The annual report forms (Form LM-2, Form LM-3, and Form LM-4), require information about a labor organization's assets, liabilities, receipts, disbursements, loans to officers and employees and business enterprises, direct and indirect payments to each officer, and payments to each employee of the labor organization paid more than $10,000 during the fiscal year. [3] The reporting detail required of labor organizations, as the Secretary has established by rule, varies depending on the amount of the labor organization's annual receipts. 29 CFR 403.4.

Labor organizations with annual receipts of at least $250,000 and all labor organizations in trusteeship (without regard to the amount of their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4. This form may be filed voluntarily by any other labor organization. The Form LM-2 requires receipts and disbursements to be reported by functional categories, such as representational activities; political activities and lobbying; contributions, gifts, and grants; union administration; and benefits. Further, the form requires filers to allocate the time their officers and employees spend according to functional categories, as well as the payments that each of these officers and employees receive, and it compels the itemization of certain transactions totaling $5,000 or more. This form must be electronically signed and filed with the Department. [4]

Forms LM-3 and LM-4 were developed by the Secretary to meet the LMRDA's charge that she develop “simplified reports for labor organizations and employers for whom [s]he finds by virtue of their size a detailed report would be unduly burdensome,” 29 U.S.C. 438. A labor organization not in trusteeship that has total annual receipts less than $250,000 for its fiscal year may elect, “subject to revocation of the privilege,” to file Form LM-3 or Form LM-4, depending on its total annual receipts, instead of Form LM-2. See 29 CFR 403.4(a)(1). [5] The Form LM-3, which may be used by a labor organization with annual receipts of $10,000 or greater, but less than $250,000, is a five-page document requiring labor organizations to provide particularized information by certain categories, but in less detail than Form LM-2. A labor organization not in trusteeship that has total annual receipts less than $10,000 for its fiscal year may elect, “subject to revocation of the privilege,” to file Form LM-4 instead of Form LM-2 or Form LM-3. 29 CFR 403.4(a)(2). The Form LM-4 is a two-page document that requires a labor organization to report only the total amounts of its assets, liabilities, receipts, disbursements, and payments to officers and employees.

With regard to each of these reports, the LMRDA states that the Secretary of Labor shall “prescribe the[ir] form and publication * * * and such other reasonable rules and regulations * * * as he may find necessary to prevent the circumvention or evasion of such reporting requirements.” 29 U.S.C. 438. This final rule revises the Form LM-2 and establishes a procedure and standards for revocation of a labor organization's simplified filing privilege. The revised Form LM-2 will provide greater transparency of labor organization finances and effectuate the goals of the LMRDA.

III. Changes to the Form LM-2 and the Form LM-3 Back to Top

A. Form LM-2

1. Introduction

The Department proposed changes to enhance the Form LM-2 by requiring labor organizations to disclose additional information about their financial activities to their members, this Department, and the public. Each of the changes proposed has been adopted in the final rule, with some modifications in response to public comment received on the proposals. On the revised form, labor organizations will provide additional information in Schedule 3 (“Sale of Investments and Fixed Assets”) and Schedule 4 (“Purchase of Investments and Fixed Assets”) that will allow verification that these transactions are performed at arm's length and without conflicts of interest. Schedules 11 and 12 have also been revised to require reporting of the value of benefits paid to and on behalf of officers and employees. This change will provide a more accurate picture of total compensation received by labor organization officers and employees. Labor organizations will report on Schedules 11 and 12 travel reimbursements indirectly paid on behalf of labor organization officers and employees. This change will provide more accurate information on travel disbursements for labor organization officers and employees. The enhancements also include additional schedules corresponding to the following categories of receipts: Dues and Agency Fees; Per Capita Tax; Fees, Fines, Assessments, Work Permits; Sales of Supplies; Interest; Dividends; Rents; On Behalf of Affiliates for Transmittal to Them; and From Members for Disbursement on Their Behalf. These new schedules will require the reporting of additional information, by receipt category, of aggregated receipts of $5,000 or more. The $5,000 threshold for itemization is used throughout the Form LM-2. This change is consistent with the information currently provided for disbursements. Finally, the Department is amending the Form LM-2 instructions to conform to the requirements of the Form T-1 published on October 2, 2008. [6]

The Department also sought comment on three specific questions: Whether the functional categories on the Form LM-2 should be changed in order to improve their usability to members of labor organizations and the public; whether the confidentiality exception from the Form LM-2 instructions should be narrowed, clarified or removed; and “whether all transactions greater than $5,000 should be identified by amount and date in the relevant schedules, permitting, however, labor organizations, where acting in good faith and on reasonable grounds, to withhold information that otherwise would be reported, in order to prevent the divulging of information relating to the labor organization's prospective organizing or negotiat[ing] strategy.” 73 FR at 27352-53. Comments were received on these questions; however, with the exception of a clarification about the use of the confidentiality exception for reporting payments under a job targeting or market recovery program, the Department has made no changes to the Form LM-2 on the points for which specific comments were requested.

The Department framed the request regarding the appropriateness of the functional reporting categories as follows:

The Department also requests comment from the public regarding the appropriateness of the current functional disbursement categories in the Form LM-2. Comment is sought on whether changes should be made to these sections in order to improve their usability to members of labor organizations and the public.

73 FR at 27348. Numerous comments were received on this question. Several commenters expressed support for the continued use of the functional categories, which they find useful. Some commenters argued that no changes should be made to the functional categories, arguing that the functional categories place an unnecessary burden on unions and that unions have already spent considerable time to modify their accounting systems to allow for reporting on the current Form LM-2. Among the suggestions for improving the functional categories were the following:

  • Separate reporting for organizing and representation functions and require additional itemization.
  • Lower the itemization threshold from $5,000 to $200.
  • Require accurate reporting of time spent, rather than an estimate to the nearest 10%, by officers and employees on activities in the functional categories.
  • Require details regarding specific matters, cases, contracts, or grievances for which legal fees or other representational expenses, including staff time, are incurred.

The Department requested comment on the functional categories to further its understanding of any problems, concerns, or areas where improvement would be useful. Other than the items specifically listed, the Department did not propose general changes to the functional categories. The Department sought comment for informational purposes. That information has been received and reviewed and will be used to guide any changes that may be proposed in this area in the future.

The remaining two questions are discussed below in connection with Schedule 15.

The enhancements adopted in today's final rule, as more fully described below, will ensure that information is reported in such a way as to meet the objectives of the LMRDA by providing labor organization members with useful data that will enable them to be responsible and effective participants in the democratic governance of their labor organizations. The enhancements are designed to provide members of labor organizations with additional and more detailed information about the financial activities of their labor organization that is not currently available through the Form LM-2 reporting. Moreover, experience with the software and technology developed for the 2003 revisions show that it is possible to provide the level of detail necessary to give labor organization members a more accurate picture of their labor organization's financial condition and operations without imposing an unwarranted burden on reporting labor organizations. The Department is revising the Form LM-2 software currently in use by Form LM-2 filers to conform to the enhancements made in today's final rule and will make the software available to filers without charge.

2. The Revisions to the Form LM-2 and Instructions

a. General

The Department received numerous comments on the proposed changes to the Form LM-2. While many comments concerned particular aspects of the proposal, many who opposed the proposal made some or all of the following claims: (1) The proposal comes too soon after, and without adequate justification to depart from, the reporting requirements established in 2003; (2) the proposal lacks the support of union members and supersedes their right to examine records underlying their union's financial reports; and (3) the proposal, especially the additional itemization to be required of labor organizations, places unnecessary and costly burdens on them. The comments received on these points are discussed below.

(1) Timing and Justification for Changing the Form

Several commenters raised questions about the timing of and justification for the proposed changes. For example, one commenter stated that the Department's proposal to require additional detailed reporting by labor organizations was made without any review by the Department of whether the 2003-revised Form LM-2 has been effective or beneficial to union members. It suggested that the Department failed to provide concrete examples of the need for a particular change or for how a change would address a concrete problem. Another commenter stated that by changing the reporting requirements so soon after the 2003 revision, the Department would impose needless, but significant, non-recurring costs on filers.

The 2003 rule represented an extensive change in the annual financial reports required under the LMRDA. The 2003 rule represented the first significant change in the Form LM-2 in over 40 years. Among other things, it required unions to report information in new functional categories, union officials to allocate how they spend their time working on members' interests, itemize major disbursements, identify tardy accounts receivables, and file the reports electronically in a format that allows for computer-assisted review and dissemination via the Internet. When the Department formulated its proposal to revise further the Form LM-2, it had the benefit of three cycles of reviewing forms submitted in accord with the 2003 revision to assess the utility of the form and to identify areas in which improvement was needed. In developing the proposals, the Department has had the opportunity to review thousands of forms and to tap the experience gained by its staff in investigating Form LM-2 issues and from their dialogue with union officials and union members while providing Form LM-2 compliance assistance to them. The Department has had the additional benefit of the lessons learned since the 2003 rule took effect in developing other LMRDA reports (Form LM-30 and Form T-1) and defending these reports in litigation before the federal courts.

The changes proposed and adopted in the instant rulemaking are incremental changes to the 2003 revisions. As stated in the NPRM and the discussion below, the Department acknowledges that unions will incur some additional burden in making the changes. In contrast to the 2003 revisions to the Form LM-2, however, the burden is minimal. Unions already have systems with the capability of itemizing disbursements; and there is no apparent reason (and none of the commenters suggested otherwise) why the same systems cannot be adapted for itemizing receipts.

As discussed in greater detail in the PRA section of the preamble, the Department has carefully considered the comments about its preliminary burden estimates, as set forth in the NPRM. The Department has revised upwards its estimate of the recurring burden associated with the new changes to the Form LM-2 to 15.6 hours, an increase of about 35 percent from the estimate in the NPRM. The revised estimate includes the changes made to the form and instructions from their proposed versions.

(2) Benefits to Union Members

Some commenters stated that the Department failed to explain why union members would find the proposed reporting requirements to be useful. Another commenter expressed concern about the absence of any studies showing how union members are using the information being reported under the 2003-revised Form LM-2 to improve the accountability and fiscal management of their unions. As the Department explained in the NPRM, 73 FR at 27346-48, the proposed rules were designed to improve the transparency of union finances and better effectuate the intention of Congress in enacting the Act's reporting and disclosure provisions. As discussed above, the proposed changes were the result of the Department's experience with the 2003-revised Form LM-2. Through this experience, it became evident to the Department's staff that the Form LM-2 incompletely reflected the compensation paid to union officials. Notably missing from the reports was a true reflection of the amounts of compensation being paid to or on behalf of individual officials. See 73 FR at 27350. While salaries and most other disbursements were being reported on an individual basis, the reports failed to disclose the total amount of travel expenses incurred by union officials or the amount of benefits paid to them. In a similar fashion, the 2003 Form LM-2 failed to provide itemization of a union's receipts. Without this information, union members, the Department, and the public have been missing pertinent, material information about the union's finances. The Department's proposals, as adopted in this rule, provide greater transparency about a union's finances. Further, each of the proposals was accompanied by one or more illustrations of why the changes are necessary and how they will benefit union members. These examples show the still opaque nature of the current reporting in some areas; the examples were chosen to highlight the problems rather than serve as an exhaustive listing of the problems.

Some of the commenters suggest that union members have little or no concern about how the union conducts its finances and none about transactions as little as $5,000. They further suggest that any interest is easily met by a member's right for “just cause” to review the union's financial records if he or she has questions relating to the union's finances. They assert, in effect, that LMRDA section 201(c), which provides union members a right to review records underlying a union's financial report for “just cause,” becomes superfluous because of the additional detail that the Department would require.

The commenters correctly recognize that Congress provided members an important right to obtain additional information about their union's finances. The LMRDA requires both that a labor organization file annual reports with the Department, LMRDA section 201(b), 29 U.S.C. 431(b), and make available to its members the information required to be contained in the annual report. LMRDA section 201(c), 29 U.S.C. 431(c). However, they mistakenly view detailed reporting as undermining that right. In the Department's view, the additional detail required by the changes to the Form LM-2 promotes the right of union members to seek further information about their union's finances. Sections 201(b) and (c) are complementary. As noted by the DC Circuit, there is no inconsistency between the itemization required by the Form LM-2 and subsection 201(c) because section 201(c) simply requires disclosure of data that underlies a subsection 201(b) report. AFL-CIO v. Chao, 409 F.3d 377, 383-384 (D.C. Cir. 2005). The Court explained that additional detail in the subsection 201(b) reports would facilitate a union member's right to probe further pursuant to subsection 201(c). Id. Today's rule is entirely consistent with the approach taken by the Department in 2003 and the court's view of the interplay between section 201(b) and 201(c). The information that will be reported on the Form LM-2 under this final rule enhances the member's right to examine underlying records. It enables a member to more easily identify transactions warranting additional scrutiny, which he or she can then pursue by requesting and examining underlying records. It thereby promotes the interests of the inquiring member, his or her fellow members, and the labor organization as an institution.

By providing itemization of receipts, labor organizations will better disclose to their members a more complete accounting of all funds received and the identity of individuals and entities with which the labor organization does business. The Department also can use this information to determine the purpose of any receipt from one source in an amount of $5,000 or more, which will help identify possible misappropriation of funds. Members will be able to determine that money received by the labor organization is actually accounted for. For example, labor organization members can ensure that money they paid to the organization for disbursement on their behalf is properly accounted for on the Form LM-2. If there is no itemized receipt in new Schedule 22 for payments of $5,000 or more, or the receipt is less than expected, then the member will know that the money was not properly reported and may pursue his or her right to examine the union's books and records underlying the information reported on the Form LM-2.

One commenter made the point that the question whether unions should make itemized disclosures of sales of union assets to non-insiders is the kind of question that should be resolved by the unions themselves in accord with their internal democratic processes. This process, it was argued, would better accord with members' real interests than the Department's imputed interest. The commenter points out that in many, if not most, instances the Department has acknowledged that the added detail on the proposed revised Form LM-2—for example the sale of a union automobile for less than its book value to a non-insider-can only be evaluated by a union member who, if he or she believes the matter worthy of further scrutiny, can follow up by exercising his or her LMRDA § 201(c) right to inspect union records. The Department agrees with the assessment that in most cases union members will be in the best position to determine whether a particular transaction or transactions raise questions that demand further examination of the underlying details. Nonetheless, as discussed above, Congress established a reporting system in which the Department and the general public also serve important roles.

The Department cannot ensure adequate disclosure if itemization and reporting policies are left to the discretion of individual unions. Different reporting standards would lead to as many different forms and reporting requirements as there are labor organizations. Finally, members would have to research each individual labor organization to determine whether and where they report. For example, a member of a local who is affiliated with an international has an interest in the local, international, and any intermediate body. Under this final rule, the member can go to the Department Web site and search each labor organization's filings containing information reported in a consistent format. If the decisions were left to the unions' own choice, members would be provided information varying in detail and which could change from year to year, denying members the ability to make reliable historical and cross-union comparisons. The integrated reporting system adopted by the Department ensures that members can find information and know what information is provided on the reports.

A number of the commenters asserted that the new receipt reporting requirements would produce a forest of financial minutia that is expensive to track and impossible for members to meaningfully interpret. One commenter estimated that the average Form LM-2 report is 195 pages. The commenters also stated that labor organizations with $50 million or more in annual receipts filed, on average, 96.3 more pages in 2007 than in 2004, a 97.4% increase. He stated that the proposed changes would add substantial length to the reports. This commenter and others questioned how many members will have the time, patience, and resources to meaningfully delve into their labor organization's Form LM-2 report.

The Department acknowledges that additional reporting requirements add length to a report and that the interest of individual union members to examine their union's finances will vary greatly from individual to individual. The Department also recognizes that a typical member will not have an interest in investigating each transaction listed on the Form LM-2. However, a member need not study his or her labor organization's entire Form LM-2 for the report to be useful. The member can use the summary schedules for quick references or, as discussed above, use the search function to find specific transactions. The summary schedules allow for quick references. For example, a quick look at any summary schedule might reveal a large number where one would expect a small number or a small number where one might expect a large number. If such a disparity is identified, the member is free to search the itemized receipt/disbursement schedules to investigate the unexpected aggregate. In one case a labor organization indicated on its Form LM-2 summary schedule that it had received $5,037,071 in rent. This accounted for more than ten percent of the labor organization's total receipts. No itemized schedule for rents is available on the current Form LM-2. Another labor organization indicated on its Form LM-2 summary schedule that it had received $15,123,482 in receipts on behalf of affiliates for transmittal to them. This accounted for almost a quarter of the labor organization's receipts, exceeded only by per capita taxes. Like rents, receipts on behalf of affiliates for transmittal to them are not itemized on the current Form LM-2. However, the newly revised Form LM-2 will provide the information necessary to evaluate the rent receipts and receipts on behalf of affiliates for transmittal to them. Another labor organization indicated that it received $6,900,000 in loans. This was the third largest source of its receipts and accounted for more than ten percent of its total receipts. Closer examination of the labor organization's Form LM-2 Schedule 9 (“Loans Obtained”) indicated that the loans were obtained from two institutions. There is no indication that these loans were illegal, but a member may want to know more about a large loan received in a year when the labor organization's total receipts exceeded its disbursements by more than two million dollars. Further, itemization allows a member to search his or her labor organization's Form LM-2 for specific vendors or purchasers.

A commenter expressed concern that the Department has failed to recognize that labor organizations have numerous internal controls in place to detect and prevent embezzlement, including multiple levels of review for receipts and disbursements, annual internal audits, segregation of duties, banking tools such as “positive pay,” digital checks that eliminate check stock inventories and therefore, the changes are not providing additional benefit to union members. The Department acknowledges that many labor organizations have internal controls in place to detect and prevent embezzlement. In 2008, these internal controls combined with the Department's on-going audit program and study of Form LM-2s have resulted in 93 embezzlement convictions and $3,134,415 in restitution. Notwithstanding these efforts, many financial irregularities continue to go undetected. The greater transparency provided by today's rule will allow union members and the Department to better detect such irregularities and better deter, in the first instance, union officials and others from engaging in questionable financial practices.

A few commenters stated that the additional reporting required by the proposals would confuse union members who would not be able to discern the nuances associated with these new requirements. The Department disagrees with this suggestion. The changes required by this rule are straightforward and will not be confusing to union members, whose ability to understand basic financial information seems to be underestimated by some commenters. Moreover, the Department would expect labor organizations to assist their members in properly understanding the financial reports and the Department, through its extensive compliance assistance program, is ready and able to assist any members who have questions.

(3) Itemization

A number of commenters asserted that it was a mistake for the Department in 2003 to require itemization of major disbursements, [7] and that this mistake, in effect, would be compounded by applying this requirement to major receipts by a labor organization. At least one commenter stated that the $5,000 threshold is too high; it suggested lowering it to $200. The question whether itemization is beneficial was answered in the 2003 rulemaking. As set forth in the preamble to that rule, 68 FR at 58389-91, itemization promotes the transparency of union finances, thereby providing union members with information essential for them to exercise their democratic rights within the union and to ensure that the union's finances receive appropriate scrutiny by the members, this Department, and the public. [8] In that rule, itemization was required for major disbursements by a union, providing greater transparency on that side of a union's ledger. Today's rule, in large part, merely extends that requirement to the union's receivables, allowing members to see more clearly the source and amount of the union's finances.

The principle of aggregation, i.e., reporting an organization's total expenditures within a particular category, while an accepted accounting principle, provides only a partial view of an organization's finances, a shortcoming addressed in the 2003 rule by requiring itemization of disbursements of $5,000 or greater and in today's rule by requiring as a general rule that receipts of $5,000 or greater must be identified. In those instances, where commenters demonstrated a particular problem with itemizing certain receipts, the Department has modified its proposals to meet these concerns. As discussed below, the Department acknowledges that the rule will impose some additional burden on labor organizations, but not nearly as much as suggested by some commenters. [9]

The primary purpose of this rulemaking is the furtherance of labor organization transparency. See 73 FR at 27346-47. OLMS experience over years of auditing and investigating union financial activities indicates that increased access to information concerning a labor organization's finances will enable members to protect their own interests through more effective vigilance over union funds, and will aid OLMS in enforcement efforts. Although a member will not have knowledge of each receipt received by the labor organization, interested members will have information on many of the itemized dues and agency fees, per capita taxes, fees, fines, assessments, and work permits, sales of supplies, interest, dividends, rents, receipts on behalf of affiliates for transmittal to them, and receipts from members for disbursement on their behalf. For example, a member will be able to determine whether his or her labor organization is receiving the appropriate interest and dividends on its investments. Schedule 5 (“Investments”) will list the book value of each investment of $5,000 or more as of the end of the year. The member can look at his or her labor organization's most recent Form LM-2 (for the last fiscal year covered by the 2003 revisions) to determine the book value of particular assets. With this information and the information provided on the new Form LM-2, the member can determine how much the labor organization received in increased value or interest during the reporting year. The member can calculate the amount of appreciation or interest, the latter based on either the rate of the particular institution identified on the Form LM-2 or the market average, which is available on the Internet. A disparity between the rate computed from the Form LM-2 and the market rate may indicate that further investigation is warranted to determine whether the disparity is due to bad investment choices or culpable actions. Moreover, as discussed in the preceding section, itemization effectively complements a member's right to examine documentation underlying the information reported on the Form LM-2 by allowing him or her to identify major financial receipts involving the union, a task that would be very impractical, at best, without the itemization required by today's rule.

b. Particular Aspects of the Rule

The following is a “section-by-section” discussion of the sections, items and schedules on the revised Form LM-2 and instructions:

Items 1-21. These items are unchanged, except for some minor editorial changes, mostly concerning the reporting of information about trusts in which labor organizations hold an interest. See n. 6.

Statement A. This statement is unchanged.

Statement B. Receipts and Disbursements: This statement currently contains two primary columns, one with the heading “Cash Receipts” and one with the heading “Cash Disbursements.” Under each heading are items listed that describe categories of receipts or disbursements that should be reported. There are no changes to the items listed under “Cash Receipts.” As discussed below, however, the Department is adding, as proposed, additional schedules to correspond to items listed under “Cash Receipts” for which currently no schedules exist. As a result of these changes, the remaining cash disbursement items will be renumbered on Statement B. The new Form LM-2, including the new numbering system for the cash disbursement items can be found in the appendix to this final rule.

Schedules 1-2. These schedules are unchanged.

Schedules 3 and 4—Sale of Investments and Fixed Assets and Purchase of Investments and Fixed Assets: The Department adopts its proposal, but exempts certain stock transactions from particularized reporting as further discussed below. The first new column on the form, entitled “Name and Address of Purchaser (A),” will disclose the purchasers of investments and fixed assets from the labor organization, if in the aggregate the sales amount to $5,000 or more per purchaser. A second column “Date (C)” will disclose the date of the sale. These additions will provide members of labor organizations and the public with information necessary to verify that the sale was transacted at market price and at arm's length, thereby helping prevent interested parties from unjustly enriching themselves by purchasing labor organization assets at below-market price. In addition to the reasons discussed below, this disclosure is important because if an insider (e.g., officer or employee) receives property at below market price the receipt of such property is a disbursement to the insider that should be reported on Schedule 11 or 12.

As explained in the NPRM, 73 FR at 27349-50, the Department believes that Schedules 3 and 4 of the current Form LM-2 do not provide labor organization members with adequate information to enable them to determine whether a particular purchase or sale of an investment or asset was transacted at market price and at arm's length. For instance, one labor organization in its latest Form LM-2 reported that it had sold a “John Deere Lawn Tractor, Trailer and Mower” for $678, even though this asset had a book value and cost of $18,000. Another labor organization reported that it had sold automobiles that had a book value of $57,997, a “real estate investment trust” that had a book value of $25,735, and furniture and equipment with a book value of $7,634. For each of these items, the union listed the sale price as $0. This same labor organization sold corporate stocks with a book value of $29,570,505 for $34,297,627. Another union sold a Ford Explorer for $9,252 that had a book value of $23,471. As explained in the NPRM, 73 FR at 27349, in all these situations, labor organization members would be unable to determine whether the labor organization received fair market value for the items that it sold, whether an insider benefited from these transactions, or whether the union's officials are properly managing the labor organization's finances.

The Department's review of data filed on the current Form LM-2 has demonstrated that the current form does not provide labor organization members with a clear understanding of the entities that are receiving in some cases hundreds of millions of dollars of the labor organization members' money. For instance, as discussed in the NPRM, id., one labor organization listed disbursements of $789,369,139, another labor organization reported disbursements of $313,978,214, and another labor organization reported disbursements of $156,544,561. Labor organizations also report smaller amounts on this schedule. For instance, three labor organizations reported disbursements of $5,353, $5,350, and $6,952 on this schedule. None of the reports disclose the parties that sold these assets to these labor organizations. As such, the members of these labor organizations are not in a position to know whether these sums of money were well spent. The enhancements made today to Schedules 3 and 4 will help ensure the disclosure of any potential conflicts of interest between the seller and the labor organization.

The book value of an asset is the value at which the investment or fixed asset was shown on the labor organization's books and reflects the lower of its cost or market value. See 73 FR at 27413 (unchanged from current instructions to the form). The value of certain assets such as stocks can vary greatly within the fiscal year. Because the date of sales is not listed on the current Form LM-2, a labor organization member is unable to determine whether the labor organization received good value on the sale transaction. As the Department explained in its proposal, 73 FR at 27349, the stock on the day of the sale may have been worth much more than its book value. In this scenario, a labor organization member would be unable to determine whether the stocks were sold by the labor organization at market value. The labor organization's financial report filed on the current Form LM-2 would show this transaction as a profit for the labor organization, but the transaction could also have been detrimental to the labor organization if the asset was sold at a price below current market value. The changes made in today's final rule will help ensure disclosure of any potential conflicts of interest between the purchaser and the labor organization. The schedule will total all individually itemized transactions and will provide the sum of the sales by itemized individual purchasers and the sum of all non-itemized sales of investments and fixed assets, as well as the total of all sales.

The Department received many comments supporting the proposed changes to the Form LM-2. Many of these comments were identical or nearly so. Commenters expressed support for the Department's proposed revisions to Schedules 3 and 4, which, in their view, would allow union members to spot transactions where union officers and employees are given advantageous prices when purchasing labor organization assets. Another commenter approved of the Department's ongoing promotion of transparency. Additionally, the commenter agreed with the Department that the additions to Schedules 3 and 4 will provide members with the information necessary to scrutinize those transactions to ensure the best practices when managing their money.

Some commenters questioned the wisdom of requiring unions to provide additional detail in the Form LM-2 reports, asserting that the new information would add length to the reports and further burden unions without benefit to members. They raised specific objection to the burden associated with reporting details concerning the sale and purchase of investments and assets. The Department does not expect the average member to investigate each investment or asset sale/purchase listed on the Form LM-2. Such an undertaking by a single member would be time consuming and impracticable. However, a member need not study its labor organization's entire Form LM-2 for the report to be useful. The member can use the Schedules 3 and 4 summary schedules for quick references or use the search function to find specific transactions. For example, a quick look at the summary schedules for Schedules 3 and 4 might reveal a large number where one would expect a small number or a small number where one might expect a large number. Once one of these disparities is identified the member is free to search the itemized schedules for an explanation for the unexpected aggregate. In one case, a labor organization indicated on its Form LM-2 summary schedule that it had received $527,937 from the sale of investments and fixed assets. This accounted for over 94 percent of the labor organization's total receipts. A closer look at Schedule 3 of its Form LM-2 indicated that the labor organization had received all of the $527,937 from the sale of one building. This sale left the labor organization with only $1,347 in fixed assets. Another labor organization indicated that it received $64,389,415 from the sale of investments and fixed assets, almost half of the labor organization's total receipts. Upon closer inspection of the labor organization's Form LM-2 a member would find that $15,782,856 of the $64,389,415 was from the sale of “common stock.” However, the same schedule indicated that none of the money from the sale was reinvested. Nothing indicates that either of these sales was illegal, but a member may want to know more about such a large sale of union assets. Further, itemization allows a member to search his or her labor organization's Form LM-2 for specific sellers or purchasers. Using the OLMS Web site, a member can easily search his or her labor organization's Form LM-2 for a specific seller or purchaser in seconds, e.g., the labor organization's president's brother. The changes to Schedules 3 and 4 will provide members with information necessary to verify that sales/purchases are transacted at market price and at arm's length.

The majority of the commenters believed that an exception should be created for the purchase and sale of publicly-traded assets on a registered market exchange. They stated that the reporting of these open market, arms length transactions would provide no relevant information to a member. Further, since these trades are through the “market,” it is doubtful that the “seller” and “buyer” information is even available, due to investments being pooled and matched by the investment broker market. The only purchaser information available to provide on the proposed new investment schedules would be that of the broker. A national labor organization pointed out that the Department does not require disclosure of transactions involving securities on registered public exchanges, such as the NYSE and NASDAQ, on Form LM-30. Therefore, the labor organization reasoned that the same transactions should not be disclosed on Form LM-2. In both contexts, such sales and purchases of securities are by definition transacted at “market prices” and “at arm's length.” 29 U.S.C. 432(b).

The Department agrees with the commenters' position that an exception should be created for bona fide market transactions over a registered securities exchange. Consistent with the current Form LM-2 and the Form LM-30, the Department excepts marketable securities from itemization on Schedule 3. The labor organization will not be required to itemize the purchase or sale of marketable securities when the end seller or purchaser, i.e., the party transacting with the labor organization, is not known. (Such as sales of stock over a registered exchange.) The instructions have been revised and include the direction that “Marketable securities are those for which current market values can be obtained from published reports of transactions in listed securities or in securities traded `over the counter,' such as corporate stocks and bonds, stock and bond mutual funds, state and municipal bonds, and foreign government securities.” The total amount of such sales will be reported on Schedule 3 Detailed Summary page.

A number of commenters stated that their investment activities are run through independent investment groups, asserting that for this reason such activities should be excepted from the proposed reporting requirement. The Department disagrees that an exception for investment manager transactions is appropriate. Such an exception is neither good policy nor necessary. Although the investment manager may have independent control over the individual investments, the labor organization still has control over the manager. If the labor organization is dissatisfied with returns or particular purchases/sales, then it is free to hire a new investment manager. Thus, the investment manager is never truly independent. Further, the exception laid out above should alleviate many of the commenters' concerns. Most of the investment manager purchases/sales will qualify for the exception provided for bona fide transactions made with a registered securities exchange. Those transactions that do not qualify for the exception, i.e., securities purchased outside these highly regulated channels, will be of particular interest to members, the public, and the Department. These are the types of transactions that are subject to abuse whether it is abuse by the labor organization or the independent investment manager. Therefore, the Department has chosen not to create an exception for investment manager transactions.

A number of commenters expressed a concern that the additional information required for the sale and purchase of investments on Schedules 3 and 4 will be deceptive. A national labor organization argued that the value of a given stock transaction cannot be understood absent an understanding of market conditions, news affecting that particular stock and market segment at the time of sale and the investment manager's strategy resulting in the sale. Additionally, it stated that the “market price” of a tangible item, such as a car, cannot be objectively determined without knowledge of the degree of wear-and-tear, local market conditions, and the like. Without these essential facts a national labor organization stated that listing the name of the purchaser and the date of the sale may well lead union members to conclude that a buyer received a windfall when, in fact, that is not the case. The labor organization suggested that the Department retain the current reporting format, aggregating the total of all such sales and purchases and the net effect on assets.

The Department disagrees with the suggestion that the proposed changes to Schedules 3 and 4 will be deceptive. As discussed earlier, members will be able to assess without difficulty whether the sale or purchase of an asset and its price appears appropriate given its timing and the existing market conditions. Unlike the previous Form LM-2, members will now be able to evaluate sales/purchases by date and purchaser/seller. This clearly improves the members' ability to evaluate a transaction in its particular context. To use an example discussed above and in the NPRM, 73 FR at 27349, a labor organization indicated on its Form LM-2 that it sold a Ford Explorer for $9,252, but listed its book value at $23,471. The previous Form LM-2 included price information and a general description. The identification of the buyer can be used to identify interested party transactions, but it can also be used to better understand the sale. For example, the Ford Explorer might have been sold to a dealership rather than on the open market. In this case the identification of the buyer would alleviate any concern of an interested party windfall. The disclosure of this information will allow members to make preliminary assessments of sales/purchases from the information provided on the Form LM-2. If necessary, as discussed below, they can then exercise their section 201(c) right to obtain additional information about the particular transaction. It should be noted that most securities transactions will fall within the exception discussed above.

The additional information that will be disclosed on the Form LM-2 will enable union members, the general public, and the Department to focus their attention on particular transactions involving significant sums of money. As some commenters have acknowledged the information will be most directly beneficial to union members who will be most familiar with the transactions and the parties involved, but the information also improves the ability of the public and the Department to examine the details of a transaction. Moreover, to the extent the union believes that any particular transaction could be misleading, the union may choose to provide additional information on the Form LM-2 to minimize this possibility. By adopting this rule, the Department is setting a minimum standard that labor organizations must meet for reporting the sale and purchase of investments and assets. A number of commenters stated that the revisions were not necessary and would not benefit members. Multiple national labor organizations stated that union members already have access to any information necessary to assess sales of union assets. They explained that any individual member could exercise his or her section 201(c) right to obtain the information.

The Department recognizes that members possess the right to examine any books, records and accounts to obtain information on the purchase/sale of investments and assets under 29 U.S.C. 431(c). However, members have no way of knowing whether they need to request the information from the labor organization without the Form LM-2. As explained above, a quick look at the summary schedules for Schedules 3 and 4 might reveal a large number where one would expect a small number or a small number where one might expect a large number. Once one of these disparities is identified the member is free to search the itemized schedules for an explanation for the unexpected aggregate. In one case, a labor organization indicated on its Form LM-2 summary schedule that it had received $35,224,391 from the sale of investments and fixed assets. This accounted for over half of the labor organizations total receipts. A closer look at Schedule 3 of its Form LM-2 indicated that it had sold “corporate stocks” for $34,297,627. See 73 FR at 27349. Nothing indicates that this sale was illegal, but a member may want to know more about such a large sale of union assets. Under the new reporting requirements the member will now be able to evaluate whether the transaction occurred at arm's length or not. The member need only look for the purchaser/seller information to know whether the transaction merits further inquiry. If the transaction occurred on a registered exchange the labor organization will not detail that transaction. In this case, the member will know that no insiders received unjust enrichment from the transaction. However if the transaction occurred not on a registered exchange but through some other means the transaction information of the date and identity of the purchaser/seller will be useful to the member. If the itemized schedules do not provide an adequate explanation or reveal a transaction with an interested party then the member is free to request additional information from the labor organization pursuant to 29 U.S.C. 431(c). This process is more efficient for both the labor organization and the member. Labor organizations will not have to provide information unless the member finds a particularly interesting transaction and the member will not have to request superfluous information to obtain a clear accounting of the labor organization's activities. Both itemization reporting and the changes adopted in this rule are essential to providing members with a clear picture of their labor organization's activities.

Two commenters offered alternatives to requiring a labor organization to disclose the name and address of the purchaser or seller in transactions involving labor organization investments and other assets. A labor organization suggested that if the Department is concerned about sales of assets for less than market value it can merely mandate disclosure of specifically such sales of union assets. Another commenter suggested that the Department pare down the report and ask about specific areas of concern. For example, instead of modifying Schedules 3 and 4 as currently proposed, the Department should simply ask about related party transactions and any non-routine transactions and specifically define related parties.

In the Department's view, the suggested approach is a poor substitute for the full transparency achieved under the Department's proposal. The Department seeks to provide members with the tools by which each member can make his or her own evaluations of the financial decisions made by the officials of his or her labor organization. Although members as a general rule will have the greatest interest in matters involving a party in interest or a sale of an asset for less than market value, members will also have an interest in other less easily categorized transactions. For example, a member may have an interest in the sale of a building to a non-party in interest at what appears to be fair market price. As a general matter, the sale of the building might indicate to the member that his or her labor organization is selling off assets or not managing his or her money appropriately. But a sale of the asset to a particular individual or group, such as a sale to a company in which a union official's long-time associate has an interest or to a company in which a politician or his or her associate has an interest (who might have inside information about a possible change in zoning that would substantially increase the value of the property) would be of substantial interest to members. Itemization of the purchase/sale of investments and assets provides members with a base from which they can evaluate transactions. [10]

Therefore, the Department adopts the reporting requirements as outlined in the NPRM with an added exception that labor organizations need not report bona fide purchases or sales of securities traded on a securities exchange registered as a national securities exchange under the Securities Exchange Act of 1934, shares in an investment company registered under the Investment Company Act of 1940 or securities of a public utility holding company registered under the Public Utility Holding Company Act of 1935.

Schedules 5-10. These schedules are unchanged except for a minor editorial change to the instructions for Schedule 7 to clarify the reporting of information about a trust in which a labor organization is interested. See n. 6.

Schedule 11—All Officers and Disbursements to Officers; and

Schedule 12—Disbursements to Employees: The Department proposed two substantive changes to the categories of disbursements reported on these schedules: Reporting of indirect disbursements to officers and employees for hotels (room rent charges) and public carrier transportation; and disclosure of benefits disbursed to officers and employees. No commenters suggested that one approach was appropriate for officers and another for employees. In today's rule, the same revisions are being made to both Schedules 11 and 12. In today's final rule the Department has decided to adopt the proposed items with minor changes. These changes are discussed below.

a. Indirect Disbursements to Officers and Employees for Hotels (Room Rent Charges) and Public Carrier Transportation

The Department proposed to eliminate the existing exception to the reporting of indirect disbursements, thus requiring the reporting of both direct and indirect payments on behalf of a particular union official for hotels (room rent charges and public carrier transportation charges) on Schedule 11. The Department adopts the proposal, with a minor clarification as discussed below.

Indirect disbursements for official business, which include travel and lodging expenses, will be reported in Column G, on both Schedule 11, “All Officers and Disbursements to Officers” and Schedule 12, “Disbursements to Employees.” This column is clearly identified, and is distinct from columns listing gross salary, allowances, and benefits. Concerns raised by commenters that union members may not grasp the “nuances of the reporting categories” and that disclosure would result in inflated figures of total compensation are unwarranted.

As explained in the NPRM, 73 FR at 27350, disbursements for temporary lodging and transportation made directly to a labor organization official by the labor organization are now reported, by individual, on Schedule 11; however, if the labor organization pays the vendor directly for the travel it is not reported by individual. This distinction does not serve the purpose of section 201(b)(3) of the LMRDA, 29 U.S.C. 431(b)(3), which calls for reporting of “other direct or indirect disbursements (including reimbursed expenses) to each officer and also to each employee.”

A “direct disbursement” to an official is a payment made by the labor organization to the official in the form of cash, property, goods, services, or other things of value. An “indirect disbursement” to an official is a payment made by the labor organization to another party for cash, property, goods, services, or other things of value received by or on behalf of the officer. Such payments include those made through a credit arrangement under which charges are made to the account of the labor organization and are paid by the labor organization. For example, when a union, through its credit arrangements, is billed directly and pays the airline bills of an officer or employee, the union will have to include this amount as part of the disbursements made to the particular official. If the credit arrangement results in an invoice that is detailed by officer or employee, e.g., hotel room rent charges, the labor organization will use this detailed invoice when allocating expenses by officer or employee. If the billing arrangement is set up in such a way that expenses are not detailed by officer or employee, e.g., when a labor organization purchases a block of hotel rooms for its officers or employees, then the labor organization will divide the total cost by the number of officers or employees for which the expense was incurred. The instructions to the form now clarify that unions may allocate these disbursements in this manner.

The distinction between reporting of direct and indirect disbursements was established because of the difficulties faced by unions over 40 years ago in reconstructing documentation for certain payments for their prior fiscal year. Because of this difficulty, organizations were allowed to report such disbursements as functional expenses of the organization rather than as disbursements to particular officials. This distinction remained in the instructions and was not revisited by DOL despite changes in data reporting and record retention methods over the intervening decades. This issue was not addressed in the 2002-2003 rulemaking.

As noted in the NPRM, 73 FR at 27350, payment for an official's travel and lodging expenses by credit card does not reduce the significance of the expense to a labor organization member; yet the current Form LM-2 treats the method of payment as significant. Travel and lodging expenses for a particular official may raise questions among the membership for various reasons. The choice of transportation by public carrier (airplane, train or bus) and the level of accommodation (first-class or coach) may be significant to a member. Lodging choices may run from a motor inn to a five-star hotel; where options are available, the officer's choice of accommodation may be significant to a member. However, the mode of payment now controls whether a labor organization member knows the full extent of disbursements made for a particular official of the labor organization. Although the specifics of the travel will not appear on the Form LM-2, members will have a better understanding of the total amount of disbursements made to or on behalf of a particular official. Through this more complete reporting, members of the labor organization will be better able to determine whether such disbursements warrant further scrutiny, including review of the underlying documentation maintained by the labor organization.

The Department received almost 500 form letters endorsing its proposal to require disclosure of indirect disbursements. These commenters stated that such disclosure would provide union members a more accurate idea of how much their union is spending on these matters. Noting agreement with the proposal, a commenter stated that all expenditures for travel for officers should be reported regardless of the method of payment to the vendor. Another commenter noted specific examples of union spending that highlighted the importance of disclosure of travel disbursements. The commenter explained that while one large union's membership declined 15% last year, the union expended members' dues money to hold meetings at resorts and casinos in destinations including Palm Springs, Las Vegas, and Atlantic City.

One commenter alleged that a review of the legislative history of the LMRDA does not provide support for the disclosure of indirect disbursements made on behalf of an officer or employee for official business. The commenter alleged that Congress was particularly concerned with schemes through which corrupt employers and union officials could enrich or benefit themselves by structuring indirect payments through relatives or to vendors of goods and services that were unrelated to their duties as union officials.

While Congress did evince a particular concern over corrupt schemes in which union officers sought to enrich themselves through indirect payments, it also clearly intended that union members receive a full accounting of their union's financial operations. See discussion above, at n.8. The mandate for a full accounting does not exempt transactions that may be considered “official business.”

Commenters questioned the utility of providing disclosure of indirect disbursements. The Department believes that union members have an interest in learning the full extent of disbursements made to or for labor organization officials. Travel and lodging expenses may be of particular interest when officers and employees are not utilizing particularly cost effective modes of transportation, levels of accommodation, or choice of lodging. This more complete reporting will help members determine whether such disbursements warrant further scrutiny. Information about travel and lodging expenses is no less valuable when payments are made indirectly to the vendor rather than directly to the union official.

Several commenters suggested that sums aggregated by individual officials, as called for under the proposed rule, could easily be misconstrued by membership and the public. One commenter believed that the data would unfairly make individual officers targets because of their “allegedly excessive spending.” They provided as an example the contrasting circumstances of two union officials—one who travels often, but cheaply, will have a large amount of money in travel expenses, while another official who only travels once but flies first class and stays at a high-end hotel will appear to be more fiscally responsible with union funds. The Department recognizes that dollar figures alone will not show how profligate or not union officers are with their members' money. A member, however, who is familiar with the demands of an officer's duties, including travel on behalf of the union, will be able to determine from the sums reported whether the expenses incurred seem about right or not and, if the latter, identifies a need for closer scrutiny of particular expenses. One commenter stated that the proposed change would allow “labor's enemies” to falsely inflate an official's compensation by including the cost of legitimate business travel. Another commenter noted that such indirect disbursements do not meet the IRS definition of income. As discussed earlier, the Department believes that union members deserve the benefit of increased transparency and these commenters concerns can be best addressed by providing information about a union's policies, so members will better understand the amounts reported by individual officers. Better education may also be the answer to concerns about false claims about disbursements to union officer officials. In any event, the Department does not believe that members should be denied information relevant to disbursements made to their officers because of the asserted “misuse” of public information. Because Congress chose to make union financial reports public, the Department is required to make public information it deems necessary for union members to possess a full picture of their union's finances. Finally, the Department recognizes, as it believes the public does also, that the Form LM-2 and IRS forms do not capture identical information. Indirect disbursements represent a significant aspect of a union's expenditures—and as such are important for purposes of disclosure without regard to any tax consequences they may pose for individuals.

Commenters also noted that aggregation of the data by specific officers would not provide the same utility as disclosure of the specific details of such payments and that aggregation may prove misleading to members. Two commenters argued that disclosure of union travel and expense policies would be more useful to members than data regarding indirect travel expenses. One commenter asserts that the data revealed by eliminating the exemption for indirect expenses will not afford union members any more useful information than they already have by examining the labor organization's itemized expenditures for individual hotels and common carriers on Schedules 15 and 19. This commenter provides that a union's travel and expense policies, which are available to members upon request, are far more probative because they explain the types of expenses that officers and employees are entitled to incur when they travel. Some commenters noted that providing specific details of payments for travel and lodging would be more useful to union members than providing aggregate sums. Two international unions argued that requiring disclosure of union travel and expense policies would be more useful to members.

The Department acknowledges that providing union members additional information regarding the specific details of travel disbursements and providing members copies of travel and expense policies would provide the members access to possibly useful information. As noted in the NPRM, 73 FR 27350, eliminating the exception from reporting indirect disbursements will provide union members a more accurate accounting of the total amount spent on travel and lodging for union officials. This data will help union members better determine whether further investigation is warranted. To the extent that labor organization commenters believe greater detail would benefit union members, labor organizations are free to amend their bylaws to require a level of disclosure or specificity that is greater than that required by the Form LM-2.

b. Disclosure of Benefits Disbursed to or on Behalf of Officers and Employees

As a second change to this schedule, the Department proposed the addition of a new column to allow disclosure of benefits disbursements made to each labor organization official. The final rule adopts the proposed changes. Columns “(A)” through “(E)” are unchanged from the current form. Column “(F)” will be redesignated “Benefits.” This is the only new column on the schedules requiring disclosure of additional information. Column “(G)” will be redesignated “Disbursements for Official Business.” Column “(H)” will be redesignated “Other Disbursements not reported in (D) through (G).” Column “(I)” will be added for “Total.”

In response to comments received, the Department is adding clarifying information to the requirements for this schedule as follows:

  • Reasonable estimates may be used if precise cost figures are not readily available for benefits provided to individual officers, e.g., insurance premiums, defined benefit plan contributions, and so forth.
  • FICA, federal and state unemployment tax, workers' compensation taxes, and other employer taxes that are legally required to be paid by the employer are not included within the scope of benefits for officers and employees. These types of payments are to be reported on the Form LM-2 in the manner provided for in the current instructions.
  • The reporting changes adopted by this rule only apply to disbursements on behalf of labor organization officers and employees. These changes do not apply to disbursements to persons who are no longer officers or employees of the labor organization. Thus, disbursements on behalf of individuals who have retired from employment by the labor organization will be handled the same way that these disbursements are currently handled for members, i.e., they will be aggregated in Schedule 29.

In proposing the identification of total benefits paid to officials on an individual by individual basis, the Department explained that the current Form LM-2 fails to provide sufficient information on disbursements by the labor organization to or on behalf of its officers. See 73 FR at 27350. In the Department's view, labor organization members should know the value of benefits paid by the union to its officers. Benefits received by officers for life insurance, health insurance, and pensions, for example, make up an important part of the compensation package paid for by the union and its members. Reporting benefits disbursed in the aggregate on Schedule 20 (i.e., reporting the total benefits paid to all union officials) does not provide a complete picture of compensation received by individual labor organization officers. For example, as noted in the NPRM, id., one local in its Form LM-2 listed almost $500,000 for “Officer's Union Fringes” even though the labor organization had fewer than ten full-time officers. From this information alone, a member of a labor organization would have no way of knowing, for example, if these benefits were evenly distributed among the officers, or if one officer received $400,000 and the other eight officers split the remaining amount. Rather than report fringe benefits in the aggregate on the current Schedule 20, the labor organization will now report the benefits on Schedule 11 by individual labor organization officer.

In another instance, again as noted in the NPRM, id., a labor organization reported payments of $49,542 to “Various Companies” for “Benefits Administration” and payments of $64,219 to “Various School Districts” for “Benefits paid on behalf of officers.” Another labor organization reported on its Form LM-2 total disbursements of $461,971, $460,203, and $244,780 to certain individual officers. Id. This disclosure did not take into account that these same officers and employees also received $181,297, $184,397, and $161,240 respectively as contributions to their employee benefit plans. These benefits payments were reported to the IRS on an individual-by-individual basis, as required by the IRS; however, these payments are simply lumped together on the Form LM-2, without identifying the amounts paid to individual officers. The above examples demonstrate that the current Form LM-2 fails to provide a full accounting of labor organizations' disbursements to their officials. The current Form LM-2 allows benefits payments made to or on behalf of officers to be lumped together with general benefits paid to members in Schedule 20. With such large disbursements listed in one category, it is impossible for labor organization members to ascertain what benefits are being paid to labor organization officers and employees. The Department believes that combining these disbursements into an aggregate on a single schedule does not adequately inform labor organization members and the public regarding benefits paid to labor organization officers, and thus in this area the full reporting mandate of the LMRDA is not fulfilled.

By requiring unions to report the total amount of benefits disbursements made to each officer, members and the public will see the total payments made to or on behalf of each officer. This increased transparency will better enable union members to evaluate whether the compensation paid to each officer is appropriate for the services he or she renders to the organization. This information will allow union members, among other uses, to debate and vote to change the amount of the compensation if they deem it appropriate and consistent with their organization's constitution, by laws, and the organization's financial status. They also will be able to evaluate whether the costs of the benefits provided by the union are in line with market conditions and benefits paid to officers by other labor organizations—a factor that may bear on the performance of the union officials with stewardship over the union's finances.

The Department received mixed comments on its proposal. About 500 commenters who submitted form letters endorsed the Department's proposal to require unions to report aggregate benefits disbursements for each officer and employee. One commenter cited data from a large labor organization's 2007 Form LM-2 that showed pension benefits paid of $15,858,309 and combined payroll for officers and employees of $40,468,063. The commenter noted that the data may indicate “very generous pension benefits,” but without the proposed change “there is no way of telling from looking at Form LM-2.” Many others opposed the proposal. One commenter stated that the proposed disclosure of aggregate benefits data is unnecessary because union members already have access to much of this information already under the Form LM-2; others stated that any other information needed may be obtained by invoking their “just cause” right to examine the union's underlying financial reports; while some suggested that the information, as earlier noted, was available to union members by requesting a copy of the union's IRS Form 990. While the Department agrees that the current Form LM-2 provides important information about the salaries paid to individual officers, members receive only an incomplete picture of the payments made to individual officers. Without the reporting required by today's rule, members would be left guessing as to the total compensation paid to particular officers. Moreover, as discussed further below, the IRS Form 990 fails to provide the same level of transparency as proposed by the Department.

Commenters are correct that labor organizations are required to track and report officer benefits disbursements for the IRS Form 990. There is a minor level of overlap in the information required to be disclosed for officers and employees on the Form 990 and the Form LM-2. Disclosure of benefits disbursements on the Form LM-2 is not identical to the disclosure required on the Form 990 because the Form 990 requires disclosure of this information for “key employees,” unlike the Form LM-2 where this information must be disclosed for all employees earning $10,000 or more a year. [11] As such, while there is overlap between the Form 990 and the Form LM-2, the Form LM-2 will provide more comprehensive information because the required disclosures apply to a larger group of individuals. Moreover, the Department's proposal ensures that all members will have ready access to this particular information in a single database. While some members might be aware that individual payments would be reported to the IRS, others are not likely to be aware of this disclosure source. Additionally, union members should be able to determine easily the total compensation paid to all their officials, not merely the key officials. Where a labor organization has a large number of highly paid employees, only a fraction will be reported on the Form 990. While a few commenters suggested that the Department underestimates the burdens associated with tracking the information in a way that allows compliance with both the Form LM-2 and the IRS Form 990, the Department remains convinced that unions can maintain their records in a way that avoids any unnecessary additional burden. This point is further discussed below in the Department's analyses under the Regulatory Flexibility Act and the Paperwork Reduction Act.

Other commenters stated that members already know or can easily estimate the value of the benefits paid to officers. One commenter stated that each of its officers and employees participated in the same medical plan as its members, so members could already ascertain the value of the benefits provided to officers and employees. The Department recognizes that in some instances a member can estimate the value of a particular benefit, but that this will exist only for certain benefits and for certain unions. Transparency is ill served where it varies from union to union and from benefit to benefit.

Several commenters asserted that some benefits would be difficult to report on an individual-by-individual basis. For example, one commenter noted that it would be burdensome to collect data because there may be multiple benefit plans involved (0034) (0044). Another commenter noted that the insured group may vary from month to month, requiring the organization to recalculate the amount attributed to each officer and employee, which may result in increased costs. Other commenters requested clarification of how to treat benefits for retirees, lump sum benefit data, and administration expenses associated with benefits.

The Department recognizes that labor organizations may have to estimate the particular value of a benefit provided a union official. It is not the intention of the Department to impose on unions a complex methodology to arrive at the most precise valuation of benefits made to each individual official. In this regard, the Department notes that the IRS, which requires labor organizations to report all forms of deferred compensation, allows: “[r]easonable estimates * * * if precise cost figures are not readily available.”See instructions to 2007 IRS Form 990, p. 41. Under this final rule, the Department will also accept reasonable good faith estimates of the value of benefits paid to individual officials. [12]

As noted above, several commenters expressed concerns about the need to report information that could intrude upon an individual's legitimate concerns for his or her privacy. Several commenters raised a generalized concern that the proposal would raise privacy issues under HIPAA. Four commenters raised specific concerns about reporting payments where the labor organization is self-insured and thus pays directly for the health care of its officials. The commenters argue that a self-insured organization would violate HIPAA by providing information relating to “past payment[s] for the provision of health care.” One commenter noted that it would be unable to report some information, even if it were required, because the employees in the union's accounting office are unable to view records that include protected health information. Two comments noted that the proposal would allow a union member for just cause to examine the underlying information which would violate HIPAA. Another commenter, while noting that the Department was not requiring labor organizations to identify the nature or value of any particular benefit—the Department proposed only that the total value of all the benefits to an individual be reported—questioned whether this would sufficiently address HIPAA privacy concerns.

As noted in the NPRM, 73 FR at 27351, the Department is fully cognizant of the need to protect the legitimate privacy interests of individuals under HIPAA and other laws. To further address the concerns of commenters, the Department, as discussed below, has clarified the rule to further protect the privacy of individuals. However, the Department disagrees with the premise of some commenters that the rule as proposed infringed on the privacy of individuals. In the 2003 revisions to the Form LM-2, the Department made the decision to aggregate the benefits paid to union officials on Schedule 20 (Benefits) based on privacy considerations. See 68 FR 58374, 58387, 58399, 58426 (Oct. 9, 2003). Based on those same considerations, the Department crafted Schedule 11 and Schedule 12 in order to preserve the privacy interests of individuals. Under the proposal and the final rule, a person reading the report would be unable to ascertain what types of benefits labor organization officers and employees receive, only the total value of these benefits. For instance, if a labor organization officer received a matching contribution to a 401(k) plan in the amount of $5,000, indirect payment of health insurance premiums in the amount of $6,700, and a health club membership in the amount of $1,200, the labor organization's Form LM-2 would disclose that this officer received a total of $12,900 in benefits. Given that benefits that must be reported are aggregated without identifying the nature of particular benefits that comprise the total, the potential for disclosing information of a private or protected nature is only remotely possible if at all. However, in those rare instances, where a labor organization, in good faith and on reasonable grounds, believes that a particular disclosure would violate HIPAA, or other federal or state law, or confidential settlement agreement, it should not include that particular information for the affected individual, but should instead include its value as part of the aggregated, non-itemized amount reported on the schedules and identify that reason and the individual affected in item 69 (additional information) of the Form LM-2.

On a related matter, a commenter questioned whether FICA, federal and state unemployment tax, long term disability insurance, accident death and dismemberment insurance, and workers' compensation would be required to be included in the benefits disclosure by the officer or employee's name. As noted above, the Department is not requiring labor organizations to report the value of such payments on an individual-by-individual basis.

Schedule 13—Membership Status: This schedule is unchanged.

Detailed Summary Page: The current detailed summary page contains information from Schedule 14 through Schedule 19. The new detailed summary page, as proposed and adopted by today's rule, includes information from Schedule 14 through Schedule 29. These summary pages provide a snapshot of the labor organization's activities. Members of the union and the public may then use this snapshot to determine whether further analysis of the individual itemized schedules is required. There is no additional burden associated with these summary schedules because the software will automatically enter the totals in the appropriate lines of the summary schedules as the labor organization fills out the individual itemization schedules.

Schedules 14-22. Currently, Form LM-2 filers only report the total amount received from dues and agency fees, per capita taxes, fees, fines, assessments, and work permits, sales of supplies, interest, dividends, rents, receipts on behalf of affiliates for transmittal to them, and receipts from members for disbursement on their behalf on Statement B. As noted in the NPRM, these line items exceed $20 million in some instances. 73 FR at 27351. For example, one labor organization stated that it received over $298 million in per capita taxes and another received over $28 million in rent. Id. Little useful information can be discerned from these totals alone. The Department proposed that for each of these schedules the labor organization would separately identify payments from any individual or entity that alone or in the aggregate total $5,000 or greater during a reporting period. The Department has adopted this proposal with some modifications for schedules relating to the receipt of dues payments and per capita taxes. The general instructions for completing these schedules have been modified to account for these changes, including notice to filers that they should complete the revised schedules 14 (“Dues and Agency Fees”) and 15 (“Per Capita Tax”) before completing the summary detail page.

As explained in the NPRM, 73 FR at 27351, the lack of itemization of most receipts on the current Form LM-2 makes it easier for individuals to embezzle money coming to labor organization accounts. In one case, the president and treasurer of a local labor organization converted over $184,129 in dues checks. See 73 FR at 27352. One commenter took issue with this example in the NPRM, stating that simply requiring a listing of checks received by a Form LM-2 filer will not prevent the type of embezzlement identified in the example. (38) The commenter noted that the purpose of every receipt is not reflected in a corresponding disbursement of the same amount, reducing the value of the new itemization schedules. The Department agrees that it will not be possible to track the disbursement of each receipt from the information on the revised Form LM-2. The difference between the receipt and disbursement functional categories makes such a comparison impossible. Nonetheless, the itemization of individual receipts provides helpful information to union members. The revised form will contain itemized information for each check that is $5,000 or more and disclose whether other checks aggregate to $5,000 or more. The change will address this problem, which extends to all the various reporting categories on the current form and not merely the receipt of dues payments, because now receipts-side embezzlements like the embezzlement of $184,129 mentioned above will be harder to hide.

The Department proposed to add new schedules that coincide with the items of cash receipts listed on Statement B. [13] In today's final rule, the Department adopts the proposal with the modifications discussed below. The Department is revising the existing Form LM-2 to include schedules for dues and agency fees, per capita taxes, fees, fines, assessments, and work permits, sales of supplies, interest, dividends, rents, receipts on behalf of affiliates for transmittal to them, and receipts from members for disbursement on their behalf. Except as discussed below, the itemization schedules for receipts will operate in the same fashion as do the itemization schedules for disbursements.

Schedule 14— Dues and Agency Fees. The Department proposed the requirement that a labor organization report dues and agency fees of $5,000 or more it receives from an individual or entity during the reporting period, and that each individual payment of $5,000 or more be disclosed on a separate line. The Department adopts the proposal as modified. As modified, labor organizations are not required to itemize such payments made by individual members. The aggregate dues and agency fees received directly from a represented employer must be reported by each individual employer. However, as modified, filers will only have to report for each employer the total such payments received during the reporting period—not each payment from the employer that alone or in combination with other payments is $5,000 or greater. Filers will enter in Column (A) the full name and business address of the represented employer. Filers will enter in Column (B) the purpose of the receipt of $5,000 or more, which means a brief statement or description of the reason the receipt was received. An adequate description includes information about the number and type of units covered by the receipt and the number of employees covered by the receipt. Filers will enter in Column (C) the total received from the represented employer during the reporting period.

Some commenters expressed concerns with the difficulties associated with itemizing the receipt of dues. As explained by one commenter, its members work for multiple employers that are signatory to collective bargaining agreements. Under collective bargaining agreements, working dues are deducted from members' paychecks and forwarded to an intermediate body or a local union. The commenter explained that in such situations information regarding the specific employer may not be transmitted to or recorded by the intermediate body, leading to difficulties in how to report such receipts. The commenter posited three possibilities: The dues can be considered received from (a) the member from whose paycheck the dues were deducted, (b) the employer that forwarded the dues either to the labor organization or to another entity that then forwarded the dues to the labor organization, or (c) where the working dues were sent by an employer to some other entity and then forwarded to the union, the entity that forwarded the dues. Another commenter explained that many unions do not allocate or transmit on a receipt-by-receipt basis the dues they receive on behalf of local unions or affiliates. The commenter explained that under the unions' own internal procedures they would do so only periodically and based on the total amount collected during that period. This commenter explained that the itemization of dues receipts would have to make calculations that do not correspond to the amounts they actually transmit to their locals; he also indicated that unions would have to devise accounting systems that pro rate every dues check received or perform such calculations manually. One commenter explained that the timing of the dues deductions from members' pay varied from unit to unit and that employers of more than one unit often remit payment for these units in a single check to the international. One commenter expressed concern that the Department was confused about how dues money is handled by most unions, including unions in the railroad industry.

The Department believes that labor organizations have misread the Department's proposal and thereby overstated the burdens associated with reporting the receipt of dues payments. The Form LM-2 Instructions, as proposed, state on page 31 that the filer must enter “the purpose of each individual receipt of $5,000 or more which means a brief statement or description of why the union received the receipt.”See 73 FR at 2742. The proper reporting of dues will depend on how the dues are collected. If the dues are received directly from the employer, the labor organization receiving these payments should identify the employer that sent the dues. If another entity, such as an intermediate body, sent the dues to the labor organization, then the labor organization receiving the payments should identify the intermediate body and the intermediate body should list the dues payments received from the employer on the schedule for “receipts on behalf of affiliates for transmittal to them” (now renumbered as schedule 21). Both the intermediate body and the labor organization must identify the units covered by the payment.

If a parent labor organization receives $5,000 or more on behalf of affiliates for transmittal to them from a represented employer covering an affiliated labor organization then the parent labor organization must identify the payer, the type or classification of the payment (which in most cases will be dues), the purpose, including information as to which affiliates the receipt covers, and the amount of the receipt. This type of information will be readily available as the parent must determine what portion of the check is to be disbursed to each local. The Department recognizes that unions may have to change the manner in which they capture and report information such as dues, but they remain free to devise their own procedures for collecting this information in order to meet the reporting requirements. The Department has not required unions to conform their procedures to a prescribed template; they are free to craft their own procedures so long as the dues receipts are fairly and accurately allocated and reported.

Two commenters expressed concern that the itemization of the dues schedule would disclose members' personal information. Under the proposal, a labor organization would have to report the member's name and address. The commenters felt that members' names and addresses should remain confidential. The same concern was expressed with respect to initiation fees, fines, assessments, and work permits. The Department has accommodated these concerns. The Department is not requiring the identification of members who made payments directly to their labor organization for dues, fees, fines assessments, work permits, and disbursements on their behalf. Instead, the labor organizations should add these amounts to the aggregate reported on the line 3 (Other Receipts) of summary schedules 14, 16, and 22.

Schedule 15—Per Capita Tax. The Department proposed that a labor organization report on a new Schedule 15 per capita payments it receives from an individual or entity during the reporting period. The Department adopts the proposal as modified to clarify how the information should be described.

The labor organization will report per capita taxes of $5,000 or more received during the reporting period. Per capita taxes received directly from a labor organization must be aggregated for the year and reported by each individual labor organization. Filers will enter in Column (A) the full name and address of the labor organization from which the per capita tax was received. Enter in Column (B) the purpose of the receipt of $5,000 or more, which means a brief statement or description of the reason the receipt was received. An adequate description includes information about the number and type of units covered by the receipt and the number of employees covered by the receipt. Filers will enter in Column (C) the total received from the represented employer during the reporting period.

The Department received several comments relating to the reporting of per capita taxes. Because the comments on this schedule were essentially the same as those received on the other new schedules proposed for a labor organization's receipts, they are discussed together below.

Schedule 16-22. As earlier discussed, the Department proposed the addition of these schedules to capture, by functional category, a labor organization's various receipts. Labor organizations are required to itemize the individual categories of receipts aggregated to $5,000 from any one source. The labor organization will be required to complete a separate itemization schedule for each individual or entity from which the labor organization has received $5,000 or more. Each transaction from that individual or entity will include information about the individual, the purpose of the payment, the date of the payment, and the amount of the payment. The total amount received from the individual or entity, both itemized and non-itemized, will be included at the bottom of the itemized schedule. The totals from each itemized schedule will then be added together and that number will be entered in the appropriate item on Statement B.

By establishing this reporting obligation, the Department is requiring labor organizations to provide the same information about their “major” receipts as they are currently required to report about their “major” disbursements. Most of the general comments about the proposal to require itemization of both sides of the ledger were addressed earlier in the preamble. Neither those comments nor the Department's response to those comments will be repeated. Instead, only comments about particular aspects of the receipts schedules, not already discussed, are addressed below. Schedules 16, 21, and 22, like Schedules 14 and 15, require filers to identify receipts by units, jobs, and timeframes. The instructions have been modified for this purpose.

A national labor organization stated that it does not break down sales of supplies by entity and will have to alter substantially its account system to track the sales of supplies to affiliates by entity. Another national labor organization was particularly concerned with itemizing receipts on Schedule 21, “Receipts on Behalf of Affiliates for Transmittal to Them.” The commenter explained that many parent labor organizations collect dues, fees, and other amounts that include the members' dues for subordinate or local unions. The commenter stated that it will be extremely difficult to designate the precise amount of each receipt to be transmitted to one or more locals or affiliates. One labor organization calculated that the proposed receipts schedules will increase its yearly burden by 250-500 hours (compared to the Department's estimated average of .47 hours per year). A commenter estimated that the “per capita tax” schedule alone would increase the number of itemized entries on its Form LM-2 by 1,200. Another commenter stated that under the Department's proposal it would have to make about 10,000 itemized entries, one for each employer from whom it receives members' dues payments.

As stated earlier in this preamble and in the preamble to the proposed rule, greater transparency promotes the detection of embezzlement and financial irregularities and, in so doing, also deters individuals at the front end from engaging in criminal or other improper conduct. Receipts from dues, per capita taxes, and sales of supplies are as susceptible to embezzlement or other improper use as any other receipt. For example, as noted in the NPRM, 73 FR at 27351-52, the president and treasurer of a local labor organization converted over $184,129 in dues checks. The dues and agency fees schedule will provide an essential check for transactions between affiliates and parent bodies. [14]

Members of the affiliate labor organization will be able to check the amount their labor organization received in dues against the parent labor organizations receipts on behalf of affiliates for transmittal to them. The same analysis can be done on lump sum payments from the represented employer to the parent labor organization covering multiple affiliates. The member need only look at each of the covered affiliates' dues schedule and aggregate the payments to ensure they match the sum reported on Schedule 21. A difference in these two numbers could indicate embezzlement and warrant further investigation.

As discussed in the NPRM, 73 FR at 27352, the per capita tax schedules of affiliates and parent labor organization can also be used to detect embezzlement and financial irregularities. The member can check for possible embezzlement or misallocation of funds owed his or her labor organization by checking his or her labor organization's per capita tax disbursements reported in Item 57 against the per capita tax receipts of the parent and its intermediate bodies. This can be done by entering his or her labor organization's name in the payer/payee search available on unionreports.gov. The search results will identify each labor organization that received per capita taxes from the member's labor organization. These payments can then be aggregated to determine whether the per capita disbursements from the member's labor organization match the per capita receipts reported on all the recipients' per capita tax schedules (Schedule 15). A difference in these two numbers could indicate an embezzlement or misallocation and warrant further investigation. [15]

Schedule 23—Other Receipts: This schedule, currently numbered Schedule 14, will be renumbered Schedule 23. No other changes will be made to this schedule.

Schedule 24—Representational Activities: This schedule, currently numbered Schedule 15, will be renumbered Schedule 24. No other changes will be made to this schedule.

Schedule 25—Political Activities and Lobbying: This schedule, currently numbered Schedule 16, will be renumbered Schedule 25. No other changes will be made to this schedule.

Schedule 26—Contributions, Gifts and Grants: This schedule, currently numbered Schedule 17, will be renumbered Schedule 26. No other changes will be made to this schedule.

Schedule 27—General Overhead: This schedule, currently numbered Schedule 18, will be renumbered Schedule 27. No other changes will be made to this schedule.

Schedule 28—Union Administration: This schedule, currently numbered Schedule 19, will be renumbered Schedule 28. No other changes will be made to this schedule.

Schedule 29—Benefits: This schedule, currently numbered Schedule 20, will be renumbered Schedule 29. As described above in the discussion regarding the proposed changes to Schedule 11 and Schedule 12, those benefits inuring to officers and employees of the labor organization will be listed next to the corresponding officer's or employee's name. Apart from this change, the same disbursements that were disclosed on Schedule 20 will be disclosed on the new Schedule 29. These include direct and indirect disbursements associated with direct and indirect benefits to members and members' beneficiaries.

Special Procedures for Reporting Confidential Information

The Department requested comments on whether to narrow, clarify, or remove the confidentiality exception from the Form LM-2 instructions. The Department recently considered this same question in connection with the Form T-1 rulemaking. There the Department issued a final rule retaining the special procedure without change but cautioning that it was to be used in limited circumstances. As discussed below, the Department reaches the same result here, i.e., preserving the confidentiality procedure. However, based in part on comments received in connection with the proposed changes to the Form LM-2 but primarily based on the agency's interpretation of its own regulations, the Department is clarifying that the procedure may not be used by unions in connection with payments made by them to employers if such payments are made as part of a job targeting, market recovery or similar program.

Additionally, the Department modifies the instructions to clarify that the procedure may be used to report information the disclosure of which is proscribed by HIPPA or other federal or state law and that where this information is reported in aggregated form for this purpose, it is not subject to the per se “just cause” proviso of the procedure. See 29 CFR 403.8 (2008); see also 73 FR at 57449 (revising 29 CFR 403.8(c)). [16] This change conforms the instructions in the Form LM-2 to the instructions and regulatory text in the Form T-1 final rule, which takes effect on December 31, 2008. See 73 FR at 57449, 57469. [17]

The instructions currently allow unions to use the confidentiality procedure for information that would (1) identify individuals paid by the union to work in a non-union facility in order to assist the union in organizing employees, provided that such individuals are not employees of the union who receive more than $10,000 in the aggregate from the union in the reporting year; (2) expose the reporting union's prospective organizing strategy; (3) provide a tactical advantage to parties with whom the reporting union or an affiliated union is engaged or will be engaged in contract negotiations; (4) subject to a confidentiality agreement in a settlement agreement; or (5) endanger the health or safety of an individual. See 73 FR at 27423-24 (unchanged from current rule). If the receipt or disbursement fits within one of the above categories, then the labor organization need not itemize the receipt or disbursement. Instead, it may include the receipt or disbursement in the aggregated total on Line 3 of Summary Schedule 23 (“Other Receipts”) or on Line 5 of Summary Schedules 24 (“Representational Activities”) or 28 (“Union Administration”), as appropriate. A union member has a statutory right “to examine any books, records, and accounts necessary to verify” the labor organization's financial report if the member can establish “just cause” for access to the information. 29 U.S.C. 431(c); 29 CFR 403.8. The instructions and regulatory text expressly provide that if a labor organization chooses to utilize the special procedures for confidential information, such use constitutes a per se demonstration of “just cause for access to the information” and thus the information must be available to a member for inspection. 68 FR at 58448, 58499-00. Information that is withheld from full disclosure is not subject to the per se disclosure rule if its disclosure would consist of individually identifiable health information of the kind required to be protected under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy regulation, violate state or federal law, violate a non-disclosure provision of a settlement agreement, or endanger the health or safety of an individual.

Several commenters objected to the use of special procedures for reporting confidential information. The objections, however, were directed at the use of the procedure to shield from the view of union members and the public the amount of union funds directed at organizing activities, not at the use of the procedure to protect the legitimate privacy interests of individuals. One commenter asserted that the procedure effectively allowed labor organizations to assert unsubstantiated claims as a guise to justify any instance where they elect to withhold information. One commenter argued that the exemption affords labor organizations greater ability to withhold information than what is permitted under the discovery rules of federal civil procedure or permitted by the National Labor Relations Board (NLRB). Another commenter noted that narrowing or removing the exemption “will provide labor organization members with clearer information regarding [labor organization] receipts and disbursements.” The commenter argued that financial information should be available to labor organizations' membership without having to petition the labor organization directly. The commenter also alleged that because of potential tax and other impacts and implications, the public is entitled to and should have the same benefit of clarity regarding labor organization receipts and disbursements.

Several commenters argued in favor of maintaining the special procedure for reporting organizing activities, asserting it was necessary to balance the interest of union members in transparency against the interest in protecting a union's ongoing organizing campaigns. One commenter expressed the unsubstantiated view that but for the inclusion of the special procedure in the 2003 rule, the courts would have overturned the rule. Another commenter, while noting that transparency is a positive benefit to the public, urged the Department to weigh this benefit against the labor organizations' primary responsibility—to represent its members. This commenter concluded that the damage done to unions' representational responsibilities far outweighs the value of this transparency in and of itself.

Other comments noted that eliminating the confidentiality exception would be detrimental to legitimate organizing efforts and could compromise a labor organization's efforts to effectively engage in collective bargaining. Specifically, one commenter argued that requiring a union to identify “salts” on the Form LM-2 will unreasonably chill, if not destroy, this legitimate form of organizing under the NLRA. Disclosure of “salts” could jeopardize the individual's ability to earn a livelihood. This category of information subject to the Special Procedures for Confidential Information remains unchanged in the final rule. Labor organizations should note that notwithstanding the confidentiality provisions any employee who receives over $10,000 in any fiscal year is required by the LMRDA to be disclosed, even if employed as a “salt.”

One commenter argued that the need for a confidentiality exemption is self evident.One commenter noted that the current exception is already narrowly tailored to protect legitimate union interests while ensuring union members have access to information. Two commenters suggested that concerns that the Department found “persuasive” in 2003 when it adopted this narrow exception to itemized reporting are no less real or compelling today. Several commenters also noted that the Department cited no complaints from union members that this exception prevented them from accessing information on their union.

Several commenters argued against imputing an improper motive to a labor organization's use of the confidentiality procedure. One noted that a union's decision to protect information from disclosure should not be assumed to connote misuse or abuse of the exception. This commenter alleged that use of the exemption is evidence of the extent to which the Department has already transformed the Form LM-2 from a vehicle Congress created to strengthen unions into a trap for the unwary and a weapon of choice for anti-union consultants bent on stopping workers from organizing. Two commenters believed that misuse of the exemption may be attributed to the steep “learning curve” inherent in the complex reporting scheme.

The Department also specifically invited comments on an alternative proposal to require that all transactions greater than $5,000 be identified by amount and date on the relevant schedules, permitting however, labor organizations, where acting in good faith and on reasonable grounds, to withhold information that would otherwise be reported, in order to prevent the divulging of information relating to the labor organization's prospective organizing or negotiating strategy. Only one commenter addressed this proposed alternative. The commenter noted that such an approach did not provide protection for information recognized in the other parts of the existing confidentiality section, such as information that is required to be kept confidential pursuant to a settlement agreement, information the union is prohibited by law from disclosing, or information where disclosure would endanger the health or safety of the individual. The commenter also noted that such an approach would require additional itemization and reporting that would provide meaningless information to members.

The Department has carefully considered the comments relating to the Special Procedures for Reporting Confidential Information. It also has undertaken further review of the use of this procedure by reporting labor organizations. The Department's review of Form LM-2 data indicates that the confidentiality exception is used only by a small number of Form LM-2 filers. However, the Department has found that in some cases where the confidentiality exception is used, large portions of the labor organizations' disbursements are not being itemized. For example, one labor organization treated $360,308.00 in disbursements as confidential information and entered this amount on line 5 of Schedule 17. The $360,308 accounted for 45% of the labor organization's total disbursements. A mid-sized local labor organization treated $1,011,863 as confidential. This accounted for 49% of the labor organization's total disbursements. Finally, a large local labor organization treated $5,931,513.00 as confidential. This accounted for 46% of the labor organization's total disbursements. As these examples demonstrate, an undisciplined use of the special procedures may result in the non-itemization of disbursements of millions of dollars and thus deny members the very transparency that is the foundation of the LMRDA's disclosure provisions.

Thus, while this final rule retains the Special Procedure for Reporting Confidential Information, the Department reemphasizes the limited situations in which it should be used and clarifies that it was not the Department's intention that it should be used to shield the itemization and full disclosure of payments to employers for job targeting, market recovery or other similar programs. In clarifying this aspect of the rule, the Department remains of the view that a labor organization should not be required to disclose information that would harm the labor organization's prospective organizing campaign or negotiations, by disclosing strategy that would otherwise be confidential. However, the Department reiterates, as it did in the Form T-1 final rule, that labor organizations are required to itemize transactions related to organizing drives and contract negotiations after the confidentiality interest giving rise to the exemption has ended. The instructions make clear that absent unusual circumstances information about past organizing drives or contract negotiations should not be treated as confidential under the reporting requirements. The Department also reiterates, as noted in the 2003 final rule, the procedures may not be used for Schedules 16 through 18. 68 FR at 58500. This rule has renumbered Schedules 16 through 18 as Schedules 25 through 27. Thus, the instructions for this final rule state that the procedures may not be used for the new Schedule 25 (“Political Activity and Lobbying”), Schedule 26 (“Contributions, Gifts and Grants”), and Schedule 27 (“General Overhead”).

The Department is also clarifying that the procedure may not be used for payments made to employers as part of a labor organization's job targeting, market recovery or other similar program. A commenter urged the Department to eliminate the confidentiality procedure because of what it saw as a widespread practice by labor organizations to avoid reporting the names of, and amount of payments to, employers who had received job targeting funds. Independently, the Department's own recent investigative experience has shown that some labor organizations have been using this procedure to shield from disclosure payments to employers as part of the unions' job targeting or market recovery programs. Although the total number of instances appears relatively small, the amount of money involved is substantial. The labor organizations have informed the Department that they consider such payments to be part of their “organizing strategy” and that the disclosure of such payments would adversely affect future organizing efforts. As discussed below, the Department has determined that payments to employers for job targeting or market recovery purposes are not encompassed by the special procedure. Therefore, any payments of $5,000 or greater to a particular employer must be itemized.

In the 2003 rule, the Department, recognizing that the disclosure of certain payments related to organizing might adversely affect a union's legitimate interests, created a special procedure for reporting confidential or sensitive information. The key language of the 2003 rule is embodied in the instructions to the Form LM-2: “Filers may use the [special procedure for reporting confidential information] to report * * * [i]nformation that would expose the reporting union's prospective organizing strategy. The union must be prepared to demonstrate that disclosure of the information would harm an organizing drive” (emphasis added).

Neither the rule nor its preamble illustrated the particular kinds of payments that would or would not qualify for this limited reporting procedure. Although the preamble to the rule mentioned “job targeting” in a few instances, the preamble did not specifically identify which particular schedule should be used for reporting such payments. See 68 FR at 58387, 58400. The closest the preamble comes to addressing how job targeting disbursements should be reported is the following statement: “In the Department's view, receipts and disbursements of job targeting funds that exceed the itemization threshold will be disclosed as a result of the general reforms implemented by this rule.”Id., at 58400. The Department acknowledges that the term “organizing strategy” is ambiguous, and that the rule did not make clear whether payments made directly to employers, such as job targeting payments, would qualify. The ambiguity of the term is illustrated by literature reviewed by the Department, some of which classified activities as far flung as community service projects and pension investment strategies as being part of a union's “organizing strategy.” Kate Bronfenner, Organizing to Win: New Research on Union Strategies, 302. The Department never intended that the term should be read so broadly. Such activities may have an indirect impact on the attractiveness of a union to workers, but do not directly attempt to organize workers, and thus fall outside the meaning of the term as interpreted and administered by the Department. Moreover, the “key language” of the rule, as quoted above, dictates that the special procedure must be read as limited to information that would “harm an organizing drive.” Payments to an employer in order to assist it in bidding for construction jobs on which union members will be paid in accord with union industry practice cannot be viewed as part of an “organizing drive.” Such payments stand in contrast to payments commonly associated with an organizing drive, such as payments to printing vendors for literature and signage, and rental of meeting facilities, communication equipment, transportation vehicles, and various consultants. For this reason, the Department modifies the rule by explicitly stating that “payments made by a labor organization to an employer under a market recovery, job targeting, or like program (e.g., for “industry advancement”), must be reported. Such payments must be itemized where they aggregate to more than $5,000. If the labor organization chooses to report such payments on Schedule 24 (“Representational Activities”), it may not use the confidentiality exception. Additionally, it is the Department's view that this clarification best serves the LMRDA's purpose, by providing transparency to this substantial aspect of a union's financial operations without impeding a union's prospective organizing drives. In making this change, the Department takes no position in this rule on the propriety or not of job targeting or similar payments made by a labor organization under the Labor Management Relations Act, the Davis-Bacon Act, or other law, or how such information has been addressed under the discovery rules of federal civil procedure and NLRB practice. The changes are based solely on the Department's interpretation of the confidential reporting procedure and its view that the disclosure purposes of the LMRDA are best served by making known to union members and the public the amounts and recipients of job targeting, market recovery or other similar payments.

C. Proposed Procedure and Standards To Revoke the Simplified Reporting Option Where Appropriate in Particular Circumstances

1. Introduction

The Department proposed to establish standards and procedures for revoking the simplified report filing privilege provided by 29 CFR 403.4(a)(1) for those labor organizations that are delinquent in their Form LM-3 filing obligation, fail to cure a materially deficient Form LM-3 report after notification by OLMS, or where other situations exist where revoking the Form LM-3 filing privilege furthers the purposes of LMRDA section 208. The final rule adopts the proposal with some modifications. The new procedure will effectuate the Department's authority to revoke a labor organization's existing Form LM-3 filing privilege if it fails to timely file a Form LM-3 or files a Form LM-3 that is materially deficient. Without such a procedure, the Department has been unable to revoke a labor organization's privilege to file a simplified report—no matter how egregious a labor organization's noncompliance with its reporting obligations, or obvious the indications of financial mismanagement, embezzlement, or corruption within that organization. See 73 FR at 27353. The procedures established in this rule will remedy this shortcoming in the Department's reporting system. [18]

As discussed in the NPRM, 73 FR at 27346-47, the goal of these changes is to improve transparency in situations where it is most needed, i.e., where a union has failed to comply with its basic financial reporting obligation. Although it may appear counterintuitive to require a non-compliant organization that fails to meet its relatively simple Form LM-3 obligation to file a more detailed Form LM-2, this view assumes that the only reason for non-compliance was relatively benign, e.g., a responsible officer was brand new to the position or his or her illness delayed the timely submission or clarification of a submission. The Department recognizes that some submissions are delayed for such reasons; thus, the Department did not propose that a delinquent or materially deficient filing would automatically trigger revocation and require the submission of a Form LM-2. However, as most commenters appeared to recognize, the reasons for non-compliance are varied and by no means all benign. Labor organizations will be given the opportunity to explain the reasons for the delay, including mitigating circumstances, and may thereby avoid having to file the Form LM-2. But where revocation is appropriate, the union will incur some additional burden in completing the Form LM-2 but, as discussed below, the burden is manageable and outweighed by the gains in transparency. The Form LM-2 not only requires more detail in general than the Form LM-3, but the Form LM-2 requires information that may be particularly pertinent to situations where possible financial mismanagement or embezzlement may have occurred. This additional financial information will assist members of labor organizations and OLMS investigators in reviewing the labor organization's funds and assets during the reporting period and enable them to determine whether additional scrutiny of the labor organization's finances is in order, for example, by requesting an explanation of the accounting, examining the underlying records of various transactions, or both. [19]

The differences between the Form LM-2 and the Form LM-3 forms have been accentuated by the substantial revisions made to the Form LM-2 in 2003 and those adopted in this final rule. As the Department explained in the preamble to the 2003 Form LM-2 rule, the broad aggregated categories on the old Form LM-2 enabled officials of labor organizations to potentially hide embezzlements and financial mismanagement. 68 FR 58420. The more detailed reporting required of all financial transactions covered by Form LM-2 was designed, in part, to discourage and reduce corruption by making it more difficult to hide financial irregularities from members and the Department's investigators and thereby strengthen the effective and efficient enforcement of the LMRDA. 68 FR 58402. Requiring labor organizations to file a Form LM-2, after a determination that revocation of the privilege of filing a Form LM-3 is warranted, will make it more difficult to hide fraud.

The Form LM-2 requires labor organizations to provide more specific information than the Form LM-3 in several areas relating to labor organization finances including, in part, the following: Investments, fixed assets, loans payable and owed, contributions, grants, and gifts, overhead expenses, union administration, and receipts. With regard to labor organization receipts, Form LM-2 filers are explicitly required to report all receipts including: “Receipts from fundraising activities, such as raffles, bingo games, and dances; funds received from a parent body, other labor organizations, or the public for strike assistance; and receipts from another labor organization which merged into the labor organization.”See p. 29 of Instructions to Form LM-2, as reproduced at 68 FR 58501.

Form LM-2 requires filers to itemize receipts from and disbursements to any individual or business or other entity that exceed $5,000 in a fiscal year either in a single transaction or aggregated over the year. Itemization prevents a labor organization from “hiding” significant receipts from or disbursements to the same individual or entity, a possibility that exists under the Form LM-3. The name, address, and other information must be provided for any such entity or individual. This information, which is not required by the Form LM-3, enables members of a labor organization to detect payments to individuals or entities that are out of the ordinary (given information that is known to the member but would not appear irregular to someone without such information). Thus, this information enables members to identify situations that may reflect a breach of the labor organization's duties to its members or provide a reasonable basis for inquiry to determine whether officials of the labor organization are improperly diverting funds for their own benefit or the shared benefit of others. Additionally, a member who is aware that the labor organization has a financial relationship with one or more of these businesses will be in a better position to determine whether the business has made any required reports (Form LM-10). The itemization of payments at or above $5,000 also puts members in a better position to determine whether any of the recipients of the payments are businesses in which a labor organization official (or the official's spouse or minor child) holds an interest, a circumstance that will require a report to be filed by the official (Form LM-30).

The Form LM-2, unlike the Form LM-3, requires filers to provide a list of accounts receivable and payable (involving a particular individual or entity in an amount of $5,000 or greater, singly or aggregated) that are past due by more than 90 days. As explained in the 2003 Form LM-2 rulemaking, 68 FR at 58401-02, such itemized disclosure can provide a vital early warning signal of financial improprieties. In the case of an already overdue report, the delinquency demonstrates that such improprieties already may exist.

As discussed in the NPRM, 73 FR at 27354, the Department's enforcement experience has shown that the failure of labor organizations to file the annual Form LM-3 on time and without material deficiencies is often an indicator of larger problems about the way such organizations maintain their financial records, and may be an indicator of more serious financial mismanagement. OLMS review of data indicates that labor organizations that are repeatedly delinquent are more likely than other labor organizations to suffer embezzlement, or related crime. For instance, in one recent case an investigation of a labor organization that was delinquent in its reports for two years showed that the labor organization had been the victim of a serious embezzlement. Its former president pled guilty to embezzling $112,525 and received a prison sentence of 33 months, and was ordered to pay back the money he had stolen. In another case, a former financial secretary of a labor organization that had been delinquent in filing its reports for several years pled guilty to embezzlement and was ordered to pay restitution of $103,248 and also received a sentence including confinement for eight months, home detention for four months, and probation for three years. Many of the reasons that contribute to delinquent filings also result in the filing of reports that omit or misstate material information about the labor organization's finances. The members of a labor organization that fails to correct a material reporting deficiency will also benefit from the increased transparency. For example, the labor organization may delay filing a Form LM-3 to avoid making timely public disclosures about financial improprieties of officers, such as the diversion of funds for personal use. Even if the Department eventually succeeds in encouraging a delinquent labor organization to file the required form, the lack of specificity in Form LM-3 may permit significant problems to remain undetected. The greater detail required by the Form LM-2 makes it more difficult to hide such problems.

As discussed in the NPRM, at 73 FR at 27357, the Department's enforcement experience reveals various reasons for delinquent filings, such as a labor organization's failure to maintain the records required by the LMRDA; inadequate office procedures; frequent turnover of labor organization officials and their often part-time status; uncertainty of first-time officers about their reporting responsibilities under the LMRDA and their inexperience with bookkeeping, recordkeeping, or both; an “inherited bookkeeping mess;” an inattention generally to “paperwork;” overworked or under-trained officers; an officer's unwillingness to question or report apparent irregularities due to the officer's own inexperience or concern about the repercussions of reporting such matters; or a conscious effort to hide embezzlement or the misappropriation of funds by the officers, other members of the organization, or third parties associated with the labor organization. Many of these causes of delinquency highlight the need for more, not less, detailed reporting. The inability to comply with the reporting obligations may be symptomatic of financial management problems, benign or otherwise, within the union. As discussed below, commenters generally agreed with the Department's assessment of why labor organizations are delinquent or deficient in filing the Form LM-3. Some commenters, however, disagreed with the efficacy of additional reporting as a means of detecting fraud or embezzlement. As discussed further below, the Department recognizes that the changes will not eliminate fraud or embezzlement. But the changes should increase the ability of union members, the Department, and the public to identify how the union's finances are being managed. This increased transparency, especially insofar as overdue accounts and major transactions (those valued at $5,000 or greater) are concerned, will increase the prospect that fraud will be uncovered and the fear of detection may deter individuals from engaging in the improper conduct in the first instance.

To implement this procedure and standards for revocation, the Department proposed to modify section 403.4 of its regulations, 29 CFR 403.4, and to amend the instructions to the Form LM-3 in order to fully apprise filers of the procedure and standards. The Form LM-3 instructions will remain unchanged except for a new paragraph that notes that the privilege to file the Form LM-3 may be revoked under certain circumstances, and refers filers to the standards and procedures set forth in the Department's regulations (29 CFR 403.4).

Where there appear to be grounds for revoking a labor organization's privilege to file the Form LM-3, such as where the labor organization has failed to timely file the Form LM-3, or files a Form LM-3 that lacks material information, [20] the Department will conduct an investigation to confirm the facts relating to the delinquency or other possible ground for revocation. The depth of the investigation will depend upon the particular circumstances. For example, where OLMS has no record of receiving a timely Form LM-3, the investigation may be limited to confirming that the labor organization did not timely submit the report. In other circumstances, an investigation may be needed to review the labor organization's books, to review documents, and to interview subjects and obtain statements from individuals with knowledge about a labor organization's finances and their reporting to determine whether or not the deficiencies on the Form LM-3 are material.

If the Department finds grounds for revocation after the investigation, the Department will send the labor organization a notice of the proposed Form LM-3 revocation stating the reason for the proposed revocation and explaining that revocation, if ordered, will require the labor organization to file the more detailed annual financial report, Form LM-2. [21] The letter will also provide notice that the labor organization has the right to a hearing if it chooses to challenge the proposed revocation; and that the hearing will be limited to written submissions due within 30 days of the date of the notice. The submissions and any supporting facts and argument must be received by OLMS at the address provided in the notice within 30 days after the date of the letter proposing revocation. The letter will also advise that the labor organization's failure to timely respond within 30 days will waive such labor organization's opportunity to request a hearing and the proposed revocation shall take effect automatically unless the Secretary in his or her discretion determines otherwise.

In its written submission, the labor organization must present relevant facts and arguments that address whether: (1) The report was delinquent or deficient or other grounds for the proposed revocation exist; (2) whether the deficiency, if any, was material; (3) whether the circumstances concerning the delinquency or other grounds for the proposed revocation were caused by factors reasonably outside the control of the labor organization; and (4) any factors exist that mitigate against revocation. Factors reasonably outside the control of a labor organization could include, for example, natural disasters that destroyed the records necessary to complete a Form LM-3, or the death or serious illness of the labor organization's president or treasurer while the form was being prepared for filing. Mitigating factors could also include, for example, that the form was timely completed but was mailed to an incorrect address or an attachment was inadvertently omitted from the filing.

After review of the labor organization's submission, the Secretary (or her designee who will not have participated in the investigation) will issue a written determination, stating the reasons for the determination, and, as appropriate based on neutral criteria, informing the labor organization that it must file the Form LM-2 for such reporting periods as he or she finds appropriate. Where a labor organization has failed to timely respond to the notice of proposed revocation, the Secretary will notify the labor organization in writing that its privilege has been revoked (or in an exercise of his or her discretion that revocation is unnecessary). The determination by the Secretary shall be the Department's final agency action on the revocation.

The revocation of the Form LM-3 filing privilege will ordinarily only apply to the fiscal year for which the labor organization was delinquent or failed to file a properly completed amended report after notification of a material deficiency and the fiscal year during which the revocation determination is issued, but in no event will a labor organization be required to submit a Form LM-2 for any past fiscal year for which the labor organization already has properly and timely filed a Form LM-3. If the revocation is for a longer period of time, the Department's reasons will be included in its written determination. Labor organizations that are required to file a Form LM-2 because their Form LM-3 filing privilege has been revoked will not be required to submit the Form LM-2 electronically.

2. Discussion of Comments Received

A few commenters addressed the authority of the Secretary to make the proposed changes. One commenter noted that the Secretary has the statutory authority to revoke the simplified reporting privilege and doing so will promote greater transparency. The commenter also noted that the revocation procedure will act as an effective deterrent to deliberately inaccurate or late reporting of financial information. Others, however, argued that Congress intended revocation under section 208 to be limited to situations where the simplified report would not accurately reflect the finances of a small labor organization, i.e., where filing the simplified form would permit the labor organization to circumvent or evade its reporting obligations. A suggested example of its appropriate use would be where a single labor organization, in effect, was formed as two separate labor organizations in order to decrease its annual receipts below the $250,000 filing threshold for the Form LM-2. The same commenters stated that the authority under section 208 was not intended to be used for individual or episodic violations. In its view, the only appropriate remedies for individual violations are already provided for under the LMRDA—civil and criminal enforcement. Another commenter argued that where conduct is culpable, it should be dealt with through criminal investigations and prosecutions.

The Department disagrees with this narrow reading of the Secretary's authority. Section 208 permits the Secretary to establish simplified forms for labor organizations where she “finds by virtue of their size a detailed report would be unduly burdensome.” Section 208 also authorizes the Secretary to revoke a labor organization's privilege to file such forms when the Secretary determines, after investigation, due notice, and an opportunity for a hearing, “that the purposes of this section would be served [by revocation].” Contrary to the view of these commenters, section 208 grants her express, unambiguous statutory authority to revoke the privilege of a labor organization to file a simplified report. There is nothing in the text of the LMRDA or its legislative history to suggest that the Secretary's authority to revoke the privilege is somehow constrained by her separate grant of civil and criminal enforcement powers. The Department's primary method of enforcement to obtain a timely and complete report, a civil action seeking a court order that the labor organization file an adequate report, is a time-consuming process that permits the evasion of the reporting requirements to continue for lengthy periods, denying members the timely disclosure of this financial information, without which they are unable to properly oversee the operations of their labor organization and, where they believe appropriate, to timely change its leadership, policies, or both. Moreover, requiring unions that are delinquent or materially deficient in their reports to file the more detailed Form LM-2 will help identify situations demanding civil and criminal investigations and prosecutions. The revocation process is but one tool that the Department may utilize to ensure that labor organizations are complying with the LMRDA reporting requirements. Where conduct warrants criminal enforcement, the Department will use this complementary tool.

A few commenters took an alternative tack by stating that implicit in the authority to create a simplified financial report is the assumption that simplified reports adequately reveal a small labor organization's finances, or that small organizations are incapable of filing the same report as larger organizations, or both. They suggested limiting revocation to only those situations where a simplified report would not accurately reflect the finances of a small labor organization. While Congress clearly viewed simplified reports as potentially adequate for reporting the finances of small labor organizations, it left the Secretary to decide whether to permit some unions to file a simpler form. It is difficult to square the decision by Congress to leave the choice to the Secretary while, at the same time, hobbling her authority to revoke the authority where she deems it appropriate. Congress left it to the Secretary to determine what is “unduly burdensome.” And, where action (or inaction) of individuals, not a union's size, is the reason for the reporting deficiency, the argument that the Secretary is constrained by the language of section 208 loses any remaining force. Commenters have failed to provide any persuasive arguments in support of such a reading.

A few commenters suggested that the Department was exaggerating the problem, one stating that a phone call to the labor organization in question should be sufficient to remedy the problems, while other suggested that the Department should address the problem by providing compliance assistant to small unions so that they will understand their filing obligation. As most commenters appeared to recognize, however, it is hard to exaggerate the difficulties confronting the Department in obtaining timely and complete Form LM-3s from a substantial percentage of unions in this category. The problems persist despite the Department's robust compliance efforts to assist unions with their filing obligations.

Several labor organization commentators believed that increased disclosure was punitive. A commenter asserted that compliance does not appear to be the goal of this proposal, explaining its view that the proposal would impose extraordinary costs on labor organizations. (45) The Department disagrees with this assertion. Filing a delinquent or materially deficient report violates the labor organization's duty to provide accurate disclosure of its financial condition and operations. Such evasion of the reporting requirements may be a sign of more serious financial mismanagement. Increased transparency and disclosure will help labor organization members and the Department ascertain whether serious financial mismanagement is occurring. Revocation of a labor organization's simplified reporting privilege will further the purposes of the LMRDA, namely, ensuring that the organization accurately discloses its financial condition and operations.

Many commenters described the proposal as unnecessarily burdensome. Commenters stated that Form LM-3 filers do not keep track of data that is required on the Form LM-2. Specifically, one commenter believed that the Form LM-2 functional categories would pose a particular challenge for Form LM-3 filers. An additional commenter also noted that aggregation, itemization and categorization could pose a problem. This international labor organization commenter noted that from its experiences with filing Form LM-2 reports for Form LM-3 filers that had been placed in trusteeship, conversion of data to the Form LM-2 format had been difficult. [22]

The Department acknowledges that the Form LM-2 will prove more burdensome to complete than the Form LM-3, a fact that should provide incentive for an organization to file its Form LM-3 on time and without material deficiencies. At the same time, however, the Department believes that some commenters overstate the burden to those labor organizations that will be required to file the Form LM-2. The burden to a labor organization of filing a Form LM-2 is proportionate to the size of the labor organization. Form LM-2 requires additional information and specificity that is not captured by the Form LM-3. A labor organization that has had the Form LM-3 filing privilege revoked will have to assign receipts and disbursements into functional categories, a new task for those unions. However, due to the relatively small number of receipts and disbursements, assigning the receipts and disbursements to functional categories should not require a significant adjustment in the labor organization's recordkeeping systems. The burden imposed by requiring itemization of receipts and disbursements into functional categories is linked to the amount of receipts and disbursements that a labor organization has. A labor organization with less than $250,000 in annual receipts will have significantly fewer receipts and disbursements to itemize than a larger labor organization. And where the labor organization believes that it does not have voluntary resources to complete the form itself, it can turn to its parent or other affiliated unions for assistance or referral to third parties experienced in preparing the Form LM-2. Additionally, labor organizations that will file the Form LM-2 due to having their Form LM-3 filing privilege revoked are relieved of the requirement to file the Form LM-2 electronically, which may reduce the burden of converting files to a system that is compliant with the electronic form.

The Department notes that currently situations exist where a Form LM-3 filer may be required to file a Form LM-2 with little notice. For example, a traditional Form LM-3 filer that received $230,000 in annual receipts in the previous year but nearing the end of its current fiscal year eclipses that total, and now has $260,000 in annual receipts must file a Form LM-2 for that year with little advance notice. Similarly, a traditional Form LM-3 filer that received $100,000 in annual receipts in the previous fiscal year but nearing the end of its current fiscal year sells an asset thus bringing its annual receipts over the $250,000 Form LM-2 threshold, would be required to file the Form LM-2 with little advance notice. Additionally, the Department has long required a Form LM-2 to be filed for a labor organization that has been placed in trusteeship without regard to the amount of its annual receipts. Depending on particular circumstances, a Form LM-2 could have to be filed shortly after the imposition of a trusteeship, even though but for the trusteeship, a Form LM-3 would have fulfilled the organization's annual financial reporting obligation. See 29 CFR 403.4 and 408.5.

Focusing on the Department's estimate of 96 revocations a year out of a much larger potential universe of delinquent filers, commenters questioned the Department's intention or ability to identify those labor organizations that will be required to file the Form LM 2. Some commenters suggest that the procedure invites, if not compels, arbitrary action by the Department. One commenter noted that nearly 80% of all 2006 Form LM-3 filers filed on time or within 30 days of their filing deadline. The commenter noted that over 2,000 Form LM-3 filers remain delinquent over 30 days after their filing deadline. Another commenter asserted that the proposal would require the Form LM-2 to be filed by less than one-tenth of one percent of all Form LM-3 filers, allowing the Department unbridled discretion in singling out those for sanction. Two commenters questioned what process the Department would utilize to determine which delinquent and deficient filers would have their Form LM-3 filing privilege revoked. One commenter requested the Department present clear, precise, and reasoned criteria for revocation. One commenter worried that the Department would revoke the Form LM-3 filing privilege for labor organizations that filed their Form LM-3 one day late.

Such fear is unfounded and, in any event, premature. As explained in the NPRM, 73 FR at 27370, the Department anticipates that the vast majority of situations where revocation occurs will be for delinquency or material deficiency. (See Regulatory Flexibility Analysis below; the Department there estimates that of the 96 cases per year in which the simplified reporting privilege will be revoked all but two will be for delinquency or deficiency.) The term “other circumstances” is necessarily broad to encompass situations that are contrary to the Act's disclosure provisions but not easily catalogued in advance. Moreover, the Department's actions are constrained by the language of section 208, which requires that revocation be limited to situations where it would serve the purposes of that section. The Department has established a procedure that ensures due process—notably no commenter has taken issue with the investigatory and decision making process. This process ensures fair and even-handed treatment. Moreover, any labor organization that believes it has been aggrieved by the Department's decision to revoke the Form LM-2 filing privilege could secure judicial review of the Department's decision.

The “other circumstances” provision will rarely be used. As the commenters noted, if a large labor organization divided itself into two separate labor organizations, while continuing to function as one entity, the labor organization would be evading the Form LM-2 reporting requirement. In such a situation, the labor organizations may be filing timely Form LM-3 reports, which may comply with the technical requirements of Form LM-3, but revocation would still be warranted. While revocation is appropriate in that instance, the commenters, have failed to make a convincing argument that the Department's statutory discretion should be limited by specifying particular situations where revocation may be appropriate. The Department cannot anticipate every situation where revocation would be appropriate and for this reason it retains the “other circumstances” language in the final rule.

Two commenters asserted that the examples of mitigating circumstances in the proposal, “natural disasters” and “death or serious illness” of the president or treasurer of the labor organization, indicated that the Department will allow mitigation only in the most extreme situations, inviting arbitrariness in singling out violators for the revocation sanction. (38, 40) The language in question does not require such inference. For example, the NPRM stated that “[m]itigating factors could also include, for example, that the form was timely completed but was mailed to an incorrect address or an attachment was inadvertently omitted from the filing.” 73 FR 27356. To alleviate this concern, however, the Department acknowledges that mitigating factors, including a labor organization officer's lack of recordkeeping or bookkeeping experience will be taken into account by the Department in deciding whether revocation is appropriate. However, where officers of a labor organization have deliberately obscured its financial condition and operations, the Secretary will exercise her statutory right to revoke the simplified filing privilege of the labor organization.

Two commenters expressed concern that the Secretary could impose the Form LM-2 filing requirement indefinitely. The revocation of the Form LM-3 filing privilege will ordinarily only apply to the fiscal year for which the labor organization was delinquent or filed a materially deficient report, and the fiscal year during which the revocation was issued. However, to the extent that a labor organization continues to fail to accurately disclose its financial conditions and operations despite the revocation, application of the revocation to additional fiscal years may be appropriate. Thus the duration of the revocation is limited by the Section 208 requirement that revocation further the purposes of the Act.

Labor organizations will receive notice of their delinquency well before the revocation process is invoked. Only after notification of the delinquency and voluntary cooperation has failed to resolve the delinquency will a revocation proceeding commence. Labor organizations will be notified that a consequence of failure to file a timely report or filing a report with material deficiencies may be revocation of their simplified reporting privilege. They will be so informed not less than 30 days before the revocation process is invoked. Under the final rule, labor organizations that file a delinquent or materially deficient Form LM-3 will be notified of their right to file a written submission contesting the proposed revocation. The notice also informs the labor organization that failure to file a written submission within 30 days will result in an automatic revocation of their simplified reporting privilege. The written submission must address four issues that should be readily ascertainable to a labor organization official: (1) The existence of a delinquency, material deficiency or other circumstances; (2) whether the deficiency, if any, was material; (3) whether a delinquency or other circumstance for revocation was caused by factors reasonably outside the control of the labor organization; and (4) any mitigating factors. In light of the labor organization's prior notification of the delinquency and opportunity to voluntarily resolve the delinquency, 30 days is sufficient for a labor organization to prepare its response. The automatic revocation of the simplified reporting privilege for a labor organization that fails to contest the proposed revocation, much like a default judgment in a civil suit, is a reasonable response to the labor organization's continuing inattention to its filing obligations. Whether the privilege will be revoked will ultimately depend on the Secretary's determination of whether revocation is warranted, which is a fact-specific inquiry requiring evaluation of the circumstances of the delinquency, material deficiency or other grounds, and evidence presented by the labor organization.

Several commenters noted the possible consequences to a labor organization whose Form LM-3 filing privilege is revoked. One commenter stated that the need to file the more burdensome Form LM-2 would divert the labor organization from grievance handling and its other core business. By filing a timely Form LM-3 report without material deficiencies a labor organization can avoid any diversion of resources that may occur as a result of the revocation of the simplified filing privilege. One international labor organization worried that labor organization officers may resign should their organization's Form LM-3 privilege be revoked. Another international labor organization believed that if a local labor organization's Form LM-3 filing privilege were revoked the parent organization would move to place the local in trusteeship or merge it with another local organization. Revocation of the Form LM-3 filing privilege is the culmination of an investigation which may unearth underlying financial problems within a labor organization. The Department acknowledges these possible consequences. At the same time, such consequences are foreseeable and, depending on the particular circumstances, may be reasonable and appropriate actions. Where a union official believes that complying with his or her financial reporting obligation will interfere with the union's grievance handling or other responsibilities to its members, the revocation procedure will bring this to light, allowing members to weigh this factor in exercising their democratic right to elect or remove such officer. In the Department's view, there is no merit to the suggestion that filing an annual financial report is not within the union's “core business.” Labor organizations, including parent organizations, and individual officers, however, must ultimately decide what actions they deem appropriate in such situations.

One commenter argued that the definition of materiality presented in the NPRM set too low a threshold for material deficiency. The Department disagrees. As explained in the NPRM, the proposed definition of “material” was modeled on the standards of the Financial Accounting Standards Board (“FASB”), and the standard applied to corporations in TSC Industries Inc. v. Northway Inc., 426 U.S. 438, 449 (1976) and tailored to apply to the unique circumstances of the LMRDA reporting requirements. The standard proposed in the NPRM was as follows: “a deficiency is ‘material’ if in the light of surrounding circumstances, the inclusion or correction of the item in the report is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced.” 73 FR 27355. One commenter argued that the proposed standard is too low because it does not include language from the FASB regarding the “magnitude” of the deficiency and language utilized in TSC Industries Inc. v. Northway Inc. regarding the “total mix” of information available. The Department disagrees with this assessment. The proposed standard requires that a deficiency be judged “in the light of surrounding circumstances” which inherently involves consideration of the magnitude of the deficiency in light of the total information available to determine whether “a reasonable person relying upon the report would have been changed or influenced.”

Some commenters argued that requiring a labor organization to file an opposition to a notice of proposed revocation within 30 days was insufficient and believed that 60 days would be appropriate. Two commenters suggested that the Department implement an alternate compliance system modeled on Federal lobbying disclosure laws. Under the Federal lobbying disclosure system, a lobbyist is notified in writing of his or her noncompliance and then given 60 days to provide an adequate response. If an adequate response is not provided within 60 days the matter is referred to the United States Attorney for the District of Columbia. 2 U.S.C. 1605(a)(8). The Department disagrees with these suggestions. The Department already contacts delinquent Form LM-3 filers to encourage them to fulfill their reporting obligations. Currently if a labor organization's annual report is not received timely, the Department sends the labor organization a delinquency notice letter. If the annual financial report is still not submitted, the Department District Office in whose jurisdiction the labor organization is located will open a delinquent report case and seek to obtain the report. The Department will continue its practice of contacting delinquent filers in order to promote the timely remedying of their delinquency. Only when delinquent filers have failed to timely remedy their delinquency would revocation of the Form LM-3 filing privilege be utilized.

Another commenter noted that filers who could not timely file a Form LM-3 would not likely be able to prepare a written response to a notice of proposed revocation with the 30 days allotted for this purpose. For this reason, the commenter stated that it would be unfair in those situations to, in effect, impose a default judgment. The Department cannot agree with this point of view. As discussed above, the Department currently provides reminders to labor organizations about the need to timely file a Form LM-3; it will continue to provide such “early warnings” about the need to timely and completely file the required reports, now coupled with a reminder that failure to do so may result in having to file the more detailed Form LM-2. Where, despite these reminders, a labor organization fails to timely submit its position within 30 days of the revocation notice, the entry of a “default judgment” seems entirely appropriate. The Department recognizes that there may be some situations in which a labor organization, for good cause, may be unable to submit a complete statement of position on the proposed revocation within the 30-day timeframe. Where good cause is shown, the Department will approve a timely request for a short extension of time for submission of the union's statement.

One commenter suggested that an exception should be crafted to the Form LM-3 revocation procedures for situations where an international union has assumed responsibility for assuring that locals file LM-3s. The commenter noted that once the Department has notified the international labor organization that its affiliate was delinquent in its reporting obligation, the international would then assist and promote the filing of a delinquent Form LM-3. Another commenter noted that compliance assistance programs have been effective within the Department of Labor, citing EBSA's “Delinquent Filer Voluntary Compliance Program.”

The Department promotes the importance of voluntary compliance. It recognizes the efforts that many international labor organizations have made to remedy their affiliated local labor organizations' delinquent reporting. Their efforts to assist and promote timely compliance by their affiliates are a responsible response to a significant problem. Approximately 40 parent national and international labor organizations regularly assist the Department with obtaining delinquent annual disclosure reports from their affiliated organizations. The Department periodically sends each parent organization a list of the subordinate affiliates that have failed to file reports for either of the two most recent fiscal years. An accompanying letter requests that the parent organization assist in obtaining the delinquent reports and in providing the Department with updated contact information, for the labor organization officials responsible for filing them.

The revocation procedure is to be used after attempts to secure timely voluntary compliance, through a program or otherwise, have proven unsuccessful. The procedure established in the final rule is designed to address the situations where despite the best efforts of the Department and parent labor organizations, a labor organization fails to file its required Form LM-3. Whatever its reasons for non-compliance, the time has come to determine whether revocation of the privilege is warranted. The officials of the non-complying labor organization may be trying to obscure the financial condition and operations of the organization in order to hide more serious financial problems, including criminal activity such as embezzlement. The additional information provided by the Form LM-2 is a measured and proportionate remedy to ensure accurate disclosure of the financial condition and operations of a labor organization.

IV. Regulatory Procedures Back to Top

Executive Order 12866

This final rule has been drafted and reviewed in accordance with Executive Order 12866, section 1(b), Principles of Regulation. Based on a preliminary analysis of the data the rule is not likely to have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities. As a result, a full economic impact and cost/benefit analysis is not required for the rule under Section 6(a)(3) of the Order. However, because of its importance to the public the rule was treated as a significant regulatory action and was reviewed by the Office of Management and Budget. Because this final rule makes revisions to information collection requirements, our discussion of its impact can be found in the Paperwork Reduction Act and Final Regulatory Flexibility Act sections that follow.

Unfunded Mandates Reform

For purposes of the Unfunded Mandates Reform Act of 1995, this final rule does not include a federal mandate that might result in increased expenditures by state, local, and tribal governments, or increased expenditures by the private sector of more than $100 million in any one year, adjusted by the rate of inflation between 1995 and 2008 ($130.38 million) per 2 U.S.C. 1532(a).

Executive Order 13132 (Federalism)

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

Paperwork Reduction Act

This statement is prepared in accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3501. As discussed in the preamble, this rule implements an information collection that meets the requirements of the PRA in that: (1) The information collection has practical utility to labor organizations, their members, other members of the public, and the Department; (2) the rule does not require the collection of information that is duplicative of other reasonably accessible information; (3) the provisions reduce to the extent practicable and appropriate the burden on labor organizations that must provide the information, including small labor organizations; (4) the form, instructions, and explanatory information in the preamble are written in plain language that will be understandable by reporting labor organizations; (5) the disclosure requirements are implemented in ways consistent and compatible, to the maximum extent practicable, with the existing reporting and recordkeeping practices of labor organizations that must comply with them; (6) this preamble informs labor organizations of the reasons that the information will be collected, the way in which it will be used, the Department's estimate of the average burden of compliance, the fact that reporting is mandatory, the fact that all information collected will be made public, and the fact that they need not respond unless the form displays a currently valid OMB control number; (7) the Department has explained its plans for the efficient and effective management and use of the information to be collected, to enhance its utility to the Department and the public; (8) the Department has explained why the method of collecting information is “appropriate to the purpose for which the information is to be collected”; and (9) the changes implemented by this rule make extensive, appropriate use of information technology “to reduce burden and improve data quality, agency efficiency and responsiveness to the public.” 5 CFR 1320.9; see also 44 U.S.C. 3506(c).

A. Issues Raised in Public Comments Related to the Department's Cost Estimates

As the Department has done with the final rule, the NPRM employed the cost conclusions derived in the PRA analysis in order to assess burdens to small labor organizations for the purposes of the Regulatory Flexibility Act (“RFA”) analysis. As a result, for the most part, the comments received by the Department on its costs analysis did not indicate whether they were specifically addressing the PRA analysis, the RFA, or both. Because of the interrelationship between the analyses, and because the RFA specifically requires the Department to address comments related to its burden analysis, [23] the Department has construed all comments received regarding its assessment of costs to the regulated community as comments related to both the PRA and the RFA analysis. Therefore, the introduction to the PRA analysis below is a complete recitation of the significant issues raised by the comments, the Department's response thereto, and changes made to both the PRA and RFA analyses as a result of those comments.

A number of commenters expressed concern that the Department used as the foundation for the NPRM's burden analysis the Department's estimates of compliance costs associated with revisions made to the LM-2 in 2003, instead of collecting data from a survey of labor organizations' actual compliance costs realized as a result of the earlier revision. Commenters questioned whether the Department could accurately estimate the current Form LM-2 and new Form LM-2 burdens using estimates that pre-dated the current Form LM-2. Although actual data on burden was not available in 2003, labor organizations have been filing the revised Form LM-2 for three years, and several commenters suggested that the Department should have sought information regarding compliance burdens from the regulated community rather than rely on those estimates as a baseline for the burden analysis in this rule.

Several labor organizations provided specific data regarding their own compliance costs associated with that revision. One commenter indicated that his labor organization spent approximately $100,000 in 2004, its first reporting year, on staff time, outside accounting services, and new software to comply with the data gathering requirements of the current Form LM-2, approximately $75,000 more than the Department estimated in the 2003 rule. The same labor organization asserted that it cost an additional $100,000 each year to comply with the recordkeeping and reporting requirements of the 2003 rule, approximately $83,000 more than the Department estimated in the 2003 rule. Two other LM-2 filers estimated that they spent over $120,000 a year to comply with the requirements of the current LM-2 in a timely manner. Based on these estimates, the commenters indicate that the Department has underestimated the total burden by at least 50 percent. Another commenter estimated that the Department had underestimated the total burden by at least a factor of three. Finally, one commenter, citing an unpublished analysis of the increase in the number of pages submitted as part of the LM-2 filing, noted that for labor organizations with at least $50 million in annual revenue, their submissions increased in size an average of 94 percent for the three years of filing experience after the 2003 revisions, suggesting that the Department underestimated the costs to labor organizations associated with complying with those revisions. These commenters and others indicate that actual compliance experience, rather than the Department's estimates, could be used to inform and calculate the Form LM-2 burden estimates associated with the revisions in this rule.

After considering the comments regarding actual costs associated with the LM-2 revision in 2003, the Department has decided to retain the approach adopted in the NPRM and use the costs estimates developed in 2003 as a baseline for the costs associated with this revision. The cost estimates developed in 2003 were the result of a comprehensive and detailed empirical analysis of costs to all labor organizations affected by the change, not just the costs incurred by the largest labor organizations. Certainly, some labor organizations will spend more time on recordkeeping and reporting than others, as shown in the examples offered by the commenters. For example, a labor organization with $2,500,000 in annual receipts will have many times more itemized receipts to report than a labor organization with $250,000 in annual receipts. It is likely, as noted above, that there are multiple labor organizations that spend $100,000 or more on recordkeeping and reporting. However, just over half of LM-2 filers have more than $1 million in annual receipts. Those LM-2 filers with less than $1 million in receipts will spend significantly less on recordkeeping and reporting than the larger labor organizations, those with millions in receipts. To account for these size differences, the Department used weighted average burden estimates to ensure that the cost estimates represented the experience of all labor organization filers, and that large labor organizations are not over represented and small labor organizations are not underrepresented in the final burden estimate.

For a number of reasons, the Department has confidence in its 2003 estimates of compliance burdens as a fair and realistic representation of costs to labor organizations for compliance with the previous Form LM-2 revisions. The 2003 estimates were based on the Department's detailed review of the recordkeeping and reporting requirements of the Form LM-2. That review incorporated the expertise of investigators with first-hand knowledge of union financial reporting. In addition, the burden estimates used in 2003 were based on the Department's review of extensive public comments, which included a survey of affected labor organizations submitted by the AFL-CIO as part of its 2003 comment. Where appropriate, the AFL-CIO's survey data were incorporated into the 2003 analysis to improve those burden estimates. In response to public comments in 2003, the Department improved its methodology and, as a result, its overall estimate of burden hours was ultimately increased from 15.25 hours to 292.00 hours. Moreover, to further improve the 2003 burden estimates, the Department conducted internal time trials to determine the amount of time needed to change the accounting structure, document records, and fill out the Form LM-2. Finally, legal challenges by the AFL-CIO to the Department's methodology underlying and conclusions regarding its burden estimates in 2003 were rejected by the court in American Federation of Labor and Congress of Industrial Organizations v. Chao, 298 F.Supp.2d 104, 121-126 (D.D.C. 2004), aff'd 409 F.3d 377 (D.C. Cir. 2005) (AFL-CIO v. Chao). In the Department's view, the collection of data regarding compliance costs from a survey of affected labor organizations would not result in a significant improvement to the Department's analysis of costs associated with the prior Form LM-2 revisions, and the use of a survey tool would have injected into the analysis substantial issues regarding appropriate respondent sampling, verification of reported respondent costs, and comparability of results to prior estimates, significantly limiting the utility of such an approach.

The majority of comments submitted regarding the Department's burden analysis indicated that the analysis of the costs to implement the new receipts schedule was flawed and significantly underestimated the recordkeeping and reporting burden. In particular, the commenters were concerned that basing the number of itemizations on the current Schedule 14 (“Other Receipts”) grossly underestimated the number of itemized receipts on the other receipt itemization schedules. The commenters pointed out that the current schedule 14 does not include the major sources of union revenues, and that most itemized receipts will be reported on the new dues, per capita tax and investment schedules. As one example, a labor organization stated that it receives more than $5,000 in annual withheld dues from more than 10,000 employers, and that the schedule will require it to enter a line item for each of those 10,000 employers. A certified public accounting firm noted that depending on a labor organization's investment activities, the potential volume of itemized transactions is tremendous. An international labor organization estimated that it would spend 120 to 240 hours per year putting together its investment records to comply with the reporting requirements. Another international labor organization noted that it receives over $5,000 from over 750 affiliates. This labor organization estimated that the additional itemization schedules will add 1,000 pages to its Form LM-2. An accountant with experience in filling out LM-2s believed that the reporting time required is 5 to 10 times what was estimated in the NPRM, employer contributions could take 20 to 25 hours alone.

As discussed elsewhere in this preamble, the Department has created exceptions in the final rule to itemized receipt reporting that responds to these and other commenters, and will significantly reduce the recordkeeping and reporting burden proposed in the NPRM, and the Department has revised its burden analysis accordingly. First, as discussed above, dues and agency fees, which make up approximately 70% of all receipts, received directly from an employer need not be itemized by transaction. The labor organization need only report the aggregate dues and agency fees received from each employer over the year. As a result, however, it is axiomatic that those labor organizations that receive payments of dues and agency fees from many employers will have a greater reporting responsibility on this schedule than those labor organizations that receive dues and agency fees from relatively fewer employers. Second, as discussed above, investment transactions made over a registered market exchange need not be itemized. Finally, as discussed above, per capita taxes received directly from an affiliate should not be itemized by transaction. The labor organization need only report the aggregate per capita taxes received from each affiliate over the year. These exceptions should alleviate many of the concerns raised by the commenters and significantly reduce the overall burden. In addition to these new itemization exceptions and as discussed further below, the Department has improved the burden estimates associated with the new receipts schedules by using the aggregates currently reported on Summary Schedule B, which were divided by $5,000 to estimate the number of itemized receipts per schedule.

Regarding reporting obligations for disbursements to officers and employees, a number of commenters stated that they could not breakdown benefits by officer and employee, nor could they breakdown indirect disbursements to officers and employees for travel and lodging, without extensive changes to their recordkeeping system. A number of labor organizations explained that they frequently make single credit card payments that cover the hotel and transportation expenses of more than one officer or employee. As a result, several labor organizations estimated that they would need between 40 and 120 hours per year to comply with the new officer and employee reporting requirements.

In response to concerns raised regarding the reporting of officer benefits, the Department reiterates, as noted in the NPRM, that there should be no increased recordkeeping burden associated with the report of officer benefits because labor organizations are currently required to track each officer's benefits to complete the IRS Form 990.

In response to concerns raised regarding the reporting of indirect disbursements to officers and employees, the Department's final rule has created an exception for certain indirect disbursements to decrease the overall burden, and has improved the methodology to improve indirect disbursement burden estimates. To reduce the overall burden, the Department will now allow labor organizations to distribute indirect disbursements equally between multiple officers and employees if they meet the exception discussed elsewhere in this preamble. In the NPRM, the Department accounted for the increase burden for indirect disbursements by applying the same burden to this change as it would apply to a new schedule in 2003, and estimated that, on average, each officer and employee will have one reportable indirect disbursement. As explained further below, to improve the burden estimates for indirect disbursements for travel and lodging, the Department adopted a new methodology for calculating the number of reportable indirect disbursements. The number of indirect disbursements is now based on the number of disbursements currently reported on the LM-2. These changes should reduce the burden hours and significantly improve the overall burden estimates.

Several commenters stated the overall cost conclusions reached in the NPRM were flawed because the salary estimates employed in the calculations were artificially low. First, some asserted that the Department incorrectly used general Bureau of Labor Statistics (“BLS”) salary data rather than labor organization-specific data. Second, some asserted that the Department incorrectly used an average salary for an in-house and outside accountant when labor organizations must only use outside accountants in order to comply with their fiduciary duties. Some commenters noted that outside accountants frequently charge $100 or more an hour. Finally, some commenters noted that the salary estimates did not account for fringe benefits, which constitute approximately 30% of total compensation costs.

The Department has improved the compensation cost estimates in response to these comments. First, instead of employing BLS salary data, the Department has estimated the average salary of the president and secretary using the e.Lors database and a stratified random sample. Second, unlike the NPRM, the Department did not average the in-house and outside accountants' and bookkeepers' salaries, and instead derived them exclusively from the BLS survey. Finally, based on BLS data and explained further below, all of the salaries were increased by 30.2% to account for the costs of benefits, resulting in a more accurate total compensation cost for each employee identified. The same method was used to estimate the LM-3 compensation costs, and these changes will improve the accuracy of the cost estimates for the final rule.

Given the costs associated with implementation, some commenters questioned whether the benefits of this final rule outweigh the costs. The Department has not conducted a formal cost/benefit analysis of this rule. However, as outlined above, labor organization members will benefit from greater transparency and accountability. For the first time, members will have a nearly complete accounting of all receipts and disbursements. These benefits are difficult to quantify, but we believe members have benefited greatly from the 2003 revisions to the Form LM-2. The revisions adopted in this final rule and those adopted in the 2003 final rule have created the most functional and informative Form LM-2 in Department history.

Regarding the LM-3 revocation burden analysis, several commenters suggested that the analysis was flawed in many aspects. First, some commenters questioned the means by which the Department estimated that 96 LM-3 filers will have their privilege revoked. Second, some commenters argued that the Department failed to fully account for the reporting burden by not including the computer hardware and software costs in the analysis. Third, some commenters argued that the Department did not use actual data from Form LM-2 reports to estimate the total burden hours and costs, and instead of using actual data available on the e.LORS database, the Department merely reduced the total LM-2 burden hours by 69% and used the Tier I LM-2 filers' salary data. [24] Critics suggested that such a blanket reduction does not take into account the time needed to review the LM-2 rules and requirements, review each disbursement and receipt, record the necessary information, place the disbursements into the appropriate functional categories, and prepare the form.

The Department has revised its methodology to determine the LM-3 revocation burden and cost. As explained further below, where possible, the Department has based the LM-3 revocation burden on actual data taken from LM-3s. The information that could not be drawn from the LM-3s was estimated from LM-2 filers with between $250,000 and $500,000 in annual receipts. These additions will improve both the burden and cost estimates.

In sum, based upon careful consideration of all the comments regarding the burden analysis in the NPRM, the Department has made adjustments to its quantitative methods and therefore to its burden estimates. As reflected in the analysis that follows, the Department has, among other things:

  • Calculated salary data for labor organizations presidents and treasurers from LM-2 data using a proportionate stratified random sample;
  • Revised the compensation cost for each individual, accountant, president, treasurer, etc., by increasing wages by 30.2% to account for total compensation, including compensation received in the form of benefits;
  • Employed publicly available data from the Department's e.LORS database and the Federal Mediation and Conciliation Service to determine the number of employers that will make dues payments;
  • Employed data from the Department's e.LORS database to determine the number of labor organizations that will pay and receive per capita taxes;
  • Employed the aggregate receipts reported on Summary Schedule B to estimate the number of itemized receipts on Schedules 16-22;
  • Calculated the number of indirect disbursements to officers and employees for lodging or travel by employing the total number of disbursements for official business currently reported on the LM-2;
  • Replaced the overall percentage reduction for computing the burden associated with LM-3 revocation with discrete analyses of the burden for each schedule, summary schedule, and item using the same assumptions as used in the LM-2 analysis; and
  • Where possible, employed LM-3 data to estimate the number of itemized receipts and disbursements, and if LM-3 data was not available, employing Tier I LM-2 data.

As a result of these improvements to the Department's methodological approach, the estimates of costs to labor organizations for compliance with this rule have been revised upward. [25] Those figures are reported in the analyses that follow. Pursuant to the PRA, the information collection requirements contained in this final rule were submitted to OMB, and received approval on January 8, 2009, under an OMB control number 1215-0188, which will expire on September 30, 2011. The Form LM-2 and its instructions, which are modified to reflect the new filing criteria, are published as an appendix to this final rule. The instructions to the Form LM-3, which have been modified to reflect the new revocation procedure, are also published as an appendix to this final rule.

B. Summary of the Rule: Need and Economic Impact

This final rule has improved the usefulness and accessibility of information to members of labor organizations subject to the LMRDA. The LMRDA reporting provisions were devised to protect the basic rights of labor organization members and to guarantee the democratic procedures and financial integrity of labor organizations. The 1959 Senate report on the version of the bill later enacted as the LMRDA stated clearly that “[t]he members who are the real owners of the money and property of the organization are entitled to a full accounting of all transactions involving their property.” S. Rep. No. 187 (1959), at 8, reprinted in 1 NLRB Legislative History of the Labor-Management Reporting and Disclosure Act of 1959, at 404. A full accounting included “full reporting and public disclosure of union internal processes [and] financial operations.”Id. at 2.

As labor organizations have become more multifaceted and have created hybrid structures for their various activities, the form used to report financial information with respect to these activities had until recently remained relatively unchanged and had become a barrier to the complete and transparent reporting of labor organizations' financial information intended by the LMRDA. By providing members of labor organizations with more complete, understandable information about their labor organizations' financial transactions, investments, and solvency, this final rule will put them in a much better position than they are today to protect their personal financial interests and to exercise their rights of self-governance. The information collection achieved by this rule is integral to this purpose. The paperwork requirements associated with the final rule are necessary to enable workers to be responsible, informed, and effective participants in the governance of their labor organizations; discourage embezzlement and financial mismanagement; prevent the circumvention or evasion of the statutory reporting requirements; and strengthen the effective and efficient enforcement of the LMRDA by the Department.

The Department's NPRM in this rulemaking contained an initial PRA analysis, which was also submitted to OMB. The initial PRA analysis was based largely on the PRA analysis prepared by the Department in connection with its 2003 final rule that substantially revised the Form LM-2. [26] The PRA analysis employed in 2003 was approved by the Office of Management and Budget. Based upon careful consideration of comments received regarding the Department's estimate of costs in the NPRM, the Department made methodological revisions which resulted in adjustments to its burden estimates in this final rule. The costs to the Department also were adjusted. Federal annualized costs are discussed following the consideration of the burden on the reporting labor organizations.

Based upon the analysis presented below, the Department estimates that the total first year burden to comply with revised Form LM-2 will be 685,924 hours for all covered labor organizations. The total first year compliance costs associated with this burden is estimated to be $22,143,880 for all covered labor organizations. Both the burden hours and the compliance costs associated with Form LM-2 decline in subsequent years. The Department estimates that the total burden averaged over the first three years for all covered labor organizations to comply with the Form LM-2 to be 274,539 hours per year. The total compliance costs associated with this burden averaged over the first three years are estimated to be $8,863,038 for all covered labor organizations. [27]

C. Background on Current Form LM-2

Every labor organization whose total annual receipts are $250,000 or more and those organizations that are in trusteeship must currently file an annual financial report using the current Form LM-2, Labor Organization Annual Report, within 90 days after the end of the labor organization's fiscal year, to disclose its financial condition and operations for the preceding fiscal year. The current Form LM-2 is also used by covered labor organizations with total annual receipts of $250,000 or more to file a terminal report upon losing their identity by merger, consolidation, or other reason.

The current Form LM-2 consists of 21 questions that identify the labor organization and provide basic information (in primarily a yes/no format); a statement of 11 financial items on different assets and liabilities; a statement of receipts and disbursements; and 20 supporting schedules. The information that is reported includes: whether the labor organization has any trusts; whether the labor organization has a political action committee; whether the labor organization discovered any loss or shortage of funds; the number of members; rates of dues and fees; the dollar amount for seven asset categories, such as accounts receivable, cash, and investments; the dollar amount for four liability categories, such as accounts payable and mortgages payable; the dollar amount for 13 categories of receipts such as dues and interest; and the dollar amount for 16 categories of disbursements such as payments to officers and repayment of loans obtained. Four of the supporting schedules include a detailed itemization of loans receivable and payable and the sale and purchase of investments and fixed assets. There are also 10 supporting schedules for receipts and disbursements that provide members of labor organizations with more detailed information by general groupings or bookkeeping categories to identify their purpose. Labor organizations are required to track their receipts and disbursements in order to correctly group them into the categories on the current form.

The Department also has developed an electronic reporting system for labor organizations, e.LORS, which uses information technology to perform some of the administrative functions for the current forms. The objectives of the e.LORS system include the electronic filing of current Forms LM-2, LM-3, and LM-4, as well as other LMRDA disclosure documents; disclosure of reports via a searchable Internet database; improving the accuracy, completeness and timeliness of reports; and creating efficiency gains in the reporting system. Effective use of the system reduces the burden on reporting organizations, provides increased information to members of labor organizations, and enhances LMRDA enforcement by OLMS. The OLMS Online Public Disclosure site is available for public use at http://www.unionreports.gov. The site contains a copy of each labor organization's annual financial report for reporting year 2000 and thereafter as well as an indexed computer database of the information in each report.

Filing labor organizations have several advantages with the current electronic filing system. With e.LORS, information from previously filed reports and officer or employee information can be directly imported into Form LM-2. Not only is entry of the information eased, the software also makes mathematical calculations and checks for errors or discrepancies.

D. Overview of Changes to Form LM-2

The revised Form LM-2 includes: the same number of questions (21) as the current form that identify the labor organization and provide basic information (in the same general yes/no format); the same (11) financial items on assets and liabilities in Statement A; an updated Statement B that asks for information in the same categories of receipts (13) as the current Form LM-2 and ten additional supporting schedules (for a total of 23 instead of 13).

Under this final rule, several of the current supporting schedules will change. The schedules for “Sale of Investments and Fixed Assets” and “Purchase of Investments and Fixed Assets” will be modified by the inclusion of the name of the party transacting with the labor organization in the purchase or sale. The schedule for “Benefits” will be modified and the disbursements for benefits to labor organization officers and employees will be reported in the schedules for disbursements to officers and employees.

Under the final rule, the Form LM-2 will be revised to require labor organizations to individually identify receipts within supporting schedules for all of the current categories of receipts.

E. Methodology for the Burden Estimates

As an initial matter, it should be noted, as was noted in the NPRM, that some of the numbers included in both this PRA analysis and the preceding regulatory flexibility analysis will not add perfectly due to rounding.

In reaching its estimates, the Department considered both the one time and recurring costs associated with the final rule. Separate estimates are included for the initial year of implementation as well as the second and third years. For filers, the Department included separate estimates, based on the relative size of labor organizations as measured by the amount of their annual receipts. The size of a labor organization, as measured by the amount of its annual receipts, will affect the burden on reporting labor organizations. For example, larger labor organizations have more receipts and disbursements to itemize and more employees who have to estimate their time allocation.

In 2006, there were approximately 4,571 labor organizations that were required to file Form LM-2 reports under the LMRDA (approximately 19.11 percent of all labor organizations covered by the LMRDA). [28] Although these estimates may not be predictive of the exact number of labor organizations that will be impacted by this rule in the future, the Department believes these estimates to be sound and derived from the best available information.

The Department's estimates include costs incurred by the labor organization for both labor and equipment. The labor costs reflect the Department's assumption that the labor organizations will rely upon the services of some or all of the following positions (either internal or external staff, including the labor organization's president, secretary-treasurer, accountant, bookkeeper, and computer programmer) and the compensation costs for these positions, as measured by wage rates and employer costs published by the Bureau of Labor Statistics or derived from data reported in e.LORS.

The Department also made assumptions relating to the amount of time that particular tasks or activities would take. The activities occur during the distinct “operational” phases of the rule: first, tasks associated with modifying bookkeeping and accounting practices, including the modification or purchase of software, to capture data needed to prepare the required reports; second, tasks associated with recordkeeping; and third, tasks associated with sending or exporting the data in an electronic format that can be processed by the Department's import software. Since the analysis is designed to provide estimates for a “representative” labor organization the Department's estimates largely reflect weighted averages. Where an estimate depends upon the number of labor organizations subject to the LMRDA or included in one of the tier groups, the Department has relied upon data in the e.LORS system (for the years stated for each example in the text or tables).

The following methodology and assumptions underlie the Department's burden estimates:

  • The size of a labor organization, as measured by the amount of its annual receipts, will affect the burden on reporting labor organizations. Larger labor organizations have more receipts and disbursements to itemize and more employees who have to estimate their time allocation. Three tiers, based on annual receipts, have been constructed to differentiate the burdens among Form LM-2 filers.
  • A labor organization's use of computer technology, or not, to maintain its financial accounts and prepare annual financial reports under the current rule, will affect the burden on reporting labor organizations. Although few Form LM-2 filers do not have computers, the larger the labor organization the greater likelihood that it will be using a specialized accounting program instead of commercial-off-the-shelf accounting software.
  • Relative burden will correspond to the following predictable stages: review of the rule, instructions, and forms; adjustments to accounting software and computer hardware; installation, testing, and review of the Department's reporting software; changing accounting structures and developing, testing, reviewing, and documenting accounting software queries as well as designing query reports; training officers and employees involved in bookkeeping and accounting functions; training officers and employees to maintain information relating to transactions and estimating the amount of time they expend in prescribed categories; the actual recordkeeping of data under the revised procedures associated with itemizing receipts and disbursements and allocating them by functional categories; preparing a download methodology to either submit electronic reports using “cut and paste” methods or the import/ export technology allowing for a more automated transfer of data to the Department; the development, testing, and review of any translator software that may be required between a labor organization's accounting software and the Department's reporting software; and completing a continuing hardship exemption request if necessary.
  • Burden can be categorized as recurring or non-recurring, with the latter primarily associated with the initial implementation stages. Recordkeeping burden, as distinct from reporting burden, will predominate during the first months of implementation.
  • Burden can be usefully reported as an overall total for all filers in terms of hours and cost. This burden, for most purposes, can be differentiated for each individual form. The Federal burden cannot be reasonably estimated by form.
  • The estimated burden associated with the current Form LM-2 and Form LM-3 is the appropriate baseline for estimating the burden and cost associated with the final rule.

F. Baseline Adjustments: Current Form LM-2

Prior to the 2003 revision, the Department assumed that 5,038 local labor organizations would take 200 hours and 141 national and international labor organizations would take 1,500 hours to collect and report their information on the current Form LM-2 for a weighted average of approximately 240.0 hours for each of the 5,179 respondents. In addition, the Department assumed at that time that Form LM-2 filers would take an average 24.0 hours for accounting, 16.0 hours for programming, 8.0 hours for legal review, and 4.0 hours for consulting assistance to complete the current form for an average total burden of 292.0 hours per respondent. Further, the Department previously estimated that 160.0 hours of the total is for recordkeeping burden and 132.0 hours is for reporting burden. In 2003, the Department estimated that on average, labor organizations would spend 536.0 hours to comply with the recordkeeping and reporting requirements.

In 2003 the Department estimated that the average annual cost of complying with the current Form LM-2 recordkeeping and reporting requirements per respondent would be $24,271. The total annual cost for all respondents (based on the more recent estimate of 4,452 reporting labor organizations rather than the 5,038 estimate used in 2003) is estimated to be $116.0 million for the current Form LM-2.

G. Hours To Complete and File Form LM-2: Recurring and Nonrecurring Reporting and Recordkeeping

To estimate the burden hours and costs for revisions to Form LM-2, the Department, as it did in connection with the 2003 rule, divided the Form LM-2 filers into three groups or tiers, based on the amount of the labor organizations' annual receipts. As discussed, in 2006 there were 4,571 such filers. In Tier I, the Department estimates there are 1,325 labor organizations with annual receipts from $250,000 to $499,999.99. The Department assumes that labor organizations within this tier probably use some type of commercial off-the-shelf accounting software program and will most likely use the “cut and paste” feature of the reporting software (see Table 3). In Tier II, the Department estimates there are 3,194 labor organizations with annual receipts from $500,000 to $49.9 million. The Department assumes that labor organizations within this tier most likely use some type of commercial off-the-shelf accounting software program and will use all of the electronic filing features of the reporting software. Id. Finally, in Tier III, the Department estimates there are 52 labor organizations with annual receipts of $50.0 million or more. Id. The Department assumes that labor organizations within this tier most likely will use some type of specialized accounting software program and also will use all of the electronic filing features of the reporting software.

For each of the three tiers, the Department estimated burden hours for the additional nonrecurring (first year) recordkeeping and reporting requirements, the additional recurring recordkeeping and reporting burden hours, and a three-year annual average for the additional nonrecurring and recurring burden hours associated with the final rule.

The final rule will revise Form LM-2 to improve financial disclosure and clarity within categories of receipts and disbursements. Under the final rule, receipts will have to be disclosed in the same manner that disbursements are currently disclosed and certain disbursements (e.g., benefit payments, travel reimbursements, and transactions involving investment and fixed assets) will be reported in greater detail. To accomplish this result, additional schedules will be required, which will add to the burden associated with each Form LM-2 filed.

For this analysis the Department has used an approach that largely replicates the approach used in 2003, i.e., estimating the burden and costs by the size of labor organizations as measured by the amount of their annual receipts. However, the current approach differs somewhat from the 2003 approach. Since the basic information required on the new and revised schedules is already needed to complete the current Form LM-2, the Department assumes that most of the burden associated with the changes will occur in the first year due to needed changes to the accounting software and staff training. Like it did in 2003, the Department has estimated burden hours and costs for the additional nonrecurring (first year) recordkeeping and reporting requirements, the additional recurring recordkeeping and reporting burden hours, and a three-year annual average for the additional nonrecurring and recurring burden hours. As in 2003, the Department assumes that Tier I and Tier II labor organizations use commercial off-the-self accounting packages and Tier III labor organizations use customized accounting software.

1. Hours to Complete Schedules 3 and 4

For revised Schedules 3 and 4 (Sale of Investments and Fixed Assets and Purchase of Investments and Fixed Assets), the Department estimates that labor organizations will spend, on average, an additional, nonrecurring 10.38 hours per schedule to change their accounting structures; develop, test, review, and document accounting software queries; design query reports; and train accounting personnel. See Table 2 below. This estimated burden is derived from the 2003 Form LM-2 PRA estimate for the first year nonrecurring burden associated with Schedule 17 (Contributions, Gifts, and Grants). The changes to that schedule under the 2003 rule (the addition of date, name and address of payer or payee) are the same changes that are included for Schedules 3 and 4 in this final rule. In 2003, the Department determined that in order to provide this information it would take Tier I and II labor organizations 5.3 hours to change their accounting systems and Tier III labor organizations 13.3 hours. Again, as in 2003, the Department estimates that it will take Tier I, II and III labor organizations 1 hour to design the report, 1 hour to develop a query, .75 hours to test the query, .5 hours for management review, .75 hours to document the query process, and .25 hours to train staff. The Department estimates that Tier II and III labor organizations will spend an additional hour preparing download methodology. The average burden was computed by taking the burden in each tier and weighting it by the number of unions in each tier.

To record the date of the transaction and address of the payee on Schedule 4, the Department estimates, using a weighted average based on the number of labor organizations within each tier, that labor organizations will spend an additional (recurring) .03 hours on recordkeeping burden and .48 hours on reporting. To record the date of the transaction and address of the payer on Schedule 3, the Department estimates, using a weighted average based on the number of labor organizations within each tier, that labor organizations will spend and an additional (recurring) .01 hours on recordkeeping burden, and .49 hours on reporting burden. Based on extensive public comment and analysis, the Department in 2003 made the following underlying assumptions in determining its final burden numbers. First, that it would take the average Form LM-2 filer approximately .05 hours of additional recordkeeping time per receipt/disbursement to record the name and address of the payer/payee. Second, Tier I labor organizations would incur an additional recordkeeping burden from training (.25 hours) and preparing the report (.33 hours) to record the name and address of the payer/payee. Third, that approximately one-half of the Tier II labor organizations already kept these records, and all Tier III labor organizations kept these records. Therefore, all Tier I labor organizations would be subject to the additional recordkeeping burden, and one-half the Tier II labor organizations would be subject to the additional recordkeeping burden. The Department has adopted these underlying assumptions for its current analysis.

The number of receipts and disbursements on Schedules 3 and 4 for 2006 was compiled from the e.LORS database, which showed that Tier I labor organizations report, on average, less than 1 receipt in Schedule 3 and slightly more than 1 disbursement in Schedule 4. On average, Tier II labor organizations report 1.5 receipts in Schedule 3 and less than 3.4 disbursements in Schedule 4. Therefore, the additional recordkeeping burden for Tier I and Tier II filers is .06 hours and .13 hours respectively (average number of disbursements/receipts per tier on Schedules 3 and 4 times .05 hours; then divided by two for the Tier II estimate). [29] It should be noted that the newly adopted exception for purchases and sales over a registered market exchange will further reduce the recordkeeping and reporting burden on these schedules.

Based on the same assumptions underlying the Department's 2006 estimates, the Department assumes that 75% of Tier I filers will use the cut and paste method to enter their data on the Form LM-2 (.08 hour burden per schedule) and 25% will manually enter the data on the Form LM-2 (.016 hour burden per disbursement or receipt) and that all Tier II and III filers will import or attach their data to the Form LM-2 for an additional reporting burden of .42 hours per schedule. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

2. Hours to Complete Schedules 11 and 12

For revised Schedules 11 (All Officers and Disbursements to Officers) and 12 (Disbursements to Employees), the Department estimates that labor organizations will spend, on average, 10.38 hours to change their accounting structures; develop, test, review, and document accounting software queries; design query reports; and train accounting personnel. As explained below, this estimated burden was reached by analyzing the 2003 burden estimates from the Form LM-2 final rule for Schedules 11 and 17 and applying that data to the Form LM-2 officer and employee entries on Form LM-2 reports filed with the Department in 2007. As in 2003, the Department assumes that the time required to add a column to one schedule is the same for any schedule. To download the relevant information from their records, programmers will only have to designate an appropriate location on their electronic filing system for collecting and reporting this information. Therefore, each labor organization would require, on average, approximately 5.2 hours to add the benefits column to Schedules 11 and 12 (one-half the time required to add two columns to Schedules 3 and 4). The Department has applied the same nonrecurring burden to the Disbursements for Official Business revision as to the benefits revision, 5.2 hours. [30] The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

As explained below, the Department estimates that, on average, labor organizations will take an additional (recurring) hour on recordkeeping burden and half an hour on reporting burden to enter the amount officers receive in benefits on Schedule 11 and track the indirect disbursements for temporary lodging or transportation. Again, these estimates are calculated using the recurring burden estimates from 2003 for Schedules 11 and 17. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

The changes to Schedule 11 involve individual columns, not entire schedules. Nevertheless, the Department has assumed that labor organizations will expend about the same amount of time keeping records and entering data required by the new columns on Schedule 11 (using the same methodology, as discussed above, for Schedules 3 and 4). To report the additional information required by the new schedule, labor organizations will have to report the amount each of its officers receives in benefits from the labor organization. The labor organization must keep records of the benefits each officer receives, like an itemized schedule, then aggregate the payments and report the aggregate amount next to the officer's name. Although the individual disbursements of $5,000 or more need not be entered on the Form LM-2, the labor organization must track all the disbursements for benefits so that a final lump sum total can be entered for each officer on Schedule 11. Currently, labor organizations are required to keep records of all benefits they provide to officers on the IRS Form 990. Therefore, there is no recurring recordkeeping burden associated with the new benefits column.

The Department assumes that Tier III labor organizations are already tracking the data required to report travel and lodging on Schedule 11. After weighting the averages based on the number of labor organizations in the two remaining tiers, the Department concludes that labor organizations in Tier I and Tier II will spend one hour a year tracking indirect disbursements for temporary lodging or transportation as a result of the following analysis. In 2007, 46% of Tier I officers, or approximately 4.53 officers per labor organization, reported $1,800 in disbursements for official business; 55% of Tier II officers, approximately or 7.27 officers per labor organization, reported $3,768 in disbursements for official business; and 84% of Tier III officers, or approximately 46.43 officers per labor organization, reported $9,354 in disbursements for official business. Based on institutional experience, the Department assumes that the average trip or hotel will cost $600. Dividing the average reported disbursements for official travel by $600 provides a reasonable estimate of the number of indirect disbursement for official travel or lodging. Therefore, on average, each Tier I labor organization will have 4.53 officers who receive slightly more than 3 indirect disbursements for travel or lodging and each Tier II labor organization will have 7.27 officers who receive approximately 6.28 indirect disbursements for travel or lodging. The Department again assumes that Tier I labor organizations will spend 3 minutes on recordkeeping per disbursement, half of the tier II labor organizations will spend 3 minutes on recordkeeping per disbursement.

There is a slight recurring reporting burden, on average, of .50 hours. The Department assumes that 75% of Tier I filers would use the cut and paste method to enter their data on the Form LM-2 (.08 hour burden per column entering data, .25 hours on training, .33 hours preparing the report), and 25% would manually enter the data on the Form LM-2 (.016 hour burden per officer, .25 hours on training, .33 hours preparing the report). Tier II and III filers will import or attach their data to the Form LM-2 for an additional reporting burden of .42 hours. Indirect disbursements for travel and lodging will be included in the aggregate reported in “Disbursements for Official Business.” Therefore, there is no new recurring reporting burden for indirect disbursements for temporary lodging or transportation. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

Compared to revised Schedule 11, the Department estimates that, on average, labor organizations in Tiers I and II will spend slightly more time on revised Schedule 12, and that labor organizations in Tier III already keep records of benefits and indirect disbursements. Labor organizations in Tiers I and II, on average, will spend an additional (recurring) 1.91 hours of recordkeeping burden and .49 hours of reporting burden to track and enter the amount employees receive in benefits on Schedule 12 and track the indirect disbursements for temporary lodging or transportation. Unlike benefits to officers (which are reported on Schedule 11), labor organizations do not have to track benefits paid to employees for the IRS Form 990 unless those employees are “key employees.” Further, labor organizations have not had to track by individual employee the indirect disbursements to employees for lodging or travel under the current Form LM-2.

There is no way to determine the amount or number of benefits or indirect disbursement for lodging or travel being paid to employees from the current Form LM-2. To estimate the additional burden associated with these tasks, the Department assumes that labor organizations will expend the same amount of time keeping records of benefits and indirect disbursements for lodging or travel for data entry on Schedule 12 as they do on Schedules 3 and 4. The Department assumes that labor organizations already keep some records of benefits paid to employees and indirect disbursements for lodging and travel. However, it is unlikely that these benefits or disbursements appear next to the name of the person who received them. Therefore, like Schedules 3 and 4, the labor organizations will now have to track the name of the person to whom (or on whose behalf) the disbursement is made. As on Schedule 3 and 4, the Department assumes that Tier I labor organizations will spend 3 minutes (.05 hours) on keeping records per disbursement, one half of the Tier II labor organizations will already keep data on benefits and indirect disbursements for lodging or travel made to employees, but the other one half will spend approximately 3 minutes (.05 hours) per disbursement, and Tier III labor organizations already keep records of benefits and indirect disbursements.

The Department assumes that each employee will receive, on average, one reportable benefit. If each employee receives one reportable benefit, then Tier I labor organizations will spend approximately 3 minutes (.05 hours) per employee keeping records of benefits paid employees. On average, Tier I labor organizations have 2.79 employees listed on their Form LM-2 and Tier II labor organizations have 10.24 employees listed on their Form LM-2. Therefore, on average, labor organizations will spend .02 hours keeping records on benefits to employees each year.

Like Schedule 11, the Department calculated the schedule 12 indirect disbursements for travel and lodging recordkeeping burden using the aggregate currently reported in disbursements for official business. In 2007, 35% of Tier I employees, or approximately 1 employee per labor organization, reported $2,550.78 in disbursements for official business; 59% of Tier II employees, or approximately 6 employees per labor organization, reported $5,049.82 in disbursements for official business; and 74% of Tier III employees, or approximately 240.67 employees per labor organization, reported $9,022 in disbursements for official business. The Department assumes that the average trip or hotel will cost $600. Dividing the average reported disbursements for official travel by $600 provides a reasonable estimate of the number of indirect disbursement for official travel or lodging. Therefore, on average, each Tier I labor organization will have 1 employee who receives 4.25 indirect disbursements for travel or lodging and each Tier II labor organization will have 6 employees who receive approximately 8.42 indirect disbursements for travel or lodging. The Department again assumes that Tier I labor organizations will spend 3 minutes on recordkeeping per disbursement, half of the Tier II labor organizations will spend 3 minutes on recordkeeping per disbursement, and Tier III labor organizations will already track the data. Therefore, on average, labor organizations in Tier I and Tier II will spend 1.89 hours keeping records on indirect disbursements for travel and lodging to employees each year.

Labor organizations will spend an additional 1.91 hours keeping records of employee benefits and indirect disbursements to employees for lodging or travel. Like Schedules 3 and 4, the Department assumes it will take Tier I labor organizations .05 hours for recordkeeping burden per transaction to keep the new data. The Department, however, also assumes that one-half the Tier II labor organizations currently keep the records, and all the Tier III labor organizations keep the records. Additionally, the Department assumes that labor organizations will use the same method for reporting benefits as they use throughout the Form LM-2. Therefore, the Department estimates that labor organizations will spend an additional .49 hours per year reporting benefits on the Form LM-2. There is no additional reporting cost associated with the removal of the exemption for indirect disbursements to employees for lodging or travel. This information is now reported in Schedules 15 through 20, as appropriate, so only the reporting location on the form is changed. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

3. Hours To Complete Schedule 14

On average, labor organizations will spend 10.38 hours in the first year changing the accounting structure; developing, testing, reviewing, and documenting accounting software queries; designing query reports; and training accounting personnel. As in 2003, the Department estimates that it will take Tier I and Tier II labor organizations 5.3 hours to change their accounting structures and 13.3 hours for Tier III labor organizations to change their accounting structures. Additionally, the Department estimates that each labor organization will spend approximately 4.95 hours setting up the reporting system. The smallest Form LM-2 filers, Tier I, will spend approximately 4.25 hours setting up their reporting schedules (1 hour to design report, 1 hour to develop query, .75 hours to test query, .5 hours for management review, .75 hours for document query process, and .25 hours to train new staff). The Tier II and III labor organizations will spend an additional hour setting up their systems as their systems are more complicated and will require a greater number of entries.

To reduce the overall recordkeeping and reporting burden, the Department amended the itemization rules for Schedule 14. The labor organization will never have to itemize dues and agency fees received directly from members; dues and agency fees received directly from an employer are reported as yearly totals.

Unlike the NPRM which used Schedule 14 data to estimate the number of itemized receipts on Schedule 14, this final rule used Federal Mediation and Conciliation Service (“FMCS”) data to estimate the number of dues and agency fees itemized on Schedule 14. To estimate the number of union employers, the Department relied on FMCS's Form F-7, which must be filed by a labor organization or employer with the FMCS thirty days after notification to the other party of the intent to terminate or modify a collective bargaining agreement. Typically, collective bargaining agreements are renegotiated every 3 years. Therefore, the Department can reasonably estimate the number of employers employing employees in bargaining units represented by labor organizations by determining the number of Form F-7s filed between 2004 and 2006, 54,884. [31] In 2006, the Department received 4,571 Form LM-2s out of 23,924 labor organization filings. The Department assumes that smaller labor organizations, those that do not file the LM-2, represent the employees of one employer. That leaves 30,960 (54,884 − 23,924) union employers who have collective bargaining agreements with LM-2 filers. Therefore, on average, each LM-2 filer receives dues from 6.77 employers.

In 2003 the Department made the underlying assumption that labor organizations will spend 3 minutes (.05 hours) on recordkeeping per disbursement or receipt. Further, the Department assumed that all the largest labor organizations, Tier III, and 10% of the Tier II labor organizations will already keep this data. The Department has adopted the above underlying assumptions in its current analysis. If it takes 3 minutes of recordkeeping per receipt or disbursement, then the average labor organization will spend .31 hours on recordkeeping each year. Further, as in 2003, the Department assumes that Tier I filers will spend .25 hours on training, .33 hours preparing the report and 1 minute (.02 hours) to manually enter each disbursement or receipt on the report and Tier II and III filers will spend 25 minutes (.42 hours) per schedule to cut and paste or import their data onto the Form LM-2. Therefore, the Department estimates the reporting burden per schedule to be .50 hours. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

4. Hours To Complete Schedule 15

On average, labor organizations will spend 10.38 hours in the first year changing the accounting structure; developing, testing, reviewing, and documenting accounting software queries; designing query reports; and training accounting personnel. As in 2003, the Department estimates that it will take Tier I and Tier II labor organizations 5.3 hours to change their accounting structures and 13.3 hours for Tier III labor organizations to change their accounting structures. Additionally, the Department estimates that each labor organization will spend approximately 4.95 hours setting up the reporting system. The smallest Form LM-2 filers, Tier I, will spend approximately 4.25 hours setting up their reporting schedules (1 hour to design report, 1 hour to develop query, .75 hours to test query, .5 hours for management review, .75 hours for document query process, and .25 hours to train new staff). The Tier II and III labor organizations will spend an additional hour setting up their systems as their systems are more complicated and will require a greater number of entries.

To reduce the overall recordkeeping and reporting burden, the Department amended the itemization rules for Schedule 15. The labor organization will never have to itemize per capita taxes received direct from members and per capita taxes received directly from an affiliate are reported as yearly totals.

Unlike the NPRM, which used Schedule 14 data to estimate the number of itemized receipts on Schedule 15, this final rule used e.LORS data to estimate the number of per capita taxes itemized on Schedule 15. To determine the per capita tax recordkeeping burden the Department estimated the number of affiliates per LM-2. In 2006, 12,025 LM-3s were filed with OLMS, and of these 11,168 were designated locals. Labor organizations need only itemize per capita taxes from affiliates that exceed $5,000. Therefore, the Department limited its LM-4 search to those that had $5,000 or more in disbursements. OLMS received 1,332 LM-4s in 2006 from labor organizations that had greater than $5,000 in disbursements. Additionally, 1,325 Tier I LM-2 filers indicated that they were locals; 2,702 Tier II LM-2 filers indicated that they were locals; and 15 Tier III LM-2 filers indicated that they were locals. In sum, there were 16,592 local labor organizations and 650 intermediate and international LM-2 filers. Tier I has 121 intermediate and international LM-2 filers, Tier II has 492 intermediate and international LM-2 filers, and Tier III has 37 intermediate and international LM-2 filers. Without more precise data, the Department assumed that all intermediate and international LM-2 filers had the same number of affiliates, 25.53 itemized per capita taxes.

In 2003, the Department made the underlying assumption that labor organizations will spend 3 minutes (.05 hours) on recordkeeping per disbursement or receipt. Further, the Department assumed that all the largest labor organizations, Tier III, and 10% of the Tier II labor organizations will already keep this data. The Department has adopted the above underlying assumptions in its current analysis. If it takes 3 minutes of recordkeeping per receipt or disbursement, then the average labor organization will spend .16 hours on recordkeeping each year. Further, as in 2003, the Department assumes that Tier I filers will spend .25 hours on training, .33 hours preparing the report and 1 minute (.02 hours) to manually enter each disbursement or receipt on the report and Tier II and III filers will spend 25 minutes (.42 hours) per schedule to cut and paste or import their data onto the Form LM-2. Therefore, the Department estimates the reporting burden per schedule to be .48 hours. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

5. Hours To Complete Schedules 16 Through 22

For revised Schedules 16 through 22, the Department estimates that labor organizations will spend, on average, 10.38 hours per schedule to change their accounting structures; develop, test, review, and document accounting software queries; design query reports; and train accounting personnel. This burden estimate is based largely on the 2003 burden estimates for Schedule 14. As in 2003, the Department estimates that it will take Tier I and Tier II labor organizations 5.3 hours to change their accounting structures, and 13.3 hours for Tier III labor organizations to change their accounting structures. Additionally, the Department estimates that each labor organization will spend approximately 4.95 hours setting up the reporting system. The smallest Form LM-2 filers, Tier I, will spend approximately 4.25 hours setting up their reporting schedules (1 hour to design report, 1 hour to develop query, .75 hours to test query, .5 hours for management review, .75 hours for document query process, and .25 hours to train new staff). The Tier II and Tier III labor organizations will spend an additional hour setting up their systems, as their systems are more complicated and will require a greater number of entries.

Unlike the NPRM, the burden estimate in this final rule used the aggregates reported on Statement B items 38 through 42 and 46 through 47 to estimate the number of itemized receipts reported on the new schedules 16 through 22. The aggregates reported in each item were divided by $5,000 to estimate the number of itemized receipts. For example, in 2006, on average, Tier I LM-2 filers report that they received $5,684.98 in interest. When the aggregate is divided by $5,000, we reach 1.14 itemized disbursements. These findings are summarized on Table 1.

Table 1—LM-2 Receipt Itemization Summary Back to Top
Schedule Tier I Tier II Tier III
Fees, Fines, Assessments, Work Permits 4.72 39.44 235.64
Sale of Supplies 0.08 0.50 22.70
Interest 1.14 10.05 685.52
Dividends 0.22 2.88 146.74
Rents 0.56 4.86 272.42
On Behalf of Affiliates for Transmittal to Them 0.74 37.60 3,017.36
From Members for Disbursement on Their Behalf 1.02 9.35 644.38

In 2003, the Department made the underlying assumption that labor organizations will spend 3 minutes (.05 hours) on recordkeeping per disbursement or receipt. Further, the Department assumed that all the largest labor organizations, Tier III, and 10% of the Tier II labor organizations will already keep this data. The Department has adopted the above underlying assumptions in its current analysis. Further, as in 2003, the Department assumes that Tier I filers will spend .25 hours on training, .33 hours preparing the report and 1 minute (.02 hours) to manually enter each disbursement or receipt on the report and Tier II and III filers will spend 25 minutes (.42 hours) per schedule to cut and paste or import their data onto the Form LM-2. The burden estimates for Schedules 16 through 22 are summarized on Table 3. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

6. Hours to Review Instructions

Finally, the Department estimates that labor organizations will spend, on average, an additional, recurring 2.0 hours reviewing the revised Form LM-2 and instructions. In 2003, the Department estimated that, on average, labor organizations would spend 4.0 hours reviewing the current Form LM-2 and instructions. The 2003 instructions were 44 pages and the new instructions are 52 pages. The changes to the LM-2 have added only 6 pages. The Department views as sufficient an additional 2.0 hours for review of the instructions.

7. Subsequent Yearly Burden

Given the current widespread use of automated accounting packages and labor organizations' experience with the electronic filing, the Department is not making the assumption (that was made in 2003) that over time the recurring burden would be reduced due to efficiency gains as the accounting staff became familiar with the software. Rather, the Department assumes that the second and third year burden will be equal to the recurring first year burden.

8. Compensation Cost

The Department assumes that, on average, the completion by a labor organization of Form LM-2 will involve an accountant/auditor, computer software engineer, bookkeeper/clerk, labor organization president and labor organization treasurer. Based on the 2007 BLS wage data, accountants earn $30.37 per hour, computer engineers earn $41.18 per hour, and bookkeepers/clerks earn $15.76 per hour. [32] BLS estimates that the cost of an employee's total compensation is approximately 30.2% higher than the employee's wages alone. Therefore, in order to account for total compensation, the Department adjusted each of the BLS salaries upward to include the additional 30.2% attributed to benefit to estimate the total compensation cost for each of the individuals involved in completing the Form LM-2.

To estimate the average annual salaries of labor organization officers needed to complete tasks for compliance with this rule—the president and treasurer—the Department drew a proportionate stratified sample from the 4,571 LM-2 filers. A proportionate stratified sample ensured that neither large nor small labor organizations were over-represented in the sample and permitted the final cost figures to be reported without regard to “tier” or size, as was done with the NPRM.

The Department first calculated the appropriate sample size. Consistent with commonly accepted statistical practices, the Department determined that a level of precision or sample error of 6%, a confidence interval of 90%, and a degree of variability of 50% (maximum variability) was acceptable for the Form LM-2 final burden analysis. The sample size of 180 LM-2 filers was then increased by 20% to 217, in order to ensure an appropriate sample size was maintained throughout the analysis.

The population was arranged into three strata based on annual receipts:

  • Strata I ($250,000—$499,999 receipts): 1,325 Form LM-2 filers
  • Strata II ($500,000—$6.5 mil receipts): 2,895 Form LM-2 filers
  • Strata III ($6.5 mil and higher receipts): 351 Form LM-2 filers

The proportion of each strata to the population was then determined:

  • Strata I ($250,000—$499,999 receipts): 28.99%
  • Strata II ($500,000—$6.5 mil receipts): 63.33%
  • Strata III ($6.5 mil and higher receipts): 7.68%

Finally, the sample size from each strata was drawn proportionately to its representation in the population:

  • Strata I ($250,000—$499,999 receipts): 217 × 28.99% = 63
  • Strata II ($500,000—$6.5 mil receipts): 217 × 63.33% = 137
  • Strata III ($6.5 mil and higher receipts): 217 × 7.68% = 17

These average annual salary figures were then adjusted to include the additional 30.2% attributed to benefits to reflect total compensation cost for each officer, which the Department calculated as $35.15 per hour for labor organization president and $30.71 per hour for labor organization treasurer.

Table 3—Compensation Cost Table Back to Top
Title Salary hourly Salary—yearly Compensation—cost—hourly
Accountants/Auditors $30.37 $63,180.00 $43.51
Computer software engineers, applications 41.18 85,660.00 59.00
Bookkeepers/Clerks 15.76 32,780.00 22.58
President 24.53 51,027.10 35.15
Treasurer 21.44 44,592.89 30.71
Weighted Average 32.28

The Department estimated the percentage of time the accountant, computer software engineer, bookkeeper, president, and treasurer would spend completing the LM-2. These percentages were used to calculate a weighted average compensation cost, $32.28.

9. Conclusion

The Department estimates the additional weighted average reporting and recordkeeping burden for the revised Form LM-2 to be 150.06 hours per respondent in the first year (including nonrecurring implementation costs) and 15.06 hours per respondent in the second and third years. See Table 3 below. The Department estimates the total additional annual burden hours for respondents for the revised Form LM-2 to be 685,924 hours in the first year and 68,847 hours in the second and third years.

The Department estimates the additional weighted average annual cost for the revised Form LM-2 to be $4,844 ($32.28 (weighted average cost per hour) × 150.06 (additional hours to complete the changes to Form LM-2 in first year) = $4,844) per respondent in the first year (including nonrecurring implementation costs) and $486 ($32.28 (weighted average cost per hour) × 15.06 (additional hours to complete the changes to Form LM-2 in second and third year) = $486) per respondent in the second year and third year. The Department also estimates the total additional annual cost to respondents for the revised Form LM-2 to be $22.14 million ($32.28 × 685,924 (total hours to complete changes to Form LM-2 in first year) = $22.14 million) in the first year and $2.22 million ($32.28 × 68,847 (total hours to complete changes to Form LM-2 in second and third year) = $2.22 million) in the second and third years.

The Department's estimates of the additional burden and costs associated with the revisions to the Form LM-2 are presented in Table 3. This table only presents the increases associated with the changes to the form. Neither the burden or costs associated with the current Form LM-2 nor the revocation of the privilege of some labor organizations to file the Form LM-3 is included in these estimates.

H. Form LM-3 Revocation Procedures Burden Estimates

The Department has established a procedure for revoking the simplified reports filing privilege, provided by 29 CFR 403.4(a)(1), for labor organizations that are delinquent in their Form LM-3 filing obligation, have failed to timely file an amended form after notification that the report is materially deficient, or those for which the Department otherwise finds that the purposes of section 208 of the LMRDA, 29 U.S.C. 438, would be served by such revocation. The Department's ultimate goal in revoking the filing privilege for such labor organizations is to promote greater financial transparency. As discussed above, the revised paperwork requirements are necessary to effectuate the purposes of the LMRDA by providing members of labor organizations with information about their labor organizations that will enable them to be responsible, informed, and effective participants in the governance of their labor organizations; discourage embezzlement and financial mismanagement; prevent the circumvention or evasion of the statutory reporting requirements; and strengthen the effective and efficient enforcement of the LMRDA by the Department. The manner in which the collected information will serve these purposes is discussed throughout the preamble to this final rule.

Rather than using a general burden reduction, the Department estimated the LM-3 revocation burden using the underlying assumptions in this rule and the 2003 LM-2 final rule. The number of receipts, disbursements, and officers was determined using a proportionate random sample of 2006 LM-3 data found on the e.LORS database. The distribution of receipts and disbursements was based on 2006 Tier I LM-2 filers.

The Department's proposal has sought to minimize the burden on the reporting labor organization by permitting it to submit the report manually. Upon its receipt of manual reports, the Department will enter the information electronically so that members of labor organizations, the public, and the Department's investigators will be able to access and fully search these reports through the OLMS Online Public Disclosure Room.

For the analysis below, recordkeeping burden is the amount of time the LM-3 filer will spend going through its records to identify the information needed to complete the LM-2. Reporting burden is the amount of time the LM-3 filer will spend transcribing the information onto the LM-2.

1. Review LM-2 Form and Instructions

The Department determined that LM-3 filers who have had their filing privilege revoked will spend 8.32 hours reviewing the Form LM-2 and instructions, which allows an LM-3 filer approximately .16 hours to review each page.

2. LM-2 Page 1 Burden Hours

There is no recordkeeping burden associated with the first page of the LM-2. The first page of the LM-2 reports the same information provided on the first page of the LM-3. The LM-3 filer need only copy the contents of the first page of its LM-3 onto the first page of its LM-2. This copying should take approximately 3 minutes per item. There are 16 items on the first page. Therefore, the reporting burden is estimated at .80 hours.

3. LM-2 Page 2 Burden Hours

The Department estimates that LM-3 filers will expend .33 hours on recordkeeping and .60 hours on reporting to complete the second page of the LM-2. The second page of the LM-3 asks 6 yes/no questions found on the second page of the LM-2 and includes the same 4 fillable items found on the LM-2. There is no additional recordkeeping burden associated with the 6 repeat questions or the 4 fillable items. However, two questions found on the LM-2 are not repeated on the LM-3. The LM-3 filer will spend .33 hours answering these questions. Once the LM-2 specific questions are answered, the LM-3 filer need only copy the information found on its LM-3 onto the LM-2. The Department estimates that LM-3 filers will spend 3 minutes per item copying the information from the LM-3 onto the LM-2 and answering the two additional questions.

4. LM-2 Itemization Schedules

It should be noted that LM-3 filers should already have the information necessary to itemize the receipts, disbursements, assets, and liabilities for the LM-2. The LMRDA requires labor organization to maintain records “on matters required to be reported which will provide in sufficient detail the necessary basic information and data from which the documents filed with the Secretary may be verified, explained or clarified, and checked for accuracy and completeness, and shall include vouchers, worksheets, receipts, and applicable resolutions, and shall keep records available for examination for a period of not less than five years.” 29 U.S.C. 436. However, it is unlikely that LM-3 filers keep the information in the detail or format necessary to complete the LM-2. Therefore, the Department has accounted for this detail and formatting change by adding a recordkeeping burden to itemized receipts, disbursements, assets, and liabilities.

In order to improve the LM-3 revocation burden estimates employed in the NPRM, the Department sampled a randomly selected subset of the 10,977 Form LM-3 filers in 2006. The Department first calculated the appropriate sample size. Consistent with commonly accepted statistical practices, the Department determined that a level of precision or sample error of 6%, a confidence interval of 90%, and a degree of variability of 50% (maximum variability) was acceptable for the Form LM-3 revocation final burden analysis. The sample size of 185 LM-3 filers was then increased by 20% to 222, in order to ensure an appropriate sample size was maintained throughout the analysis.

To improve estimates of means, the Department used a proportionate stratified sample, which ensured that neither large nor small labor organizations were over-represented in the sample and permitted the final cost figures to be reported without regard to “tier” or size, as was done with the NPRM. The population was arranged into three strata based on annual receipts:

  • Strata I ($10,000-$49,999 receipts): 5,868 Form LM-3 filers
  • Strata II ($50,000-$149,999 receipts): 3,782 Form LM-3 filers
  • Strata III ($150,000-$249,999 receipts): 1,327 Form LM-3 filers

The proportion of each strata to the population was then determined:

  • Strata I ($10,000-$49,999 receipts): 53.46%
  • Strata II ($50,000-$149,999 mil receipts): 34.45%
  • Strata III ($150,000-$249,999 receipts): 12.09%

Finally, the sample size from each strata was drawn proportionately to its representation in the population:

  • Strata I ($10,000-$49,999 receipts): 222 × 53.46% = 119
  • Strata II ($50,000-$149,999 mil receipts): 222 × 34.45% = 76
  • Strata III ($150,000-$249,999 receipts): 222 × 12.09% = 27

This sample indicated that the average 2006 LM-3 filer reports $68,585 in annual receipts, $67,459 in annual disbursements, $69,673 in assets, and $1,901 in liabilities. The Department divided the annual receipts, disbursements, assets, and liabilities by $5,000 to estimate the maximum number of itemized transactions, and based on this calculation has concluded that LM-3 filers will likely have13.71 itemized receipts, 13.49 itemized disbursements, 13.93 itemized assets, and .38 itemized liabilities reported on the LM-2.

The Department used Tier I LM-2 data to determine in which schedules these receipts, disbursements, assets, and liabilities would be reported. The Department assumes that the distribution of LM-3 itemized receipts, disbursements, assets and liabilities is similar to the distribution found in LM-2s of labor organizations with between $250,000 and $500,000 in receipts. For example, the Department found that 6.51% ($31,326,557/$481,289,983 = .0651 or 6.51%) of total receipts are attributed to fees, fines, assessments, etc. These findings are summarized on Tables 5 through 8.

Table 5—Itemized Receipt Distribution Back to Top
Receipt functional category Receipts Percentage of all receipts
Dues and Agency Fees $356,476,010.00 74.07
Per Capita Tax 22,574,114.00 4.69
Other Fees 31,326,557.00 6.51
Sales of Supplies 541,767.00 0.11
Interest 7,602,504.00 1.58
Dividends 1,495,909.00 0.31
Rents 3,781,903.00 0.79
On Behalf of Affiliates 4,912,381.00 1.02
From Members 6,877,831.00 1.43
Loan Repayments 518,391.00 0.11
Loans Obtained 1,307,960.00 0.27
Sales of Investments and Assets 7,402,058.00 1.54
Other Receipts 36,472,598.00 7.58
Total Receipts 481,289,983.00 100.00
Table 6—Itemized Disbursement Distribution Back to Top
Disbursement functional category Disbursements Percentage of all disbursements
Representational Activities $106,498,651.00 22.30
Political Activities Lobbying 8,034,914.00 1.68
Contributions, Gifts, Grants 8,655,415.00 1.81
General Overhead 76,126,990.00 15.94
Union Administration 85,108,151.00 17.82
Benefits 37,836,304.00 7.92
Per Capita Tax 102,038,579.00 21.36
Strike Benefits 3,545,000.00 0.74
Fees, Fines, Assessments, etc. 4,203,835.00 0.88
Office Administrative Expense 71,976.00 0.02
Professional Fees 1,075.00 0.00
Supplies for Resale 749,492.00 0.16
Purchase of Investments Fixed Assets 14,954,159.00 3.13
Loans Made 326,659.00 0.07
Repayment of Loans Obtained 1,443,492.00 0.30
To Affiliates of Funds Collected on Their Behalf 6,957,774.00 1.46
On Behalf of Individual Members 6,556,628.00 1.37
Direct Tax 14,515,926.00 3.04
Total Disbursements 477,625,020.00 100.00
Table 7—Itemized Asset Distribution Back to Top
Asset functional category Assets Percentage of all assets
Cash $218,193.74 57.55
Investments 235,122.64 14.25
Treasury Securities 120,077.14 1.41
Loans Receivable 12,850.12 0.66
Accounts Receivable 4,499.69 0.97
Fixed Assets 287,842.82 24.37
Other Assets 2,975.39 0.79
Total Assets 881,561.54 100.00
Table 8—Itemized Liability Distribution Back to Top
Liability functional category Liabilities Percentage of all liabilities
Accounts Payable $5,400,228.00 20.06
Loans Payable 5,944,284.00 22.08
Mortgages Payable 7,249,483.00 26.92
Other Liabilities 8,332,886.00 30.95
Total Liabilities 26,926,881.00 100.00

The Department can estimate the number of receipts, disbursements, assets, and liabilities itemized on each schedule using the Tier I LM-2 distribution data and the LM-3 itemized transactions data. For example, if the LM-3 filing privilege is revoked, LM-3 filers will itemize approximately 13.71 receipts per year on the Form LM-2. Based on the Tier I LM-2 distribution, .89 (13.71 (total itemized receipts) × 6.51% = .89) of the 13.71 receipts will be itemized on Schedule 16 (“Fees, Fines, Assessments, etc.”). The Department used the same method to determine the number of itemized transactions on each of the itemization schedules. The results are summarized in Table 9.

It should be noted that the Department assumes that LM-3 filers will receive dues payments from one employer. Consistent with the reporting requirements adopted in this rule, LM-3 filers will have one itemized dues receipt. Further, the Department estimates that like Tier I LM-2 filers, non-local LM-3 filers will receive 2.33 per capita receipts. Approximately 7.13% of LM-3 filers are non-locals. Therefore, on average each LM-3 filer will have .02 per capita itemizations.

Table 9—LM-3 Itemization Summary Back to Top
Average number of entries
Total Itemized Receipts 13.71
Schedule 2: Loans Receivable 0.01
Schedule 3: Sale of Investments and Fixed Assets 0.21
Schedule 9: Loans Payable 0.04
Schedule 14: Dues and Agency Fees 1
Schedule 15: Per Capita Tax .02
Schedule 16: Fees, Fines, Assessments, Work Permits 0.89
Schedule 17: Sale of Supplies 0.02
Schedule 18: Interest 0.22
Schedule 19: Dividends 0.04
Schedule 20: Rents 0.11
Schedule 21: On Behalf of Affiliates for Transmittal to Them 0
Schedule 22: From Members for Disbursement on Their Behalf 0.20
Schedule 23: Other Receipts 1.04
Total Itemized Disbursements 13.49
Schedule 24: Representational Activities 3.01
Schedule 25: Political Activities and Lobbying 0.23
Schedule 26: Contributions, Gifts, and Grants 0.24
Schedule 27: General Overhead 2.15
Schedule 28: Union Administration 2.41
Schedule 29: Benefits 1.07
Item 57: Per Capita Tax 1.00
Item 58: Strike Benefits 0.10
Item 59: Fees, Fines, Assessments, etc. 0.12
Item 60: Supplies for Resale 0.02
Schedule 4: Purchase of Investments and Fixed Assets 0.42
Schedule 2: Loans Made 0.01
Schedule 9: Repayment of Loans Obtained 0.04
Item 64: To Affiliates of Funds Collected on Their Behalf 0
Item 65: On Behalf of Individual Members 0.19
Item 66: Direct Taxes 0.41
Assets 13.93
Item 22: Cash 8.02
Schedule 1: Accounts Receivable 0.13
Schedule 2: Loans Receivable 0.09
Item 25: U.S. Treasury Securities 0.20
Schedule 5: Investments 1.99
Schedule 6: Fixed Assets 3.40
Schedule 7: Other Assets 0.11
Liabilities 0.38
Schedule 8: Accounts Payable 0.08
Schedule 9: Loans Payable 0.08
Item 32: Mortgages Payable 0.10
Schedule 10: Other Liabilities 0.12

The Department estimates that LM-3 filers will expend .25 hours on each schedule identifying those receipts that must be itemized, and .03 hours per column putting together the necessary information and inputting it onto the LM-2. For example, LM-3 filers who have had their filing privilege revoked will spend .32 hours on recordkeeping and .07 hours on reporting completing the fees, fines, assessment schedule. The average LM-3 filer will itemize .89 fees, fines, assessments, etc. on LM-2 schedule 16. The initial search and identification of itemized fees, fines, assessments, etc. will take .25 hours. Once the itemized fees, fines, assessments, etc. are identified, the labor organization must identify and enter the source, type, purpose, date, and amount of the fee, fine, assessment, etc. onto the Form LM-2, .15 hours or approximately .03 hours per item. The results are summarized in table 10.

5. All Officers and Disbursement to Officers

There is no recordkeeping burden associated with identifying officers and their salaries. This information is reported on the LM-3 schedule “All Officers and Disbursements to Officers.” Labor organizations will have to break down the amount reported in column (E) of LM-3 schedule “All Officers and Disbursements to Officers” between columns (E), (G), and (H) of LM-2 Schedule 11, and report benefits next to each officer's name. Officers will have to estimate the time they spend on representational activities, political and lobbying activities, contributions, general overhead, and union administration.

LM-3 filers who have had their filing privileges revoked and their officers will spend 69.53 hours compiling the information necessary to complete the Form LM-2 Schedule 11. The labor organization will spend .25 hours compiling the records on disbursements and .08 hours per disbursement assigning the disbursements to a particular officer and disbursement category (allowances, official business or other). The LM-3 sample indicated that, on average, an LM-3 filer has 8.31 officers. The Department estimates that each officer will receive one benefit disbursement and one indirect disbursement for travel or lodging. Based on the LM-3 sample, approximately 43.70% of the officers listed on the LM-3, or 3.47 officers per LM-3 filer, receive allowances and other disbursements. On average, these officers receive $973.92 in allowances and other disbursements. Unlike the LM-2 analysis above, the Department estimates that the average LM-3 officer disbursement will be $200. The average disbursement amount was reduced to take into account the smaller size of LM-3 filers. Therefore, the 3.47 officers who receive allowances and other disbursements will receive, on average, 4.87 disbursements for allowances and other disbursements ($973.92/$200 = 4.87), 1 disbursement for benefits, and 1 indirect disbursement for lodging or travel. The remaining 4.84 officers who do not receive allowances or other disbursements will receive 1 disbursement for benefits and 1 indirect disbursement for lodging or travel. In sum, each LM-3 filer will make 33.51 disbursements to its officers. The labor organization will spend 2.93 hours compiling all disbursements to officers.

In addition to compiling the disbursement data, officers will have to estimate how much time they spent on each of the functional categories: representational activities, political and lobbying activities, contributions, general overhead, and union administration. In 2003, the Department estimated that officers will spend 1 hour at the beginning of the year reviewing the LM-2 instructions, .5 hours a month dividing up their time, 1 hour at the end of the year checking the distributions. In sum, each officer will spend 8 hours estimating the percentage of time spent on each functional category. If the average LM-3 filer has 8.31 officers, and it takes each officer 8 hours to estimate the percentage of time spent on each functional category, then officers will expend 66.48 hours on recordkeeping to complete Schedule 11.

The labor organization will spend 2.08 hours on reporting. Each officer row on the LM-2 Schedule 11 has 15 separate fillable items. The Department assumes that a labor organization can fill out an item in one minute. Therefore, the labor organization will spend .25 hours filling out each officer row. If the average LM-3 filer has 8.31 officers, and it takes .25 hours to fill out one row, then labor organizations will expend 2.08 hours completing Schedule 11.

6. Disbursements to Employees

There is no recordkeeping burden associated with identifying employees and their salaries. The LM-3 does not include a separate schedule for reporting disbursements to employees, but LM-3 filers have to track disbursements to employees to complete LM-3 Statement B, item 46. Labor organizations will have to break down the amount reported on LM-3 Statement B, item 46, by employee and type of disbursement (allowance, official business, or other). Additionally, the labor organization will have to report the benefits each employee receives. Employees will have to estimate the time they spend on representational activities, political and lobbying activities, contributions, general overhead, and union administration.

LM-3 filers who have had their filing privileges revoked and their employees will spend 23.48 hours compiling the information necessary to complete the Form LM-2 Schedule 12. The labor organization will spend .25 hours compiling the records on disbursements and .08 hours per disbursement assigning the disbursements to a particular employee and disbursement category (allowances, official business or other).

The Department used the average number of employees listed on LM-2s with between $250,000 and $500,000 in annual receipts to estimate the number of employees employed by LM-3 filers. On average, LM-2 filers with between $250,000 and $500,000 in annual receipts list 2.79 employees on Schedule 12. The Department estimates that each employee will receive one benefit disbursement and one indirect disbursement for travel or lodging. Approximately 39.82% of the employees listed on LM-2s with between $250,000 and $500,000 in annual receipts, or 1.11 employees per LM-2 filer with between $250,000 and $500,000 in annual receipts, receive allowances and other disbursements. The Department cannot estimate the number of employee allowances and other disbursements from the LM-3. Therefore, the Department applied the estimated number of officer disbursements, 4.87, to employees. The 1.11 employees who receive allowances and other disbursements will receive, on average, 4.87 disbursements for allowances and other disbursements, 1 disbursement for benefits, and 1 indirect disbursement for lodging or travel. The remaining 1.68 employees who do not receive allowances or other disbursements will receive 1 disbursement for benefits and 1 indirect disbursement for lodging or travel. In sum, each LM-3 filer will make 10.99 disbursements to its employees.

In addition to compiling the disbursement data, employees will have to estimate how much time they spent on each of the functional categories: representational activities, political and lobbying activities, contributions, general overhead, and union administration. In 2003, the Department estimated that employees will spend 1 hour at the beginning of the year reviewing the LM-2 instructions, .5 hours a month dividing up their time, 1 hour at the end of the year checking the distributions. In sum, each employee will spend 8 hours estimating the percentage of time spent on each functional category. If the average LM-3 filer has 2.79 employees and it takes each employee 8 hours to estimate the percentage of time spent on each functional category, then employees will expend 22.32 hours on recordkeeping to complete Schedule 12.

The labor organization will spend .70 hours on reporting. Each employee row on the LM-2 Schedule 12 has 15 separate fillable items. The Department assumes that a labor organization can fill out an item in one minute. Therefore, the labor organization will spend .25 hours filling out each employee row. If the average LM-3 filer has 2.79 employees, and it takes .25 hours to fill out one row, then labor organizations will expend .70 hours completing Schedule 12.

7. Member Status Schedule

The Department estimates that LM-3 filers who have had their filing privilege revoked will spend .25 hours filling out Schedule 13 (“Membership Status”). All labor organizations already keep track of membership status. Therefore, there is no recordkeeping burden.

Most labor organizations have 3 types of membership: Active, retired, and journeyman. Each membership type will require an independent itemization on Schedule 13. The Department has determined that each itemized membership should require 5 minutes. If there are 3 itemized memberships, then LM-3 filers will expend .25 hours filling out the LM-2.

8. LM-2 Statement A Burden Hours

There is no recordkeeping burden associated with LM-2 Statement A. This information is already provided on the LM-3's Statement A. The LM-3 filer need only copy the information from the LM-3 onto the LM-2. The Department estimates that such copying should take approximately 1 minute per item. Statement A has 26 different items. At one minute each the LM-3 will spend .43 hours filling out Statement A.

9. LM-2 Statement B Burden Hours

The Department estimates that LM-3 filers will expend .42 hours on recordkeeping and .58 hours on reporting to complete LM-2 Statement B. Twenty-two out of the twenty-nine aggregates reported on Statement B either have a corresponding LM-2 itemization schedule or are already reported on the LM-3. The recordkeeping burden associated with these items is either included in the recordkeeping burden for its corresponding schedule or it is included in the LM-3 recordkeeping burden. There is no recordkeeping burden for these items associated with Statement B. The remaining seven items, strike benefits, fees, fines, assessments, etc., supplies for resale, repayment of loans obtained, to affiliates of funds collected on their behalf, on behalf of individual members, and direct taxes, are unique LM-2 functional categories with no corresponding itemization schedules. Using the distributions taken from LM-2s of labor organizations with between $250,000 and $500,000 in annual receipts and the LM-3 itemized receipt estimate, the Department has determined that LM-3 filers will have one per capita tax disbursement, .10 strike disbursement, .12 fees, fines, assessment, etc. disbursement, .02 supplies for resale disbursement, zero disbursements to affiliates on their behalf, .19 disbursement on members behalf, and .41 disbursement for direct taxes. Five out of the six items will have some amount of money reported in the item, approximately one transaction per item. The LM-3 filers will spend 5 minutes on recordkeeping per transaction or .42 hours total.

The LM-3 filers will copy twenty-two of the twenty-nine aggregates from the other itemization schedules on their LM-3. As discussed above, the remaining five items will have to be compiled by the LM-3 filer. LM-3 filers will spend one minute per item filling out Statement B, or .48 hours in total.

10. Detailed Summary Schedules 3 and 4

The Department estimates that LM-3 filers who have had their filing privilege revoked will spend .25 hours on recordkeeping and .2 hours on reporting to complete summary schedules 3 and 4. These summary schedules do not include any new information. They merely summarize the information itemized on Itemization Schedules 3 and 4. LM-3 filers will spend .25 minutes compiling the information from the itemization schedules for reporting here.

Once the information is compiled it must be transcribed onto the summary schedules. There are six items per summary schedule. LM-3 filers can transcribe the information into each item in 1 minute, .2 hours to completely transcribe all the information onto summary schedules 3 and 4.

11. Detailed Summary Schedules 14 through 28

The Department estimates that LM-3 filers who have had their filing privilege revoked will spend .25 hours on recordkeeping and 1 hour on reporting to complete summary schedules 14 through 28. These summary schedules do not include any new information. They merely summarize the information itemized on Itemization Schedules 14 through 28. LM-3 filers will spend .25 minutes compiling the information from the itemization schedules for reporting here.

Once the information is compiled it must be transcribed onto the summary schedules. There are four items per summary schedule. LM-3 filers should be able to transcribe the information into each item in 1 minute. There are 15 separate summary schedules and each has 4 items that must be filled. Therefore, LM-3 filers will spend 1 hour (15 itemization schedules × 4 items per schedule × 1 minute per item = 60 minutes) transcribing all the information onto summary schedules 14 through 28.

12. Compensation Cost

The Department assumes that, on average, the completion by a labor organization with between $10,000 and $250,000 in annual receipts of Form LM-2 will involve an accountant/auditor, bookkeeper/clerk, labor organization president and labor organization treasurer. Based on the 2007 BLS wage data, accountants earn $30.37 per hour, computer engineers earn $41.18 per hour, and bookkeepers/clerks earn $15.76 per hour. [33] BLS estimates that the cost of an employee's total compensation is approximately 30.2% higher than the employee's wages alone. Therefore, the Department adjusted upward each of the BLS salaries to include the additional 30.2% attributed to benefits to estimate the total compensation cost for each of the individuals involved in completing the Form LM-2.

The Department estimated the average annual salaries of labor organization officers needed to complete tasks for compliance with the LM-3 revocation—the president and treasurer—from responses to salary inquiries contained in the sample of 222 labor organizations that filed a Form LM-3 in 2006. The Department assumed that LM-3 part-time officers work approximately 200 hours per year. These average annual salary figures were then adjusted to include the additional 30.2% attributed to benefits to reflect total compensation cost for each officer. Accordingly, the Department calculated as total hourly compensation cost $21.68 per hour for labor organization president and $25.08 per hour for labor organization treasurer.

Table 11—Compensation Cost Table Back to Top
Title Salary—hourly Salary—yearly Compensation—cost—hourly
Accountants/Auditors $30.37 $63,180.00 $43.51
Bookkeepers/Clerks 15.76 32,780.00 22.58
President 15.13 3,026.45 21.68
Treasurer 17.51 3,501.73 25.08

The Department estimated the percentage of time the accountant, bookkeeper, president, and treasurer would spend completing the LM-2. These percentages were used to calculate a weighted average compensation cost, $25.40.

13. Conclusion

The Department estimates that Form LM-2 filers with total annual receipts under $250,000 (LM-3 Filers that have had the privileged revoked) will spend 102.40 hours fulfilling recordkeeping requirements and 16.83 hours completing the form, which corresponds to $3,028.23 in costs.

14. Annualized Federal Costs

The estimated annualized Federal cost of this rule is $231,924.52 This represents estimated operational expenses such as computer programming to amend the Form LM-2 and staff time to draft documents and review materials in cases where a labor organization's privilege to file the Form LM-3 is revoked.

Final Regulatory Flexibility Analysis Back to Top

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., requires agencies to prepare regulatory flexibility analyses, and to develop alternatives wherever possible, in drafting regulations that will have a significant economic impact on a substantial number of small entities. The Department certifies that the final rule will not have a significant economic impact on a substantial number of small entities. To evaluate whether this final rule would have a significant economic impact on a substantial number of small entities, the Department conducted a Final Regulatory Flexibility Analysis (“FRFA”) as a component of this final rule.

In the 2003 Form LM-2 rule, the Department's regulatory flexibility analysis utilized the Small Business Administration's (“SBA”) “small business” standard for “Labor Unions and Similar Labor Organizations.” Specifically, the Department used the $5 million standard established in 2000 (as updated in 2005 to $6.5 million) for purposes of its regulatory flexibility analyses. See 65 FR 30836 (May 15, 2000); 70 FR 72577 (Dec. 6, 2005). This same standard, which has also been used in rulemakings involving the Form T-1, 73 FR 57412 (October 2, 2008), has been used in developing the final regulatory flexibility analysis for this rule.

The Department recognizes that the SBA has not established fixed, financial thresholds for “organizations,” as distinct from other entities. See A Guide for Government Agencies: How to Comply with the Regulatory Flexibility Act, Office of Advocacy, U.S. Small Business Administration at 12-13, available at http://www.sba.gov. The Department further recognizes that under SBA guidelines, the relationship of an entity to a larger entity with greater receipts is a factor to be considered in determining the necessity of conducting a regulatory flexibility analysis. Thus, the affiliation between a local labor organization and a national or international labor organization, a widespread practice among labor organizations subject to the LMRDA, may have an impact on the number of organizations that should be counted as “small organizations” under section 601(4) of the RFA, 5 U.S.C. 601(4). [34] However, for purposes of analysis here, and for ready comparison with the RFA analysis in its earlier Form LM-2 rulemaking, the Department has used the $6.5 million receipts test for “small businesses.” rather than the “independently owned and operated and not dominant” test for “small organizations.” Application of the latter test likely would reduce the number of labor organizations that would be counted as small entities under the RFA. It is the Department's view, however, that it would be inappropriate, given the past rulemaking concerning the Form T-1 and the Form LM-2, to depart from the $6.5 million receipts standard in preparing this final regulatory flexibility analysis. Accordingly, the following analysis assesses the impact of these regulations on small entities as defined by the applicable SBA size standards.

All numbers used in this analysis are based on 2006 data taken from the OLMS electronic labor organization reporting (“e.LORS”) database, which includes all records of labor organizations that have filed LMRDA reports with the Department.

A. Statement of the Need for, and Objectives of, the Final Rule

The following is a summary of the need for and objectives of the final rule. A more complete discussion is found earlier in this preamble.

The objective of this final rule is to increase the transparency of financial reporting by revising the current LMRDA disclosure Form LM-2 to enable workers to be responsible, informed, and effective participants in the governance of their labor organizations; discourage embezzlement and financial mismanagement; prevent the circumvention or evasion of the statutory reporting requirements; and strengthen the effective and efficient enforcement of the Act by the Department. Form LM-2 is filed by the largest reporting labor organizations, i.e., those with $250,000 or more in total annual receipts.

The revisions to the Form LM-2 made by the Department in 2003 have helped to fulfill the mandate of full reporting set forth in the LMRDA. However, based upon the Department's experience since 2003, and after reviewing data from reports filed on the revised form, the Department has determined that further enhancements to the Form LM-2 are necessary. These enhancements will ensure that information is reported in such a way as to meet the objectives of the LMRDA by providing labor organization members with useful data that will enable them to be responsible and effective participants in the democratic governance of their labor organizations. The changes are designed to provide members of labor organizations with additional and more detailed information about the financial activities of their labor organization that is not currently available through the Form LM-2 reporting.

The enhancements provide additional information in Schedule 3 (Sale of Investments and Fixed Assets) and Schedule 4 (Purchase of Investments and Fixed Assets) that will allow verification that these transactions are performed at arm's length and without conflicts of interest. Schedules 11 and 12 will be revised to include the value of benefits paid to and on behalf of officers and employees. This will provide a more accurate picture of total compensation received by these labor organization officials. In addition, the changes will require the reporting in Schedules 11 and 12 of travel reimbursements indirectly paid these officials. This change will provide more accurate information on travel disbursements made to them by their labor organizations. The enhancements also include additional schedules corresponding to categories of receipts, which will provide additional information, by receipt category, of aggregated receipts of $5,000 or more. This change is consistent with the information currently provided on disbursements.

The Department's enforcement experience has shown that the failure of small labor organizations to file the annual Form LM-3 on time and the filing of reports with material deficiencies are often indicators of larger problems associated with the ways in which such organizations maintain their financial records, and may be an indicator of more serious financial mismanagement. The Department's enforcement experience reveals various reasons for delinquent filings, including a labor organization's failure to maintain the records required by the LMRDA; inadequate office procedures; frequent turnover of labor organization officials, who often serve on a part-time basis; uncertainty of first-time officers about their reporting responsibilities under the LMRDA and their inexperience with bookkeeping, recordkeeping, or both; an inattention generally to “paperwork;” overworked or under-trained officers; an officer's unwillingness to question or report apparent irregularities due to the officer's own inexperience or concern about the repercussions of reporting such matters; or a conscious effort to hide embezzlement or the misappropriation of funds by the officers, other members of the organization, or third parties associated with the labor organization. Many of these causes of delinquency, including pre-existing bookkeeping problems, inattention, overwork, insufficient training, and an unwillingness to confront or report financial irregularities, demonstrate that the labor organization members and the public would benefit from a more detailed accounting of the organization's financial conditions and operations. Moreover, OLMS experience indicates that labor organizations that are repeatedly delinquent are more likely than other labor organizations to suffer embezzlement, or related crime. Many of the reasons that contribute to delinquent filings also result in the filing of reports that omit or misstate material information about the labor organization's finances. The members of a labor organization that fails to correct a material reporting deficiency after being notified by the Department and being given an opportunity to address the error would benefit from the increased transparency of the Form LM-2.

As explained previously in the preamble, additional reporting by labor organizations is necessary to ensure, as intended by Congress, the full and comprehensive reporting of a labor organization's financial condition and operations, including a full accounting to members from whose work the payments were earned. 67 FR 79282-83. This final rule will prevent circumvention and evasion of these reporting requirements by providing members of labor organizations with financial information concerning their labor organization.

The legal authority for the final rule is provided by sections 201 and 208 of the LMRDA, 29 U.S.C. 431, 438. Section 201 requires labor organizations to file annual financial reports and to disclose certain financial information, including all assets, receipts, liabilities, and disbursements of the labor organization. Section 208 provides that the Secretary of Labor shall have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under Title II of the Act, including rules prescribing reports concerning trusts in which a labor organization is interested, and such other reasonable rules and regulations as she may find necessary to prevent the circumvention or evasion of the reporting requirements. Section 208 also authorizes the Secretary to establish “simplified reports for labor organizations and employers for whom [s]he finds by virtue of their size a detailed report would be unduly burdensome.” 29 U.S.C. 438. Section 208 authorizes the Secretary to revoke this privilege for any labor organization or employer if the Secretary determines, after such investigation as she deems proper and due notice and opportunity for a hearing, that the purposes of section 208 would be served by revocation.

B. Summary of the Significant Issues Raised by Public Comments

The Department's NPRM in this rulemaking contained an Initial Regulatory Flexibility Analysis and Paperwork Reduction Act analyses. As noted above in the introduction to the Department's PRA analysis, because of the overlapping nature of costs for the purposes of both the RFA and PRA analyses, the Department construed all comments received related to the Department's assessment of costs to the regulated community as comments addressing both the PRA and the RFA analyses. The Department's discussion of significant issues raised in comments related to cost estimates, the agency's response thereto, and adjustments made to the methodology as a result of comments is found in the PRA section of this preamble. See, supra, Paperwork Reduction Act, Sec. A. As explained in that section, based upon careful consideration of the comments, the Department made adjustments to the methodology employed to assess costs, and those adjustments resulted in modifications to conclusions on costs, which have been employed in the following final RFA analysis. Thus, the statutory requirement that the Department provide in its final RFA analysis “a summary of the significant issues raised by the public comments in response to the initial regulatory flexibility analysis, a summary of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments[,]” 5 U.S.C. 604(a)(2), has been satisfied. Moreover, the Department received no comments addressing or challenging the specific conclusion in the NPRM that the rule does not have a significant economic impact on a substantial number of small entities.

C. Number of Small Entities Covered Under the Rule

The primary impact of this final rule will be on those labor organizations that have $250,000 or more in annual receipts. There are approximately 4,571 labor organizations of this size that are required to file Form LM-2 reports under the LMRDA. See Table 13 below. The Department estimates that 4,220 of these labor organizations, or 92.32%, are considered small under the current SBA standard (annual receipts less than $6.5 million). These labor organizations have annual average receipts of $1.30 million. [35] See Table 13. The Department estimates that about 96 labor organizations with annual receipts of less than $250,000 will be affected by the final rule. These 96 labor organizations have annual average receipts of $68,468. See Table 13. Although these estimates may not be predictive of the exact number of small labor organizations that will be impacted by this final rule in the future, the Department believes these estimates to be sound and they are derived from the best available information.

D. Reporting, Recording and Other Compliance Requirements of the Rule [36]

This final rule is not expected to have a significant economic impact on a substantial number of small entities. The LMRDA is primarily a reporting and disclosure statute. Accordingly, the primary economic impact will be the cost of obtaining and reporting required information.

For the estimated 4,220 Form LM-2 filers with between $250,000 and $6,500,000 in annual receipts, the estimated average annual reporting and recordkeeping burden for the current Form LM-2 is $16,328.22 or 1.26% of their average annual receipts. See Table 13, which provides a more complete list of the burden estimates. [37] The average additional first year cost (including first year non-recurring implementation costs) to these organizations is estimated at $4,717.39, or .36% of average annual receipts. Id. The average total first year cost of the revised Form LM-2 on these labor organizations is estimated at $21,045.61, or 1.62% of total annual receipts. Id. The Department views as unlikely that the smallest subset of these labor organizations (those with between $250,000 and $499,999 in annual receipts) would incur many of the costs incurred by the typical Form LM-2 filer (those with receipts between $500,000 and $6.5 million). The labor organizations with the smallest annual receipts are likely to have less complicated accounts covering fewer transactions than the typical, larger Form LM-2 filer. However, to assess the “maximum” or “worst-case” impact on this subset of labor organizations, the Department considered the unlikely event that the labor organizations in this subset could incur the same compliance burden as the average for labor organizations with annual receipts of $500,000 to $49.9 million. Under this unlikely scenario, the total additional cost of the final rule on such labor organizations is estimated at $4,891.21 in the first year, or.38% of the annual receipts of all organizations with receipts of $250,000 to $6.5 million, and $462.88 in the second year, or .04% of annual receipts. Id. For a small labor organization with $250,000 to $499,999 in annual receipts, the estimated maximumadditional cost of the final rule would be 1.26% of receipts in the first year and .12% in the second year. [38] Id.

The average annual reporting and recordkeeping burden for the current Form LM-3 is estimated at $1,404.00 or 2.08% of average annual receipts for Form LM-3 filers. See Table 1. The Department assumes that Form LM-3 filers will spend approximately $23.13 per hour to complete the form. See Table 11. The additional cost of filing a Form LM-2 is $3,028.23 or 4.49% of average annual receipts for Form LM-3 filers. The Department estimates that on average, 96 Form LM-3 filers annually will have their Form LM-3 filing privilege revoked and thus will incur this additional burden. The Department arrived at this figure by examining the number of deficiency and delinquency cases processed by the Department. In the latest fiscal year, the Department processed 684 deficiency cases for Form LM-3 filers and 1,187 cases for delinquent Form LM-3 filers. The Department assumes that it will examine one half of the deficiency and delinquency cases for possible revocation (935.5 per year) and that 10% of the cases examined will ultimately lead to revocation of the Form LM-3 filing privilege (93.55). Further the Department assumes that in another 2 cases per year it will find “other circumstances exist that warrant revocation,” for a total of 96 revocations per year (rounded up).

Table 13—Summary of Regulatory Flexibility Analysis39 Back to Top
For unions that meet the SBA small entities standard Total burden hours per respondent Total cost per respondent
Weighted Average Cost of Current Form LM-2 507.62 $16,382.22
Percentage of Average Annual Receipts n.a. 1.26%
Average Cost of Current Form LM-3 116.00 1,404.00
Percentage of Average Annual Receipts n.a. 2.08%
Weighted Average First Year Cost of Revised Form LM-2 653.86 21,045.61
Percent of Average Annual Receipts n.a. 1.62%
Weighted Average Second Year Cost 520.36 16,748.65
Percent of Average Annual Receipts n.a. 1.29%
Weighted Average Increase in Cost of Final Rule, First Year 146.56 4,717.39
Percent of Average Annual Receipts n.a. 0.36%
Weighted Average Increase in Cost of Final Rule, Second Year 13.06 420.44
Percent of Average Annual Receipts n.a. 0.03%
Maximum First Year Cost of Revised Form LM-2 for Unions with $250,000 to $499,999 in Annual Receipts 659.26 19,677.27
Percentage of Average Annual Receipts n.a. 5.47%
Maximum Second Year Cost 521.68 15,570.78
Percentage of Average Annual Receipts n.a. 4.33%
Maximum Increase in Cost of Final Rule, First Year 151.96 4,891.21
Percent of Annual Receipts for $250,000 to $499,999 Union n.a. 1.26%
Percent of Annual Receipts for $500,000 to $6,500,000 Union n.a. 0.29%
Percent of Annual Receipts for $250K to $6.5M Union n.a. 0.38%
Maximum Increase in Cost of Final Rule, Second Year 14.38 462.88
Percent of Annual Receipts for $250,000 to $499,999 Union n.a. 0.12%
Percent of Annual Receipts for $500,000 to $6,500,000 Union n.a. 0.03%
Percent of Annual Receipts for $250K to $6.5M Union n.a. 0.04%
Average Cost of Revised Form LM-2 119.22 3,028.23
Union with between $10K and $249,999 in Annual Receipts n.a. 4.49%
Total 2006 Filers between $250K $6.5M 4,220
Total 2006 Filers between $250K $499,999 1,325
Total 2006 Filers between $500K $6.5 2,895
Total 2006 Filers between $500K $49.9M 3,194
Number of Form LM-2 Filers with Annual Receipts between $250K $2M 3,401
Total 2006 Form LM-3 Filers 10,977
Total 2006 Form LM-2 Filers 4,571
Total 2006 Union Filers 23,924
Percentage of All Union Filers that File Form LM-2 19.11%
Percentage of all Union Filers with Annual Receipts between $250K $6.5M 18.1%
Percentage of Union Filers with Annual Receipts between $250K $499,999 5.5%
Percentage of Form LM-2 Filers with Annual Receipts between $250K $6.5M 92.32%
Percentage between $250K $499,999 31.40%
Percentage between $500K $6.5M 68.60%
Percentage of Form LM-3 Filers that will File Form LM-2 .87%
2006 Average Annual Receipts for Unions between $250K $6.5M $1,296,219.27
2006 Average Annual Receipts for Unions between $250K $499,999 $359,925.03
2006 Average Annual Receipts for Unions between $500K $6.5M $1,724,895.80
2006 Average Annual Receipts for Unions between $10K and $249,999 $67,468.14

OLMS will update the e.LORS system to coincide with all changes embodied in this final rule. OLMS will provide compliance assistance for any questions or difficulties that may arise from using the reporting software. A help desk is staffed during normal business hours and can be reached by telephone toll free at 1-866-401-1109.

The use of electronic forms makes it possible to download information from previously filed reports directly into the form; enables officer and employee information to be imported onto the form; makes it easier to enter information; and automatically performs calculations and checks for typographical and mathematical errors and other discrepancies, which reduces the likelihood of having to file an amended report. The error summaries provided by the software, combined with the speed and ease of electronic filing, will also make it easier for both the reporting labor organization and OLMS to identify errors in both current and previously filed reports and to file amended reports to correct them.

As discussed previously in the preamble, labor organizations that are required to file a Form LM-2 because their Form LM-3 filing privilege has been revoked are not required to comply with the electronic submission requirement.

E. Description of the Steps the Agency Has Taken To Minimize the Economic Impact on Small Entities

The Department considered a number of alternatives to the final rule that could minimize the economic impact on small entities. One alternative would be not to change the existing Form LM-2. This alternative was rejected because OLMS experience demonstrates that the goals of the Act are not being fully met. As explained further in the preamble, members of labor organizations cannot accurately determine from the current Form LM-2 important information regarding their union's finances, including the parties to whom it sells, and from whom it purchases, investments and fixed assets; the identity of parties from whom the union receives major amounts of funds; and the benefits and indirect disbursements received by officials and employees of the labor organization. Members need this information to make informed decisions on the governance of their labor organizations.

Another alternative would be to limit the new reporting requirements to national and international parent labor organizations. However, the Department has concluded that such a limitation would eliminate the availability of meaningful information from local and intermediate labor organizations, which may have far greater impact on and relevance to members of labor organizations, particularly since such lower levels of labor organizations generally set and collect dues and provide representational and other services for their members. Such a limitation would reduce the utility of the information to a significant number of members. Of the 4,571 labor organizations that are required to file Form LM-2, just 101 are national or international labor organizations. Requiring only national and international organizations to file more detailed reports would not provide any deterrent to fraud and embezzlement by local and intermediate body officials nor would it increase transparency in local and intermediate bodies.

Another alternative would be to phase-in the effective date for the Form LM-2 changes and provide smaller Form LM-2 filers with additional lead time to modify their recordkeeping systems to comply with the new reporting requirements. The Department has concluded that a three-month period for all Form LM-2 filers to adapt to the new reporting requirements should provide sufficient time to make the necessary adjustments. OLMS also plans to provide compliance assistance to any labor organization that requests it.

A review of the revisions was undertaken to reduce paperwork burden for all Form LM-2 filers and an effort was made during the review to identify ways to reduce the impact on small entities. The Department concludes that it has minimized the economic impact of the form revision on small labor organizations to the extent possible, while recognizing workers' and the Department's need for information to protect the rights of members of labor organizations under the LMRDA.

F. Conclusion

The Regulatory Flexibility Act does not define either “significant economic impact” or “substantial” as it relates to the number of regulated entities. 5 U.S.C. 601. In the absence of specific definitions, “what is ‘significant’ or ‘substantial’ will vary depending on the problem that needs to be addressed, the rule's requirements, and the preliminary assessment of the rule's impact.”A Guide for Government Agencies, supra, at 17. As to economic impact, one important indicator is the cost of compliance in relation to revenue of the entity. Id.

As noted above, the final rule will apply to 4,220 Form LM-2 filers and approximately 96 Form LM-3 filers that meet the SBA standard for small entities, about 18% of all labor organizations that must file an annual financial report under the LMRDA. Further, the Department estimates that just 1,325 labor organizations with annual receipts from $250,000 to $499,999, or 5.5% of all labor organizations covered by the LMRDA, would be affected by this rule. Even less (5.5% of the total) would incur the maximum additional costs of the final rule described above. Finally, the Department estimates that approximately 96 Form LM-3 filers, or .87% of all Form LM-3 labor organizations covered by the LMRDA, would be affected by this rule.

For the estimated 4,220 Form LM-2 filers with between $250,000 and $6,500,000 in annual receipts, the estimated average annual reporting and recordkeeping burden for the current Form LM-2 is $16,328.22 or 1.26% of their average annual receipts. The average additional first year cost (including first year non-recurring implementation costs) to these organizations is estimated at less than $4,717.39, or 0.36% of average annual receipts. The average total first year cost of the revised Form LM-2 on these labor organizations is estimated at $21,045.61, or 1.62% of total annual receipts. The Department believes that it is unlikely that the smallest subset of these labor organizations (those with between $250,000 and $499,999 in annual receipts) would incur many of the costs incurred by the typical Form LM-2 filer (those with receipts between $500,000 and $6.5 million). Under this “worst case” scenario for these organizations, the total additional cost of the final rule on such labor organizations is estimated at $4,891.21 in the first year, or 0.38% of the annual receipts of all organizations with receipts of $250,000 to $6.5 million, and $462.88 in the second year, or .04% of annual receipts.

The average annual reporting and recordkeeping burden for the current Form LM-3 is estimated at $1,404.00 or 2.08% of average annual receipts for Form LM-3 filers. For the estimated 96 Form LM-3 filers that would have their privilege to file Form LM-3 revoked (all of which meet the SBA standard for small entities), the additional cost of filing a Form LM-2 will be $3,028.23 or 4.49% of average annual receipts

Given the relatively small costs of compliance in relation to the revenues of the affected labor organizations, the Department concludes that the economic impact of this rule is not significant. As to the number of labor organizations affected by this rule, the Department has determined by examining e.LORS data that in 2006, the Department received 4,228 Form LM-2s from labor organizations with receipts between $250,000 and $6,500,000, or just 17.6% of the 24,065 labor organizations that must file any of the annual financial reports required under the LMRDA (Forms LM-2, LM-3, or LM-4). The Department concludes that the rule does not impact a substantial number of small entities. Therefore, under 5 U.S.C. 605, the Department certifies that the final rule will not have a significant economic impact on a substantial number of small entities.

Executive Order 13045 (Protection of Children From Environmental Health Risks and Safety Risks) Back to Top

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

Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) Back to Top

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

Executive Order 12630 (Governmental Actions and Interference With Constitutionally Protected Property Rights) Back to Top

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

Executive Order 12988 (Civil Justice Reform) Back to Top

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

Environmental Impact Assessment Back to Top

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

Executive Order 13211 (Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use) Back to Top

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

Electronic Filing of Forms and Availability of Collected Data Back to Top

Appropriate information technology is used to reduce burden and improve efficiency and responsiveness. The current forms can be downloaded from the OLMS Web site. OLMS has also implemented a system to require Form LM-2 filers and permit Form LM-3 and Form LM-4 filers to submit forms electronically with digital signatures. Labor organizations are currently required to pay a minimal fee to obtain electronic signature capability for the two officers who sign the form. These digital signatures ensure the authenticity of the reports. Information about this system can be obtained on the OLMS Web site at http://www.olms.dol.gov.

The OLMS Online Public Disclosure Room is available for public use at http://www.unionreports.gov. The site contains a copy of each labor organization's annual financial report for reporting year 2000 and thereafter as well as an indexed computer database on the information in each report that is searchable through the Internet.

OLMS includes e.LORS information in its outreach program, including compliance assistance information on the OLMS Web site, individual guidance provided through responses to e-mail, written, or telephone inquiries, and formal group sessions conducted for labor organization officials regarding compliance.

List of Subjects in 29 CFR Part 403 Back to Top

begin regulatory text

Text of Final Rule Back to Top

In consideration of the foregoing, the Department amends part 403 of 29 CFR Chapter IV as set forth below:

PART 403—LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS Back to Top

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

Authority:

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

2.Amend 29 CFR 403.4 by:

a. Revising paragraph 403.4(a)(1) to read as set forth below:

b. Redesignating paragraph (b) as paragraph (f).

c. Adding new paragraphs (b), (c), (d), and (e) to read as set forth below.

§ 403.4 Simplified annual reports for smaller labor organizations.

(a)(1) If a labor organization, not in trusteeship, has gross annual receipts totaling less than $250,000 for its fiscal year, it may elect, subject to revocation of the privilege as provided in section 208 of the LMRDA, to file the annual financial report called for in section 201(b) of the LMRDA and § 403.3 of this part on United States Department of Labor Form LM-3 entitled “Labor Organization Annual Report,” in accordance with the instructions accompanying such form and constituting a part thereof.

* * * * *

(b) The Secretary may revoke a labor organization's privilege to file the Form LM-3 simplified annual report described in § 403.4(a)(1) and require the labor organization to file the Form LM-2 as provided in § 403.3, if the following conditions are met:

(1) The Secretary has provided notice to the labor organization that revocation is possible if conditions warranting revocation are not remedied;

(2) The Secretary has undertaken such investigation as the Secretary deems proper revealing:

(i) The date the labor organization's Form LM-3 was due has passed and no Form LM-3 has been received; or

(ii) The labor organization filed the Form LM-3 with a material deficiency and failed to remedy this deficiency after notification by the Secretary that the report was deficient; or

(iii) Other circumstances exist that warrant revocation of the labor organization's privilege to file the Form LM-3.

(3) The Secretary has provided notice to the labor organization of a proposed decision to revoke the filing privilege, the reason for such revocation, and an opportunity for the labor organization to submit in writing a position statement with relevant factual information and argument regarding:

(i) The existence of the delinquency or the deficiency (including whether a deficiency is material) or other circumstances alleged in the notice;

(ii) The reason for the delinquency, deficiency or other cited circumstance and whether it was caused by factors reasonably outside the control of the labor organization; and

(iii) Any other factors, including those in mitigation, the Secretary should consider in making a determination regarding whether the labor organization's privilege to file the Form LM-3 should be revoked.

(4) The Secretary (or a designee who has not participated in the investigation), after review of all the information collected and provided, shall issue a determination in writing to the labor organization. If the Secretary determines that the privilege shall be revoked, the Secretary will inform the labor organization of the reasons for the determination and order it to file the Form LM-2 for such reporting periods as the Secretary finds appropriate.

(c) A labor organization that receives a notice as set forth in § 403.4(b)(3) must submit its written statement of position and any supporting facts, evidence, and argument by mail, hand delivery, or by alternative means specified in the notice to the Office of Labor-Management Standards (OLMS) at the address provided in the notice within 30 days after the date of the letter proposing revocation. If the 30th day falls on a Saturday, Sunday, or Federal holiday, the submission will be timely if received by OLMS on the first business day after the 30th day. Absent a timely submission to OLMS, the proposed revocation shall take effect automatically unless the Secretary in his or her discretion determines otherwise.

(d) The Secretary's determination shall be the Department's final agency action on the revocation.

(e) For purposes of this section, a deficiency is “material” if in the light of surrounding circumstances the inclusion or correction of the item in the report is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced.

Signed in Washington, DC, this 8th day of January 2009.

Don Todd,

Deputy Assistant Secretary for Labor-Management Programs.

Appendix Back to Top

Note:

This appendix, which will not appear in the Code of Federal Regulations, contains the revised Form LM-2 and the revised instructions to that form. The appendix also contains the revised instructions to the Form LM-3. The form itself is not included because no changes have been made to the current version.

end regulatory text

BILLING CODE 4510-CM-P

[FR Doc. E9-503 Filed 1-16-09; 8:45 am]

BILLING CODE 4510-CM-C

Footnotes Back to Top

1. There are now more large labor organizations affiliated with a national or international body than ever before. At the close of FY 2005, 4,452 labor organizations, including 101 national and international labor organizations, reported $250,000 or more in total annual receipts. Unless otherwise noted, all estimates are based on data from the OLMS electronic labor organization reporting system (“e.LORS”) for FY 2005.

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2. The balance between wages/salaries paid to workers and their “other compensation” has changed significantly during this time. For example, in 1966, over 80% of total compensation consisted of wages and salaries, with less than 20% representing benefits. U.S. Department of Labor, Report on the American Workforce (2001) 76, 87. By 2007, wages dropped to 70.8% of total compensation and benefits grew to 29.4% of the compensation package. U.S. Department of Labor, Bureau of Labor Statistics Chart on Total Benefits, available on the Web site of the Bureau of Labor Statistics, http://www.bls.gov.

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3. The format of Forms LM-2 and LM-3 remained essentially unchanged from the early 1960s, when the Department issued the first and second generation of rules under the Act, until October 2003 when the revised Form LM-2 was issued. See, e.g., 25 FR 433 (Jan. 20, 1960); 28 FR 14383 (Dec. 27, 1963). The Form LM-4 was adopted by a final rule in 1992 with an effective date of December 31, 1993. See 57 FR 49356-49365 (Oct. 30, 1992). The effective date was subsequently postponed until December 31, 1994. See 58 FR 28304 (May 12, 1993). The Form LM-4 was then revised slightly and adopted by a final rule with the same December 31, 1994 effective date. See 58 FR 67594 (Dec. 21, 1993).

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4. The Form LM-2 and its instructions are published at 68 FR 58449-523 (Oct. 9, 2003) and are available at http://www.olms.dol.gov. Copies of the Form LM-3 and Form LM-4 are also available at http://www.olms.dol.gov.

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5. The 2003 rule set this amount at $250,000. However, the rule inadvertently failed to change the figure in 29 CFR 403.4(a)(1) from $200,000 to $250,000. As part of this final rule, the Department has revised section 403.4(a)(1) by correcting it to read “$250,000.”See text of regulation.

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6. When the current Form LM-2 was revised in 2003, the Department also established a Form T-1. The latter was vacated by the DC Circuit in American Federation of Labor and Congress of Industrial Organizations v. Chao, 409 F.3d 377 (2005). See discussion at 73 FR 57412, 57413 (Oct. 2, 2008). The Form LM-2 instructions contained descriptive information about the Form T-1. As discussed in its proposal to revise the Form LM-2, 73 FR at 57416, the Department noted that it had proposed to establish a new Form T-1 (73 FR 11754 (Mar. 4, 2008)) and that a final Form T-1 rule would affect the instructions to the Form LM-2. Because the Form T-1 published on October 2, 2008, 73 FR 57412, differs in some respects from the Form T-1, as described in the 2003 rule, the Department has revised the relevant portion of the Form LM-2 instructions to reflect the new Form T-1. The most significant changes have been made to Section X of the General Instructions. Compare the language of the new Form LM-2 instructions, at pages 4-6, with the language in the new Form T-1 instructions, at pages 1-3, shown at 73 FR at 57457-59. Minor changes have been made to sections II and VII of the General Instructions; items 10 (“Trusts or Funds”) and 11 (“Political Action Committee Funds”); and Schedule 7 (“Other Assets”).

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7. The existing instructions for the Form LM-2 (created in 2003) require itemization of “any individual disbursement of $5,000 or more or total disbursements to any single entity or individual that aggregate to $5,000 or more during the reporting period.”

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8. The 1959 Senate report on the version of the bill later enacted as the LMRDA mandated that union members receive a full accounting of “union internal processes and financial operations.” S. Rep. No. 187, at 2, reprinted in 1 NLRB Leg. Hist. of the LMRDA, at 398. The LMRDA states that a full accounting includes “information in such detail as may be necessary accurately to disclose [the labor organization's] financial condition and operations for its preceding fiscal year * * * [including] receipts of any kind and the sources thereof.” 29 U.S.C. 431(b). Senator Kennedy stated that “receipts of any kind” was “intended to be as broad as it suggests * * * receipts of any kind and the sources thereof.” As noted in the Senate report “the members who are the real owners of the money and property of the organization are entitled to a full accounting of all transactions involving their property.” S. Rep. No. 187, at 8, reprinted in 1 NLRB Leg. Hist. of the LMRDA, at 404. This rule furthers the Department's goal of increased transparency.

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9. The Department has reduced the recordkeeping and reporting burden associated with Schedules 14 and 15, by requiring labor organizations to only report on these schedules the yearly aggregates it receives from represented employers and labor organizations.

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10. One commenter suggested that the Department replace the Book Value column with a Market Value or Par Value column. In the commenter's view, this change would allow those studying the Form LM-2 to determine whether the sale of an investment or fixed asset was at market value and at arm's length.

The Department has decided not to change the values reported on Schedules 3 and 4 column (E), “Book Value.” Book value is “the value at which the investment or fixed asset was entered on the labor organization's books.” Form LM-2 Instructions page 16. Depending on when the asset was obtained, the book value will reflect the asset's original or depreciated value. Book value allows for regularized reporting of the value of assets. Unlike market or par value (the latter applicable only to equitable assets and even then of limited utility to union members and the public), book value does not pose problems of verification in comparing the value of the reported asset and the value carried on the union's books. Further, unlike market value which can be determined independently through the market (e.g., by bluebook, comparable real estate values, market price of stock) book value cannot be easily ascertained by union members and others reading the Form LM-2. For these reasons, the Department views the book value as an essential check to determine the union's compliance with this aspect of its reporting obligation.

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11. For Form 990 purposes, the IRS defines a “key employee” as “any person having responsibilities, powers, or influence similar to those of officers, directors, or trustees.” Instructions to IRS Form 990 (2007), at p. 40. To illustrate this requirement, the IRS states: A chief financial officer and the officer in charge of the administration are both key employees if they have the authority to control the organizations, activities, its finances, or both.”Id. For the 2008 tax year, the IRS is requiring Form 990 filers to also provide information on the filer's five current highest compensated employees (other than officers, directors, trustees, or key employees) receiving more than $100,000 in reportable compensation from the filer or related organizations. IRS Form 990 (2008), Part VII, Section A, 1a.

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12. As noted in the NPRM, 73 FR at 27351, the changes are consistent with the level of disclosure required in other contexts for executive and employee compensation. Both the IRS (see Form 990) and the Securities and Exchange Commission (see 71 FR 78338 (2006)) require similar disclosure for certain officials.

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13. Current schedules 14 through 20 will be re-numbered as schedules 21 through 29.

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14. The Department recognizes that some national or international labor organizations receive dues payment from hundreds and, in some cases, thousands of employers. Although this will add length to the reports, the recurring burden will be minimal given the sorting feature in accounting software. Further, members interested in tracking payments to and from the national organization and between that organization and an intermediate body of local labor organization will be able to quickly search for payments involving particular employers, labor organizations, and bargaining units. The Department expects that most labor organizations already track such payments in order to ensure they are receiving the appropriate amount in dues payment and that most will receive payments from only a relatively small number of employers.

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15. One commenter noted that it has 750 local affiliates, the vast majority of which have no office address other than the home of the local president or treasurer. It explained that all of these local affiliates make per capita payments over $5,000 per year and therefore it would be required to report on Schedule 15 the name and address of the person/entity making the payment. Expressing concern for the privacy of these officials, it urged the Department to except it from reporting their home addresses. The Department does not agree that an exception is necessary. Labor organizations already must disclose a publicly available address for itself or a registered agent for service of process in order to comply with state corporation laws. Further, the IRS requires a labor organization to list its address on IRS Form 990. For purposes of Schedule 15, a labor organization may use the address used by the labor organization in complying with state law or reported on the Form 990. Alternatively, a labor organization concerned about the disclosure of an officer's home address may elect to obtain a P.O Box and use that as its mailing address.

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16. In this rulemaking the Department only addresses whether the information is available pursuant to the “just cause per se” provision of the special reporting procedure. The Department does not reach the question whether a union member for “just cause” would be able to examine underlying documents. The result may well depend upon the particular circumstances giving rise to the member's request, the nature of the information that is at issue, and the potential applicably of non-disclosure provisions under statute and case law.

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17. The revised section reads: “This provision does not apply to disclosure that is otherwise prohibited by law or that would endanger the health or safety of an individual, or that would consist of individually identifiable health information the trust is required to protect under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Regulation.”

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18. The revocation procedures will not affect labor organizations with annual receipts less than $10,000. While section 208 allows the Secretary to revoke the privilege of such labor organizations to file the highly simplified Form LM-4, the Department is not proposing at this time to apply such procedure to Form LM-4 filers.

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19. OLMS intends to continue its regular practice of contacting Form LM-3 filers at the end of their fiscal year about their filing obligation, and, in doing so, it will inform them of the potential revocation of their privilege to file the Form LM-3 if they are delinquent in filing the form, file a Form LM-3 that is materially deficient, or for other appropriate cause. The instructions to the Form LM-3 already inform labor organization officers of their statutory obligation to file the completed forms with OLMS within 90 days after the end of their labor organization's fiscal year.

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20. OLMS will notify a filer whose Form LM-3 is materially deficient by letter, advising in what respects the filing is deficient and providing a date by which the filer must submit a corrected Form LM-3. Ordinarily, the filer will be allowed not less than 30 days from the date of the letter to submit a corrected Form LM-3.

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21. The Department anticipates that the new rule will provide ample incentive for labor organizations to fulfill timely their Form LM-3 filing responsibilities. If the rule has that salutary effect, the number of unions potentially subject to revocation of their Form LM-3 privilege will be relatively small. Should this not be the case, available resources may limit the ability of the Department to pursue revocation in all cases where it may be warranted. In such instances, the Department will exercise, fairly and impartially, its enforcement discretion in deciding where revocation should be pursued.

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22. As “evidence” of the burden, two commenters noted that the Form LM-2 is so difficult to complete that the Department, in light of the legal challenge to the 2003 rule, recognized that unions would need at least 18 months to prepare for filing the form. (As discussed in the text, the actual burden to an affected union under this aspect of today's rule will be much less demanding than for a typical Form LM-2 filer. The “lead time” for the submission of the Form LM-2s, as revised by the 2003 rule, was provided because of two factors: (1) The need for some unions to substantially revise sophisticated recordkeeping and accounting systems; and (2) the delay in the Department's development of software by which unions would electronically submit their Form LM-2s. Neither factor is in play under the instant rule.

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23. The RFA requires that an agency's final regulatory flexibility analysis include “a summary of the significant issues raised by the public comments in response to the initial regulatory flexibility analysis, a summary of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments.” 5 U.S.C. 604(a)(2).

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24. As indicated in the NPRM, the Department's analysis has segregated labor organizations into three “tiers,” based on size of annual receipts. Tier I labor organizations are those with annual receipts between $250,000 and $499,999; Tier II labor organizations are those with annual receipts between $500,000 and $6.5 million; and Tier III labor organizations are those with annual receipts over $6.5 million.

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25. This upward revision was modest, and occurred despite the fact that overall compliance costs to labor organizations were reduced as a result of changes made in the final rule, in particular, to reporting requirements for the two largest receipt itemization schedules, dues and per capita taxes. These modifications from the NPRM realized a reduction in overall compliance costs for covered labor organizations, but the methodological improvements in the cost analysis offset those savings.

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26. The PRA analysis for the revisions to Form LM-2 in 2003 is set forth at 68 FR 58436-42.

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27. The compliance costs for all covered labor organizations for the first year, and the compliance costs averaged over the first three years—$22.14 million and $8.86 million, respectively—are well below the $100,000,000 threshold that would make this rule economically significant under Executive Order 12866. Therefore, as noted above, this rule is not an “economically significant” regulatory action under section 3(f)(1) of Executive Order 12866.

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28. The Department has updated these figures from the NPRM, which relied on 205 LM-2 reports.

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29. The sum is divided for Tier II labor organizations because, as noted above, the Department estimated that one-half of these organizations already keep these records.

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30. The Department suspects that it will take significantly less time to make the changes listed above to column F (Disbursements for Official Business) on Schedules 11 and 12, which will now include indirect disbursements for temporary lodging or transportation while on official business for the labor organization. However, this information has never been reported by individuals and there is no data upon which to reliably estimate the number of disbursements.

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31. Because there is no publicly available source for obtaining the number of employers employing workers represented by labor organizations, the Department has relied instead on the number of Form 7s filed by labor organizations to estimate this figure. The Department recognizes that the filing of a Form 7 is a requirement of the National Labor Relations Act, 29 U.S.C. 158(d)(3), and, as a result, labor organizations and employers covered by the Railway Labor Act, 45 U.S.C. 151 et seq., and public sector labor organizations not covered by the NLRA but that file LM reports as “mixed” unions, are not included in this figure. Further, the Department recognizes that because Form 7s represent contract disputes, more than one Form 7 may be filed by employers or labor organizations representing employees employed by that employer. Finally, the estimate assumes full compliance with the NLRA notice requirement. Although imperfect, the Department views this figure as a best estimate of the number of employers employing workers represented by labor organizations.

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32. The wage and salary data is based on information contained in Bureau of Labor Statistics, Occupational Employment Statistics Survey, 2007.

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33. The wage and salary data is based on information contained in Bureau of Labor Statistics, Occupational Employment Statistics Survey, 2007.

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34. Section 601(4) provides in part: “the term ‘small organization’ means any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. * * *”

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35. In the 2003 Form LM-2 rule, the Department estimated the burden for each of three categories of reporting labor organizations as measured by their range of annual receipts: Tier I ($250,000 to less than $500,000); Tier II ($500,000 to less than $50,000,000) and Tier III ($50,000,000 or more).

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36. The estimated burden on labor organizations is discussed in detail in the previous section concerning the Paperwork Reduction Act. The figures discussed above are derived from the figures explained in that section.

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37. The estimates reported in this paragraph do not include labor organizations that voluntarily filed the Form LM-2 nor an estimate of the number of labor organizations (with annual receipts less than $250,000) that would have to file the Form LM-2 under the proposed Form LM-3 revocation procedures. The number of such labor organizations (158) represents only a small fraction of the total number of reporting labor organizations and thus their inclusion would not have a material effect on the burden estimates.

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38. The several magnitude difference in percentages is accountable to the much smaller number of labor organizations with $250,000 to $499,999 in annual receipts (1,325) compared to the number of labor organizations with $500,000 to $6.5 million in annual receipts (2,895) and the three and one half-fold difference in average receipts between labor organizations with $250,000 to $499,999 in annual receipts and labor organizations with $500,000 to $6.5 million in annual receipts.

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39. Note: Some of the figures used in this table and other figures mentioned in this document may not add due to rounding.

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