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Rule

Rescission of Form T-1, Trust Annual Report; Requiring Subsidiary Organization Reporting on the Form LM-2, Labor Organization Annual Report; Modifying Subsidiary Organization Reporting on the Form LM-3, Labor Organization Annual Report; LMRDA Coverage of Intermediate Labor Organizations; Final Rule

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Start Preamble Start Printed Page 74936

AGENCY:

Office of Labor-Management Standards, Department of Labor.

ACTION:

Final rule.

SUMMARY:

This rule rescinds the Form T-1, Trust Annual Report, and rescinds its implementing regulations by removing them from the CFR. This form was promulgated by the final rule published in the Federal Register on October 2, 2008 (2008 Form T-1 rule). The Form T-1 was required to be filed by labor organizations about certain trusts in which they are interested pursuant to the Labor-Management Reporting and Disclosure Act of 1959. Upon further review of the 2008 Form T-1 rule, including the pertinent facts and legally relevant policy considerations surrounding that rulemaking, as well as the comments received from the February 2, 2010, notice of proposed rulemaking (NPRM) to rescind the Form T-1, the Department of Labor (Department) rescinds the rule implementing the Form T-1 because it considers the trust reporting required under the rule to be overly broad and, as structured, is not necessary to prevent circumvention and evasion of the Title II reporting requirements. Additionally, this rule returns “subsidiary organization” reporting to the Form LM-2 (Labor Organization Annual Report), which the Department considers to be necessary to satisfy the purposes of the LMRDA, and it clarifies the scope of such reporting in response to comments received in the NPRM. Finally, in interpreting the definition of “labor organization” under the LMRDA, the Department returns to its long held view that the statute's coverage does not encompass intermediate bodies that are wholly composed of public sector organizations. In so doing, the Department has reconsidered a definitional interpretation that it adopted in 2003.

DATES:

This rule will be effective January 3, 2011. The changes made to the Form LM-2 and Form LM-3 reporting requirements will apply to reports required by labor organizations with fiscal years beginning on or after January 1, 2011.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Denise M. Boucher, Director, Office of Policy, Reports and Disclosure, Office of Labor-Management Standards, U.S. Department of Labor, 200 Constitution Avenue NW., Room N-5609, Washington, DC 20210, (202) 693-0123 (this is not a toll-free number), (800) 877-8339 (TTY/TDD).

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

The Regulatory Information Number (RIN) identified for this rulemaking changed with publication of the Spring Regulatory Agenda due to an organizational restructuring. The old RIN was assigned to the Employment Standards Administration, which no longer exists; a new RIN has been assigned to the Office of Labor-Management Standards

I. Authority

A. Legal Authority

This rescission of the 2008 Form T-1 rule, the union reporting requirements concerning subsidiary organizations, and the revised interpretation relating to the coverage of public sector intermediate body labor unions under LRMDA section 3(j), 29 U.S.C. 402, are made pursuant to section 201 and section 208 of the LMRDA, 29 U.S.C. 431, 438. Section 208 authorizes the Secretary of Labor to issue, amend, and rescind rules and regulations to implement the LMRDA's reporting provisions, and also includes authority to issue such rules “prescribing reports concerning trusts in which a labor organization is interested” as she may “find necessary to prevent the circumvention or evasion of [the LMRDA's] reporting requirements.” 29 U.S.C. 438.

B. Departmental Authorization

Secretary's Order 08-2009, issued November 6, 2009, contains the delegation of authority and assignment of responsibility for the Secretary's functions under the LMRDA to the Director of the Office of Labor-Management Standards and permits re-delegation of such authority. See 74 FR 58835 (Nov. 13, 2009).

II. Background

In enacting the LMRDA in 1959, Congress sought to protect the rights and interests of employees, labor organizations and the public generally as they relate to the activities of labor organizations, employers, labor relations consultants, and their officers, employees, and representatives. The LMRDA was the direct outgrowth of a congressional investigation conducted by the Select Committee on Improper Activities in the Labor or Management Field, commonly known as the McClellan Committee. The LMRDA addressed various ills through a set of integrated provisions aimed at labor-management relations governance and management. These provisions include LMRDA Title II 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.

The Department has developed several forms to implement the union annual reporting requirements of the LMRDA. 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. The labor organization annual financial reports required by section 201(b) of the Act, 29 U.S.C. 431(b) (Form LM-2, Form LM-3, and Form LM-4), are to contain information about a labor organization's assets, liabilities, receipts, and disbursements in such detail “as may be necessary accurately to disclose its financial condition and operations for its preceding fiscal year.” The Form LM-2 Annual Report, the most detailed of the annual labor organization reports and that required to be filed by labor organizations with $250,000 or more in annual receipts, must include reporting of loans to officers, employees and business enterprises; payments to each officer; and payments to each employee of the labor organization paid more than $10,000 during the fiscal year, in addition to other information.

In addition to prescribing the form and publication of the LMRDA reports, the Secretary is authorized to issue regulations that prevent labor unions and others from avoiding their reporting responsibilities. Section 208 authorizes the Secretary of Labor to issue, amend, and rescind rules and regulations to implement the LMRDA's reporting provisions, including such rules “prescribing reports concerning trusts in which a labor organization is interested” as she may “find necessary to prevent the circumvention or evasion of [the LMRDA's] reporting requirements.” 29 U.S.C. 438.

Historically, the Department's LMRDA reporting program had not provided for separate trust reporting by unions. However, there is a long history Start Printed Page 74937of reporting on “subsidiary organization[s].” Part VIII of the 1962 Instructions for Form LM-2 provided for reporting concerning these entities, which were defined in the Form LM-2 instructions as “any separate organization in which the ownership is wholly vested in the labor organization or its officers or its membership, which is governed or controlled by the officers, employees or members of the labor organization, and which is wholly financed by the labor organization.”

III. Rescission of the October 2, 2008, Final Rule Establishing the Form T-1 and Return of Subsidiary Reporting to the Form LM-2

A. History of the Form T-1

The Form T-1 report was first proposed on December 27, 2002, as one part of a proposal to extensively change the Form LM-2. 67 FR 79279 (Dec. 27, 2002). The rule was proposed under the authority of Section 208, which permits the Secretary to issue such rules “prescribing reports concerning trusts in which a labor organization is interested” as she may “find necessary to prevent the circumvention or evasion of [the LMRDA's] reporting requirements.” 29 U.S.C. 438. Following consideration of public comments, on October 9, 2003, the Department published a final rule enacting extensive changes to the Form LM-2 and establishing a Form T-1. 68 FR 58374 (Oct. 9, 2003) (2003 Form T-1 rule). The 2003 Form T-1 rule eliminated the requirement that unions report on subsidiary organizations on the Form LM-2, but it mandated that each labor organization filing a Form LM-2 report also file a separate report to “disclose assets, liabilities, receipts, and disbursements of a significant trust in which the labor organization is interested.” 68 FR at 58477. The reporting labor organization would make this disclosure by filing a separate Form T-1 for each significant trust in which it was interested. Id. at 58524.

The 2003 Form T-1 rule defined the phrase “significant trust in which the labor organization is interested” by utilizing the section 3(l) statutory definition of “a trust in which a labor organization is interested” and an administrative determination of when a trust is deemed “significant.” 68 FR at 58477-78. The LMRDA defines a “trust in which a labor organization is interested” as:

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

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

The 2003 Form T-1 rule set forth an administrative determination that stated that a “trust will be considered significant” and therefore subject to the Form T-1 reporting requirement under the following conditions:

(1) The labor organization had annual receipts of $250,000 or more during its most recent fiscal year, and (2) the labor organization's financial contribution to the trust or the contribution made on the labor organization's behalf, or as a result of a negotiated agreement to which the labor organization is a party, is $10,000 or more annually.

Id. at 58478.

The portions of the 2003 rule relating to the Form T-1 were vacated by the U.S. Court of Appeals for the District of Columbia Circuit in AFL-CIO v. Chao, 409 F.3d 377, 389-391 (DC Cir. 2005). The court held that the form “reaches information unrelated to union reporting requirements and mandates reporting on trusts even where there is no appearance that the union's contribution of funds to an independent organization could circumvent or evade reporting requirements by, for example, permitting a union to maintain control of funds.” Id. at 389. The court also vacated the Form T-1 portions of the 2003 rule because its test failed to establish reporting based on domination or managerial control of assets subject to LMRDA Title II jurisdiction. The court reasoned that the Department failed to explain how the test promulgated—selection of one member of a board and a $10,000 contribution to a trust with $250,000 in receipts—could result in union domination and control sufficient to give rise to circumvention or evasion of Title II reporting requirements. Id. at 390. In so holding, the court emphasized that Section 208 authority is the only basis for LMRDA trust reporting, that this authority is limited to preventing circumvention or evasion of Title II reporting, and that “the statute doesn't provide general authority to require trusts to demonstrate that they operate in a manner beneficial to union members.” Id. at 390.

Following the 2003 vacatur of the provision of the final rule relating to the Form T-1, the Department issued a revised Form T-1 final rule on September 9, 2006. 71 FR 57716 (Sept. 9, 2006) (2006 Form T-1 rule). The U.S. District Court for the District of Columbia vacated this rule due to a failure to provide a new notice and comment period. AFL-CIO v. Chao, 496 F.Supp. 76 (DC 2007). The district court did not engage in a substantive review of the 2006 rule, but the court noted that the AFL-CIO demonstrated that “the absence of a fresh comment period constituted prejudicial error” and that the AFL-CIO objected with “reasonable specificity” to warrant relief vacating the rule. Id. at 90-92.

The Department issued a proposed rule for a revised Form T-1 on March 4, 2008. 73 FR 11754 (Mar. 4, 2008). After notice and comment, the 2008 Form T-1 final rule was issued on October 2, 2008. 73 FR 57412. This rule attempted to remedy the failings of the Department's 2003 and 2006 efforts in implementing a Form T-1. 73 FR at 57413. The 2008 Form T-1 rule became effective on December 31, 2008. Under this rule, Form T-1 reports would be filed no earlier than March 31, 2010, for fiscal years that began no earlier than January 1, 2009.

The 2008 Form T-1 rule states that labor organizations with total annual receipts of $250,000 or more must file a Form T-1 for those section 3(l) trusts in which the labor organization, either alone or in combination with other labor organizations, had management control or financial dominance. 73 FR at 57411. For purposes of the rule, a labor organization has management control if the labor organization alone, or in combination with other labor organizations, selects or appoints the majority of the members of the trust's governing board. Further, for purposes of the rule, a labor organization has financial dominance if the labor organization alone, or in combination with other labor organizations, contributed more than 50 percent of the trust's receipts during the annual reporting period. Significantly, the rule treats contributions made to a trust by an employer pursuant to a collective bargaining agreement as constituting contributions by the labor organization that was party to the agreement.

Additionally, the 2008 Form T-1 rule provides exceptions to the Form T-1 filing requirements. No Form T-1 is required for a trust: Established as a political action committee (PAC) fund if publicly available reports on the PAC fund are filed with Federal or state agencies; established as a political organization for which reports are filed with the IRS under section 527 of the IRS code; required to file a Form 5500 under the Employee Retirement Income Security Act of 1974 (ERISA); or constituting a federal employee health benefit plan that is subject to the provisions of the Federal Employees Health Benefits Act (FEHBA). Similarly, the rule clarifies that no Form T-1 is required for any trust that meets the Start Printed Page 74938statutory definition of a labor organization and files a Form LM-2, Form LM-3, or Form LM-4 or trust that the LMRDA exempts from reporting, such as an organization composed entirely of state or local government employees or a state or local central body.

On July 21, 2009, the Department held a public meeting to solicit comments from representatives of the community that would be affected by a proposal to rescind the Form T-1, return subsidiary organization reporting to the Form LM-2, and revise the interpretation regarding wholly public sector intermediate bodies.

On December 30, 2009, following notice and comment, the Department published a rule extending for one year the filing due date of all Form T-1 reports required to be filed during calendar year 2010 (74 FR 69023). In response to the notice, the Department received 128 timely comments from labor organizations, public interest groups, and employer or trade associations. The extension does not affect those reports due during calendar year 2011 or beyond. This extension prevented unions from incurring costly reporting burdens pending a rulemaking to rescind the Form T-1 regulation.

Subsequently, on February 2, 2010, the Department published the NPRM proposing to rescind the Form T-1, to return reporting on a union's wholly owned, financed, and controlled subsidiary organizations to the Form LM-2, and to revise the interpretation regarding wholly public sector intermediate bodies (75 FR 5456).

B. Reasons for the Proposal To Rescind the October 2, 2008 Form T-1 Final Rule

The Department proposed to rescind the 2008 Form T-1 rule because on review it considered the trust reporting required under the rule to be overly broad in requiring union reporting concerning many entities, including trusts funded by employers pursuant to collective bargaining agreements, without an adequate showing that such reporting is required to prevent circumvention and evasion of the Title II reporting requirements. Moreover, the Department stated that it had reviewed the 2008 rulemaking record and no longer viewed the separate reporting requirements as set forth in the 2008 Form T-1 rule as justified in light of the burden they imposed.

Under the Act, the Secretary has the authority to “issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under this title and such other reasonable rules and regulations (including rules concerning trusts in which a labor organization is interested) as he may find necessary to prevent the circumvention or evasion of such reporting requirements.” 29 U.S.C. 438. The Secretary's regulatory authority thus includes the reporting mandated by the Act and discretionary authority to require reporting on trusts falling within the statutory definition of a trust “in which a labor organization is interested.” 29 U.S.C. 402(l). The Secretary's discretion to require separate trust reporting applies to trusts if: (1) The union has an interest in a trust as defined by 29 U.S.C. 402(l) and (2) reporting is determined to be necessary to prevent the circumvention or evasion of Title II reporting requirements. 29 U.S.C. 438. As both the Department and the court have recognized, this is a two-part requirement. See AFL-CIO v. Chao, 409 F.3d 377, 386-87 (DC Cir. 2005) (discussion of two-part test).

As such, a key feature of the Secretary's discretionary authority to require trust reporting is the requirement that the Secretary conclude that such reporting is “necessary” to prevent circumvention or evasion of a labor organization's requirement to report on its finances under the LMRDA. The Department has concluded that the 2008 Form T-1 rule is overly broad in requiring financial reporting concerning many trusts, including trusts funded by employers pursuant to collective bargaining agreements, without the required showing that the rule is necessary to prevent circumvention or evasion of Title II reporting requirements.

In particular, the 2008 Form T-1 rule provides that, for purposes of evaluating whether payments to a trust indicate that the union is financially dominant over the trust, payments made by employers to trusts under section 302(c) of the LMRA, 29 U.S.C. 186(c) (Taft-Hartley funds), should be treated as funds of the union. Taft-Hartley funds are created and maintained through employer contributions paid to a trust fund, pursuant to a collective bargaining agreement, and must have equal numbers of union and management trustees, who owe a duty of loyalty to the trust. Taft-Hartley funds are established for the “sole and exclusive benefit of the employees” and are excepted from the statutory prohibition against an employer paying money to employees, representatives, or labor organizations. See 29 U.S.C. 186(a) and (c)(5).

The Department recognizes that its authority under section 3(l) to require reporting of trusts in which a union “has an interest” is sufficiently broad to encompass Taft-Hartley plans funded by employer contributions. However, as explained above, this is only the first part of the section 208 analysis. The second part of the analysis requires that the Secretary determine that the reporting is necessary to prevent circumvention or evasion of the reporting of union money subject to Title II.

As explained in the 2008 Form T-1 rule, section 201 of Title II of the LMRDA requires that unions “file annual, public reports with the Department, detailing the labor organization's financial condition and operations during the reporting period, and, as implemented, identifying its assets and liabilities, receipts, salaries and other direct or indirect disbursements to each officer and all employees receiving $10,000 or more in aggregate from the labor organization, direct or indirect loans (in excess of $250 aggregate) to any officer, employee, or member, any loans (of any amount) to any business enterprise, and other disbursements.” 73 FR at 57413 (citing 29 U.S.C. 431(b)). Further, section 201 requires that such information shall be filed “in such detail as may be necessary to disclose [a labor organization's] financial condition and operations.” 73 FR at 57414 (citing Id.). Significantly, each listed reportable financial transactions to be reported is one that reflects upon the union's financial condition and operations, not the financial condition and operations of another entity.

In sum, the Department proposed to rescind the rule implementing the Form T-1 because it considers the breadth of trust reporting required under the rule to be overly broad and not necessary to prevent the circumvention and evasion of the Title II reporting requirements. Moreover, the Department reviewed the 2008 Form T-1 rulemaking record and no longer views the Form T-1 separate reporting requirements as justified in light of the burden they impose.

C. Reasons for the Proposal To Reinstate Subsidiary Reporting on the FormLM-2

Prior to the 2003 Form LM-2 changes that first required separate Form T-1 trust reporting, labor organizations were required to report concerning their subsidiary organizations on the Form LM-2.[1] Subsidiary organizations were defined in the Form LM-2 instructions Start Printed Page 74939as “any separate organization of which the ownership is wholly vested in the reporting labor organization or its officers or its membership, which is governed or controlled by the officers, employees, or members of the reporting labor organization, and which is wholly financed by the reporting labor organization.” See pre-2003 Form LM-2 Instructions, Section X.[2] This requirement was dropped in the October 2003 modifications to the Form LM-2. See 68 FR at 58414. While not made explicit in the final regulation, the Department's assumption at that time was that the prior subsidiary organization reporting would be captured by the new requirement for trust reporting on the Form T-1, which was also introduced in that final rule. This result is implied by the Department's comment in the 2008 Form T-1 rule that “the Form T-1 closes a reporting gap under the Department's former rule whereby labor organizations were required to report on `subsidiary organizations,' ” and not more broadly on any other trusts in which they have an interest. 73 FR at 57412.

The NPRM set out the Department's understanding that a substantial number of the Form T-1 reports it would receive would be for these subsidiary organizations. During the 2004 reporting year, the last year in which unions filed annual reports on the old Form LM-2, approximately 1,087 filers indicated that they had at least one subsidiary organization. Additionally, in the Department's experience approximately 50 of the largest labor organizations have two additional subsidiaries. Thus, the Department estimates approximately 1,187 subsidiaries for Form LM-2 filers (the 1,087 filers with subsidiaries plus an additional 100 for the 50 unions with two subsidiaries). The Form T-1 final rule estimated that an average of 3,131 Form T-1 reports would be filed in each fiscal year (the 2008 Form T-1 rule referenced “3,130.54” Form T-1 reports, but this rule rounds this figure up to 3,131 reports). 73 FR at 57441. Therefore, the Department estimates that more than one third of Form T-1 reports would be for subsidiary organizations. See Paperwork Reduction Act Analysis.

The return of subsidiary organizations to the Form LM-2 reporting requirements will restore the prior status quo concerning the financial disclosure of such entities, which was that a union must disclose the financial information of its subsidiary to the same level of detail as other assets of the union. See pre-2003 Form LM-2 Instructions, Section X.

Under the pre-2003 Form LM-2 reporting regime a labor organization could report on its subsidiary organizations in one of three ways. The filer could (1) consolidate the financial information for the subsidiary and the labor organization in a single Form LM-2; (2) file a separate Form LM-2 report for the subsidiary organization, along with the Form LM-2 for the union; or (3) file a regular annual report of the financial condition and operations of the subsidiary organization along with the Form LM-2 for the union.

In the NPRM, the Department proposed to allow Form LM-2 filers only two options for reporting subsidiaries. The Department proposed that Form LM-2 filers can either (1) consolidate their subsidiaries' financial information on the union's Form LM-2, or (2) they can file, with their Form LM-2, a regular annual report of the financial condition and operations of each subsidiary organization, accompanied by a statement signed by an independent public accountant certifying, for each subsidiary, that the financial report presents fairly the financial condition and operations of the subsidiary organization and was prepared in accordance with generally accepted accounting principles. The NPRM also proposed to revise the Form LM-3 subsidiary organization instructions to conform with these proposed revisions of the Form LM-2 subsidiary organization instructions.

D. Review of Comments Received in Response to the NPRM's Proposal To Rescind the Form T-1 and Return Subsidiary Organization Reporting Requirement to the Form LM-2

The Department received 20 comments in response to its February 2, 2010 NPRM. Of these comments, two employer associations and two public policy groups expressed opposition to the Department's proposal to rescind the Form T-1 and return subsidiary organization reporting to the Form LM-2 reporting requirements, while 14 comments, from labor organizations, supported the proposal. Another comment, from a public policy group, acknowledged that some of the Form T-1 requirements would have been “unduly burdensome for unions and of little value to members,” but nevertheless recommended a “fine-tune” of the requirements rather than rescinding them entirely.[3]

1. Proposal To Rescind the Form T-1

a. Trust Reporting Requirements of the Form T-1 Are Not Justified in Light of the Burden Imposed Upon Reporting Labor Organizations

Numerous union comments that supported the proposed rescission asserted that the separate trust reporting requirements in the 2008 Form T-1 are not justified in light of the burden they impose. Specifically, two unions asserted that separate reporting on the Form T-1 is particularly burdensome because it establishes the reporting threshold for an individual union based on the contributions or appointments of all unions to a particular trust in the aggregate, without any consideration of a de minimis threshold to reduce the reporting burden on unions with only nominal involvement in a trust. For example, one union comment argued that the “[Form T-1] aggregation threshold mandates that by virtue of giving even $1 to a trust, an individual LM-2 filer could be required to file its own T-1 report on the trust if at the end of its fiscal year the trust realizes that more than half of its funds were provided by labor organizations in the aggregate.” Further, one union comment stated that by aggregating all union appointments or contributions to a particular fund, the Department assumes affiliations between these unions where none may exist. Moreover, one union comment contended that the burden placed upon unions to complete Form T-1 reports must be considered in light of the fact that many of the trustees of these independent trusts require regular audits, and the trusts likely file a publicly available Form 990 with the Internal Revenue Service (IRS), which the IRS redesigned in 2008 to include much greater detailed reporting on a non-profit trust's key financial, compensation, governance, and operational information.[4]

Related to the burden imposed upon unions required to file Form T-1 reports, several union comments supported the Department's proposal to rescind the Form T-1 by explaining that the Form T-1 reporting regime is both unworkable and fundamentally unfair because “the trusts for which unions must file reports are separate and independent legal entities.” One union expressed concern that under the 2008 Form T-1 rule, trusts have no legal obligation to provide unions with the financial information necessary to properly file a Form T-1 report. This Start Printed Page 74940union comment further explained, that in fact, “trustees may believe or be advised by legal counsel that providing the necessary information is a breach of the trust's fiduciary duties owed to participants and beneficiaries [as well as a violation of] individual privacy rights and other legal obligations.” Finally, this union comment concluded that “trustees also may believe they have a duty not to incur costs to maintain records unique to the Form T-1 reporting requirements.” Several union comments supported the Department's proposal to rescind the Form T-1 because they were concerned that if a trust should refuse to timely provide the necessary information, then the union may incur liability under the LMRDA, while the uncooperative trust avoids any liability. Union comments asserted that, as drafted, the 2008 Form T-1 rule has no “safe harbor” provision for unions that document a good faith effort to obtain and fully and accurately report all necessary information so as to avoid liability for failure to file a report.

Comments in opposition to rescission of the Form T-1, as discussed below, generally asserted that the Form T-1 trust reporting is necessary to prevent circumvention or evasion of Title II reporting requirements. One public policy group argued that the Department's proposal to rescind the 2008 Form T-1 rule is unsupported. However, none of the comments opposing the proposed rescission of the Form T-1 included specific information or an argument showing that separate trust reporting is justified in light of the burden it imposes on labor organizations. Nor did any comments dispute the issues raised by unions regarding the burden associated with gaining trusts' cooperation with providing the necessary information to complete Form T-1 reports.

The Department agrees with comments that support the rescission by asserting that multiple T-1 filings would be required on a single trust entity and there is no de minimis threshold for reporting. Further, while the 2008 Form T-1 Final Rule explained the Department's view that it would not violate the fiduciary duties of a trust for it to cooperate with a labor organization by providing information necessary for the preparation of the Form T-1, 72 FR 57424, this would not eliminate the logistical and practical burdens identified by the unions concerning this information gathering requirement. Accordingly, the Department concludes that the Form T-1 should be rescinded given the burden imposed by separate trust reporting.

b. The 2008 Form T-1 Is Not Necessary To Prevent the Circumvention or Evasion of Title II Reporting Requirements

Of the comments offered in support of the Department's proposal to rescind the Form T-1, many comments asserted that the Form T-1 is overbroad in the inclusion of Taft-Hartley funds, requiring burdensome reporting on trusts over which a union neither has managerial control nor financial dominance. A federation of labor organizations stated that the Form T-1 is not in compliance with AFL-CIO v. Chao, as it treats payments made by employers pursuant to a collective bargaining agreement as establishing “financial domination” by a labor organization, without any “empirical evidence” of such domination, as the comment asserts the AFL-CIO v. Chao decision required. Further, in countering the premise that unions dominate Taft-Hartley trusts by controlling the allocation of labor costs between wages and benefits, the commenter concurred with the Department's statement in the NPRM that there was no indication of any relationship between employer-financed trusts and the Title II reporting requirements, much less circumvention or evasion. Several other comments submitted by unions similarly rejected the use of employer contributions to infer union dominance.

Three comments that opposed the proposal to rescind asserted that the Form T-1 trust reporting is necessary to prevent circumvention or evasion of Title II reporting requirements, and that unions should not be permitted to avoid reporting these funds by transferring funds to a trust. One comment asserted that within the 2008 Form T-1 rule-making record the Department acknowledged that transfers of money from a labor organization to a trust may constitute circumvention of the union's reporting requirement. Finally, one public policy group specifically argued that the Department's proposal that the 2008 Form T-1 rule is overbroad is unsupported.

As explained above, under section 208 of the Act, the Secretary may require trust reporting only when she concludes it is necessary to prevent the circumvention or evasion of a labor organization's Title II reporting requirements. See 29 U.S.C. 208. The Title II reporting requirements for a labor organization require it “to disclose its financial condition and operations.” 29 U.S.C. 201(b) (emphasis added). Consequently, trust reporting is permissible to prevent a labor organization from using a trust to circumvent reporting of the labor union's finances. The 2008 Form T-1 NPRM asserted that money paid into Taft-Hartley trusts “reflects payments that otherwise could be made directly to employees as wages, benefits, or both, but for their assignment to the trusts.” 73 FR 11761 (NPRM); 73 FR 57417 (final rule). Nevertheless, as many union comments contend and as the Department stated in its NPRM, these underlying wages and benefits would not have been reported on a Form LM-2. Therefore, it is not apparent that these payments to a Taft-Hartley trust give rise to circumvention or evasion of Title II reporting. Moreover, although the Department has recognized that it is possible for a union to contribute its funds to a Taft-Hartley trust in order to circumvent Title II reporting requirements, no evidence has been presented to demonstrate that this is in fact occurring.

The Department now concludes that the scope of the 2008 Form T-1 rule was overbroad because it covered many trusts, such as those funded by employer contributions, without an adequate showing that reporting for such trusts is necessary to prevent the circumvention or evasion of the Title II reporting requirements. In this regard, the Department agrees with multiple union comments asserting that money contributed by the employer to a Taft-Hartley fund is not generally the property of the union, and thus its disclosure by a union would not “disclose its financial condition and operations.” 29 U.S.C. 201(b) (emphasis added). Conversely, the Department concludes that a union's nondisclosure of such funds would not be an evasion of the union's reporting requirement.

In reaching this conclusion, the Department notes that in AFL-CIO v. Chao, the Court of Appeals for the DC Circuit held that the first “Form T-1 reaches information unrelated to union reporting requirements and mandates reporting on trusts even where there is no appearance that the union's contribution of funds to an independent organization could circumvent or evade union reporting requirements.” AFL-CIO v. Chao, 409 F.3d at 389. In agreement with numerous union comments, the Department finds that the 2008 Form T-1 rule may be overly broad in the same manner because of its inclusion of certain Taft-Hartley plans. Consequently, the Department agrees with numerous comments received from unions and concludes that the 2008 Form T-1 rule is overly broad, requiring reporting in instances where the failure to report the funds at issue would not Start Printed Page 74941circumvent or evade a union's reporting requirement. Further, none of the comments presented any evidence of unions contributing funds to Taft-Hartley funds, nor did any comments provide any other arguments that counter the Department's proposal that the Form T-1 is overbroad in respect to its inclusion of Taft-Hartley funds.

In the NPRM, the Department acknowledged that the 2008 Form T-1 rule was premised upon public disclosure policies in addition to preventing circumvention of Title II reporting. The 2008 final rule stated that, “by requiring that labor organizations file the Form T-1 for specific section 3(l) trusts, labor organization members and the public will receive some of the same benefit of transparency regarding the trust that they now receive under the Form LM-2, thereby preventing a labor organization from using the trust to circumvent or evade reporting requirements.” 73 FR 57413. In this regard, the 2008 final rule provided for more general reporting than would be “necessary to prevent” the circumvention of Title II reporting requirements. As stated above both by the Department and numerous union comments, the breadth of the 2008 final rule required reporting in instances where a union is not in a position to use a trust to circumvent or evade its Title II reporting requirements. Accordingly, with respect to these trusts, it is not clear how the Form T-1 “provides transparency of labor organization finances and effectuates the goals of the LMRDA.” (emphasis added) 73 FR 57414.

In addition to comments relating to the Form T-1 burden and Taft- Hartley funds, the Department received three comments generally opposing its proposed rescission of the Form T-1 on the ground that Form T-1 reporting would increase transparency, which would advance the union's interests in operating as “a democratic institution,” by providing financial information to union members, employers, and the general public. One public policy group viewed aspects of the Form T-1 requirements as beneficial in providing union members with an understanding about union finances and potential conflicts of interest by officials that could lead to improper use of union funds; however, this comment acknowledged that aspects of the Form T-1 reporting requirements were “unduly burdensome for unions and of little value to members.” Thus, this comment called for a “fine tuning” of the Form T-1 reporting requirement rather than the proposed rescission.

The Department acknowledges the benefits of labor-management transparency, and it continues to support effective, meaningful, and appropriate reporting and disclosure requirements for unions and their officials, employers, and labor relations consultants. While the Department acknowledges its authority to establish trust reporting under section 208, when determined necessary to prevent the circumvention or evasion of the Title II reporting requirements, the Form T-1 rulemaking record is insufficient to justify the scope of the separate trust reporting requirements in the 2008 Form T-1 rule, especially in light of the Department's proposal to reinstate subsidiary reporting for many funds that would have filed the Form T-1, discussed below, and the burden imposed by the Form T-1 reporting requirements. Indeed, the comments in opposition did not provide any new examples of union contributed plans or entities that would evade reporting and disclosure requirements.[5] Nor did they provide other evidence or arguments to alter the rulemaking record in favor of retaining the Form T-1, although they did reference potential entities that are not wholly owned, controlled, and financed by a single union, which are dealt with later in the section addressing the return of subsidiary reporting to the Form LM-2. After careful consideration, the Department does not find the comments in opposition to the NPRM to be persuasive, and will rescind the Form T-1 and its implementing regulations.

2. Proposal To Reinstate Subsidiary Reporting to the Form LM-2

a. Requiring Subsidiary Reporting on the Form LM-2 Will Increase Transparency and Provide More Detailed Itemization of Subsidiaries

The Department received numerous union comments in support of returning subsidiary reporting to the Form LM-2 reporting requirements. A federation of labor organizations affirmed the Department's proposal in the NPRM that subsidiary reporting will provide greater detail than the Form T-1 for such closely related entities to the union, and would do so in a more “convenient format” than the Form T-1. Specifically, the comment stressed that the Form LM-2 requires more detailed information on union assets and liabilities. Numerous unions offered general support for the return of subsidiary reporting, as furthering transparency and limiting burden, with several concurring with the comments offered by the federation of labor unions. None of the comments received in response to the NPRM provided any evidence or arguments to refute the Department's assertion that subsidiary reporting on the Form LM-2 will increase disclosure concerning these entities in comparison with what is required on the Form T-1.

The Department received four comments that generally opposed its proposal to reinstate subsidiary reporting to the Form LM-2. Two of these comments made non-specific arguments that requiring unions to report only on funds that are wholly owned, controlled, and financed reduced transparency and is contrary to the purposes of the LMRDA. One of these comments asserted that reinstating subsidiary reporting would permit unions to transfer “billions of dollars in contract negotiated funds and union dues” to entities not covered by the Form LM-2 subsidiary reporting requirements.

The Department concludes that subsidiary reporting on the Form LM-2 increases the level of disclosure of union core financial activities. First, the Form T-1 reduced the level of reporting detail regarding the reporting of assets and liabilities of subsidiary organizations. The Form LM-2 includes Schedules 1 through 10, which require detailed itemization of the union's assets and liabilities. The Form T-1 required that unions report their assets and liabilities only in the aggregate at Items 21 and 22. Thus, a report on a subsidiary's assets and liabilities will have more information when the filer uses a Form LM-2, rather than a Form T-1. Second, the Form T-1 reduced the level of transparency and disclosure of these entities because it has a higher reporting threshold for receipts and disbursements. The Form LM-2 requires that all union assets, liabilities, receipts and disbursements exceeding $5,000 in value be itemized and reported. The Form T-1 had a reporting threshold of $10,000. A union, therefore, reporting on a subsidiary's financial transaction would disclose a greater number of transactions using the Form LM-2, as compared to the Form T-1.Start Printed Page 74942

b. Subsidiaries Are Wholly Owned Assets of the Union and Should Be Reported Using the Same Reporting Threshold and Itemization Requirement That Apply to Other Union Assets

In support of the Department's proposal to reinstate subsidiary reporting on the Form LM-2, one international union stressed that subsidiary funds are union funds and that the Form LM-2 is incomplete without the inclusion of subsidiaries. It also stated that subsidiary reporting on the Form LM-2 creates uniform reporting of all union assets. Another national union offered similar support for the need for subsidiary reporting to make the Form LM-2 complete. In addition, a national union comment supported the return of subsidiary reporting as fulfilling the purposes of the LMRDA as well as providing union members with a “reliable source” for understanding how their dues were being spent.

The Department concludes that union reporting on subsidiary organizations is more appropriate on the Form LM-2 than on the Form T-1 because subsidiaries are wholly owned properties of labor organizations, similar to any other account, fund, or asset.[6] As a result, for a union's Form LM-2 to be complete, the Department concludes that the report should include its subsidiaries, as this will result in a reporting scheme that treats all assets of the union uniformly, i.e., with the same reporting threshold and level of itemization. By including subsidiaries on the Form LM-2 and treating all union assets uniformly, the Form LM-2 will produce a more comprehensive and accurate report of a union's financial condition.

In addition, the Department received several comments asserting that the inclusion of union subsidiaries on the Form LM-2 will reduce confusion among members who seek financial information about their union. The Department agrees with these comments, and concludes that the inclusion of subsidiaries on the Form LM-2 will alleviate potential misunderstandings relating to the reporting of a union's total annual receipts. In the NPRM, the Department explained that for purposes of determining whether a particular union must file a Form LM-2 (receipts of $250,000 or more) receipts of subsidiaries must be counted, even though, under the From T-1 reporting regime these receipts are to be reported on the Form T-1, and not on the Form LM-2. Thus, some unions with a subsidiary are required to file an LM-2, even though they may have reported receipts of less than $250,000. This anomaly can lead to confusion on the part of union members and the public. For these reasons, the Department concludes that incorporating subsidiaries on the Form LM-2 provides more information about the subsidiaries and a more accurate report of the union as a whole, reducing the potential for misunderstandings by union members and the public.

c. Comments Opposing the Rescission Contend That a Reporting Gap Will Exist Notwithstanding the Reinstatement of Subsidiary Reporting on the Form LM-2

The Department received two comments that acknowledged the need for subsidiary organization reporting but specifically asserted that there also is a need for reporting on trusts that are not wholly owned, controlled, and financed by a single union, such as where a union may have a majority of a trust's board as members or contribute more than half of the trust's funds. One of these comments contended that relying upon “complete ownership” as the trigger for reporting rather than union control or financial dominance, creates a reporting gap by removing from the trust reporting requirement approximately two thirds of the trusts that the Department estimated would file the Form T-1. In support of its position, that a significant reporting gap will exist, the comment cited the four examples that have been utilized throughout the Form T-1 rulemaking history: A joint training fund; a statewide strike fund; a building fund financed partly with union members' pension funds; and a credit union funded 97% by the funds of one local union, as funds not covered by the Department's proposed subsidiary reporting. Although specifying only these four examples, the comment asserts that “countless” examples exist.

The Department does not agree with this commenter's contention that the proposed rule will lead to a significant loss of relevant information for union members on multiple-union owned funds, as opposed to subsidiaries. Initially, the commenter did not take into account the Department's conclusion that reporting from Taft-Hartley trusts is not necessary to prevent the circumvention or evasion of the Title II reporting requirements. In this regard, the Department considers that such Taft-Hartley trusts, in particular joint apprenticeship and training funds, constitute a large portion of the Form T-1 reports that the Department would have received. Indeed, one of the four examples from the rulemaking record cited by the comments is a joint training fund.

Furthermore, none of the three examples of multiple-union contributed funds cited by the comments are recent, and two date back forty or more years.[7] No comments offered any recent examples of multi-union entities that illustrate methods in which unions circumvent or evade their reporting requirements. While it appears that rescission of the Form T-1 will eliminate LMRDA reporting requirements for certain multiple-union entities that are not Taft-Hartley funds, the Department is unaware of any source of data from which to estimate, much less identify such entities. Thus, the rulemaking record does not indicate that there are presently significant numbers of entities and funds that are evading necessary disclosure, such that a separate trust reporting regime is presently warranted in addition to subsidiary reporting on the Form LM-2. Nevertheless, as stated above, the Department retains authority pursuant to section 208 to establish trust-related reporting requirements for unions, if necessary and appropriate.

In addition, the Department considers the proposed subsidiary reporting on Form LM-2 to be more expansive than some of the comments objecting to the proposal contend, as demonstrated in the Department's long-standing LMRDA Interpretive Manual. Initially, a subsidiary organization must be “wholly owned” and “controlled by a single union,” but such ownership and control can be vested in or exercised by a single reporting labor organization or its officers or its membership. The members of a union include individuals and can also include constituent organizations, such as local unions. Thus, where a District Council, for example, holds a portion of the equity ownership (i.e., common stock) of a corporation that owns the building that Start Printed Page 74943is used to house the District Council, and where the balance of the outstanding common stock is held by local labor organizations that are members of the Council, the Building Corporation in question comes within the definition of a subsidiary organization, provided that the initial financing came from the Council and/or its members, and that the corporation is governed or controlled by the Council and/or its members. The “members” of the District Council would include its constituent body local unions. See LMRDA Interpretative Manual (IM) entry 215.200. Similarly, a development corporation is a subsidiary organization if it was formed to hold title to a building in which various locals of a Joint Council maintain their offices, and all of the stock in the corporation is held by the constituent locals of the Joint Council, the latter of which controls and finances the corporation. See IM entry 215.300.

Further, a subsidiary organization is considered to be wholly financed if the initial financing was provided by the reporting labor organization even if the subsidiary organization is currently wholly or partially self-sustaining. See the pre-2003 Form LM-2 Instructions; the Form LM-3 Instructions; and the Form LM-2 Instructions, as revised by this rule. See IM entry 215.700.

The comments opposing the reinstatement of subsidiary reporting on the Form LM-2 rely upon the same four examples that appear throughout the Form T-1 rulemaking record as support for their position that a reporting gap exists for multi-union entities. The Department is not persuaded by these comments because no commenter has provided further examples, and the Department is unaware of any source of data from which to estimate, much less identify such entities. Given the advantages of greater accessibility of information to members and the public, as well as greater transparency with more detailed financial information, the Department will reinstate subsidiary organization reporting to the Form LM-2 as proposed.

d. Consolidating Reporting on One Form LM-2 Report or With an Attached Audit Report, Filed With the Union's Form LM-2 Is More Convenient and Less Misleading for Members

Related to the Department's reinstatement of subsidiary reporting on the Form LM-2, the Department also proposed that the instructions for subsidiary reporting on the Form LM-2 be changed to permit LM-2 filers only two options for reporting subsidiary information. The Department proposed that reporting labor organizations can either (1) consolidate their subsidiary's financial information on their Form LM-2 report, or (2) they can file, with their Form LM-2 report, a regular annual report of the financial condition and operations of each subsidiary, accompanied by a statement signed by an independent public accountant certifying, for each subsidiary, that the financial report presents fairly the financial condition and operations of the subsidiary and was prepared in accordance with generally accepted accounting principles. While permitting labor organizations these two options for reporting on subsidiary organizations, the Department also proposed to rescind one option previously available to reporting labor organizations—that of filing a separate LM-2 report with only the subsidiary's financial information.

In the NPRM, the Department reasoned that permitting a labor organization to file multiple LM-2 reports for any single fiscal year may create confusion for union members and the public. First, because there is only one version of the Form LM-2, it may be difficult to tell whether a filed LM-2 report is for the labor organization or for its subsidiary. Second, having an entity that is not a labor organization reporting on a form for labor organizations also may create confusion for the Department in processing the reports for public disclosure. The Department relies upon the database of Form LM-2 filers for informational, policy, and enforcement purposes. Third, where a union changes its reporting practices—one year including the subsidiary and filing a separate form the next—conducting a year-to-year comparison becomes difficult, which also affects the Department's ability to effectively use the Form LM-2 filer database for policy and enforcement decisions. Finally, in some cases, transparency may be increased when the union and the subsidiary share certain expenses that standing alone fall below the itemization threshold, but when combined in a single report, will then be itemized. In sum, consolidation has the virtue of including all financial information (that of the union and the subsidiary) on one report, which eliminates potential confusion among union members, presents the Department with a more reliable database of Form LM-2 filers, and increases overall transparency.

Having received numerous union comments in support of this proposal and no comments in opposition to these two reporting options, the Department is implementing its proposal to permit a union to consolidate on its Form LM-2 the financial information of the union with the financial information of the subsidiary, as well as the option to file a separate financial statement certified by a public accountant. In addition, this rule implements the Department's proposal to revise the Form LM-3 subsidiary organization instructions to conform to the above-mentioned changes proposed for the Form LM-2.

e. Request To Modify the Department's Proposal With Respect to Reporting on Health Plans and Submitting Audit Reports With a Fiscal Year for a Subsidiary That Differs From That of the Reporting Labor Organization

The Department also received one union comment that, while offering support for the proposed reinstatement of subsidiary reporting on the Form LM-2 with the two proposed options available to filers, also suggested two modifications of the Department's proposal. First, it recommended that the Department exclude health plans that participate in the Federal Employees Health Benefit Program under the Federal Employees Health Benefit Act (FEHBA), 5 U.S.C. 8901, et seq. The union cited the treatment of Political Action Committees (“PACs”) under Form LM-2 subsidiary reporting, and the Form T-1 exclusion for FEHBA plans. The Department concludes that exclusion is not necessary, as such plans established under the FEHBA are financed by employer funds rather than union funds and are not controlled exclusively by unions. Thus, these FEHBA plans generally do not constitute subsidiary organizations, and would not be included on a labor organization's Form LM-2.

Second, this union recommended subsidiary reporting instructions that permitted unions to submit audit reports for trusts that do not match the fiscal year end of the reporting union. The Department is not altering its proposal in the NPRM to require that audit reports for subsidiaries cover the same fiscal year as the union. The Department's previous Form LM-2 subsidiary reporting regime required this synchronization of fiscal years and the Department will continue that regime in this final rule. A viewer cannot reconcile the Form LM-2 with the attached audit report if the two filings cover different fiscal years. The result of such a reporting scheme would run counter to the Department's goal of establishing meaningful transparency for all of a union's assets, including subsidiaries.

Based on the Department's careful consideration of the comments Start Printed Page 74944submitted, the Department will rescind the Form T-1 and its implementing regulations and will reinstate subsidiary organization reporting on the Form LM-2. Further, the Department will implement the proposed revisions to the Form LM-2 and Form LM-3 instructions for reporting on subsidiary organizations.

IV. Revised Interpretation Regarding Public Sector Intermediate Bodies

A. The Proposed Return to the Long-Standing Policy Regarding Intermediate Bodies That Contain No Subordinate Covered Labor Organizations

The NPRM proposed a return to the Department's long-standing, pre-2003 policy that the LMRDA does not cover intermediate bodies that are wholly composed of public sector organizations. In returning to this position, the Department has reconsidered the 2003 determination that extended LMRDA coverage over intermediate bodies that are wholly composed of public sector organizations when the LMRDA covered national or international labor organization to which the intermediate body is subordinate includes a private sector labor organization.

This coverage issue is controlled by the definition of “labor organization” found in Section 3(i) and (j) of the LMRDA, 29 U.S.C. 402(i) and (j).[8] For the forty years before 2003, the Department's policy in applying these sections was to exclude intermediate bodies that represented no private sector employees and that contained no local unions that represented private sector employees. In 2003, the Department altered its policy regarding the exclusion of such wholly public sector intermediate bodies, by interpreting the “which includes” condition found in Section 3(j)(5) of the statute, 29 U.S.C. 402(j)(5), as modifying the phrase “national or international labor organization” in that subsection, rather than the statutory list of intermediate bodies.[9] This interpretation resulted in capturing within the definition previously excluded “intermediate” labor organizations, i.e., those that had no constituent members representing employees in the private sector. Previously, the Department's policy extended coverage over only those intermediate bodies that are subordinate to an LMRDA-covered national or international labor organization and that themselves include one or more private sector local labor organizations.

Court decisions that followed the 2003 interpretation concluded that because of the lack of clarity regarding the effect of the “which includes” condition, the statute's definition of “labor organization” is ambiguous and susceptible to two legally permissible interpretations.[10] Accordingly, the Department possesses the administrative discretion to implement a policy alternative based on the statute so long as the selected alternative is reasoned. See F.C.C. v. Fox Television Stations, Inc., 129 S.Ct. 1800, 1811 (2009). Relying on this discretion, the Department proposed in the NPRM a return to its pre-2003 policy, which views the statute as excluding from coverage, rather than including, intermediate labor organizations that contain no local labor organization members representing employees in the private sector.

The Department's NPRM provided a rationale that both affirmatively supported the long-standing approach, and also suggested that the policy justifications made in support of the 2003 revision were, upon reconsideration, less persuasive than those favoring the forty-year view. First, the NPRM noted that support for the long-standing, pre-2003 policy stems in large part from the overall thrust of the LMRDA, and judicial decisions interpreting it, which underscore the statute's primary purpose to promote democracy, transparency and accountability in labor organizations that act on behalf of employees employed in the private sector, not the public sector. 29 U.S.C. 401(b), (c). See Alabama Education, 455 F.3d at 394-95; see also Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir. 1996) (“A labor organization composed entirely of public sector employees is not a labor organization for purposes of the LMRDA.”). Thus, excluding from coverage unions representing exclusively public sector employees is fundamental to the framework of the statute.

As discussed in the NPRM, the Department had justified its 2003 policy shift in part by suggesting that reading the statute's coverage provisions as broadly as possible offered increased transparency and accountability. 72 FR at 3738. Transparency and accountability of labor organizations are indeed valued goals, but they are not the sole, overriding purpose of the statute, and LMRDA coverage for the purpose of reporting and disclosure also exposes covered labor organizations to the full scope of Federal regulation under the Act. Taken as a whole, the NPRM stated, the Department's 2003 policy shift lacks consistency and coherence. For example, the Department's 2003 policy shift resulted in the coverage of wholly public sector intermediate bodies, although not wholly public sector international or local unions. Upon reconsideration, the NPRM asserted that the proper balance between the goals of robust union transparency and limited regulation of public sector unions should not result in an illogical dichotomy between types of public sector labor unions or reporting burdens that hinge solely on the particular tier a public sector union is placed. The NPRM concluded that when enlarged coverage for more expansive transparency is balanced with the emphasis on minimizing regulatory burdens on unions representing exclusively public sector employees, it is not the better policy alternative.

Second, the NPRM reconsidered a justification in support of its 2003 policy shift, 72 FR 3735, 3738 (January 26, 2007), which argued that labor organizations' structural and financial complexity had increased in recent decades, and this complexity supported the expansion of coverage. The district court reviewing the Department's policy rationales described this explanation as “entirely a make-weight.” 539 F.Supp. Start Printed Page 749452d at 384. Indeed, upon reexamination, the NPRM concluded that the Department's theory that a local union member not only needs to, but wants to, “ascertain[ ] the endpoint of his or her dues cast into the stream of affiliate expenditures” in order to assure financial regularity, id., overstates the ends to which one must go to sustain labor organization transparency and accountability. As the NPRM stated, there has been no clear indication that such meticulous tracing of individual membership dues “in the stream of expenditures” is required to understand a labor organization's financial state.

Third, the NPRM reconsidered the empirical analysis used to support the 2003 interpretation, which traced “to the endpoint” dues of local union members employed in the private sector to their locals' national affiliate and back to the newly covered public-sector intermediate affiliates. The “dues-endpoint” analysis was used to justify the 2003 interpretation, in part to address the congressional concern that wholly public sector unions be excluded from the Act. The Department had considered that the data analyzed demonstrated a link between undisputedly covered labor organizations representing employees in the private sector and public sector intermediate affiliates of the shared national union. Based on this analysis, the Department had argued that a “public sector” intermediate body loses that attribute to a great extent (despite its composition) when it is subordinate to, and accepts contributions from, covered national and international labor organizations whose funds are derived, in part, from employees in the private sector. See 72 FR at 3737.

The NPRM concluded that the analysis in support of the 2003 interpretation utilized data from only two national unions, with one depicting only a remote and tenuous link between the union's private sector funds and the financial operations of its public sector intermediate bodies based on one example of a de minimis transfer, and the other union example being obsolete, as that union now segregates all private sector dues money, preventing it from reaching such state affiliates.[11] Thus, the NPRM concluded that any purported link established was insufficient to justify the application of statutory coverage to wholly public sector intermediate bodies. Indeed, contrary to the rationale supporting the 2003 interpretation, the Department no longer considers that intermediate bodies that do not themselves include one or more private sector local labor organizations lose their wholly public sector status as a result of such relatively inconsequential transactions. Further, as concluded in the NPRM, the 2003 interpretation was overbroad in its reach, because it would have imposed coverage on many wholly public sector intermediate bodies that in fact receive no financial support from their national or international affiliates derived from dues paid at the local level by employees working in the private sector. Based on these considerations, the Department proposed in the NPRM to return to its pre-2003 view of the statute, which establishes coverage over only those intermediate bodies that are subordinate to a national or international labor organization and that themselves include one or more private sector local labor organizations.

B. Comments Received by the Public on the Proposed Return to the Long-Standing Policy

The Department received two comments that disagreed with its proposed return to the long-standing policy regarding coverage of wholly public sector intermediate labor organizations. The first negative comment, from a public policy group, asserted that the Department should maintain “meaningful reporting” for labor organizations and reconsider the benefits of transparency created by the 2003 interpretation, while enforcing the union financial safeguard provisions of the LMRDA. Further, the comment suggests that labor organizations newly covered by the 2003 interpretation would naturally resist that coverage. The comment also argues that the two examples used in empirical analysis to justify the 2003 interpretation were “illustrative not exhaustive,” and that the citation of any further examples would have been unnecessary.

The second negative comment, also from a public policy group, argued that the Department's proposal would conceal transactions of various national unions from the public. The comment also asserted that funds from private-sector unions will continue to be commingled with the funds of public sector intermediate bodies, and thus concealed from public reporting. The comment argues that the Department's position is at odds with the federal appellate decision that sustained the 2003 interpretation on statutory construction grounds, and would deny financial transparency and other LMRDA protections to members of the newly covered labor organizations and their affiliates, who are state and local public employees. Additionally, the comment offered an analysis of the FY 2009 Form LM-2 report submitted by one of the national unions subject to the 2007 Policy Statement, which presented a figure that it believed represented the national union's disbursements to its intermediate state bodies, and stated that this money derived in part from dues money paid by both public and private sector union members. The comment stressed that most state bodies of this national union do not file LM reports with the Department.

Neither of these comments significantly challenges the Department's decision to resume its pre-2003 construction of the statute. Despite the insistence of the critiques, the Department notes that it continues to maintain a robust reporting and disclosure program that requires the submission of annual financial disclosure on Forms LM-2, LM-3, and LM-4 from LMRDA-covered unions representing private sector employees, as well as from unions covered by the Civil Service Reform Act. The Department's enforcement program is similarly robust, and the union financial safeguard provisions of the Act are well guarded. The Department's goal was not to reduce the importance of union financial transparency, but rather to better conform coverage decisions to the framework of the statute, which generally excludes wholly public sector unions from its reach. As stated in the NPRM, key goals of the statute include both private sector union financial disclosure and the exclusion of wholly public sector unions from the statute's coverage.

Thus, the Department is not discounting the benefits of transparency, nor is it exaggerating the burdens, but concludes that on balance the preferred policy should exclude wholly public sector intermediate bodies from LMRDA coverage. To do otherwise would lead to an illogical dichotomy in which certain wholly public sector unions were included while others were not, based primarily on the position of the labor organization in the overall union hierarchy. The Department has accurately assessed the burdens associated with complying with not only the reporting requirements of the LMRDA but the other obligations of the statute to which a covered union is subject, and found wanting sufficient policy justification to extend coverage under the LMRDA to wholly public sector intermediate bodies.

Regarding the support in one comment for the empirical analysis that bolstered the 2003 interpretation, the Start Printed Page 74946Department concurs with the NPRM's conclusion that, upon closer scrutiny, that analysis was not sufficient to justify the changed policy, as one of the examples provided is plainly trivial and the other is obsolete. The Department received no specific comments that evidenced reasons to reconsider its current view of that analysis.[12] Neither the analysis nor the rulemaking record sufficiently demonstrates that significant sums of money from employees working in the private-sector are flowing to wholly public sector intermediate bodies.

Of course, the Department's change in interpretation has no impact on the federal appellate decision that held that section 3(j)(5) is subject to two permissible interpretations. See Alabama Education Ass'n v. Chao, 455 F.3d 386 (2006). This rule simply adopts the better policy, and one that comports with the statute's framework that excludes wholly public sector unions. In any event, both the regulated community and the courts expressed concern about the insufficient policy justification provided for the 2003 revisions. Indeed, as noted in the NPRM, the district court concluded that the state affiliates' challenges to the Department's policy justifications raised “serious issues” that “might convince the Court, were it the [policy] decisionmaker” and not limited by a narrow standard of review, to reject the Department's rationales for the new interpretation. Alabama Education Ass'n v. Chao, 539 F.Supp 2d 378, 379 (D.D.C. 2008). The limited nature of the court's review also caused the district court to overlook the “multitude of practical objections” to the new policy. Id. at 380 n. 2.

The Department received 11 comments in support of the interpretative change. Most commenters noted that the proposed return to the Department's long-standing policy excluding wholly public sector intermediate bodies was more logical and far more compatible with the overall purpose of the statute, which imposes reporting obligations on labor organizations representing employees primarily in the private sector. Five commenters also concurred with the NPRM's conclusion that the 2003 revised interpretation resulted in the inconsistent application of the statute to some but not all wholly public sector labor organizations. Two unions (AFSCME, NEA) supported the NPRM, stressing that the 2003 interpretation brought wholly public sector intermediate bodies within the coverage of not just the Title II reporting requirements, but the other provisions of the statute as well.

Further, four commenters agreed with the Department that both the “dues endpoint” theory, and the data used to support it, were impractical and overstated, and some went so far as to label the theory and the supporting data “absurd” and “distorted.” Both national unions that were subjects of the empirical analysis supporting the 2003 revised interpretation submitted data in their comments that fully refuted both the Department's analysis itself as well as the coverage conclusions that were derived therefrom. One of the two national unions also observed that the 2003 interpretation would: Cover pure public sector bodies that receive no private sector money; include all of the state affiliates' disbursements, not just those derived from private sector dues; and bring the state affiliates under the purview of all the requirements of the LMRDA, not just Title II. This union also noted that section 201(b) of the LMRDA only requires unions to report financial information in such detail as “is necessary accurately to disclose [a union's] financial conditions and operations.” The second national union submitted that most of its revenue from “private sector” locals derives from “mixed locals,” consisting of private and public sector members, most of whom are public sector members. Thus, it contended, most of this revenue from these private/mixed locals actually derives from public sector members.

Three commenters suggested that union members, whether they are represented by public-sector or private-sector unions, have sufficient means by which to assess their union's financial transactions, including reporting by affiliates that may be required by the LMRDA, reporting that may be required by the labor organizations' constitution and bylaws, and any agency fee reporting that may be required. Several labor organizations referred to the excessive burdens associated with complying with the 2003 interpretation, which, they asserted, would be accompanied by little or no additional insight into the financial transactions of the newly covered labor organizations or their affiliates. Finally, several commenters, including the national affiliates of the plaintiff labor organizations that challenged the 2003 revised interpretation, suggest, for varying textual and historical reasons, that the Department's construction of the “which includes” clause in the 2003 rulemaking and ensuing litigation was fundamentally flawed.[13]

C. The Department's Policy Will Return to its Long-Standing View of the Statute

After full review and consideration of the comments on this issue, the Department will adopt the view of the statute that it held for the forty years that preceded the revised interpretation in 2003. For the reasons given here and in the NPRM, the Department concludes that the preferred implementation of the statute is one which comports with the LMRDA's primary regulatory focus on labor organizations that represent employees in the private sector, and is one which provides consistency and coherence to the Department's treatment of the statute's structure, purpose, goals, and history. In addition, we concur with those comments suggesting that the coverage of wholly public sector intermediate bodies would produce little or no incremental value to union members' understanding of the labor organization that represents them at the local level in collective bargaining or their affiliates. Although the courts have held that the statute's “which includes” clause is patently ambiguous, and thus the statute may textually permit the coverage of wholly public sector intermediate bodies, the Department now considers that there is little justification for that outcome. That the statute may permit the parsing of words in a new and different manner is not, in and of itself, enough to sustain the resulting inconsistencies in the statute's implementation or the policies underlying it, nor is it enough to sustain the abandonment of a forty-year policy. The statute's various provisions must work as a well-constructed whole, and Start Printed Page 74947only a return to the pre-2003 policy will accomplish that goal. As a result, the Department's policy is to cover only those intermediate bodies that are subordinate to a national or international labor organization covered under the LMRDA and that themselves include one or more private sector local labor organizations.

In order to implement this interpretation, the instructions to the Forms LM-2, LM-3 and Form LM-4 will be revised to delete the reference in the “Who Must File” section to the coverage of intermediate bodies that are subordinate to covered national or international labor organization. With this deletion the instruction will simply state that “labor organizations that include or represent only state, county, or municipal government employees are not covered by these laws and, therefore, are not required to file.”

V. Revisions to the Form LM-2 and Instructions

The text of the Form LM-2 and its Instructions pertaining to some sections and certain Schedules have been changed to address the requirement to report subsidiary organizations and the coverage of public sector intermediate unions. These include revisions to Sections I, II, VIII, X, and XI, and the header to the instructions describing the estimated reporting burden for filers. The complete, modified Form LM-2 instructions are included in an appendix to this rule, and the following is a section by section overview of the changes.

Section I. Who Must File: In order to implement the Department's revised interpretation concerning intermediate bodies, the instructions to the Forms LM-2 will be revised to delete the reference in the “Who Must File” section to the coverage of intermediate bodies that are subordinate to a covered national or international labor organization. The revised instructions will state that “[l]abor organizations that include or represent only state, county, or municipal government employees are not covered by these laws and, therefore, are not required to file.”

Section II. What Form to File: The Department revises the instructions to indicate that all special funds and funds of subsidiary organizations should be included in the “total annual receipts” of the labor organization. Cites to revised Section VIII (Funds to be Reported) and Section X (Labor Organizations with Subsidiary Organizations) are included in the instructions. Additionally, the instructions specify that receipts of section 3(l) trusts are not to be included in “total annual receipts,” unless such 3(l) trusts are subsidiary organizations of the union. Since the Department returns to the prior Form LM-2 reporting regime for subsidiaries, the instructions remove the current references to trusts that are “wholly owned, wholly controlled, and wholly financed by the labor organization,” as such entities are now “subsidiary organizations.”

Section VIII—Funds To Be Reported: The Department revises this section to remove any reference to the Form T-1, and to clarify that “special purpose funds” include those of subsidiary organizations (with a cite to revised Section X: Labor Organizations with Subsidiary Organizations).

Section X—Labor Organizations With Subsidiary Organizations: The Department eliminates the current Section X, which provides information on section 3(l) trusts and the Form T-1, replacing this section with information on subsidiary organizations, including the definition of a subsidiary organization and the requirement to include its financial information on the Form LM-2, and ways in which a labor organization can properly report on their Form LM-2 the necessary information about such subsidiaries. The instructions are similar to the pre-2003 instructions for subsidiaries, with the primary difference being that, as explained above, the Department provides unions with two options instead of three for filing information on subsidiaries: option one, a consolidated Form LM-2 report, or option two, the attachment of an audit report. Unions cannot file a separate Form LM-2 report for the subsidiary. Section X also includes information on what each option requires.

Section XI—Completing Form LM-2: The Department has changed the instructions to Items 10 and 11. The instructions for Item 10 no longer include any reference to the Form T-1, although basic information about the trust would still be required, as would a cite to any report filed for the trust with another government agency, such as the Department's Employee Benefits Security Administration (EBSA).

The Department splits Item 11 into two parts: Item 11(a), which is the former Item 11 referencing political action committees (PACs), and Item 11(b), which asks unions to indicate if they had a subsidiary organization during the reporting period. The instructions for Item 11 are now the instructions for Item 11(a), while the new instructions for Item 11(b) will simply state that unions must check this item if they have a subsidiary organization and must detail the name, address, and purpose of each of its subsidiary in Item 69 (Additional Information), including which filing method was chosen. The instructions also reference Section X of the instructions for more information on subsidiaries.

Schedules and Instructions for Schedules: The Department has also revised certain Form LM-2 Schedules and Instructions to reflect the rescission of Form T-1 trust reporting and the reinstatement of subsidiary organization reporting on the Form LM-2, as proposed in the NPRM. Specifically, these Schedules and Instructions include:

  • Schedule 5—Investments Other Than U.S. Treasury Securities, Item 6
  • Instructions for Schedules 2—Loans Receivable,
  • Instructions for Schedule 5—Investments Other Than U.S. Treasury Securities,
  • Instructions for Schedule 7—Other Assets
  • Instructions for Schedule 12—Disbursements to Employees.

VI. Revisions to the Form LM-3, Form LM-4 and Instructions

The text of the Form LM-3 and Instructions pertaining to some sections has been changed to address the reporting of subsidiary organizations and the coverage of intermediate bodies. With respect to the Form LM-3, the Department removes Item 3(c), which currently requires a reporting labor organization to state whether the report is exclusively filed for a subsidiary organization, as the Department has removed this option, as described above. The revised Form LM-3 Instructions include changes to Sections I, VIII and X, and the revised form and instructions are included in the appendix to this rule. The revised Form LM-4 instructions include changes to Section I.

Regarding Section I (Who Must File), in order to implement the Department's interpretation of intermediate bodies, the instructions to the Form LM-3 and LM-4 will be revised to delete the reference in the “Who Must File” section to the coverage of intermediate bodies that are subordinate to a covered national or international labor organization. The revised instructions will state that “[l]abor organizations that represent or include only state, county, or municipal government employees are not covered by these laws and, therefore, are not required to file.”

Regarding Section VIII, the only change is the clarification that filers have only two options for reporting subsidiaries, rather than the current Start Printed Page 74948three: Either a consolidated Form LM-3 report or separate report, that of an audit by a certified public accountant. Filers can no longer attach a separate Form LM-3 for the subsidiary. Section VIII also now references Section X of the Form LM-3 instructions for more information on subsidiaries and subsidiary reporting.

The changes to Section X, Labor Organizations with Subsidiaries, are virtually identical to the changes made to the corresponding Section X of the Form LM-2. Specifically, revised Section X provides information on subsidiary organizations, including the definition of a subsidiary organization and the requirement to include its financial information on the Form LM-3, and ways in which a labor organization can properly report on their Form LM-3 the necessary information about such subsidiaries. The instructions are similar to the previous instructions for subsidiaries, with the primary difference being that, as explained above, the Department now permits unions only two options instead of three for filing information on subsidiaries: Option one, a consolidated Form LM-3 report, or option two, the attachment of an audit report. Unions no longer have the option of filing a separate Form LM-3 report for the subsidiary. The revised Section X also includes information on what each option requires.

VII. Regulatory Procedures

Executive Order 12866

This rule has been drafted and reviewed in accordance with Executive Order 12866, section 1(b), Principles of Regulation. In the Paperwork Reduction Act (PRA) analysis below, the Department estimates that the rule will result in a total burden on labor unions of less than $3 million. In addition, the elimination of the Form T-1 reporting requirements will significantly reduce compliance costs for labor organizations. In our 2008 final rule, for example, the Department estimated that the projected total cost on filers in the first year would be over $15 million in the first year and at least $8 million in subsequent years. This rule is a significant regulatory action and was reviewed by the Office of Management and Budget.

Unfunded Mandates Reform

This rule will not include any Federal mandate that may result in increased expenditures by State, local, and tribal governments, in the aggregate, of $100 million or more, or in increased expenditures by the private sector of $100 million or more.

Small Business Regulatory Enforcement Fairness Act of 1996

This rule is not a major rule as defined by section 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of the United States-based companies to compete with foreign-based companies in domestic and export markets.

Executive Order 13132 (Federalism)

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

Analysis of Costs for Paperwork Reduction Act and Regulatory Flexibility Act

In order to meet the requirements of the Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., Executive Order 13272, and the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq., and the PRA's implementing regulations, 5 CFR part 1320, the Department, in proposing this rule, undertook an analysis of the financial burdens to covered labor organizations associated with complying with the requirements contained in this rule. See 75 FR at 5464-74. In light of the comments received on the merits of the proposal and the burdens associated with the Form T-1 rule that is being rescinded, as well as the lack of opposition to the proposed burden analyses for this rule, the Department has reviewed its earlier analyses and determined that they are sound. Thus, the Department restates below these analyses without any material changes. (However, as noted in more detail below, the Department did correct a calculation error included in the NPRM regarding the cost to Form LM-2 filers per subsidiary organization.) The Department also discusses below the general comments received in support of the PRA analysis, and the general comments associated with the 2008 rule. The focus of the RFA and Executive Order 13272 is to ensure that agencies “review rules to assess and take appropriate account of the potential impact on small businesses, small governmental jurisdictions, and small organizations, as provided by the [RFA].” Executive Order 13272, Sec. 1. The more specific focus of the PRA is “to reduce, minimize and control burdens and maximize the practical utility and public benefit of the information created, collected, disclosed, maintained, used, shared and disseminated by or for the Federal government.” 5 CFR 1320.1.

Compliance with the requirements of this rule involves essentially information recordkeeping and information reporting tasks. Therefore, the overall impact to covered labor organizations, and in particular, to small labor organizations that are the focus of the RFA, is essentially equivalent to the financial impact to labor organizations assessed for the purposes of the PRA. As a result, the Department's assessment of the compliance costs to covered labor organizations for the purposes of the PRA is used as a basis for the analysis of the impact of those compliance costs to small entities addressed by the RFA. The Department's analysis of PRA costs, and the quantitative methods employed to reach conclusions regarding costs, are presented here first. The conclusions regarding compliance costs in the PRA analysis are then employed to assess the impact on small entities for the purposes of the RFA analysis, which follows.

Paperwork Reduction Act

This statement has been prepared in accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3501. As discussed in the preamble, this rule would implement 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 Start Printed Page 74949requirements 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. Summary of the Rule: Need and Economic Impact

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

This rule rescinds the Form T-1 Trust Annual Report established by final rule on October 2, 2008, and amends the Form LM-2 Labor Organization Annual Report to require unions to include on that report information concerning its wholly, owned, controlled, and financed subsidiary organizations. (Under the Form T-1 reporting regime, these subsidiaries would have been included on a Form T-1 report, rather than on the union's annual report.). This rule also amends the Form LM-3 Labor Organization Annual Report to conform its subsidiary organization reporting to those established for the Form LM-2 in this rule. Finally, the rule also returns the Department to a prior interpretation of the Labor-Management Reporting and Disclosure Act (LMRDA), which excludes wholly public sector intermediate bodies from coverage under the Act. See section 3(j)(5), 29 U.S.C. 402(j)(5).

The LMRDA was enacted to protect the rights and interests of employees, labor organizations and the public generally as they relate to the activities of labor organizations, employers, labor relations consultants, and labor organization officers, employees, and representatives. Provisions of the LMRDA include financial reporting and disclosure requirements for labor organizations and others as set forth in Title II of the Act. See 29 U.S.C. 431-36, 441. Under Section 201(b) of the Act, 29 U.S.C. 431(b), labor organizations are required to file for public disclosure annual financial reports, which are to contain information about a labor organization's assets, liabilities, receipts, and disbursements.

The Department has developed several forms to implement the union annual reporting requirements of the LMRDA. 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. The Form LM-2 Annual Report, the most detailed of the annual labor organization reports, and that required to be filed by labor organizations with $250,000 or more in annual receipts, must include reporting of loans to officers, employees and business enterprises; payments to each officer; and payments to each employee of the labor organization paid more than $10,000, in addition to other information. The Secretary also has prescribed simplified annual reports for smaller labor organizations. Form LM-3 may be filed by unions with $10,000 or more, but less than $250,000 in annual receipts, and Form LM-4 may be filed by unions with less than $10,000 in annual receipts.

On October 2, 2008, the Department issued a final rule establishing the Form T-1 Trust Annual Report, which prescribed the form and content of annual reporting by unions concerning entities defined in Section 3(l) of the LMRDA as “trusts in which a labor organization is interested.” 73 FR 57412. Prior to the implementation of the Form T-1 rule, the Department's LMRDA reporting program had not provided for separate trust reporting by unions. The objective of this rule is to rescind the Form T-1 Trust Annual Report, as the Department has determined that it is overbroad, and not necessary to prevent the circumvention and evasion of the Title II requirements. This rule also reinstates a longstanding requirement, eliminated under the 2003 rule, that unions report financial information about their subsidiary organizations on Form LM-2.

The Department has defined the term “subsidiaries of labor organizations” as “any separate organization of which the ownership is wholly vested in the reporting labor organization or its officers or its membership, which is governed or controlled by the officers, employees, or members of the reporting labor organization, and which is wholly financed by the reporting labor organization.” See Form LM-2 Instructions, Part II: What Form to File, 68 FR 58473 (modifying pre-2003 Form LM-2); Form LM-3 Instructions, Part X, Labor Organizations With Subsidiary Organizations (reproduced at http://www.dol.gov/​olms/​regs/​compliance/​LM3_​instructions_​2008.pdf). See also 68 FR at 58413 (preamble to 2003 rule). The Department continues to hold the view that reporting all subsidiaries is necessary for members and the public to have an accurate understanding of a particular labor organization's financial condition. Without the inclusion of the financial information for all subsidiaries, the financial disclosures on the Form LM-2 will be incomplete. The subsidiary's assets are the labor organization's assets. Unless reported along with the union's other assets, it is not possible to accurately understand the union's finances.

Prior to the Department's development of the concept of the trust annual report, the Department's regulations required unions to report information on subsidiaries on their Form LM-2 reports. This requirement was revoked by revisions to the Form LM-2 in 2003. Labor Organization Annual Financial Reports, 68 FR 58374 (Oct. 9, 2003). The return of subsidiary organizations to the Form LM-2 reporting requirements improves the amount of financial disclosure of such entities, as compared to the disclosure provided on the Form T-1, as the Form T-1 had no equivalent to the Form LM-2 assets and liabilities Schedules 1-10, and the itemization threshold for receipts and disbursements on the Form LM-2 is $5,000 while that on the Form T-1 was $10,000. Under this rule, and as the pre-2003 Form LM-2 had long required, a union must disclose the financial information of its subsidiary to the same level of detail as other funds of the union, including details regarding assets and liabilities that were not required to be reported on the Form T-1.

The Department makes available to Form LM-2 filers two options regarding the reporting of their subsidiaries, rather than the three options formerly permitted in the pre-2003 Form LM-2 Instructions. First, the Department permits a labor union to consolidate its subsidiaries' financial information with the union's financial information on its Form LM-2 report. Alternatively, the Department will permit a labor union to file, with its Form LM-2 report, a Start Printed Page 74950regular annual report of the financial condition and operations of each subsidiary organization, accompanied by a statement signed by an independent public accountant certifying that the financial report presents fairly the financial condition and operations of the subsidiary organization and was prepared in accordance with generally accepted accounting principles. When choosing to file a separate accountant's report, the union is required also to include information regarding loans payable and payments to union officers and employees in the same detail required by the Form LM-2 instructions on the related schedules (Schedules 1, 11, and 12).

The Department is not reinstating a third option previously available on Form LM-2: that of filing a separate Form LM-2 report on each subsidiary organization. In the Department's experience, the filing of a separate Form LM-2 in addition to the union's primary report creates confusion for union members and others viewing the reports in that the form is designed for unions, not segregated funds and assets. Moreover, a union must file one Form LM-2 report per fiscal year, and the filing of multiple forms by a union for its subsidiaries creates confusion as to which one is the primary form. While consolidation contains some risk of confusion, the Department's experience is that combined reports are easier to follow than separate reports. This is a particularly appropriate and desirable option for some unions with subsidiaries that perform traditional union operations, such as strike funds and other special union funds. Thus, the Department preserves this option for Form LM-2 filers.

To remain consistent with the reporting options available for Form LM-2 filers, the Department also revises the Form LM-3 instructions regarding the reporting of subsidiary organizations. Form LM-3 filers will have the same two options to report required information about subsidiaries as the Form LM-2 filers, and the reporting unions' option to file a separate Form LM-3 report on a subsidiary organization will likewise be eliminated. Again, this would avoid potential confusion for the public and would align the Form LM-3 subsidiary reporting regime with that available for Form LM-2 filers.

The obligation to report on the Form T-1 caused an increase in reporting burdens for those labor organizations with reportable trusts. Given that increase, and as stated more fully below, this rule represents a net reduction in the total filing burden for Form LM-2 filers, as the rescission of the Form T-1 removes the information collection burden associated with that form and replaces it with the reinstatement of subsidiary organization reporting, which presents only a small increase in the total Form LM-2 reporting burden. As demonstrated in the 2008 Form T-1 rule, the Form T-1 represented a total burden, for the estimated 2,292 Form LM-2 filers affected by the rule, of approximately 423,900 hours in the first year and 306,700 in the subsequent years. Additionally, the projected total cost on filers in the first year was approximately $15.2 million in the first year and approximately $8.2 million in subsequent years. 73 FR at 57441 and 57445. This rule eliminates these burdens and costs from OMB 1215-0188, although, as discussed below, the reinstatement of subsidiary reporting offsets a small portion of this burden and transfers it to the Form LM-2.

This rule does not add any burden associated with the electronic submission of reports. The Department has in place an electronic reporting system for use by labor organizations, e.LORS. 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, data from the reporting unions' electronic records can be directly imported into Form LM-2. Not only is entry of the information eased, the software makes mathematical calculations and checks for errors or discrepancies. Additionally, any attachments to Form LM-2, such as would be required for unions choosing to submit a separate independent audit report for their subsidiary organizations, could be submitted electronically with the Form LM-2 reports.

As discussed in more detail below, there is negligible, if any, new information collection burden associated with the minor change for the Form LM-3 reporting requirements regarding subsidiary organizations, nor is there any information collection associated with the proposal to change the Department's interpretation regarding wholly public sector intermediate bodies.

B. Overview of Subsidiary Reporting on Form LM-2 and Trust Reporting on Form T-1

Every labor organization whose total annual receipts are $250,000 or more and those organizations that are in trusteeship must file an annual financial report using the Form LM-2, Labor Organization Annual Report, within 90 days after the end of the labor organization's fiscal year, to disclose their financial condition and operations for the preceding fiscal year. The Form LM-2 is also used by 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. Prior to 2003, unions required to file a Form LM-2 had to report information relating to their subsidiary organizations on the Form LM-2. (See preamble to Form LM-2.) The 2003 rule eliminated this requirement and, at the same time, established the Form T-1, which was designed to capture information about subsidiary organizations and other trusts and funds in which a reporting union held an interest. However, this portion of the 2003 rule was vacated. Under the 2008 rule, the pertinent Form T-1 requirements were reinstated. Neither the 2003 nor 2008 rules changed the longstanding requirement that Form LM-3 filers must include the assets, liabilities, receipts, and disbursements of their subsidiaries within the Form LM-3 report.

As a result of the 2003 changes to the Form LM-2, unions were required to identify subsidiaries on the Form LM-2 in Item 10, Trusts or Funds (albeit without distinguishing them from other reported trusts or funds), and they were required to calculate the total receipts of the subsidiary for purposes of the Form LM-2 filing threshold of $250,000. However, there were no further Form LM-2 reporting obligations concerning such subsidiaries. Rather, filers were required to report information on such subsidiaries on the Form T-1. As discussed in the preamble and in this burden analysis, this rule returns to the pre-2003 requirement that Form LM-2 filers also have to include on their form Start Printed Page 74951such information regarding their subsidiaries.

The 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 (Statement A); a statement of receipts and disbursements (Statement B); and 20 supporting schedules (Schedules 1-10, Assets and Liabilities related schedules; Schedules 11-12 and 14-20, receipts and disbursements related schedules; and Schedule 13, which details general membership information).

The Form LM-2 requires such information as: Whether the labor organization has any trusts (Item 10); [14] whether the labor organization has a political action committee (PAC) or a subsidiary organization (Items 11(a) and 11(b)); [15] whether the labor organization discovered any loss or shortage of funds (Item 13); the number of members (Item 20); rates of dues and fees (Item 21); the dollar amount for seven asset categories, such as accounts receivable, cash, and investments (Items 22-28); the dollar amount for four liability categories, such as accounts payable and mortgages payable (Items 30-33); the dollar amount for 13 categories of receipts such as dues and interest (Items 36-48); and the dollar amount for 16 categories of disbursements such as payments to officers and repayment of loans obtained (Items 50-65).

Schedules 1-10 requires detailed information and itemization on assets and liabilities, such as loans receivable and payable and the sale and purchase of investments and fixed assets. There are also nine supporting schedules (Schedules 11-12, 14-20) 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 Form T-1 provided similar but not identical reporting and disclosure for section 3(l) trusts, currently including subsidiaries, of Form LM-2 filing labor organizations. The Form T-1 required information such as: Losses or shortages of funds or other property (Item 16); acquisition or disposal of any goods or property in any manner other than by purchase or sale (Item 17); whether or not the trusts liquidated, reduced, or wrote-off any liabilities without full payment of principal and interest (Item 18); whether the trust extended any loan or credit during the reporting period to any officer or employee of the reporting labor organization at terms below market rates (Item 19); whether the trust liquidated, reduced, or wrote-off any loans receivable due from officers or employees of the reporting labor organization without full receipt of principal and interest (Item 20); and the aggregate totals of assets, liabilities, receipts, and disbursements (Items 21-24). Additionally, the union was required to report detailed itemization and other information regarding receipts in Schedule 1, disbursements in Schedule 2, and disbursements to officers and employees of the trust in Schedule 3.

Although the Form T-1 had a higher reporting threshold for receipts and disbursements ($10,000) than does the Form LM-2 ($5,000), both forms require filers to provide nearly identical information regarding receipts and disbursements. For example, unions would have itemized receipts of trusts with virtually identical detail on Form T-1, Schedule 1, as does the Form LM-2 on its Schedule 14. Further, the information required on Form T-1 Schedules 2 and 3 correspond almost directly to the information required on Form LM-2 Schedules 15-20 and 11-12, respectively, although the format does not directly correlate. However, as discussed earlier, Form T-1 did not provide as much detail regarding assets and liabilities of trusts as the Form LM-2 requires. For example, although Form T-1 Items 16 and 17 correspond directly to Form LM-2 Items 13 and 15, and the information required in Form T-1 Items 18-20 is required in a different format in Form LM-2, Schedules 2 and 8-10, there is also significant information required on the Form LM-2 and not on the Form T-1. Significantly, the detailed information regarding assets and liabilities required by Form LM-2, Schedules 1-10 is not captured by the Form T-1. Thus, consolidation of subsidiaries on the Form LM-2 provides greater transparency for such entities than did the Form T-1.

Additionally, the Department provided the public with separate burden analyses for the Form LM-2 and the Form T-1, in addition to the other forms required to be filed with the Department under the LMRDA. These analyses include the time for reviewing the respective set of instructions, searching existing data sources, gathering and maintaining data needed, creating needed accounting procedures, purchasing software, and completing and reviewing the collection of information. This rule eliminates the need for a Form T-1 burden analysis, as it eliminates that form and its separate reporting regime. This rule also amends the reporting requirements for the Form LM-2 to bring subsidiary reporting back into its reporting regime, but it does not establish a new reporting regime. Thus, many of the areas analyzed in other LMRDA reporting and disclosure burden analyses are not relevant to this discussion, as the existence and basic structure and procedures of the present Form LM-2 reporting regime is not amended by this rule.

Finally, for the purposes of the analysis below, the following is a brief discussion of the similarities and differences between subsidiary organizations and other entities included within the Form T-1 reporting regime, which demonstrates that data used for evaluating the burden of the Form T-1 may also be used in evaluating the burden of reporting on subsidiary organizations on the Form LM-2. As stated in the preamble, subsidiary organizations are entities wholly owned, controlled, and financed by a union, and the Department estimates that they constitute at least one third of the expected Form T-1 reports. These subsidiaries include entities such as strike funds and building corporations, and they also include other entities unrelated to typical union functions. Other entities included within the Form T-1 include Taft-Hartley funds, which are funded by an employer pursuant to a collective bargaining agreement and established and managed jointly between union(s) and employer(s). The latter includes apprenticeship and training funds. Although the entities within the reporting regime of the Form T-1 often differ widely in terms of their structure (including within the subsidiary category itself), subsidiaries and Taft-Hartley funds share many characteristics in this area, such as size, number of officers and employees, assets, liabilities, receipts, and disbursements. As such, although subsidiaries often differ from Taft-Hartley funds in terms of function and certainly in management, they also often have commonalities in areas such as structure and typical reporting and disclosure categories.Start Printed Page 74952

C. Comments on the PRA Analysis Presented in the NPRM Regarding Subsidiary Reporting on the Form LM-2

As noted in the preamble, the Department received several comments from unions addressing the burden associated with compliance with the 2008 rule. A federation of unions noted the substantial differences between the estimated burdens from complying with the Form T-1 and the proposed rule ($15 million vs. $3 million total first year costs), offering its view that the reporting requirements in the 2008 rule are not justified in light of the burden they impose. Several other unions concurred with the federation's general conclusion. An international union asserted that the 2008 rule imposed an extreme burden on unions and section 3(l) trusts, characterizing the estimated burden associated with that rule as “ridiculously low.” It emphasized the unrealistic burden that would be imposed on a union that participated only nominally in a section 3(l) trust. A national union asserted that in the 2008 rule the Department underestimated the number of Form T-1 reports that unions would be required to file and the costs associated with such reports. A public interest group stated that some of the Form T-1 reporting requirements would have been unduly burdensome for unions and of little value to members while others were of great value to members. This group did not identify what aspects of the rule were unnecessarily burdensome or offer specific changes to the proposed rule, but stated that the Department should not limit reporting to subsidiary organizations as the Department had proposed.

The comments to the NPRM did not challenge the burden analysis in this rule, nor did they provide the Department with any information or data that affects the analytical framework or assumptions underlying the analyses contained in the proposed rule. Indeed, the Department received several comments in support of certain aspects of the analysis. Although there were comments relating to the burden estimates in the 2008 rule, the focus now is appropriately on the burden associated with this final rule. Regardless of whether the 2008 rule reasonably forecast the burden associated with the Form T-1 or not, it is evident that this rule reflects a very substantial reduction in reporting burden.

D. Methodology for the Burden Estimates [16]

Initially, as stated above, this rule produces an overall reduction of burden hours for Form LM-2 filers. The Department rescinds the Form T-1, which results in a reduction of 423,913.74 burden hours in the first year and 306,736.92 in the subsequent years that an estimated 2,292 Form LM-2 filers would incur. Additionally, in the 2008 Form T-1 rule, the total cost to filers was projected to be $15,186,874.46 in the first year and $8,168,474.74 in subsequent years. 73 FR at 57441 and 57445. The burden reduction resulting from rescission of Form T-1 will be partly offset by the burden of reporting subsidiary organizations on Form LM-2, but the net burden, both in the aggregate and individually, is reduced substantially. To assess the burden savings, the Department has taken into account as appropriate the data, methodology and assumptions used to calculate the burden for Form T-1. Those places in which the analysis from the 2008 Form T-1 rule is modified or not used are noted.

The Department's analysis focuses on Form LM-2 filers. The changes to the Form LM-3 reporting requirements do not result in any significant increase or decrease to the burden for those filers. As stated above, Form LM-3 filers, prior to this rule, had three options in which to report on their subsidiaries: (1) Consolidate all financial transactions on one Form LM-3; (2) file a separate Form LM-3 for each subsidiary organization; or (3) attach an audit to the Form LM-3, prepared in accordance with the Form LM-3 Instructions for each subsidiary. In the Department's experience, a substantial majority of Form LM-3 filers with subsidiary organizations elect to file a consolidated Form LM-3, with few choosing either of the other options. Additionally, the burden for filing a separate LM-3 is virtually identical to consolidating the information on one report. The Department, therefore, does not consider that the removal of the option to file separate Form LM-3s for each subsidiary organization will result in a change to the filing burden for Form LM-3 filers.

In reaching its estimates regarding the burden on Form LM-2 filers to consolidate information regarding their subsidiary organizations, the Department considered the recurring costs associated with the rule. However, as explained below, the Department determined that non-recurring costs are nominal and therefore are only briefly addressed herein. Additionally, the Department used the Form T-1 cost and burden estimates as the basis for the estimates for consolidating subsidiary organization information on the Form LM-2 (73 FR 57436-57445). As stated above, although subsidiary organizations represent only a portion of the Form T-1 universe, and they differ from Taft-Hartley funds and other trusts in their function and management, the Department considers the similarity in the make-up of the organizations and the similar level of reporting of receipts and disbursements required by the Form T-1 and Form LM-2, as justifying the use of Form T-1 estimates. However, there are differences between Form T-1 reporting and consolidating subsidiary organization financial information on the Form LM-2, and the analysis below will address these issues.

Additionally, the Department's labor cost estimates 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): The labor organization's president, secretary-treasurer, accountant, and bookkeeper. In the 2008 Form T-1 rule, the salaries for these positions are measured by wage rates published by the Bureau of Labor Statistics or derived from data reported in e.LORS.

1. Number of Subsidiary Organizations

The Department estimates that Form LM-2 filers have approximately 1,187 subsidiary organizations. This number is based on a review of Form LM-2 reports filed in 2004, the final year in which filers were required to identify on Item 10 whether they had a subsidiary organization. A review of these reports indicated that 1,087 Form LM-2 filers indicated that they had at least one subsidiary organization. In addition to this base figure, the Department took into account its experience that generally about one-half of the 100 largest labor organizations have multiple subsidiary organizations, with the remainder of such filers have only one subsidiary organization. In the Department's experience, these labor organizations have on average two additional subsidiary organizations. Therefore, the Department added 100 (2 subsidiaries × 50 labor organizations) to the 1,087 filers indicating that they had at least one subsidiary organization, for a total estimate of 1,187 subsidiaries.[17]

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2. Hours To Complete and File a Consolidated Form LM-2: Reporting and Recordkeeping

Initially, the Department considered the issue of non-recurring burden hours associated with Form LM-2 subsidiary reporting, but it does not view the burdens such as those associated with reviewing the Form LM-2 instructions, training staff, acquiring the necessary software to complete and submit the form, and similar up-front burdens, as existing separately with subsidiary organization reporting. Therefore, unlike with the Form T-1, there are no non-recurring burdens associated with subsidiary organization reporting; only recurring ones. These burdens are already included in the Form LM-2 burden estimate, and the similar burdens related to the Form T-1 are rescinded by this proposed rule (See Form T-1 final rule, Table 5, 73 FR 57444). Many recurring burdens and tasks, such as those analyzed in the Form T-1 analysis, are also not included in this analysis because they did not relate to the Form LM-2 requirements or are already accounted for in the Form LM-2 burden analysis. For example, the basic labor organization identifying information, the schedules and detailed information provided in Items 1-68, and the summary statements are accounted for in the existing Form LM-2 burden analysis. Therefore, this analysis focuses on additional costs necessary to consolidate subsidiary organization information on the filer's existing Form LM-2.

Additionally, the estimated reporting and recordkeeping burden hours for those filers who choose to undertake an audit are substantially the same as those who consolidate the data on their Form LM-2, as the detail required for the audit is congruent with the information required of those filers who consolidate subsidiary information on the Form LM-2. Accordingly, the Department has analyzed below the costs associated with consolidated reporting, and assumes as part of its conclusion that the costs of the audit option are no greater than those costs associated with consolidated reporting. The Department utilized the same approach in the 2003 and 2008 rules.

a. Recordkeeping Burden Hours To Complete Schedules for Assets, Liabilities, Receipts, Disbursements, and Officers and Employees Schedules

In promulgating the 2008 rule, the Department estimated the recordkeeping burden associated with the number of disbursements, receipts, officers, and employees of trusts. 73 FR 57440-45. The recordkeeping tasks associated with gathering information required for the Form T-1 are substantially the same as the tasks required by this rule. For instance, as explained above, although the Form T-1 uses a different format and requires reporting at a higher threshold than the Form LM-2, the Form T-1 receipts schedule, Schedule 1, corresponds to Form LM-2 Schedule 14; the Form T-1 general disbursements Schedule 2 corresponds to Form LM-2 Schedules 15-20; and the Form T-1 officer and employee disbursements Schedule 3 corresponds to Form LM-2 Schedules 11-12. In other words, the union will have to gather records on other receipts, on disbursements and officer and employee payments whether the Form LM-2 or T-1 is used. Therefore, the Department has used here the same burden hours for this purpose as used in the Form T-1 rule. For the categories of assets and liabilities, the Form T-1 has no schedules, while the Form LM-2 does provide for reporting these categories in its Schedules 1-10. No additional recordkeeping burden is required to complete these schedules because unions already maintain this information in the accounting systems used to electronically complete the existing schedules for assets and liabilities. See 68 FR at 58439 (no recurring burden for assets and liabilities in revised Form LM-2 where schedule and software unchanged). Accordingly, the Department concludes that a Form LM-2 filer keeping records necessary to report a subsidiary organization will spend 5.49 additional hours compiling information regarding receipts, 54.15 hours compiling information on general disbursements, and 10.07 hours compiling information to report on disbursements to officers and employees. See 73 FR at 57442 (specifically analyzing those recordkeeping tasks for the Form T-1). The total number of hours for recordkeeping tasks is reflected below in Table 1; see also 73 FR 57443.

The Form T-1 analysis was based in part on a randomly selected subset of the 2,292 Form LM-2 filers in 2006 whose Form LM-2 report for that year indicated an interest in at least one trust. That analysis has been adapted here for use in analyzing reporting on subsidiaries as opposed to trusts, and includes calculations estimating the recordkeeping burden for receipts (corresponding to Form T-1 Schedule 1; Form LM-2 Schedule 14), general disbursements (corresponding to Form T-1 Schedule 2; Form LM-2 Schedules 15-20), and disbursements to officers and employees (corresponding to Form T-1 Schedule 3; Form LM-2 Schedules 11-12). Based on that analysis, the Department has derived the information-compilation hours noted above (5.49 hours for receipts, 54.15 hours for general disbursements, and 10.07 hours for officer and employee disbursements) in a similar manner, as follows:

The Department estimates that, on average, consolidated Form LM-2 filers will expend 5.49 hours a year on recordkeeping to document the information necessary to complete the Form LM-2 receipts schedule 14. Based on the random sample of labor organizations with an interest in at least one trust outlined above, Form LM-2 filers on average itemize 11 receipts on Schedule 14 (other receipts). The remaining receipts are reported as aggregates in 12 separate categories on Statement B (cash receipts): Dues, per capita tax, fees, sales of supplies, interest, dividends, rents, sales of investment and fixed assets, loans, repayment of loans, receipts held on behalf of affiliates for transmission to them, and receipts from members for disbursement on their behalf. The Department does not believe subsidiaries will have receipts from per capita taxes or that they will they hold money for members and affiliates. For the Form T-1, the Department stated that, on average, trusts will itemize 109.86 receipts each year as estimated for the Form T-1. Experience with the Form LM-2 indicates that a labor organization can input all the necessary information on an itemized receipt in 3 minutes. The total number of itemized receipts, 109.86, was multiplied by 3 minutes to reach the yearly recordkeeping burden, 5.49 hours.[18]

For the Form LM-2 disbursement schedules (Schedules 15-20), the Department estimates that, on average, consolidated filers will expend 54.15 hours a year on recordkeeping. The average Form LM-2 has 1,083 itemized disbursements. Like receipts, the Department estimates it will take 3 minutes to input all the necessary information on an itemized disbursement. The total number of itemized disbursements, 1,083, was multiplied by 3 minutes to reach the yearly recordkeeping burden, 54.15 hours.[19]

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Regarding the officer and employee schedules (Schedules 11-12), the Department estimates consolidated Form LM-2 filers will expend 10.07 hours on recordkeeping to compile the information necessary to complete these schedules, as Form T-1 Schedule 3 is virtually identical to Form LM-2 Schedules 11-12. The Department based its estimate on the analysis used in the 2008 Form T-1 PRA analysis, as the rule required unions to file Form T-1 reports for subsidiaries, and the Department believes, as explained previously, that the filing burden for subsidiaries greatly resembles that of the burden for filing a Form T-1 for trusts. Specifically, similar to the Form T-1 analysis, a union will not have to increase recordkeeping for officers of subsidiaries, as they are already required to keep records on its officers and key employees (including those of the subsidiary) for the IRS Form 990, including name, address, current position, salary, fees, bonuses, severance payments, deferred compensation, allowances, and taxable and nontaxable fringe benefits. (See 73 FR 57440-42).

Additionally, the Department, consistent with the 2008 Form T-1 burden analysis and its Form LM-2 sample, estimated that Form LM-2 filers have, on average, 21.57 employees. Although in practice subsidiaries, such as strike funds and building corporations, likely will have considerably fewer employees, the Department assumes, for purposes of estimating burden, that subsidiaries will have a comparable number of employees. Nevertheless, subsidiaries, as part of unions and thus functioning in certain purposes as employers, keep wage records for each of their employees. The filers will also have to begin keeping records on non-key employees. Id.

Finally, for the assets and liabilities schedules (Form LM-2 Schedules 1-10), reporting in these categories was not required for the Form T-1. As explained above, the Department does not think that there is any new recordkeeping burden for these schedules, as subsidiaries already maintain this information as accounts receivable, accounts payable, and investments.

b. Reporting Burden Hours for Data Input

As with the recordkeeping burden above, the Department concludes that the number of hours required for data input for subsidiary reporting on the Form LM-2 is substantially the same as the number of hours required for data input for the Form T-1, which was assessed in the 2008 Form T-1 rule. 73 FR at 57442. For example, vendor specific information will have to be entered regardless of amount in order to determine whether the reporting threshold for itemized reporting is met (whether that threshold is set at $5,000 or $10,000). In its 2008 Form T-1 rule, the Department estimated that Form T-1 filers will spend 3.75 reporting hours on each schedule inputting the data. As stated in that analysis, experience with the Form LM-2 in previous rulemakings indicates that labor organizations will spend, for each type of reporting (i.e. receipts; general disbursements; officer and employee disbursements), 15 minutes a year training new staff, 60 minutes preparing the download, 90 minutes preparing and testing the data file, and 60 minutes editing, validating and importing the data.

In this analysis, the Department has removed the 15 minutes of additional training each year from its estimate because this extra training is already accounted for in the existing Form LM-2 burden and information relating to the subsidiary is entered on the Form in the same manner as any other asset. Because the current LM-2 form has been in effect since 2005, we believe most LM-2 filers have already conducted the necessary internal training to familiarize staff with reporting procedures. However, as in the Form T-1 analysis, the Department estimates that Form LM-2 filers will spend 3.5 hours inputting data for receipts (on Form LM-2, Schedule 14, which corresponds to Form T-1, Schedule 1); officer and employee disbursements (on Form LM-2, Schedules 11-12, which correspond to Form T-1, Schedule 3); the remaining disbursements (on Form LM-2, Schedules 15-20, which correspond to Form T-1, Schedule 2); as well as for the assets and liabilities schedules (on Form LM-2, Schedules 1-10, although the Form T-1 has no counterpart). Additionally, as in the Form T-1 analysis, the Department also estimates that the president and treasurer of the Form LM-2 filing union will each spend two extra hours reviewing the form to ensure the accuracy of the consolidated subsidiary information before signing. See 73 FR 57444. These figures are shown below in Table 2.

The Department also removed other reporting categories used in Table 3 of the Form T-1 burden analysis (73 FR 57443) because they did not relate the Form LM-2 requirements or are already included in the Form LM-2 reporting regime and accounted for separately. These categories include: fill out trust/labor organization information; answer questions; fill in assets, liabilities, disbursements and receipts; additional information; and signature.

c. Total Hours Spent on Recordkeeping and Reporting

As discussed above, and as reflected in the following tables, the Department estimates that, in addition to the existing burden to complete the Form LM-2 as calculated in the 2003 Form LM-2 Final Rule, 68 FR at 58436-40, Form LM-2 filers will expend, on average, 69.71 hours per year on recordkeeping per subsidiary organization and 18.00 hours on reporting.

Table 1—Recordkeeping Burden in Hours per Subsidiary Organization

ScheduleSchedule or item descriptionTotal recordkeeping burden (in hours)
Schedules 1-10Assets and Liabilities Schedules0.00
Schedule 14Individually itemized receipts5.49
Schedules 15-20Individually itemized disbursements54.15
Schedule 11 and 12Disbursements to Officers and Employees of subsidiary10.07
Total Recordkeeping Burden Hours per Subsidiary Organization69.71

Table 2—Reporting Burden in Minutes per Subsidiary Organization

ScheduleSchedule or item descriptionPrepare downloadPreparation of test/data fileEdit/validate/import data fileTotal reporting burden
Schedules 1-10Assets and Liabilities Schedules609060210
Start Printed Page 74955
Schedule 14Individually itemized receipts609060210
Schedules 15-20Individually itemized disbursements609060210
Schedule 11 and 12Disbursements to Officers and Employees of subsidiary609060210
Management Review240
Total Burden per Subsidiary Organization2403602401080
Total Burden Hours per Subsidiary Organization4.006.004.0018.00

3. Cost of Personnel To Report Subsidiary Organization Financial Information on the Form LM-2

As in the Form T-1 analysis (73 FR 57443-45), the Department assumes that, on average, the completion by a labor organization of a consolidated Form LM-2 will involve an accountant/auditor, bookkeeper/clerk, labor organization president and labor organization treasurer. Based on the 2008 Bureau of Labor Statistics (BLS) wage data from its Occupational Employment Statistics Survey, accountants earn $34.74 per hour and bookkeepers/clerks earn $15.88 per hour.[20] The Department also increased each of these figures by 43.0% to account for fringe benefits.[21] See Table 3 below.

As in the Form T-1 analysis, the Department estimates the average annual salaries of labor organization officers needed to complete tasks for compliance with this rule—the president and treasurer—from responses to salary inquiries based on a sample of 205 labor organizations that filed a Form LM-2 in 2006 and indicated an interest in at least one section 3(l) trust. Because the Department assumes significant commonality between those labor organizations that would have reported on trust interests under the Form T-1 rule and those labor organizations that will report on subsidiaries under Form LM-2, the Department has employed here the salary data for labor organization President and Treasurer utilized in the Form T-1. The Form T-1 study determined that in 2006 Form LM-2 labor organization presidents with section 3(l) trusts make, on average, $24.89 an hour and treasurers $31.58. The average annual salaries were determined by multiplying the average hourly wage by the number of hours in a year, based on a standard 40 hour work week (40 × 52 = 2080 hours). The average hourly wage was then multiplied by the same 43.0% to reach $35.59 per hour and $45.16 per hour, for presidents and treasurers, respectively. See Table 3 below.

Table 3—Compensation Cost Table

TitleTotal hourly wageTotal hourly compensation
Accountants/Auditors$34.74$49.68
Bookkeepers/Clerks15.8822.71
President24.8935.59
Treasurer31.5845.16

Once the labor costs were calculated, the Department applied those costs to each of the Form LM-2 tasks computed in the previous section. Each task was evaluated separately to determine which individual from a particular job category would be needed to complete the task. All tasks identified by the Department above as necessary for compliance with the requirements of this rule were analyzed to determine which personnel would conduct those tasks. As stated previously, the Department removed tasks associated with the Form T-1 burden analysis that do not correlate to a task needed to consolidate subsidiary information on the Form LM-2, or are otherwise accounted for in the pre-existing Form LM-2 reporting regime and its burden (See Form T-1 final rule, Table 5, 73 FR 57444). The following table presents this analysis. The Department notes that this rule corrects a calculation error made in the NPRM, Table 4, regarding the total reporting cost for an accountant to edit/validate/import data file. In the NPRM, the Department identified the total cost at $298.08, while the actual cost is $198.72 (the hourly compensation for an accountant, $49.68, multiplied by the hours needed to complete the task, 4.00). Table 4 below illustrates the correct cost for this task, and it also reflects the updated, correct total cost for subsidiary consolidation on the Form LM-2 ($2,332.25, rather than $2,431.61 in the NPRM).Start Printed Page 74956

Table 4—Cost by Task for Subsidiary Organization Consolidation on the Form LM-2

Burden typeTaskIndividuals participatingHourly costHours to completeCost
RecordkeepingInput RecordsBookkeeper$22.7169.71$1,583.11
ReportingPrepare DownloadBookkeeper22.714.0090.84
ReportingPreparation of Test/Data FileAccountant49.686.00298.08
ReportingEdit/Validate/Import Data FileAccountant49.684.00198.72
ReportingManagement ReviewPresident and Treasurer35.59 and 45.164.00 (2 hours each)161.50
Total Recordkeeping and Reporting Burdens Hours and Costs87.712,332.25

4. Calculation of Total Costs To Form LM-2 Labor Organizations With a Subsidiary Organization

Based on the analysis reflected in the table above, the average cost per labor organization to consolidate its subsidiary's financial information on its Form LM-2 is $2,332.25. As noted earlier, the Department has employed here many of the assumptions about recordkeeping and reporting burdens from the cost analysis in the Form T-1 Final Rule because the two reporting regimes have many similarities. However, subsidiaries of smaller unions will not have as many officers, employees, receipts, or disbursements as the subsidiaries of larger unions. As a result, the Department views the burden estimate developed here as somewhat overstating what it will likely be.

Additionally, based upon experience, the Department estimates that 10% of filers will submit an audit rather than consolidate on its Form LM-2. For these filers, the Department estimates that the reporting and recordkeeping burden, as well as the total cost, will be virtually identical to filers who choose to consolidate, as the same information and level of detail is required for both options. However, the Department understands that the accountant who prepares a separate audit will not engage in the three separate reporting activities (prepare download, prepare data file, and edit import file). Rather, he or she will conduct an analysis of the records and create an audit report. Nevertheless, the Department believes that the reporting burden associated with preparing an audit report will be virtually identical to that of the reporting burden associated with consolidating such information on the Form LM-2. As a result, the Department estimates that the audit option will also cost Form LM-2 filers $2,332.25.

Based upon an estimate of 1,187 total subsidiaries for Form LM-2 filers, the Department estimates that the total cost for Form LM-2 subsidiary reporting is $2,768,380.75. These results are reflected in the table below. The Department corrected the average cost per subsidiary from the NPRM's total, as explained above, and the total cost has been updated to reflect the change to the average cost per subsidiary.

Table 5—Reporting and Recordkeeping Burden Hours and Costs for Form LM-2 Subsidiary Organization Reporting

Number of subsidiariesReporting hours per subsidiaryTotal reporting hoursRecordkeeping hours per subsidiaryTotal recordkeeping hoursTotal burden hours per subsidiaryTotal burden hoursAverage cost per subsidiaryTotal cost
1,18718.0021,36669.7182,745.7787.71104,111.77$2,332.25$2,768,380.75

5. Review of Public Comments

In accordance with the requirements of the PRA, the Department solicited comments on the information collections included in the NPRM. The Department also submitted an information collection request (ICR) to OMB in accordance with 44 U.S.C. 3507(d), contemporaneously with the publication of the NPRM, for OMB's review. As previously discussed, the comments to the NPRM did not challenge the burden analysis in this rule, nor did they provide the Department with any information or data that affects the analytical framework or assumptions underlying the analyses contained in the proposed rule. In connection with publication of this final rule, the Department submitted an ICR to OMB for its request of a new information collection. OMB approved the ICR on October 21, 2010, under OMB Control Number 1245-0003, which will expire on October 31, 2013.

Type of Review: Revision of a currently approved collection.

Agency: Office of Labor-Management Standards.

Title: Labor Organization and Auxiliary Reports.

OMB Number: 1245-0003 (formerly 1215-0188).

Affected Public: Private Sector: Not-for-profit institutions.

Number of Annual Responses: 33,684.

Frequency of Response: Annual for most forms.

Estimated Total Annual Burden Hours: 4,411,641.

Estimated Total Annual Burden Cost: $184,917,704.

A copy of the ICR may be obtained by contacting the PRA addressee shown below or at http://www.RegInfo.gov. PRA Addressee: Andrew R. Davis, (202) 693-0123. This is not a toll-free number.

Regulatory Flexibility Analysis

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., requires agencies to consider the impact of their regulatory proposals on small entities, analyze effective alternatives that minimize small entity impacts, and make initial analyses available for public comment. 5 U.S.C. 603, 604. If an agency determines that its rule will not have a significant economic impact on a substantial number of small entities, it must certify that conclusion to the Small Business Administration (SBA). 5 U.S.C. 605(b).

As in prior rulemakings, the Department's regulatory flexibility analysis utilizes 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, which was updated to $6.5 million in 2005 and in 2008 to $7 million, for purposes of its regulatory flexibility analyses. See 65 FR 30836 (May 15, 2000); 70 FR 72577 (Dec. 6, 2005). This same standard ($7 million) has been Start Printed Page 74957used in developing the regulatory flexibility analysis for this rule.

All numbers used in this analysis are based on 2006 data taken from the Office of Labor-Management Standards e.LORS database, which contains data from annual financial reports field by labor organizations with the Department pursuant to the LMRDA, and BLS data.[22] Accordingly, the following analysis assesses the impact of these regulations on small entities as defined by the applicable SBA size standards.

As stated, the below RFA analysis is exactly as presented in the NPRM. The Department did not receive any comments regarding the analysis.

1. Statement of the Need for, and Objectives of, the Rule

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

The objective of this rule is to reinstate subsidiary organization reporting on Form LM-2. Subsidiary reporting on the Form LM-2 was eliminated with revisions to the form in 2003 in anticipation of the implementation of the Form T-1. Until 2003, a union's annual Form LM-2 report would not be complete without inclusion of subsidiaries' financial information. This requirement was superseded by the introduction of the Form T-1. With the rescission of the Form T-1, reporting on subsidiary organizations is reinstated within the Form LM-2 reporting requirements. Thus, the rule requires that labor organizations include within their Form LM-2 filing financial information concerning their subsidiary organizations, defined as “any separate organization of which the ownership is wholly vested in the reporting labor organization or its officers or its membership, which is governed or controlled by the officers, employees, or members of the reporting labor organization, and which is wholly financed by the reporting labor organization.” See proposed Form LM-2 Instructions, Section X.

As noted earlier in the preamble, the return of subsidiary organizations to the Form LM-2 reporting requirements improves the amount of financial disclosure of such entities, as compared to disclosure under the Form T-1. Under this rule, and as the Form LM-2 long required, a union must disclose the financial information of its subsidiary to the same level of detail as other assets of the union, even if the union chose to file a separate Form LM-2 report for the subsidiary or to file an audit for the entity. See pre-2003 Form LM-2 Instructions, Section X. In contrast, the Form T-1, while it required similar detail in reporting of receipts and disbursements, required less detailed reporting of assets and liabilities. See Form T-1, Items 16-24, and Form LM-2, Schedules 1-10.

The Department in this rule provides Form LM-2 filers two options regarding the reporting of their subsidiaries, rather than the three options provided in the pre-2003 Form LM-2 Instructions. Form LM-2 filers can either consolidate their subsidiaries' financial information on their Form LM-2 report, or they can file, with their Form LM-2 report, a regular annual report of the financial condition and operations of each subsidiary organization, accompanied by a statement signed by an independent public accountant certifying that the financial report presents fairly the financial condition and operations of the subsidiary organization and was prepared in accordance with generally accepted accounting principles. Specific information concerning loans payable and payments to officers and employees, in the same detail required under the related schedules on Form LM-2, also would have to be reported.

The Department in this rule did not reinstate a previous third option for filers: That of filing a separate Form LM-2 report that includes only the subsidiary's financial information. In the Department's experience, the filing of a separate Form LM-2 in addition to the union's primary report creates confusion for union members and others viewing the reports in that the form is designed for unions, not segregated funds and assets. Moreover, a union must file one Form LM-2 report per fiscal year, and the filing of multiple forms by a union for its subsidiaries creates confusion as to which one is the primary form. While consolidation contains some risk of confusion, the Department's experience is that combined reports are easier to follow than separate reports. Moreover, consolidation is entirely appropriate for subsidiaries that are wholly owned, wholly financed, and wholly controlled by the reporting labor union. This reporting method is a particularly appropriate and desirable option for some unions with subsidiaries that perform traditional union operations, such as strike funds and other special union funds. Thus, the Department preserves this option for Form LM-2 filers.

Additionally, to preserve consistency, this rule alters the Form LM-3 instructions regarding the reporting of subsidiary organizations by aligning them with the revised Form LM-2 instructions pertaining to the two options for reporting on subsidiaries. This establishes uniformity with the subsidiary reporting requirements of the two forms.

2. Legal Basis for Rule

The legal authority for this final rule is section 208 of the LMRDA. 29 U.S.C. 438. Section 208 provides that the Secretary of Labor shall have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under title II of the Act, including rules prescribing reports concerning trusts in which a labor organization is interested, and such other reasonable rules and regulations as she may find necessary to prevent the circumvention or evasion of the reporting requirements. 29 U.S.C. 438.

3. Number of Small Entities Covered Under the Rule

As stated in the preamble and in the PRA analysis, 1,087 filers indicated that they had at least one subsidiary organization on their 2004 Form LM-2 reports, the final year in which filers were required to identify on Item 10 whether they had a subsidiary organization. The Department assumes that of those 1,087 filers, 100 labor organizations have receipts valued above SBA's $7 million threshold used to differentiate between small and large entities. Therefore, the Department concludes that there are 987 small labor organizations with receipts below the $7 million threshold that may be affected by this rule. Further, in its experience, those smaller unions with under $7 million in annual receipts will each only have one subsidiary. See PRA analysis, supra.

4. Relevant Federal Requirements Duplicating, Overlapping or Conflicting With the Rule

To the extent that there are Federal rules that duplicate, overlap, or conflict with this rule, this is the result of the requirements of the LMRDA and other Federal statutes, such as the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Section 201(b) of the LMRDA requires reporting of all assets, liabilities, receipts, and disbursements of labor organizations, and this includes their subsidiary organizations. 29 U.S.C. 431(b). Start Printed Page 74958However, to limit burden and any potential duplication, the Department allows filers to attach an audit rather than consolidate information on their subsidiaries.

5. Differing Compliance or Reporting Requirements for Small Entities

Labor organizations that have total annual receipts of $250,000 or more must file the revised Form LM-2. Under this rule, the reporting, recordkeeping, and other compliance requirements apply equally to all labor organizations that are required to file a Form LM-2 under the LMRDA.

6. Clarification, Consolidation and Simplification of Compliance and Reporting Requirements for Small Entities

Form LM-2 filers are directed to use an electronic reporting format. OLMS will provide compliance assistance for any questions or difficulties that may arise from using the Form LM-2 reporting software. A toll-free help desk is staffed during normal business hours and can be reached by telephone at 1-866-401-1109.

Additionally, the use of electronic forms makes it possible to download information from previously filed reports directly into the form; enables most schedule 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 assists reporting compliance and reduces the likelihood that a union will have to file an amended report. The error summaries provided by the software, combined with the speed and ease of electronic filing, also make it easier for both the reporting labor organization and OLMS to identify errors in both current and previously filed reports and to file amended reports to correct them.

7. Steps Taken To Reduce Burden

This rule substantially reduces the burden on labor organizations that file the Form LM-2, including many small labor organizations. By rescinding Form T-1, which was estimated to affect 2,292 Form LM-2 filers, this rule will eliminate a projected average cost per filer of $4,851.20 in the first year and $2,609.29 in subsequent year. Subsidiary organization reporting, in contrast, impacts fewer unions (only 1,087 unions are estimated to have such entities), and the cost to consolidate their financial information is only $2,332.25. The Department has further reduced the burden by permitting those unions who already have audit reports for such subsidiaries to attach them to their Form LM-2. See PRA analysis, supra.

8. Reporting, Recording and Other Compliance Requirements of the Rule

This analysis only considers labor organizations with annual receipts between $250,000 and $7 million. Labor organizations with less than $250,000 in annual receipts are not required to file the Form LM-2 and those with annual receipts greater than $7 million are outside of the coverage of the RFA. The 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.

As stated above, the Department estimates that there are 987 labor unions with under $7 million in total annual receipts, which are affected by this rule. Additionally, these unions will have a burden of only $2,332.25,[23] which comes out to merely 0.93% of the total annual receipts of the smallest Form LM-2 filers ($250,000 in total annual receipts) and about 0.07% of the median of unions between $250,000 and $7 million in total annual receipts (i.e. $3,375,000 in total annual receipts). The Department has further reduced the burden by permitting those unions who already have audit reports for such subsidiaries to attach them to their Form LM-2. See PRA analysis, supra. Moreover, the Department estimates that the burden will not be as great on smaller unions as those with greater than $7 million in total annual receipts, as the smaller unions' subsidiaries will not be as complicated and as large, in areas such as total officers, employees, receipts and disbursements.

9. Conclusion

The RFA 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 Department estimates that there are 987 labor unions with under $7 million in total annual receipts that will be affected by this rule, and each of these has an estimated one subsidiary about which it will be required to report. As noted in the PRA analysis, supra, the Department estimated above that a labor organization's cost for filing a report for one subsidiary is $2,332.25. This cost represents less that one percent (0.93%) of the total annual receipts of the smallest Form LM-2 filers ($250,000 in total annual receipts). Further, this cost represents less than one-tenth of one percent (0.07%) of the median of unions between $250,000 and $7 million in total annual receipts (i.e. $3,375,000 in total annual receipts).

The Department concludes that this economic impact is not significant, as that term is employed for the purpose of this analysis. As to the number of labor organizations affected by this rule, the Department has determined, by examining e.LORS data, that there are 987 smaller unions (each with one subsidiary) affected by this rule. This total represents only 23.34% of the recent total of 4,228 Form LM-2s from labor organizations with receipts between $250,000 and $7,000,000 (which constitute 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 concludes that the rule will not have a significant economic impact on a substantial number of small entities.

Electronic Filing of Forms and Availability of Collected Data

Appropriate information technology is used to reduce burden and improve efficiency and responsiveness. The Form LM-2 now in use can be downloaded from the OLMS Web site. OLMS also has 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 fee to obtain electronic signature capability for the two officers who sign the form. Digital signatures ensure the authenticity of the reports.

The OLMS Internet Disclosure site at http://www.unionreports.gov is available for public use. The site contains a copy of each labor organization's annual financial report for reporting years 2000 and thereafter, Start Printed Page 74959as well as an indexed computer database of the information in each report that is searchable through the Internet.

Information about this system can be obtained on the OLMS Web site at http://www.olms.dol.gov.

Start List of Subjects

List of Subjects in 29 CFR Part 403

End List of Subjects

Text of Rule

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Accordingly, the Department amends part 403 of 29 CFR chapter IV as set forth below:

End Amendment Part Start Part

PART 403—LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS

End Part Start Amendment Part

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

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Authority: Labor-Management Reporting and Disclosure Act 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.

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[Amended]
Start Amendment Part

2. In § 403.2, remove paragraph (d).

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[Amended]
Start Amendment Part

3. In § 403.5, remove paragraph (d).

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[Amended]
Start Amendment Part

4. In § 403.8, remove paragraph (c) and redesignate paragraph (d) as paragraph (c).

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Editor's note:

The following will not appear in the Code of Federal Regulations.

Appendix A: Specific Changes to the Form LM-2 Instructions

A. General Instructions:

Section II. What Form To File

Current instructions read:

Every labor organization subject to the LMRDA, CSRA, or FSA with total annual receipts of $250,000 or more must file Form LM-2. The term “total annual receipts” means all financial receipts of the labor organization during its fiscal year, regardless of the source, including receipts of any special funds as described in Section VIII (Funds To Be Reported) of these instructions. Receipts of a trust in which the labor organization is interested should not be included in the total annual receipts of the labor organization when determining which form to file unless the trust is wholly owned, wholly controlled, and wholly financed by the labor organization.

Labor organizations with total annual reports of less than $250,000 may file the simplified annual report Form LM-3, if not in trusteeship as defined in Section IX (Labor Organizations In Trusteeship) of these instructions. Labor organizations with total annual receipts of less than $10,000 may file the abbreviated annual report Form LM-4, if not in trusteeship.

The Department revises the above language to read:

Every labor organization subject to the LMRDA, CSRA, or FSA with total annual receipts of $250,000 or more must file Form LM-2.

Labor organizations with total annual receipts of less than $250,000 may file the simplified Form LM-3, if not in trusteeship as defined in Section IX (Labor Organization In Trusteeship) of these instructions. Labor organizations with total annual receipts of less than $10,000 may file the abbreviated annual report Form LM-4, if not in trusteeship.

The term “total annual receipts” means all financial receipts of the labor organization during its fiscal year, regardless of the source, including receipts of any special funds as described in Section VIII (Funds To Be Reported) or as described in Section X (Labor Organizations With Subsidiary Organizations). Receipts of an LMRDA section 3(l) trust in which the labor organization is interested (as described in Information Item 10) should not be included in the total annual receipts of the labor organization when determining which form to file, unless the 3(l) trust is a subsidiary organization of the union.

Section VIII. Funds To Be Reported

Current instructions read:

The labor organization must report financial information on Form LM-2 for all funds of the labor organization. Include any special purpose funds or accounts, such as strike funds, vacation funds, and scholarship funds even if they are not part of the labor organization's general treasury. The labor organization is required to report information about any trust in which it is interested on the Form T-1. See Section X (Trusts In Which A Labor Organization Is Interested).

The Department revises the above language to read:

The labor organization must report financial information on Form LM-2 for all funds of the labor organization. Include any special purpose funds or accounts, such as strike funds, vacation funds, and scholarship funds even if they are not part of the labor organization's general treasury.

All labor organization political action committee (PAC) funds are considered to be labor organization funds. However, to avoid duplicate reporting, PAC funds that are kept separate from your labor organization's treasury are not required to be included in your organization's Form LM-2 if publicly available reports on the PAC funds are filed with a Federal or state agency.

Your organization is required to report financial information about any “subsidiary organizations.” Financial information about your organization and its subsidiary organizations may be combined on a single Form LM-2 or you may attach to your Form LM-2 report the regular annual report of the financial condition and operations of the subsidiary organization with a signed certification by an independent public accountant, as described in Section X (Labor Organizations With Subsidiary Organizations).

If combining the information concerning subsidiary organizations, be sure to include the requested information and amounts for the subsidiary organizations as well as for all other assets of your union in all items.

Special Instructions for Certain Organizations

Section X. Labor Organizations With Subsidiary Organizations

Current instructions read:

A trust in which a labor organization is interested is defined in Section 3(l) of the LMRDA (29 U.S.C. 402(l)) as:

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

The definition of a trust in which a labor organization is interested may include, but is not limited to, joint funds administered by a union and an employer pursuant to a collective bargaining agreement, educational or training institutions, credit unions created for the benefit of union members, and redevelopment or investment groups established by the unions for the benefit of its members. The determination whether a particular entity is a trust in which a labor organization is interested must be based on the facts in each case.

A labor organization is required to report in Form LM-2 information concerning each LMRDA Section 3(l) trust in accordance with the instructions in Item 10 of Form LM-2.

A labor organization must, in addition, file a separate Form T-1 report disclosing assets, liabilities, receipts, and disbursements of a trust in which the labor organization is interested if the labor organization, alone or in combination with other labor organizations, either (1) appoints or selects a majority of the members of the trust's governing board or (2) contributes to the trust greater than 50% of the trust's receipts during the one year reporting period. Any contributions made pursuant to a collective bargaining agreement shall be considered the labor organization's contribution.

No Form T-1 should be filed for any labor organization that already files a Form LM-2, LM-3, or LM-4, nor should a report be filed for any entity that is expressly exempted from reporting in the Act, such as organizations composed entirely of state or local government employees or state or local central bodies.

No Form T-1 need be filed for

  • A Political Action Committee (PAC) if timely, complete, and publicly available reports on the PAC funds are filed with a Federal or state agency
  • A political organization under 26 U.S.C. 527, if timely, complete, and publicly available reports are filed with the Internal Revenue Service
  • A federal employee health benefit plan subject to the provisions of the Federal Employees Health Benefits Act (FEHBA)
  • A for-profit commercial bank established or operating pursuant to the Bank Holding Act of 1956, 12 U.S.C. 1843Start Printed Page 74960
  • An employee benefit plan required to file a Form 5500 for a plan year ending during the reporting period of the union.

For purposes of these instructions, only, a trust is “required to file a Form 5500” if a plan administrator is required to file an annual report on behalf of the trust under 29 U.S.C. sections 1021 and/or 1024.[24] However, if the plan administrator of the trust is eligible for an exemption from filing a Form 5500 or Form 5500-SF, then a Form T-1 must be filed for that section 3(l) trust regardless of whether a Form 5500 or Form 5500-SF is filed on its behalf. For a definition of plans “required to file a Form 5500” for purposes of filing the Form T-1, see 29 CFR 403.2(d)(3)(vi).

An abbreviated Form T-1 report may be filed where a qualifying independent audit also is submitted, in accordance with requirements specified in the Form T-1 instructions.

A Form T-1 report must be filed within 90 days after the end of the union's fiscal year. The Form T-1 covers the most recently concluded fiscal year of the trust.

See Instructions for Form T-1, Trust Annual Report.

Questions regarding these reporting requirements should be directed to the OLMS Division of Interpretations and Standards, which can be reached by e-mail at OLMS-Public@dol.gov, by phone at 202-693-0123, by fax at 202-693-1340, or at the following address: U.S. Department of Labor, Employment Standards Administration, Office of Labor-Management Standards, 200 Constitution Avenue, NW., Room N-5609, Washington, DC 20210.

Examples of a trust in which a labor organization is interested may include, but are not limited to, the following entities:

Example A: The Building Corporation—A labor organization creates a corporation which owns the building where the union has its offices. The building corporation must be reported as a trust in which the labor organization is interested.

Example B: The Redevelopment Corporation—A labor organization creates an entity named the Redevelopment Corporation, or appoints one or more of the members of the governing board of the Corporation, which is established primarily to enable members of the labor organization to obtain low cost housing constructed with Federal Housing and Urban Development (HUD) grants. The Redevelopment Corporation must be reported as a trust in which it is interested. A labor organization that neither participated in the creation of the Corporation, nor appointed members of its governing board, but loaned money to the Corporation to use as matching money for HUD grants need not report the Corporation as a trust in which it is interested.

Example C: The Educational Institute—Five reporting labor organizations form the Educational Institute to provide educational services primarily for the benefit of their members. Similar services are also provided to the general public. Each labor organization contributes funds to start the Educational Institute, which will then offer various educational programs that will generate revenue. Each labor organization that participated in forming the Institute, or that appoints a member to its governing body, must report the Educational Institute as a trust in which it is interested.

Example D: Joint Funds—A reporting labor organization that forms a “joint fund” with a large national manufacturer to offer a variety of training and jobs skills programs for members of the labor organization, or appoints a member to the governing body of such a fund, must report the joint fund as a trust in which the labor organization has an interest.

Example E: Job Targeting Fund—A reporting labor organization creates an entity for the purpose of making targeted disbursements to increase employment opportunities for its members. The fund must be reported as a trust in which the labor organization is interested.

The Department revises the above language to read:

The labor organization must disclose assets, liabilities, receipts, and disbursements of a subsidiary organization.

Within the meaning of these instructions, a subsidiary organization is defined as any separate organization of which the ownership is wholly vested in the reporting labor organization or its officers or its membership, which is governed or controlled by the officers, employees, or members of the reporting labor organization, and which is wholly financed by the reporting labor organization. A subsidiary organization is considered to be wholly financed if the initial financing was provided by the reporting labor organization even if the subsidiary organization is currently wholly or partially self-sustaining. An example of a subsidiary organization is a building corporation which holds title to a building; the labor organization owns the building corporation, selects the officers, and finances the operation of the building corporation.

A labor organization is required to report financial information for each of its subsidiary organizations using one of the following methods:

Method (1)—Consolidate the financial information for the subsidiary organization and the labor organization on a single Form LM-2.

Method (2)—File, with the labor organization's Form LM-2, the regular annual report of the financial condition and operations of the subsidiary organization, accompanied by a statement signed by an independent public accountant certifying that the financial report presents fairly the financial condition and operations of the subsidiary organization and was prepared in accordance with generally accepted accounting principles.

Financial information reported separately for subsidiary organizations under method (2) must include the name of the subsidiary organization and the name and file number of the labor organization as shown on its Form LM-2. The financial report of the subsidiary organization must cover the same reporting period as that used by the reporting labor organization.

When method (2) is used and the subsidiary organization is an investment, the financial interest of the reporting labor organization in the subsidiary organization must be reported in Item 26 (Investments) and in Schedule 5 (Investments) of the labor organization's Form LM-2. When method (2) is used and the subsidiary organization is of a non-investment nature, the financial interest of the reporting labor organization in the subsidiary organization must be reported in Item 28 (Other Assets) and in Schedule 7 (Other Assets) of the labor organization's Form LM-2.

The same type of information required on Form LM-2 regarding disbursements to officers and employees and loans made by labor organizations must also be reported with respect to the subsidiary organization. In method (1) the information relating to the subsidiary organization must be combined with that of the labor organization and reported on the labor organization's Form LM-2 on Schedule 11 (All Officers and Disbursements to Officers) and Schedule 12 (Disbursements to Employees) and Statement A, Item 24 (Loans Receivable) and Schedule 2 (Loans Receivable) in the detail required by the instructions. If method (2) is used, an attachment must be submitted containing the information required by the instructions for Schedules 2, 11, and 12.

The information regarding loans made by the subsidiary organization must include in Schedule 2 (Loans Receivable) a listing of the names of each officer, employee, or member of the labor organization and each officer or employee of the subsidiary organization whose total loan indebtedness to the subsidiary organization, to the labor organization, or to both at any time during the reporting period exceeded $250. However, if method (2) is used, the amount reported by the subsidiary organization should be only the amount owed to the subsidiary organization.

The annual financial report must also include on Schedule 11 (All Officers and Disbursements to Officers) all disbursements made by the subsidiary organization to or on behalf of its officers and officers of the labor organization. The report must also list on Schedule 12 (Disbursements to Employees) the name and position of the subsidiary organization's employees whose total gross salaries, allowances, and other disbursements from the subsidiary organization, the reporting labor organization, and any Start Printed Page 74961affiliates were more than $10,000. However, if method (2) is used, only the disbursements of the subsidiary organization for its employees should be reported.

XI Completing Form LM-2

Item 10 currently reads:

10. TRUSTS OR FUNDS—Answer “Yes” to Item 10, if the labor organization has an interest in a trust as defined in 29 U.S.C. 402(l) (see Section X of these Instructions). Provide in Item 69 (Additional Information) the full name, address, and purpose of each trust. Also include in Item 69 the fiscal year ending date for any trust for which a Form T-1 is filed if the trust's fiscal year is different from that of the labor organization. If no Form T-1 is required to be filed on the trust because (1) the trust had annual receipts of less than $250,000 during the trust's most recent fiscal year or (2) the labor organization's financial contribution to the trust or the contribution made on the labor organization's behalf, or as a result of a negotiated agreement to which the labor organization is a party, is less than $10,000, the labor organization should also report the amount of the contribution in Item 69 and, if the contribution was made by the labor organization itself, in the appropriate disbursement item in Statement B. Additionally, if no Form T-1 is filed because financial information is already available as a result of the disclosure requirements of another Federal statute, list the name of any government agency, such as the Employee Benefits Security Administration (EBSA) of the Department of Labor, with which the trust files a publicly available report, and the relevant file number of the trust, or otherwise indicate where the relevant report may be viewed. See Instructions for Form T-1, Trust Annual Report, for guidance on reporting the assets, liabilities, receipts, disbursements, and other information about these entities.

The Department revises the above language to read:

10. TRUSTS OR FUNDS—Answer “Yes” to Item 10, if the labor organization has an interest in a trust or other fund as defined in 29 U.S.C. 402(l). Provide in Item 69 (Additional Information) the full name, address, and purpose of each trust or other fund. If a report has been filed for the trust or other fund under the Employee Retirement Income Security Act of 1974 (ERISA), report in Item 69 (Additional Information) the ERISA file number (Employer Identification Number—EIN) and plan number, if any.

A trust in which a labor organization is interested is defined in Section 3(l) of the LMRDA (29 U.S.C. 402(l)) as:

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

The determination whether a particular entity is a trust in which a labor organization is interested will be based on the facts in each case.

The Department revises the Form LM-2 to break current Item 11 on the form into two questions to read as follows:

Item 11(a). During the reporting period did the labor organization have a political action committee fund (PAC)?

Item 11(b). During the reporting period did the labor organization have a subsidiary organization as defined in Section X of these Instructions?

Current instructions read:

If the labor organization answered “Yes” to Item 11, provide in Item 69 (Additional Information) the full name of each separate political action committee (PAC) and list the name of any government agency, such as the Federal Election Commission or a state agency, with which the PAC has filed a publicly available report, and the relevant file number of the PAC. (PAC funds kept separate from the labor organization's treasury need not be included in the labor organization's Form LM-2 if publicly available reports on the PAC funds are filed with a Federal or state agency.)

The Department revises the above language to read:

If the labor organization answered “Yes” to Item 11(a), in reference to a political action committee, provide in Item 69 (Additional Information) the full name of each separate political action committee (PAC) and list the name of any government agency, such as the Federal Election Commission or a state agency, with which the PAC has filed a publicly available report, and the relevant file number of the PAC. (PAC funds kept separate from the labor organization's treasury need not be included in the labor organization's Form LM-2 if publicly available reports on the PAC funds are filed with a Federal or state agency.)

If the labor organization answered “Yes” to Item 11(b), in reference to a subsidiary organization, provide in Item 69 (Additional Information) the name, address, and purpose of each subsidiary organization. Indicate whether the information concerning its financial condition and operations is included in this Form LM-2 or in a separate report. See Section X of these instructions for information on reporting subsidiary organizations.

Schedule 2—Loans Receivable

The instructions regarding Column (A) currently read:

Column (A): Enter the following information on Lines 1 through 3 (and on continuation pages if necessary):

  • The name of each officer, employee, or member whose total loan indebtedness to the labor organization at any time during the reporting period exceeded $250, and the name of each business enterprise which had any loan indebtedness, regardless of amount, at any time during the reporting period;

The Department revises the above language to read:

Column (A): Enter the following information on Lines 1 through 3 (and on continuation pages if necessary):

  • The name of each officer, employee, or member whose total loan indebtedness to the labor organization, including any subsidiary organization, at any time during the reporting period exceeded $250, and the name of each business enterprise which had any loan indebtedness, regardless of amount, at any time during the reporting period;

Schedule 5—Investments Other Than U.S. Treasury Securities

Schedule 5, Item 6 currently reads:

List each other investment which has a book value over $5,000 and exceeds 5% of Line 5. Also, list each Trust which is an investment.

The Department revises Schedule 5, Item 6 to read:

List each other investment which has a book value over $5,000 and exceeds 5% of Line 5. Also, list each subsidiary for which separate reports are attached.

The Instructions for Schedule 5 currently read:

Report details of all the labor organization's investments at the end of the reporting period, other than U.S. Treasury securities. Include mortgages purchased on a block basis and any investments in a trust as defined in Section X (Trusts in Which a Labor Organization is Interested) of these instructions. Do not include savings accounts, certificates of deposit, or money market accounts, which must be reported in Item 22 (Cash) of Statement A.

The Department revises the Instructions for Schedule 5 to read:

Report details of all the labor organization's investments at the end of the reporting period, other than U.S. Treasury securities. Include mortgages purchased on a block basis and investments in any subsidiary organization not reported on a consolidated basis in accordance with method (1) explained in Section X of these instructions. Do not include savings accounts, certificates of deposit, or money market accounts, which must be reported in Item 22 (Cash) of Statement A.

The Instructions for the Schedule 5, Note currently read:

Note:

All trusts in which the labor organization is interested which are investments of the labor organization (such as real estate trusts, building corporations, etc.) must be reported in Schedule 5. On Lines 6(a) through (d) enter the name of each trust in Column (A) and the labor organization's share of its book value in Column (B).

The Department revises the Instructions for Schedule 5, Note to read:

Note:

If your organization has a subsidiary organization for which a separate report is being submitted in accordance with Section X of these instructions, the subsidiary organization must be reported in Schedule 5 if it is an investment. Enter in Line F the name of each subsidiary organization in Column (A) and its book value in Column (B).

The Instructions for Schedule 7—Other Assets, Note currently read:

Note:

If the labor organization has an ownership interest of a non-investment nature in a trust in which it is interested (such as a training fund) the value of the labor organization's ownership interest in the entity as shown on the labor organization's books must be reported in Schedule 7 (Other Start Printed Page 74962Assets). Enter in Column (A) the name of any such entity. Enter in Column (B) the value as shown on the labor organization's books of its share of the net assets of any such entity.

The Department revises the Instructions for Schedule 7, Note to read:

Note:

If your organization has a subsidiary organization for which a separate report is being submitted in accordance with Section X of these instructions, the value of the subsidiary organization as shown on your organization's books must be reported in Schedule 7 if it is of a non-investment nature. Enter in Column (A) the name of any such subsidiary organization. Enter in Column (B) the value as shown on your organization's books of the net assets of any such subsidiary organization.

The Instructions for Schedule 12—Disbursements to Employees, Columns (A), (B), and (C) currently read:

Column (A): Enter the last name, first name, and middle initial of each employee who during the reporting period received $10,000 or more in gross salaries, allowances, and other direct and indirect disbursements from the labor organization or from the labor organization and any affiliates and/or trusts of the labor organization. (“Affiliates” means labor organizations chartered by the same parent body, governed by the same constitution and bylaws, or having the relation of parent and subordinate.) The labor organization's report, however, should not include disbursements made by affiliates or trusts but should include only the disbursements made by the labor organization.

Column (B): Enter the position each listed employee held in the labor organization.

Column (C): Enter the name of any affiliate or trust that paid any salaries, allowances, or expenses on behalf of a listed employee.

The Department revises the Instructions for Schedule 12, Columns (A), (B), and (C) to read:

Column (A): Enter the last name, first name, and middle initial of each employee who during the reporting period received $10,000 or more in gross salaries, allowances, and other direct and indirect disbursements from the labor organization (including any subsidiary organizations) or from any affiliates of the labor organization. (“Affiliates” means labor organizations chartered by the same parent body, governed by the same constitution and bylaws, or having the relation of parent and subordinate.) The labor organization's report, however, should not include disbursements made by affiliates but should include only the disbursements made by the labor organization.

Column (B): Enter the position each listed employee held in the labor organization (including any subsidiary organizations).

Column (C): Enter the name of any affiliate that paid any salaries, allowances, or expenses on behalf of a listed employee. If a subsidiary of the labor organization paid any salaries, allowances, or expenses on behalf of a listed employee, see Section X of these Instructions for information about reporting these disbursements.

The Department seeks comments on its proposed changes to the Form LM-2 and instructions.

Appendix B: Specific Proposed Changes to the Form LM-3 and Form LM-4 Instructions

The text of the Form LM-3 and Form LM-4 Instructions will be changed to address the reporting of subsidiary organizations. With respect to the Form, the Department proposes to remove Item 3(c), which currently requires that a labor organization identify if the report is exclusively filed for a subsidiary organization, as the Department proposes to remove this option, as described above. The proposed revised Form LM-3 Instructions include changes to sections I, VIII and X.

Section VIII currently reads:

VIII. FUNDS TO BE REPORTED

Your labor organization's Form LM-3 must report financial information for all funds of your organization. Include any special purpose funds or accounts, such as strike funds, vacation funds, and scholarship funds even it they are not part of your organization's general treasury. All labor organization political action committee (PAC) funds are considered to be labor organization funds. However, to avoid duplicate reporting, PAC funds which are kept separate from your labor organization's treasury are not required to be included in your organization's Form LM-3 if publicly available reports on the PAC funds are filed with a Federal or state agency.

Your organization is required to report financial information about any “subsidiary organization(s).” Financial information about your organization and its subsidiary organizations may be combined on a single Form LM-3 or a separate report may be filed for any subsidiary organization. See Section X of these instructions for information on reporting financial information for subsidiary organizations.

In combining the information concerning special funds and/or any subsidiary organizations, be sure to include the requested information and amounts for the “special funds” and subsidiary organizations as well as for your organization in all items.

The Department revises Section VIII to read:

VIII. FUNDS TO BE REPORTED

Your labor organization's Form LM-3 must report financial information for all funds of your organization. Include any special purpose funds or accounts, such as strike funds, vacation funds, and scholarship funds even it they are not part of your organization's general treasury. All labor organization political action committee (PAC) funds are considered to be labor organization funds. However, to avoid duplicate reporting, PAC funds which are kept separate from your labor organization's treasury are not required to be included in your organization's Form LM-3 if publicly available reports on the PAC funds are filed with a Federal or state agency.

Your organization is required to report financial information about any “subsidiary organizations.” Financial information about your organization and its subsidiary organizations may be combined on a single Form LM-3 or you may attach to your Form LM-3 report the regular annual report of the financial condition and operations of the subsidiary organization with a signed certification by an independent public accountant. See Section X of these instructions for information on reporting financial information for subsidiary organizations.

If combining the information concerning subsidiary organizations, be sure to include the requested information and amounts for the subsidiary organizations as well as for all other assets of your union in all items.

Current Section X reads:

X. LABOR ORGANIZATIONS WITH SUBSIDIARY ORGANIZATIONS

A subsidiary organization, within the meaning of these instructions, is any separate organization of which the ownership is wholly vested in the reporting labor organization or its officers or its membership, which is governed or controlled by the officers, employees, or members of the reporting labor organization, and which is wholly financed by the reporting labor organization. A subsidiary organization is considered to be wholly financed if the initial financing was provided by the reporting labor organization even if the subsidiary organization is currently wholly or partially self-sustaining. An example of a subsidiary organization is a building corporation which holds title to a building; the labor organization owns the building corporation, selects the officers, and finances the operation of the building corporation.

If your organization has no subsidiary organization as defined above, skip to Section Xl of these instructions.

A labor organization is required to report financial information for each of its subsidiary organizations using one of the following methods:

Method (1)—Consolidate the financial information for the subsidiary organization(s) and the labor organization on a single Form LM-3.

Method (2)—Complete a separate Form LM-3 for the subsidiary organization and file it with the labor organization's Form LM-3. The LM-3 report for the subsidiary organization must be identified by selecting Item 3(c).

Method (3)—File, with the labor organization's Form LM-3, the regular annual report of the financial condition and operations of the subsidiary organization, accompanied by a statement signed by an independent public accountant certifying that the financial report presents fairly the financial condition and operations of the subsidiary organization and was prepared in accordance with generally accepted accounting principles. Financial information reported separately for subsidiary organizations under methods (2) and (3) above must include the name of the subsidiary organization and the name and file number of the labor organization as shown on its Form LM-3. The financial report of the subsidiary organization must cover the same reporting period as that used by the reporting labor organization.Start Printed Page 74963

When method (2) or (3) is used and the subsidiary organization is an investment, the financial interest of the reporting labor organization in the subsidiary organization must be reported in Item 28 (Investments) of the labor organization's Form LM-3.

When method (2) or (3) is used and the subsidiary organization is of a non-investment nature, the financial interest of the reporting labor organization in the subsidiary organization must be reported in Item 30 (Other Assets) of the labor organization's Form LM-3.

The same type of information required on Form LM-3 regarding disbursements to officers and employees and loans made by labor organizations must also be reported with respect to the subsidiary organization. In method (1) the information relating to the subsidiary organization must be combined with that of the labor organization and reported on the labor organization's Form LM-3 in Item 24 and in Item 56 in the detail required by the instructions for Items 17 and 18. In method (2) this information must be reported on the separate Form LM-3 of the subsidiary organization in Item 24 and in Item 56 in the detail required by the instructions for Items 17 and 18. If method (3) is used, an attachment must be submitted containing the information required by the instructions for Items 17, 18, and 24.

The information regarding loans made by the subsidiary organization must include a listing of the names of each officer, employee, or member of the labor organization and each officer or employee of the subsidiary organization whose total loan indebtedness to the subsidiary organization, to the labor organization, or to both at any time during the reporting period exceeded $250. However, if method (2) or (3) is used, the amount reported by the subsidiary organization should be only the amount owed to the subsidiary organization.

The annual financial report must also include all disbursements made by the subsidiary organization to or on behalf of its officers and officers of the labor organization. The report must also list the name and position of the subsidiary organization's employees whose total gross salaries, allowances, and other disbursements from the subsidiary organization, the reporting labor organization, and any affiliates were more than $10,000. However, if method (2) or (3) is used, only the disbursements of the subsidiary organization for its employees should be reported.

The Department revises Section X to read:

X. LABOR ORGANIZATIONS WITH SUBSIDIARY ORGANIZATIONS

A subsidiary organization, within the meaning of these instructions, is any separate organization of which the ownership is wholly vested in the reporting labor organization or its officers or its membership, which is governed or controlled by the officers, employees, or members of the reporting labor organization, and which is wholly financed by the reporting labor organization. A subsidiary organization is considered to be wholly financed if the initial financing was provided by the reporting labor organization even if the subsidiary organization is currently wholly or partially self-sustaining. An example of a subsidiary organization is a building corporation which holds title to a building; the labor organization owns the building corporation, selects the officers, and finances the operation of the building corporation.

If your organization has no subsidiary organization as defined above, skip to Section Xl of these instructions.

A labor organization is required to report financial information for each of its subsidiary organizations using one of the following methods:

Method (1)—Consolidate the financial information for the subsidiary organization(s) and the labor organization on a single Form LM-3.

Method (2)—File, with the labor organization's Form LM-3, the regular annual report of the financial condition and operations of the subsidiary organization, accompanied by a statement signed by an independent public accountant certifying that the financial report presents fairly the financial condition and operations of the subsidiary organization and was prepared in accordance with generally accepted accounting principles. Financial information reported separately for subsidiary organizations under this method must include the name of the subsidiary organization and the name and file number of the labor organization as shown on its Form LM-3. The financial report of the subsidiary organization must cover the same reporting period as that used by the reporting labor organization.

When method (2) is used and the subsidiary organization is an investment, the financial interest of the reporting labor organization in the subsidiary organization must be reported in Item 28 (Investments) of the labor organization's Form LM-3.

When method (2) is used and the subsidiary organization is of a non-investment nature, the financial interest of the reporting labor organization in the subsidiary organization must be reported in Item 30 (Other Assets) of the labor organization's Form LM-3.

The same type of information required on Form LM-3 regarding disbursements to officers and employees and loans made by labor organizations must also be reported with respect to the subsidiary organization. In method (1) the information relating to the subsidiary organization must be combined with that of the labor organization and reported on the labor organization's Form LM-3 in Item 24 (All Officers and Disbursements to Officers) and in Item 56 (Additional Information) for Items 17 (Employees) and 18 (Loans), in the detail required by the instructions. If method (2) is used, an attachment must be submitted containing the information required by the instructions for Items 17, 18, and 24.

The information regarding loans made by the subsidiary organization must include a listing of the names of each officer, employee, or member of the labor organization and each officer or employee of the subsidiary organization whose total loan indebtedness to the subsidiary organization, to the labor organization, or to both at any time during the reporting period exceeded $250. However, if method (2) is used, the amount reported by the subsidiary organization should be only the amount owed to the subsidiary organization.

The annual financial report must also include all disbursements made by the subsidiary organization to or on behalf of its officers and officers of the labor organization. The report must also list the name and position of the subsidiary organization's employees whose total gross salaries, allowances, and other disbursements from the subsidiary organization, the reporting labor organization, and any affiliates were more than $10,000. However, if method (2) is used, only the disbursements of the subsidiary organization for its employees should be reported.

Appendix C: Revised Form LM-2 (Form and Instructions); Revised Form LM-3 (Form and Instructions); and Revised Form LM-4 (Instructions Only)

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Start Signature

Signed in Washington, DC, this 9th day of November 2010.

John Lund,

Director, Office of Labor-Management Standards.

End Signature End Supplemental Information

Footnotes

1.  The 2003 changes retained the requirement for labor organizations to include the receipts of their subsidiaries when determining if they have met the $250,000 filing threshold. Yet, the transactions of the subsidiaries were not themselves on the form. See Form LM-2 Instructions, Part II.

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2.  The pre-2003 Form LM-2 Instructions can be viewed at http://www.regulations.gov.

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3.  One comment from a union only addressed the intermediate body issue, and not the Form T-1 or subsidiary reporting.

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5.  A public policy group cited a payment received by an international union officer from a “union vendor.” This example is not within the scope of the reporting requirements for labor organizations, but rather would be reportable by the officer on the Form LM-30, Labor Organization Officer and Employee Report, and by the vendor on the Form LM-10, Employer Report, as a payment to a union officer by a business that deals with the officer's union.

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6.  Indeed, in U.S. v. Hartsel, the Sixth Circuit held that a charitable organization with a separate not-for-profit tax status constituted a fund of a labor organization for purposes of section 501(c) of the Act, as the union in question created the fund, financed it by soliciting contributions from the members, and managed and controlled it by appointing its officers. U.S. v. Hartsel, 199 F.3d 812, 819-820 (6th Cir. 1999); see also U.S. v. LaBarbara, 129 F.3d 81 (2d Cir. 1987) (holding that assets of a not-for-profit building corporation controlled by a union comprise the assets of a labor organization under section 501).

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7.  These examples were presented first in 2002 NPRM proposing the Form T-1. 72 FR 79283. The Department also notes that federal credit unions are regulated by the National Credit Union Administration (NCUA). See http://www.ncua.gov. The NCUA provides financial information concerning Federal credit unions.

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8.  Section 3(i) of the LMRDA, 29 U.S.C. 402(i), defines a “labor organization” as (1) any organization “engaged in an industry affecting commerce * * * in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours, or other terms or conditions of employment,” or (2) “any conference, general committee, joint or system board, or joint council so engaged which is subordinate to a national or international labor organization other than a State or local central body.” The first clause of Section 3(i) applies to entities that exist, at least in part, to deal with employers concerning terms and conditions of employment. Although “employer” is defined broadly in the Act, the United States, States and local governments are expressly excluded from this definition. 29 U.S.C. 402(e). Thus, an organization is not covered under the first clause of Section 3(i), which requires that the organization deal with a statutory “employer,” if it deals only with federal, state or local governments. The second clause of the definition applies to conferences, general committees, joint or system boards or joint councils—entities that are known as “intermediate” labor organizations. See 29 CFR 451.4(f).

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9.  Section 3(j)(5) of the LMRDA, 29 U.S.C. 402(j)(5) states that, “A labor organization shall be deemed to be engaged in an industry affecting commerce if it * * * is a conference, general committee, joint or system board, or joint council, subordinate to a national or international labor organization, which includes a labor organization engaged in an industry affecting commerce within the meaning of any of the preceding paragraphs of this subsection, other than a State or local central body.”

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10.  See Alabama Education Ass'n v. Chao, 2005 WL 736535 (D.D.C. Mar. 31, 2005) (holding new interpretation invalid); 455 F.3d 386 (2006) (reversing lower court and remanding to Department for further explanation of policy justifications for new interpretation); 539 F.Supp 2d 378 (D.D.C. 2008) (upholding Department's policy justification for interpretive change), 595 F.Supp. 2d (D.D.C. 2009) (denial of reconsideration).

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11.  As stated in the NPRM, however, the Department would not base its rule on the current (and perhaps temporary) practices of a single union.

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12.  As for one of the public policy group's analysis of the Fiscal Year 2009 Form LM-2 report for a particular national union (NEA), the Department is not clear as to how the comment reached its cited figure for the total disbursements to the union's wholly public sector intermediate bodies. This figure seems closer to the total figure for all itemized and non-itemized disbursements by the national union during the particular fiscal year. In this regard, it is understandable that most intermediate bodies, as well as locals, of this national union will not be required to file reports with the Department as a result of this rule: They do not represent any private sector employees. Indeed, the Department confirms that unions composed of exclusively “state and local public employees” will not be covered by the Department's reporting requirements, as they are not covered by the LMRDA or similar Federal labor-management statutes.

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13.  One comment in particular invites the Department to conclude in this rulemaking that the pre-2003 interpretation is the only proper construction of the statute, and that court review following the 2003 revision failed to give proper weight to important parts of the statute's history that appear to foreclose the latter interpretation. As the DC Circuit held, the Department's 2003 interpretation was plausible based on both an examination of the statute's text and history, and thus, the Department declines to reconsider this issue. See Alabama Education Ass'n v. Chao, 455 F.3d 386, 394-395 (2006).

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14.  Before this rule, Item 10 also included subsidiary organizations.

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15.  Before this rule, Item 11 only asked whether the labor organization had a PAC. This rule breaks Item 11 into two parts, 11(a) and 11(b), with 11(b) asking if the labor organization has a subsidiary.

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16.  Some of the burden numbers included in both this PRA analysis and the regulatory flexibility analysis will not add perfectly due to rounding.

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17.  These figures differ from the Department's estimates in the Form T-1 analysis. See 73 FR 57441. In the Form T-1 analysis, the Department estimated 2,292 Form LM-2 filers would submit a Form T-1 based upon an analysis of those filers who indicated on their 2006 report that they had at least one LMRDA section 3(l) trust. In this rule, the Department derives its estimate of the number of Form LM-2 filers with subsidiaries directly from the number of Form LM-2 filers who indicated on their 2004 Form LM-2 reports that they had a subsidiary organization. The number of Form LM-2 filers with subsidiaries is smaller than the number of LM-2 filers with section 3(l) trusts because the definition of section 3(l) trusts includes more entities than the definition of subsidiaries.

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18.  This number differs slightly from the 5.43 hours used in the Form T-1 analysis (73 FR 57442) due to a rounding error in that analysis.

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19.  This number differs slightly from the 54.13 hours used in the Form T-1 analysis (73 FR 57442) due to a rounding error in that analysis.

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20.  See Occupational Employment and Wages Survey. 2008, survey, Table 6, from the Bureau of Labor Statistics (BLS), Occupational Employment Statistics (OES) Program; http://www.bls.gov/​news.release/​pdf/​ocwage.pdf. The Form T-1 analysis utilized data from the 2007 survey, while this proposed rule has updated the data with the use of the 2008 survey.

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21.  See Employer Costs for Employee Compensation Summary, from the BLS, at http://www.bls.gov/​news.release/​ecec.nr0.htm. The Department updated the total hourly compensation figures from the Form T-1 analysis (30.2% to 43.0%), in that it uses 2008 rather than 2007 numbers, and it increased the hourly wage rate by the percentage total of the average hourly compensation figure ($8.90 in 2008) over the average hourly wage ($20.49 in 2008).

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22.  In order to estimate the number of labor organizations that will report subsidiaries, the Department also analyzed Form LM-2 reports from 2004, which was the final year in which filers were required to identify whether they had a subsidiary organization.

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23.  As noted in the PRA section, the cost per subsidiary has been updated from the NPRM, based upon the correction of a calculation error.

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24.  The following sections of title 29 of the Code of Federal Regulations identify for purposes of these instructions, the types of ERISA plans that are not required to file a Form 5500: section 2520.104-20 (small unfunded, insured, or combination welfare plans), section 2520.104-22 (apprenticeship and training plans), section 2520.104-23 (unfunded or insured management and highly compensated employee pension plans), section 2520.104-24 (unfunded or insured management and highly compensated employee welfare plans), section 2520.104-25 (day care center plans), section 2520.104-26 (unfunded dues financed welfare plans maintained by employee organizations), section 2520.104-27 (unfunded dues financed pension plans maintained by employee organizations), section 2520.104-43 (certain small welfare plans participating in group insurance arrangements), and section 2520.104-44 (large unfunded, insured, or combination welfare plans; certain fully insured pension plans). Labor organizations must file a Form T-1 for these types of plans.

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BILLING CODE P

[FR Doc. 2010-29226 Filed 11-30-10; 8:45 am]

BILLING CODE C