Department of Labor: 2003025487

Thursday,
October 9, 2003
Part II
Department of Labor
Office of Labor-Management Standards
29 CFR Parts 403 and 408

Labor Organization Annual Financial
Reports; Final Rule
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58374 Federal Register / Vol. 68, No. 196 / Thursday, October 9, 2003 / Rules and Regulations
DEPARTMENT OF LABOR organizations to report investments that workforce and labor organizations have
have a book value of over $5,000 and changed dramatically over the last forty
Office of Labor-Management exceed 5% or more of the union’s years and the fact that the form used by
Standards investments. A new schedule will labor organizations to report financial
require labor organizations to report the information has not changed
29 CFR Parts 403 and 408 number of members by category, but significantly in the same time period.
RIN 1215–AB34 will allow each labor organization to The proposed revisions also reflected
define the categories used for reporting. the Department’s belief, based on the
Labor Organization Annual Financial Reporting labor organizations must accumulated experience of investigators
Reports estimate the proportion of each officer’s and other staff in the Employment
and employee’s time spent in each of Standards Administration’s (ESA’s)
AGENCY: Office of Labor-Management OLMS, that more detailed and
the functional categories on the Form
Standards, Employment Standards LM–2 and report that percentage of transparent reporting of labor
Administration, Department of Labor. gross salary in the relevant schedule. organizations’ financial information
ACTION: Final rule. Labor organizations that have would be more useful to union
$250,000 or more in annual receipts will members, more effectively deter fraud,
SUMMARY: The Department proposed to
be required to file a Form T–1 for any and enable OLMS investigators to more
revise the forms used by labor
trust in which the labor organization is easily discover fraud when it occurs.
organizations to file the annual financial
interested, if the trust has $250,000 or Finally, the proposal noted the
report required by the Labor-
more in annual receipts and the labor Department’s view that, because of
Management Reporting and Disclosure
organization contributed $10,000 or technological advances, these revisions
Act (LMRDA). This document sets forth
more to the trust during the reporting will impose less burden on labor
the Department’s review of and
year, or that amount was contributed on organizations than revisions proposed
response to comments on the proposal
the labor organization’s behalf. Unions in previous years.
and the changes that will be made to the
with less than $250,000 in annual Before issuing this proposal, various
Form LM–2 used by the largest labor
receipts will not be subject to this Department officials met with many
organizations to file the required report.
requirement. No Form T–1 will be representatives of the regulated
The Department will require each labor
required if the trust files a report community, including union officials
organization that has annual receipts of and their legal counsel, to hear their
$250,000 or more to file a Form LM–2 pursuant to 26 U.S.C. 527, or pursuant
to the requirements of the Employee views on the need for reform and the
electronically and to itemize receipts likely impact of changes that might be
and disbursements of $5,000 or more, as Retirement Income Security Act of 1974,
29 U.S.C. 1023 (ERISA), or if the made. The Department’s proposal,
well as receipts not reported elsewhere developed with these discussions in
from, or disbursements to, a single organization files publicly available
reports with a Federal or state agency as mind, requested comments on
entity that total $5,000 or more in the numerous specific issues in order to
reporting year, in specified categories. a Political Action Committee (PAC).
Finally, a labor organization may base any revisions on a complete record
The Department has combined two reflecting the views of the parties
proposed categories (‘‘Contract substitute an audit that meets the
criteria set forth in the Instructions for affected and the Department’s
Negotiation and Administration’’ and responses. In addition, the Department
‘‘Organizing’’) into a single schedule the financial information otherwise
reported on a Form T–1 for a qualifying contracted with a professional provider
entitled ‘‘Representational Activities,’’ of information technology services, SRA
added a category entitled ‘‘Union trust.
International (SRA), to assess the
Administration,’’ combined the EFFECTIVE DATE: This rule will be
technical feasibility of electronically
proposed categories for ‘‘Political effective on January 1, 2004, but will collecting and reporting the information
Activities’’ and ‘‘Lobbying’’ into a single apply only to annual financial reports that would be required by the proposed
schedule, and eliminated the category filed by unions for fiscal years changes. The Department initially
entitled ‘‘Other Disbursements.’’ beginning on or after January 1, 2004. provided for a 60-day comment period,
Reporting labor organizations will be FOR FURTHER INFORMATION CONTACT: Lary but later extended that period for an
permitted, however, to report sensitive Yud, Deputy Director, Office of Labor- additional 30 days.
information for some categories that Management Standards (OLMS), U.S. When the comment period closed, on
might harm legitimate union or privacy Department of Labor, 200 Constitution March 27, 2003, ESA/OLMS had
interests with other non-itemized Avenue NW, Room N–5605, received over 35,000 comments. Most of
receipts and disbursements, provided Washington, D.C., olms-public@dol.gov, the comments received were copies of
the labor organization indicates that it (202) 693–1265 (this is not a toll-free approximately 110 different form letters
has done so. Using this procedure, number). Individuals with hearing signed by individuals who said they
however, will constitute just cause for impairments may call 1–800–877–8339 were members or officers of unions and
any union member to review the (TTY/TDD). commented in general terms. Although
underlying data upon request. SUPPLEMENTARY INFORMATION: many of these form letters expressed
Moreover, under the statute (29 U.S.C. opposition to the Department’s proposal
436), the labor organization must I. Background to revise the forms, many other form
maintain the records for inspection by On December 27, 2002, the letters expressed support for the
the Department. The new Form LM–2 Department issued a notice of proposed proposal. In addition, approximately
will have schedules for reporting rulemaking (67 FR 79820) proposing 1,200 unique comments, including
information regarding delinquent revisions of the forms used by labor lengthy, substantive and specific
accounts payable and receivable, but organizations to file the annual financial comments, were received from union
specific information need only be reports required by section 201(b) of the members, local, intermediate, national
reported for accounts that total $5,000 LMRDA, 29 U.S.C. 431(b). As the notice and international labor organizations,
or more during the reporting year. The explained, the proposed revisions were employers and trade organizations,
revised Form LM–2 will require labor based upon the fact that the American public interest groups, accountants,
Federal Register / Vol. 68, No. 196 / Thursday, October 9, 2003 / Rules and Regulations 58375
accounting firms, academicians, and subtotals of itemized and aggregated recordkeeping systems. A sentence was
Members of Congress. Some amounts for some categories or the need also added to indicate that information
commenters addressed their comments to add amounts from other parts of the about the software and the technical
to specific limited issues, others—most form. Several titles of categories were specifications can be found at the OLMS
notably, the American Federation of revised to better reflect the information Web site.
Labor and Congress of Industrial to be reported. Thus, the title of Item 36,
Organizations (AFL–CIO)—commented ‘‘Dues and Other Payments,’’ has been II. Comments on the Proposal and
on virtually all aspects of the proposal. changed to ‘‘Dues and Agency Fees,’’ Responses to the Comments
All comments have been carefully the title of Schedule 1 was changed to A. General Comments
reviewed and considered. The ‘‘Accounts Receivable Aging Schedule,’’
Department’s analysis of and responses and the title of Schedule 8 was changed Before discussing the many specific
to the comments are set forth below (see to ‘‘Accounts Payable Aging Schedule.’’ comments that the Department received,
Sections II, III, and IV). In Schedule 9, ‘‘Loans Payable,’’ the it should be noted that the Department
In addition, this rule makes minor Instructions were revised to state that also received many comments that
changes to the forms and the interest paid must be reported in simply expressed general support for, or
Instructions that did not directly result Schedule 18, ‘‘General Overhead,’’ in opposition to, the proposal. Union
from any comments. Many of these place of the reference to the now members, employers, and public
changes reflect the differences between obsolete ‘‘Other Disbursements interest organizations filed numerous
the proposed and final rule, requiring Schedule.’’ general comments in support of the
the addition of lines to the forms, the re- The text of the Instructions pertaining Department’s proposed reform. One
labeling of others, and the combination to some schedules and categories was union member asked, ‘‘Government is
of schedules. Many of the minor revised where greater clarity was accountable to taxpayers and
changes to the Instructions also reflect needed. Additional examples were corporations are accountable to
these differences. These differences are included to assist filers in completing shareholders, shouldn’t unions be
discussed in detail below in the certain categories. For example, in accountable to dues-paying members?’’
Department’s analysis of the comments. Section X, a building corporation was The commenters included a former vice
Many of the changes in the Instructions, added as an example of types of trusts, president of a local union who
however, simply correspond to changes and new examples for ‘‘Other Receipts’’ expressed ‘‘full support of the proposed
in the format of the form and the need were provided to better reflect the anti-corruption initiative’’ and wrote,
to rework the Instructions so that they transactions to be reported on the ‘‘We should all know how the money is
inform the filers and the public, schedule. Additional explanation for the being spent at every level.’’ Other union
whether they rely on the electronic or ‘‘Detailed Summary Page’’ and the members suggested that the proposal
paper formats, about how to complete ‘‘Initial Itemization Page’’ was added. was ‘‘long overdue.’’
and use the forms. In analyzing the The ‘‘Continuation Itemization Page’’ Some union members advocated more
comments and preparing the final rule, was created for labor organizations that sweeping change. One union member
some inadvertent omissions were utilize the hardship exemption and do commented, ‘‘We need protection from
discovered, as were some ambiguities in not file electronically. Some terms that our supposed labor leaders.’’ Another
the text of the Instructions, requiring the might be unfamiliar to filers were commented, ‘‘Just please be sure the
redrafting of some of the Instructions explained, including terms such as unions cannot get around these
and, in some instances, changes to the ‘‘net,’’ ‘‘basis,’’ and ‘‘book value.’’ In [proposed] requirements through
form. In reviewing the schedules for Items 39 and 60, the following were creative accounting tricks.’’ A
reporting disbursements to officers and added to illustrate items to be reported commenter who described himself as
employees, it became apparent that a as supplies: union logo clothing, lapel having been a union member for 33
filer would benefit from seeing the pins, and bumper stickers. years, wrote, ‘‘I do not believe that these
names of the schedules from which Additional information about
new regulations go far enough to hold
information was to be obtained, and compliance assistance also was added.
unions more accountable.’’
therefore line I in each schedule was In the ‘‘How to File’’ section, filers are
revised to include the names of the five provided a website address for obtaining Some comments from union members
schedules. the filing software www.olms.dol.gov; centered on their difficulties in
The Department’s review revealed the reference in the proposed obtaining financial information from
some inadvertent omissions from the instructions to a CD–ROM their union under the current reporting
proposed Form LM–2. For example, in accompanying the report package was scheme. A shop steward said that
Schedule 12, lines 7 and 8 were deleted as obsolete. Updated repeated requests for information to the
omitted. The final form includes these information is provided in the ‘‘If You union leadership had ‘‘gone
lines. Line 7 will provide space for Need Assistance’’ section at the end of unanswered’’ and that he ‘‘feel[s] it is
‘‘totals from continuation pages (if the instructions. In Item 18, ‘‘Changes in time that unions be required to account
any),’’ and line 8 will be used to report Constitution and Bylaws or Practices for every penny of the dues they
the ‘‘total of lines 1–7.’’ In Item 30, and Procedures,’’ the language was collect.’’ Numerous other commenters
‘‘Schedule 8’’ was omitted from the revised to indicate that if the form is joined in describing futile, or largely
‘‘Form Schedule Number’’ column. This filed electronically, the constitution and futile, attempts made to obtain
omission has been corrected. The bylaws must be submitted as an information about union finances from
language of the attestation has been electronic attachment. In the second the union leadership. Some commenters
changed slightly to ensure that it paragraph of the general instructions for indicated that such requests for
complies substantially with 28 U.S.C. completing Schedules 14 through 22, information generate resentment or
1746. the statement relating to the invite retaliation from union leaders.
In several other places, additional compatibility of the Department’s Another union member wrote, ‘‘You
lines were added in order to reflect software was revised to reflect that the shouldn’t have to beg or plead with your
changes in the Instructions, including software will be compatible with the Business Manager/Agent to see financial
the need for additional lines to reflect most commonly used electronic reports for an organization you finance.’’
Other commenters claimed to have made for and against the proposed The Secretary shall have authority to issue,
witnessed questionable union revision of the forms used by labor amend and rescind rules and regulations
expenditures, which increased organizations to report annual financial prescribing the form and publication of
disclosure would have revealed. information as required by the LMRDA. reports required to be filed under this title
and such other reasonable rules and
Another comment asserted, ‘‘Significant regulations (including rules prescribing
B. The Secretary’s Statutory Authority
money is spent on items which many reports concerning trusts in which a labor
would consider a waste of funds if only Some of the commenters questioned organization is interested) as he may find
the members knew.’’ Others said that the Department’s authority to make the necessary to prevent the circumvention or
the greater detail in the proposed form proposed changes, arguing that the evasion of such reporting requirements.
‘‘will make thefts harder to cover up.’’ Department is upsetting the delicate These provisions make it clear that
Another member supported the balance between labor and management the Secretary has discretion to
initiative to ‘‘help prevent fraud and that was recognized by Congress in the determine the format in which the
corruption,’’ as well as to permit National Labor Relations Act. Some information required by the statute must
‘‘informed decisions about workplace unions complained that the proposal be provided, as well as the detail in
issues.’’ A public interest organization would require that labor organizations which the information must be reported.
commented that ‘‘the information disclose confidential trade secrets, such The statutory language describing the
provided by the AFL–CIO in the Form as organizing strategy and negotiating information that labor organizations are
LM–2 is not sufficient to give the plans, which some courts have ruled are required to report is broad. Each labor
average union member an accurate not discoverable by union members and organization must include in its annual
picture of how the AFL–CIO spends would give adversaries a greater financial report:
much of the dues collected.’’ One knowledge of the inner workings of the (1) Assets and liabilities at the
commenter noted that requiring unions labor organizations with which they beginning and end of the fiscal year;
to estimate the amount of time spent by may deal in connection with collective (2) receipts of any kind and the
union officers and employees bargaining or organizing activities. sources thereof;
performing various duties will provide These commenters argue that the (3) salary, allowances and other direct
significant new information to union Department’s proposal is inconsistent or indirect disbursements (including
members. The commenter also stated with the principle that governmental reimbursed expenses) to each officer
that, together with reporting receipts intrusion into the affairs of labor
and disbursements by functional and also to each employee who, during
organizations should be limited because such fiscal year, received more than
categories, the proposed rule will the Constitution protects the right of
provide information that will help $10,000 in the aggregate from such labor
association, there purportedly is no organization and any other labor
ensure that union leadership is acting in evidence that union members want this
the interests of its membership. Another organization affiliated with it or with
information, and, they alleged, other which it is affiliated, or which is
public interest organization commented voluntary organizations are not
that more ‘‘detailed financial reporting affiliated with the same national or
subjected to this level of disclosure. international labor organization;
is needed’’ to avoid ‘‘waste, fraud and The Department takes seriously the
corruption.’’ A 25-year union member (4) direct and indirect loans made to
concerns expressed that the proposed any officer, employee, or member,
stated, ‘‘It will be a great victory for [the
rule would intrude too deeply in the which aggregated more than $250
union’s] membership when the reform
internal affairs of labor organizations during the fiscal year, together with a
is passed.’’
Many commenters opposed the and provide unfair advantages to the statement of the purposes, security, if
proposed changes, expressing their adversaries and competitors of such any, and arrangements for repayment;
beliefs that the proposed rule is: organizations. Accordingly, the (5) direct and indirect loans to any
political payback designed to punish Department has made numerous business enterprise, together with a
organized labor; designed to weaken the changes, described below, to avoid these statement of the purpose, security, if
union movement; intended to hamper unintended and unwanted results. In any, and arrangements for repayment;
the ability of unions to service their the Department’s view, however, none and
members; designed to strain union of these changes is necessitated by any (6) other disbursements made by it
budgets; intended to expand the lack of authority on the part of the including the purposes thereof; all in
requirements of Communication Department to revise the reporting forms such categories as the Secretary may
Workers of America v. Beck, 487 U.S. or the manner in which reports must be prescribe.
735 (1988); and intended to secure filed. On the contrary, the LMRDA gives 29 U.S.C. 431(b)(1)–(6). Comments
additional information for employers the Secretary of Labor authority to make that the Secretary lacks authority to
and anti-union organizations rather than such changes, for the reasons outlined require that receipts and disbursements
union members. Although a number of in the Notice of Proposed Rulemaking be itemized or that disbursements be
unions and their members submitted (NPRM) and in this rule. Section 201(b) reported in categories are inconsistent
helpful comments on the substance of of the LMRDA, 29 U.S.C. 431(b), with the plain language of the statute. In
the rule, some of the general comments requires that: fact, the statute authorizes the Secretary
in opposition simply criticized the Every labor organization shall file annually to require labor organizations to report
Administration and Department with the Secretary a financial report signed every receipt and disbursement, in any
officials, and lacked specific by its president and treasurer or amount, and in any categories
recommendations on the substance of corresponding principal officers containing prescribed by the Secretary. The
the proposal. They nevertheless the following information in such detail as statute’s requirement that labor
may be necessary accurately to disclose its organizations report ‘‘receipts’’ and
expressed strongly held feelings in
financial condition and operations for its ‘‘disbursements’’ does not, as some
opposition to the proposed changes. preceding fiscal year * * *
Acknowledging that there are strong comments argue, call for only
views on both sides of the issue, the (Emphasis added.) In addition, section aggregated receipts and disbursements.
Department has carefully considered all 208 of the LMRDA, 29 U.S.C. 438, states Neither the fact that the Secretary has
of the comments and the arguments in part: not heretofore exercised the full extent
of her statutory authority nor the fact In the Department’s view, this C. Comparison With Reporting
that forms previously required less argument is unpersuasive. The revised Requirements for Corporations and
detailed reporting diminishes the form calls for more detail than the Non-Profit Organizations
authority provided the Secretary by the previous form, but does not require Several commenters, asserting that
LMRDA as enacted in 1959. disclosure of the underlying records corporate scandals have surpassed any
In the Department’s view, this rule necessary to verify the report. See 29 union misconduct in recent years,
meets both the letter and the spirit of U.S.C. 431(c). The fact that the Secretary argued that corporations should first be
the LMRDA, both generally and with has exercised her authority to determine made to file disclosure reports like those
respect to its provisions specific to that more detailed financial information proposed by the Department before
union reporting requirements. The rule should be reported on a Form LM–2 unions are asked to do so. Some union
promotes the two related overarching than previously does not limit a union’s members argued that labor organizations
purposes of union reporting: to fully ability to maintain additional are already subject to more stringent
inform union members, on a yearly information, in any format it desires, reporting requirements than
basis, about their union’s ‘‘financial including the physical evidence of corporations or other non-profit
condition and operations,’’ 29 U.S.C. financial transactions (such as cancelled organizations. Many commenters felt
431(b); and, by public disclosure of this checks, bills, or receipts), nor does it that unions are like small businesses
information, to deter union officials and eliminate each union member’s right to and should be provided the same
employees from abusing their examine such information, enforceable protections from intrusive reporting
stewardship duties and to allow in district court upon a showing of ‘‘just requirements that, they assert, small
members, the Department, and the cause.’’ Congress conditioned a union businesses are provided by the
public an opportunity to review a member’s right to examine records Department and other regulatory
union’s financial information as a check necessary to verify the union’s annual agencies.
on the actions of its officials and financial report on a showing of just Other commenters noted that
employees. See United States v. cause in order to relieve unions from the corporations and their executives are
Budzanoski, 462 F.2d 443, 450 (3d Cir.), harassment of repeated requests for subject to significantly more
cert. denied, 409 U.S. 949 (1972); Int’l documents based simply on curiosity. burdensome reporting requirements
Bhd. of Teamsters, et al. v. Wirtz, 346 See Kinslow v. American Postal Workers than are unions. One commenter noted
F.2d 827, 831 (D.C. Cir. 1965). The Union, Chicago Local, 222 F.3d 269, 273 that labor organizations, unlike
Department’s reforms also advance the corporations, are not subject to various
(7th Cir. 2000). This requirement,
LMRDA’s declared purpose ‘‘that labor external controls and scrutiny by such
however, ‘‘simply entails a showing that
organizations, employers, and their entities as Wall Street investment
the union member had some reasonable
officials adhere to the highest standards analysts, portfolio managers, financial
basis to question the accuracy of the
of responsibility and ethical conduct in media, and millions of shareholders.
LM–2 or the documents on which it was
administering the affairs of their Another commenter found the
organizations.’’ 29 U.S.C. 401(a). based, or that information in the LM–2
has inspired reasonable questions about comparison between labor organizations
The AFL–CIO commented that the and corporations irrelevant because
the way union funds were handled.’’ Id.
proposed rule attempts to dictate to unlike commercial entities, which are
at 274; see also Mallick v. Int’l Bhd. of
unions what they should treat as their accountable based on their profit or loss,
Elec. Workers, 749 F.2d 771, 781 (D.C.
‘‘most * * * important purposes’’ in labor unions are accountable only in
structuring their budgets and accounts Cir. 1984). No matter how much detail
terms of the stewardship responsibilities
and is contrary to the LMRDA insofar as a union provides on its Form LM–2,
of their officers. One commenter also
the statute reflects the theory that, members have a right to examine the
noted that like corporate disclosure
‘‘[g]iven certain minimum standards, actual documents or other evidence of
requirements, which have been
‘individual members are fully recorded transactions to determine, for
amended periodically, union disclosure
competent to regulate union affairs’ ’’ example, whether the union accurately requirements should be changed in
(quoting S. Rep. No. 85–1684, at 4–5 recorded the information. Moreover, as order to keep pace with the times.
(1958)). In the view of the AFL–CIO, explained more fully below, in Section Another commenter estimated that the
Congress deliberately established a two- III(B)(2), in response to comments from reporting and disclosure burdens on
step process, found in 29 U.S.C. 431, to numerous unions that making certain businesses are many times the burden
inform members about their union’s information available to the public at on labor organizations.
finances and operations. The process large would be harmful to legitimate The Department has concluded that,
was established to protect unions from interests, the Department will permit while there are important differences
improper government intervention in labor organizations to report some among corporations, public interest
their affairs and harassment from receipts and disbursements as part of organizations, and labor organizations,
members that would divert them from the aggregated total, without specificity, increased transparency is as important
their representational function. The first provided, with limited exceptions, it for labor organizations as for other such
step requires the preparation of a indicates on the Form LM–2 that it has organizations. Moreover, for the reasons
financial report in such detail as needed done so. If a labor organization uses this set forth below, the Department is not
to disclose the union’s financial option, only those of its members who persuaded that the requirements
condition (29 U.S.C. 431(b)); the second satisfy the ‘‘just cause’’ standard and the imposed by this rule are more restrictive
step requires a union, upon a member’s Department will be entitled to review than those that apply to other entities.
showing of just cause, to disclose the specific information related to these If anything, these requirements are less
additional information (29 U.S.C. disbursements. Far from eliminating the intrusive, less burdensome, and require
431(c)). In the AFL–CIO’s view, the method Congress provided members to less disclosure than reporting
proposed rule collapses this two-part review their union’s finances in more requirements governing other entities.
process and destroys protections for a detail pursuant to section 201(c), 29 First, no comparison should be drawn
union’s confidentiality and trade secrets U.S.C. 431(c), that statutory tool is between union reporting requirements
in violation of established protections. central to these reforms. and requirements imposed on a
privately held enterprise where the funding can condition it on the public companies must certify audits for
operator of the business is also the disclosure of any financial information the accuracy of information in their
source of much of the venture’s concerning the company seeking annual and quarterly reports. See 68 FR
financing. Legally mandated financial funding, can demand that the 36636 et seq. (discussed above);
disclosure regimes for both unions and information be provided in any level of Bloomenthal & Wolff, Securities and
publicly held corporations are designed detail desired, and can use contractual Federal Corporate Law § 7:35.13 (2002).
primarily to address a fundamental remedies to enforce the condition. A substantial amount of quantitative
problem common to both institutions: Union members, by contrast, are financial information is contained in
that managerial control of an entity lies entitled only to the report that their both annual and quarterly reports.
beyond the direct control of the people union files with the Department of These reports must disclose ‘‘material’’
who fund the entity. See generally Henn Labor pursuant to the LMRDA and, financial information. See Law of
& Alexander, Hornbook on Laws of upon a showing of just cause, ‘‘to Securities Regulation §§ 3.2–3.7, 9.4;
Corporations § 186 et seq. (1983). examine any books, records, and Understanding the Securities Laws § 12–
Corporate and union financial accounts necessary to verify such 8; Cyclopedia of the Law of Private
disclosure regimes are intended to report.’’ 29 U.S.C. 431(b), (c). Corporations § 6862. In its Statement of
reduce the informational advantages Accordingly, the only reporting Financial Accounting Concepts No. 2
agents have over principals and permit requirements applied to businesses that (SFAC No. 2), the Financial Accounting
principals to monitor and assess the are relevant for comparison with the Standards Board (FASB) stated the
performance of agents. See Fletcher, annual union financial report are those essence of the concept of materiality as
Cyclopedia of the Law of Private applied to publicly-traded companies. follows:
Corporations §§ 2213 et seq., 6842–43 Generally speaking, the regulatory The omission or misstatement of an item
(perm. ed.), available on Westlaw at regime governing financial reporting by in a financial report is material if, in the light
Fletcher-CYC. Adequate transparency large and small public companies is of surrounding circumstances, the magnitude
encourages union officers and corporate of the item is such that it is probable that the
much more extensive than the system judgment of a reasonable person relying upon
directors (agents) who are elected by that exists for labor organizations. See the report would have been changed or
union members and corporate generally Hazen, Law of Securities influenced by the inclusion or correction of
shareholders (principals) to conduct the Regulation §§ 3.2–3.7, 9.4 (2002), the item.
business of their organizations in the available on Westlaw at LAWSECREG;
best interests of the people who provide Id. at ¶ 132. See discussion below in
Understanding the Securities Laws Section (II)(D). Due to the myriad factors
the operating funds. Agents failing to do § 2:2.2. Furthermore, the reporting
so can be removed through the involved in determining whether
requirements under the securities laws financial information meets this rather
mechanisms of corporate and union have been substantially increased since vague threshold, professional assistance
democracy. See Cyclopedia of the Law the enactment of the Sarbanes-Oxley is required. See id. at ¶¶ 123–132. As
of Private Corporations § 351 et seq. Act, Pub. L. 107–204, 116 Stat. 745. See noted above, the SEC generally requires
In a privately held enterprise, where generally 68 FR 36636–01 et seq. (June public companies to disclose in their
the operator of the business is also the 18, 2003) (amending various disclosure annual reports ‘‘material’’ quantitative
source of the venture’s financing, there rules established by the Securities and information on balance sheets or income
is no principal to perform the Exchange Commission (‘‘SEC’’), statements related to numerous types of
monitoring and no agent to be including 17 CFR 240.13a–14, 240.13a– assets, accounts, and expenditures. See
monitored. See generally Laws of 15, 240.15d–14, 240.15d–15, 249.220f). Law of Securities Regulation §§ 3.2–3.7,
Corporations § 257 et seq.; see also Labor organizations must file only one 9.4. Public companies must disclose
Soderquist, Understanding the form a year, need not disclose ‘‘material’’ financial data on executive
Securities Laws § 2:2.2 (2001), available qualitative information, and are not compensation, including: annual salary;
on Westlaw at PLIREF–SECLAW. While required to conduct certified audits of bonuses; other annual compensation;
privately held companies are required to their financial statements. See 29 U.S.C. restricted stock; and options. Id. They
make certain financial disclosures 431. The financial reporting scheme for must also provide ‘‘material’’
related to franchise taxes, Small public companies, as amended by the quantitative information on
Business Administration loans, Federal Sarbanes-Oxley Act, requires the computation of per share earnings and
Communications Commission licenses disclosure of both quantitative and market risk. Id. The Sarbanes-Oxley Act
and other regulatory schemes, these qualitative information and imposes added several additional categories of
disclosures are designed to assess taxes, strict audits and significant internal material, quantitative data that public
fees, or eligibility for government- controls on public companies, their companies must disclose, including
provided benefits, not to ensure officers, directors, auditors, accountants disclosing in each annual and quarterly
transparency of managerial and attorneys. See generally 17 CFR report all ‘‘material’’ off-balance sheet
performance. See generally Cyclopedia Parts 210–211, 228–32, 239, 241, 249 transactions, arrangements and
of the Law of Private Corporations (Subparts A–D) (2003) (particularly obligations (including contingent
§ 6666 et seq. The only scenario in provisions amended by 68 FR 4820 (Jan. obligations). See Title III, 116 Stat. 775,
which it is instructive to compare the 30, 2003), 68 FR 5110 (Jan. 31, 2003), 68 and Title IV, 116 Stat. 785.
financial disclosure regime of a FR 15354–02 (Mar. 31, 2003), 68 FR Since its inception, the LM–2
privately held company to a union is 36636–01 (June 18, 2003). See also reporting system has eschewed the use
when a privately held firm creates a Bloomenthal, Sarbanes-Oxley Act in of a vague standard based on
principal/agent relationship by Perspective § 10 (2002), available on individualized judgments regarding
accepting funding through the venture Westlaw at SEC–SOAP S 10. Small and materiality for determining what
capital markets. This scenario, however, large public companies are required to quantitative data a union must report,
also offers no basis for comparison with file annual and quarterly reports. See 17 and has instead required specific
the relationship between a union and its CFR 240.13a–1 et seq.; Cyclopedia of the information regarding all assets,
members because financial institutions Law of Private Corporations § 6842; Law liabilities and transactions. The
and other entities that provide such of Securities Regulation § 9.6[4]. All Department has determined that it will
continue with this approach. This the detailed qualitative analysis public independent audits. Many unions, one
avoids forcing labor organizations to companies are required to disclose. individual commented, have
incur the expenses and burdens Following the passage of Sarbanes- constitutional provisions that already
associated with making determinations Oxley, the SEC and the Public Company require an audit by an outside
about whether given items are Accounting Oversight Board (‘‘the accounting firm. While some
‘‘material.’’ Even those commenters that Board’’) oversee the audits of public commenters argued that requiring
suggested that the Department should companies; establish accounting and unions to obtain annual audits is within
consider implementing a materiality audit report standards and rules for the Department’s statutory authority, no
standard recognized that such a public companies; and certify, provision of the LMRDA vests the
standard would introduce an element of investigate, inspect, and enforce Secretary of Labor with any express
judgment in the reporting process with compliance with standards applicable to authority to require unions to obtain
potential for complicating the professionals involved in the audits and the Department has chosen
investigative process. Although a preparation of audits and financial not to attempt to impose such a
commenter argued that such tradeoffs reports by public companies. See Title requirement, to avoid imposing on the
are similar to those necessitated by I, 116 Stat. 750. Annual audits and labor organizations that are not
dollar thresholds for reporting, the financial reporting by public companies currently obtaining private audits any
Department believes that a dollar must be under the control of an audit need to hire financial experts to conduct
threshold is easier for reporting unions committee composed exclusively of a qualitative analysis of the union’s
to apply, for the Department to enforce, independent directors. See Title II, records. Simply permitting those unions
and for union members to understand. § 202, 116 Stat. 772–73; Title III, 116 that currently obtain annual audits to
In addition to the detailed Stat. 775–77. These independent file whatever audit is currently
quantitative data, the annual and committees must include at least one performed is not likely to ensure that all
quarterly reports of large and small ‘‘financial expert’’ and are directly of the statutorily-required information is
public companies must also disclose responsible for the appointment, reported, nor would it ensure that the
‘‘material’’ qualitative data. See Law of compensation, and oversight of the information is provided in a standard
Securities Regulation §§ 3.4, 3.6, 9.4. certified firms that do private audits of format that is both readily
This includes narrative descriptions of public companies. See Title IV, § 408, understandable and accessible to union
‘‘material’’ aspects of a company’s 116 Stat. 790–91. To effectuate the members. Information that may be
businesses and principal products. Id. whistleblower provisions of the meaningful to trained financial analysts
Public companies must also disclose Sarbanes-Oxley Act, these audit or auditors may not be useful to many
information on relationships the committees must also establish union members.
company has that may have a procedures for the receipt, retention and Accordingly, the statutory
‘‘material’’ effect on current or future review of anonymous complaints by a requirements, and the Secretary’s
financial condition, liquidity, capital public company’s employees regarding longstanding implementation of those
expenditures, capital resources, or accounting practices, internal financial requirements, have been framed in
significant components of revenues or controls, and auditing matters. See Title terms of assets, liabilities,
expenses of the company. Id. This III, §§ 301–04, 116 Stat. 775–78. Public disbursements and receipts, rather than
includes an explanation of a company’s companies must give their audit more general financial terms. The
dependence on customers whose loss committees the financial resources Department has concluded that
would materially affect the company’s necessary to hire any independent continuing to require unions to report
financial health and an explanation of advisors or attorneys required to carry holdings and transactions, rather than
material changes in the mode of out these responsibilities. Id. third-party descriptions of their
conducting business. Id. ‘‘Material’’ The LMRDA does not require labor financial conditions, will provide
legal proceedings must be reported, unions to perform any audits. It does understandable information to
including full identification of parties not mandate that unions use governance members, permit members to compare
and the circumstances and basis of the structures that ensure independent reports of different years, permit
proceedings. Id. ‘‘Material’’ property oversight of financial operations, such members to compare reports with those
holdings must also be identified and as independent audit committees. of other unions, and enhance the
described, including their use and any Union members have no whistleblower detection and deterrence of fraud.
encumbrances upon them. Id. rights. The Department does not enforce Alternatively, commenters suggested,
Public companies are also required to any independent system of certification, the Department should annually
make forward-looking statements about quality control, ethics, independence conduct a compliance audit of each
the future financial performance of the standards or other regulation of firms union. The Department’s responsibility
company, including analysis of all that some unions use to prepare annual for insuring the financial integrity of
‘‘material’’ risks facing the company. Id. Form LM–2 reports. There are also no unions involves both requiring adequate
Public companies must also report restrictions on other services that a firm reporting and conducting compliance
‘‘material’’ information about market preparing Form LM–2 reports may audits. The statute does not contemplate
risk, such as potential loss in future perform for a labor organization. In the two components as mutually
earnings of cash flow based on changes contrast to the reviews the SEC performs exclusive; in fact, the Department
in interest rates, foreign currency on public companies not less than once intends to increase the number of
exchange rates, commodity prices and every three years (see 15 U.S.C. 7266(c)), compliance audits, as resources permit,
other relevant market factors. Id. A labor unions currently can expect, on at the same time it implements the
detailed explanation of internal controls average, to be audited by the revised Form LM–2. Additional
and procedures must also be provided. Department of Labor approximately compliance audits would not, however,
Id; see also 68 FR 36636–01. The once every 150 years. Ten of the 25 constitute a satisfactory alternative to
Department has decided not to require largest unions have never been audited the reforms embodied in the revised
labor organizations to provide their because of OLMS’s limited resources. Form LM–2, as compliance audits
members with any qualitative Several commenters suggested that would address the accuracy of the
information on its finances, much less unions be required to file annual information provided in the existing
Form LM–2, but would not improve the in the context of determining reporting understanding of the reporting labor
transparency of labor organizations’ standards. Nevertheless, although other organization’s financial performance.
finances, increase the information reporting standards will not be treated The Department proposed requiring
available to members, or make the data as benchmarks or models, the labor organizations to provide certain
disclosed in reports more Department has considered the specific itemized information in addition to the
understandable and accessible. comments of labor organizations and aggregated totals in order to provide
As one commenter noted, it is even others in assessing the appropriateness users of the Form LM–2 with additional
more difficult to deter financial of each proposed change to the financial information on specific
mismanagement by labor organization reporting forms, as discussed in the financial issues. In fact, the FASB
officials than it is in a corporate setting succeeding sections. recognizes the appropriate inclusion of
because of the absence of natural market disaggregated information in financial
influences and because there are fewer D. Application of Generally Accepted
reporting:
regularly occurring checks on the Accounting Principles
Disaggregated information that permits
financial performance of unions. The Some commenters argued that the users of financial information to relate
same commenter noted that the changes proposed by the Department components of revenues to components of
additional disclosure as a result of the depart from the generally accepted expenses also is often preferable to
proposed changes would make it more accounting principles (GAAP) information provided by their aggregated
difficult, and more expensive, to hide promulgated by the FASB and the amounts.
fraud. Recognizing that achieving this American Institute of Certified Public Financial Accounting Standard 117
goal will also make it more expensive Accountants (AICPA). In particular, this (FAS 117), ¶ 118.
for unions to report, and that disclosure position was advanced by a professor of Several commenters asserted that the
alone will reduce but not entirely accountancy whose comments were individual items reported on the Form
overcome fraud, the Department has made on behalf of, and attached to the LM–2 supporting schedules in and of
attempted to achieve a balance in this comment of, the AFL–CIO. This themselves are not material financial
rule between the benefits and burdens commenter said that many of the terms information that will be relevant to the
of more detailed disclosure, and intends used and information required by the user. The FASB states that materiality of
to follow promulgation of the rule both Department’s proposal are inconsistent information is not measured solely on
with more effective enforcement, using with various interpretations of GAAP. its magnitude. SFAC No. 2. ‘‘Materiality
the additional information disclosed to These assertions fail to recognize, is a pervasive concept that relates to the
uncover fraud when it occurs, and with however, that not all GAAP standards qualitative characteristics, especially
more compliance assistance to respond are consistent with the disclosure relevance and reliability.’’ Id. The
to questions and concerns. requirement of the LMRDA. 29 U.S.C. Supreme Court, in deciding whether an
The Department is also not persuaded 431(b). Although the Department has omitted fact was material, described a
by the comments that suggest that the considered the GAAP standards, and general standard of materiality as:
reporting requirements for labor has accepted them in principle where
A substantial likelihood that, under all the
organizations should be comparable to they further the purposes of the circumstances, the omitted fact would have
those that govern non-profit LMRDA, the Department will not adopt assumed actual significance in the
organizations. The LMRDA was enacted GAAP standards when they are not deliberations of the reasonable shareholder.
in the aftermath of a congressional consistent with these purposes. For Put another way, there must be a substantial
investigation in the 1950’s that found example, as many commenters noted, likelihood that the disclosure of the omitted
corruption in union leadership and a the current Form LM–2 mandates fact would have been viewed by the
disregard for the rights of the rank-and- reporting on a cash accounting basis, reasonable investor as having significantly
altered the ‘‘total mix’’ of information made
file. See Wirtz v. Hotel, Motel & Club which is inconsistent with GAAP, but
available.
Emp. Union, Local 6, 391 U.S. 492, 497– some cash accounting procedures are
98 (1968). The over-riding purpose of made necessary by the statute’s TSC Industries Inc. v. Northway Inc.,
the reporting provisions of the LMRDA requirement that the union disclose 426 U.S. 438, 449 (1976). The FASB
is to provide union members with ‘‘all ‘‘receipts’’ and ‘‘disbursements.’’ See 29 agrees that the ‘‘usefulness of
the vital information necessary for them U.S.C. 431(b). Further, Form LM–2 is a information must be evaluated in
to take effective action in regulating special-purpose financial report relation to the purposes to be served,
affairs of their organization.’’ See S. Rep. prepared for compliance with the and the objectives of financial reporting
187, 86th Cong., 1st Session, p.9, 1959 LMRDA. Special financial reports to are focused on the use of accounting
U.S.C.C.A.N. 2318, 2325 (1959). The government regulatory bodies are information in decision making.’’ Id.
Senate Labor Committee declared: ‘‘A generally prepared in conformity with The Department has concluded, based
union treasury should not be managed Other Comprehensive Basis Of on the experience of its investigators
as the private property of union officers, Accounting (OCBOA). and the comments received from many
however well intentioned, but as a fund This commenter also argued that the union members, that the information
governed by fiduciary standards Department’s proposal calls for the that will be reported as a result of this
appropriate to this type of organization. presentation of disaggregated revision of the Form LM–2, in fact, will
The members who are the real owners information, which is contrary to GAAP have the capacity to make a difference
of the money and property of the and confusing for the user of the in the ability of union members to make
organization are entitled to a full reported information. Although GAAP decisions regarding workplace and
accounting of all transactions involving precepts do not control the inquiry, the union governance issues. As indicated
their property.’’ See S. Rep. 187 at p. 8, revised Form LM–2, like the current in Section III(B)(3), (4), the proper
1959 U.S.C.C.A.N. at 2324. In light of Form LM–2, includes Statements A and threshold for when a union must
these congressional directives, the B, which provide aggregated totals of itemize and separately report a receipt
Department is not persuaded as a financial information. Form LM–2 users or expenditure is subject to competing
general matter that a comparison do not have to rely solely on the arguments. Setting the threshold lower
between labor organizations and itemized information contained in the (or eliminating it entirely) increases the
ordinary non-profit organizations is apt schedules to obtain an overall number of receipts and expenditures
that must be reported, which opined regarding the appropriate scope voluminous records. It also noted a
correspondingly increases the of financial statements for not-for-profit specific concern regarding the reporting
information available for inspection. organizations: of membership information, noting that
The availability of this information A complete set of financial statements of a its system to track membership is not
makes concealment of fraud more not-for-profit organization shall include a integrated with its general ledger, with
difficult, and allows members to statement of financial position as of the end the result that it has no general ledger
evaluate the wisdom of the union’s of the reporting period, a statement of account set up to capture written off or
financial transactions. The threshold is activities and a statement of cash flows for uncollected dues income. Similarly, one
significant: union members ordinarily the reporting period, and accompanying labor organization noted concerns with
protect their rights by reviewing these notes to financial statements. FAS 117, ¶ 6. regard to reporting accounts receivable
reports, unlike investors in public FAS 117, however, applies only and accounts payable (insofar as they
corporations and other individuals broad, general standards for reporting require ‘‘aging’’ information). The
protected by the audit, oversight, and information in not-for-profit commenter explained that this change
whistleblower provisions discussed in organization financial statements (FAS would require it to spend considerable
Section II(C). While a strong argument 117, ¶ 48), and the FASB recognizes that additional time to properly complete a
could be made that all expenditures are general purpose financial statements Form LM–2. It explained that many
thus significant and should be itemized, may not fulfill the special-purpose local unions have members’ dues sent to
a lower threshold would increase the needs of regulatory requirements like third parties or their particular
accounting burden. The $5,000 those imposed by the LMRDA (FAS 117, international and that the locals’ portion
threshold adopted strikes a balance ¶ 45). Even not-for-profit organizations of the dues is only later remitted to the
between the opposing viewpoints. Thus, subject to FAS 17 are required to report locals. One commenter stated that the
while the revised form neither permits expenses by functional categories and to cash basis method better effectuates the
nor necessitates individual assessments allocate costs among significant LMRDA’s focus on receipts and
of the materiality of information about programs as applicable (see FAS 117, ¶ disbursements.
particular transactions, it requires the ¶ 26–28) because of differences in Some commenters, however, read the
disclosure of information that is indicators of performance as compared proposed rules as continuing the cash
significant to union members. to for-profit business organizations (FAS basis requirement. In their comments,
Commenters also argued that 117, ¶ 61). they requested that the Department, as
proposed Form LM–2 violates GAAP Comments on the Department’s part of the final rule, allow unions the
because the costs of reporting the proposal indicate some confusion option to utilize the accrual method of
information exceed the benefits to users regarding the question whether accounting. In support of this approach,
of the information. While the costs of revisions to Form LM–2 will require they noted that accrual accounting is
the revised Form LM–2 are addressed in labor organizations to maintain their required by GAAP, reflecting, in their
more detail in the Regulatory Flexibility financial records using a cash basis or view, the belief that accrual accounting
and Paperwork Reduction Act Analyses, accrual method. Some unions and provides a more effective gauge of an
see Section V, the Department has individuals have read the proposed organization’s financial condition. In
determined that these costs are rules to require unions to maintain their this regard, one commenter noted that
outweighed by benefits. FASB and other financial records system on an accrual the Department itself once recognized,
government regulatory bodies have basis. In this regard, some of the when it proposed revisions to the Form
discovered that the total benefits commenters noted that Schedule 1 of LM–2 in 1992 (later withdrawn in part),
derived from shared information are the proposed Form LM–2 requires that ‘‘accrual accounting generally
nearly impossible to quantify. reporting of receivables, a concept provides a more accurate indication of
Information is different from other associated with accrual accounting. an organization’s financial condition
commodities because the benefits from Some of the commenters also expressed and operations.’’ 57 FR 49282 (Oct. 30,
information can extend beyond the their view that the majority of unions 1992). Other commenters noted that the
immediate users. The revised Form LM– use the cash method of accounting and current cash basis requirement forces
2 directly benefits union members that it would be a substantial burden for them to convert information in their
because increased disclosure permits them to make the conversion to the accrual-based system for the sole
members to make better decisions about accrual method. Some of the purpose of submitting a Form LM–2, an
union governance and helps deter and commenters also noted that cash basis expensive and time-consuming
detect fraud. The public also benefits reporting comports with IRS undertaking. One labor organization
from the deterrence of fraud, due to the requirements. noted that its accounting personnel last
costs fraud imposes on, for example, the A local union explained that its year spent nearly half of the 1,200 hours
criminal justice system, and from the accounting system uses the cash basis it spent in preparing the Form LM–2 in
promotion of ethical conduct in the method. It noted that the proposed converting information from its accrual-
administration of labor organization Schedule 1 (Accounts Receivable) and based system to a cash basis mode.
affairs, which increases the stability of Schedule 8 (Accounts Payable) call for Several commenters also noted that the
labor organizations, and thus promotes information maintained by systems set IRS accepts reports using the accrual
the flow of commerce. See 29 U.S.C. 401 up on the accrual method of accounting. method of accounting.
(‘‘Declaration of Findings, Purposes, and The local explained that this An international labor organization,
Policy’’). The information required on information is not readily available from the Air Line Pilots Association (ALPA),
the revised Form LM–2 thus benefits a cash basis systems, noting that explained that it uses an accrual system
wide variety of users, which is commercial accounting systems track to collect detailed information for its
consistent with SFAC No. 2, ¶ 143. income and expenses, not receipts and payroll, employee expense reports,
Commenters noted several issues disbursements. The local expressed its member accounts receivable, and flight
related to the application of FAS 117, concern that it would be able to provide pay loss. ALPA noted that the current
Financial Statements of Not-For-Profit the accounts receivable and accounts requirement that unions employ the
Organizations, to labor organization payable information only by cash method in preparing a Form LM–
financial reporting. The FASB has undertaking manual searches through 2 requires time-consuming conversion
of ALPA’s financial information, be prepared using the cash method of reporting goals can be achieved without
preventing it from ever meeting the accounting,’’ was dropped, however, as directing all unions to use accrual
March 31 deadline imposed by the it was not wholly accurate and could be accounting as the foundation of their
LMRDA. Another international, the misleading. financial management systems. Such a
International Brotherhood of Electrical As explained in greater detail below, mandate is unnecessary and has been
Workers (IBEW), stated that it maintains the Department has not proposed to rejected in light of the comments that
its books on an accrual basis for two require unions to establish a particular most unions maintain their books on the
reasons: first, it enables the organization method to account for, and manage, cash basis. Nor is the Department
to match revenue and expenses to the their finances. Unions, for various persuaded that accrual accounting
proper time period; and second, it reasons, may choose to track their should be mandated because it accords
enables the organization to comply with finances on a cash basis, accrual basis, with GAAP. As discussed above, GAAP
accounting rules and to receive an a hybrid of the two, or some other practices are neither binding nor
‘‘unqualified’’ opinion from an method of accounting. As noted by necessarily appropriate for all aspects of
independent auditor as to the some commenters, the Form LM–2 financial reporting, particularly insofar
organization’s financial health. reporting format requires unions to as the operations of not-for-profit
In the Department’s 1992 rulemaking, utilize some elements of both cash basis entities are concerned. The
the Department specifically proposed and accrual accounting. To a large Department’s concern is in ensuring the
that unions would be required to utilize extent, however, that format is driven by disclosure of information that satisfies
the accrual accounting method. In the fact that the statute itself requires the statutory requirements of the
response to the comments submitted, both types of information. For example, LMRDA in a manner best suited to meet
however, the 1992 final rule allowed the statement of ‘‘receipts and the purposes of the statute, which can
unions the option to utilize either the disbursements’’ required by the LMRDA be accomplished without requiring a
cash or accrual method of accounting in is basically an accounting of the inflow labor organization to use an accounting
reporting their finances. This option and outflow of an organization’s cash method that may not be best suited to
was rescinded in December 1993. This during the fiscal period. Consequently, its overall needs.
action was taken in response to a ‘‘profit and loss’’ statement prepared
comments that only relatively few of the on the accrual basis is unacceptable as E. Additional Reforms Considered
larger unions used the accrual method compliance with the Act since it reflects Several commenters suggested that
and to correct the mistaken perception the income and expenses of an the Department should undertake other
held by some unions that the organization in the fiscal period and not reforms, in addition to those proposed.
Department’s rule, in practice, was the disposition of its cash. See 29 U.S.C. While some comments expressed
encouraging unions to utilize accrual 431(b). general support for wide dissemination
accounting, a departure from the cash In contrast, the statement of ‘‘assets of information filed with the
basis method that had been prescribed and liabilities’’ required by the LMRDA Department of Labor on the labor
for reports in the past and the method is essentially an accrual type of organization annual financial reports,
used by the vast majority of unions. One statement and provides for reporting all others thought that more specific
union commenter on the current rule, receivables, payables, accruals and dissemination requirements should be
however, asserted that the option deferred items. Consequently, it should imposed. One commenter suggested that
concept was well thought-out because it be unnecessary for an organization that unions be required to post their most
recognized that although some unions maintains its records on the accrual recent labor organization annual
used the accrual method of accounting, system of accounting to change its financial report on union bulletin
imposing this method on many smaller procedures in order to prepare the boards in union halls and on employer
unions would present a real hardship to statement of assets and liabilities. bulletin boards reserved for union use
these unions because they rely on Preparation of a ‘‘cash receipts and in employer workplaces, while another
volunteers, not accountants, to prepare disbursement’’ statement when the suggested that labor organizations
the Form LM–2. As discussed accrual method of accounting is used should make their annual financial
immediately below, this option is normally requires only an analysis of reports available at their membership
indeed available to unions, which may the organization’s cash receipts and meetings. One comment suggested that
choose to track their finances on a cash disbursements records in order to information reported on the labor
basis, accrual basis or some other properly reclassify the necessary cash organization annual financial reports
method of accounting. transactions to conform to the types of should be sent by unions to their
Since the 1992 rule was rescinded, accounting classifications represented members by mail or included in
the Form LM–2 has, in fact, required by like items on the prescribed forms. newsletters, as well as be made
that receipts and disbursements be More importantly, the necessary available on the Internet. Finally, one
reported on a cash basis, but has also modifications to either a cash based or comment urged the Department to
required the reporting of certain accrual based system that may be implement the provisions of section 105
information more typically maintained necessary to comply with the format of of the LMRDA, requiring ‘‘[e]very labor
in an accrual-based system (e.g., the revised Form LM–2 are no different organization [to] inform its members
Schedule 1 ‘‘Loans Receivable, than modifications that labor concerning the provisions of this Act.’’
Schedule 8 ‘‘Loans Payable, Accounts organizations currently perform to file See 29 U.S.C. 415.
Payable, Mortgages Payable). Thus, the existing Form LM–2. Section 205 of the LMRDA provides
requiring a combination of both types of The Department believes it would be that the reports filed with the
information in one form, which might inappropriate to dictate the particular Department under Title II of the Act
be characterized as modified cash basis system by which a union keeps track of ‘‘shall be public information’’ and
accounting, represents no change from its finances. While some unions may permits the Secretary of Labor to
the existing Form LM–2 and was not find it easier to use the accrual method publish any information obtained. See
identified as a change in the NPRM. The of accounting and convert information 29 U.S.C. 435. Section 208 gives the
statement in the Instructions to the to complete Form LM–2 items reporting Secretary of Labor authority to issue
existing Form LM–2 that the form ‘‘must the inflow and outflow of funds, the rules and regulations prescribing the
form and publication of reports required the expanded form, without regard to LM–2, and under the new rule it would
to be filed under Title II. See 29 U.S.C. the amount of their annual receipts. also meet the Form LM–2 filing level.
438. Neither sections 205 and 208 nor Other commenters argued that the In this example, by virtue of a one-
any other provision of the Act expressly current threshold is too low and should time-only event, annual receipts would
vest the Secretary of Labor with any be raised. be quintupled. This union would likely
authority to require labor organizations Shortly after the LMRDA was enacted not keep records conducive to providing
to disseminate information filed with in 1959, the threshold for filing the the kind of details required by Form
the Department of Labor on labor more detailed Form LM–2 was set by LM–2—and particularly the details and
organization annual financial reports at the Secretary at $20,000. The threshold new schedules envisioned in the revised
membership meetings, on labor was raised by the Secretary in 1962 to Form LM–2. In addition, labor
organization websites, in labor $30,000 and again in 1981 to $100,000. organizations with such small annual
organization newsletters or otherwise by If any of these levels were now adjusted receipts would be less likely to have
mail to the members, or on union or for inflation, the amount would be less electronic recordkeeping than their
employer bulletin boards. Neither the than the current threshold of $200,000. larger counterparts.
terms of section 105, nor of any other Nevertheless, the Department has In this situation, if a labor
provision of the LMRDA, vest the decided to raise the threshold to organization lacks the capability of
Secretary of Labor with any express $250,000, an amount that approximates filing electronically, it could invoke the
authority to enforce section 105. See 29 an inflation adjustment of the current continuing hardship exemption, and
U.S.C. 415. threshold. Although the overwhelming thereby be excused from filing
The Department, however, has majority (79%) of all reporting labor electronically for that year. The
developed and implemented, with organizations are currently exempt from Department has concluded that
direction from Congress to do so, an filing Form LM–2, changing the providing any other relief is
extensive system for making available threshold to $250,000 will reduce the unnecessary and could undermine the
on the Internet the labor organization recordkeeping and reporting burden for purpose of these reforms in situations
annual financial reports filed with the where transparency and full disclosure
approximately 500 labor organizations.
Department for the years 2000 and are most important. First, union
The Department will continue its past
thereafter, as well as reports filed under members are likely to be especially
practice of periodically assessing the
section 203 of the LMRDA by labor interested in how ‘‘windfall’’ funds are
appropriateness of the filing threshold
relations consultants who engage in handled. Second, if a union’s annual
to ensure that it is relevant in terms of
persuader activity and the employers receipts meet the filing threshold only
the current economy.
who enter into agreements for such because of a one-time event, the union
A number of labor organizations is unlikely to have many other
services. See 29 U.S.C. 433. Using this
commented that the Department should transactions within the reporting period
system, any member of a labor
permit unions to ‘‘pass through’’ funds and fewer subject to the disclosure
organization or the general public with
received during the reporting period thresholds of the final rule. The union
Internet access can review all such
reports (at http://union-reports.dol.gov) like per capita fees collected by local therefore will not face substantial
except those for the approximately 600 unions for transmission to a national or burdens in collecting the information
very small labor organizations whose international labor organization and/or necessary to file a Form LM–2, even
national organizations file summary to use net dollar figures in order to though it has not been required to keep
reports on their behalf pursuant to 29 avoid meeting the filing threshold. This track of this information in the past.
CFR 403.4(b) because those small concern should be alleviated somewhat There is no sound reason to permit a
unions had no assets, liabilities, by increasing the filing threshold to union that has $250,000 in annual
receipts, or disbursements during the $250,000 but, more importantly, the receipts to avoid the reporting
reporting period. Department does not agree that the obligation imposed on all other unions
concern is valid. Labor organizations with similar receipts simply because the
III. Responses to Comments on should be accountable for all funds union has not had similar receipts in
Proposed Changes to Form LM–2 received and in their custody or control other years.
A. Which Labor Organizations Must File during the reporting period. Members
who pay dues and per capita fees to 2. Intermediate Unions Without Private
a Form LM–2 Employee Members
their locals have a right to know what
1. The Filing Threshold action their local took with respect to Three labor organizations—the
Since 1994, only labor organizations those funds. Similarly, members have a National Education Association (NEA),
with $200,000 or more in annual right to know how much money came the American Federation of Teachers
receipts have been required to file a into their union during the year, not just (AFT), and the AFL–CIO—and one
Form LM–2; smaller unions are the net amount left at year’s end. individual union member submitted
permitted to use the simpler Forms LM– Several commenters, including the comments on the Department’s proposal
3 or LM–4. Although the Department AFL–CIO, cited the situation where a to adopt the holding of the U.S. Court
considered raising the threshold for small labor organization with a history of Appeals for the Ninth Circuit in Chao
filing a Form LM–2 in its 2002 NPRM, of filing either Form LM–3 or LM–4, i.e., v. Bremerton Metal Trades Council,
thus reducing the number of labor one with annual receipts below AFL–CIO, 294 F.3d 1114 (2002),
organizations affected by most of the $200,000, by virtue of an unusual event interpreting section 3(j) of the LMRDA.
changes proposed, it did not propose an during the year had receipts boosted to In that case, the court of appeals ruled
increase. The Department did solicit in excess of $200,000. For example, a that an intermediate labor organization
comments, however, on the appropriate small union with consistent annual that has no dealings itself with private
level of annual receipts to trigger a Form receipts of $50,000 sells a surplus piece employers and no members who are
LM–2 obligation. Some commenters of real estate for $200,000, resulting in employed in the private sector may
expressed the view that the current annual receipts for that year of nevertheless be a labor organization
threshold is too high and some argued $250,000. Under current practice, the engaged in an industry affecting
that all unions should be required to file union would be required to file Form commerce within the meaning of
section 3(j) of the LMRDA if the Congress was to exempt ‘‘wholly public the application of the statutory terms to
intermediate body is ‘‘subordinate to a sector’’ labor organizations from the the circumstances of each case. While
national or international labor coverage of the Act. The Bremerton this rulemaking provides a vehicle for
organization which includes a labor court found that an intermediate labor making clear the Department’s
organization engaged in commerce.’’ organization is not ‘‘wholly public interpretation of the statutory term, after
The Department proposed to follow this sector’’ and exempt from the Act where notice and comment, the factual
holding by adding language to the it is subordinate to a parent organization question whether a particular labor
instructions for Forms LM–2, LM–3, and that meets the definition of a labor organization meets the statutory test
LM–4 clarifying that any ‘‘conference, organization engaged in an industry applying that interpretation cannot and
general committee, joint or system affecting commerce. The Department’s should not be resolved in this context.
board, or joint council’’ that is regulation at 29 CFR 451.3(a)(4) is not The NEA’s state affiliates and other
subordinate to a national or contrary to the Bremerton decision entities are free to challenge the
international labor organization will be when the regulation is read as giving
application of the Bremerton
required to file an annual financial effect to the court’s interpretation of the
interpretation to their organizations and
report if the national or international term ‘‘wholly public sector labor
labor organization is a labor organization.’’ The Department to pursue any avenues relative to the
organization engaged in an industry concludes that none of the commenters issue of their coverage under the
affecting commerce within the meaning provides a persuasive argument for LMRDA. The proposed language in the
of section 3(j) of the LMRDA. disagreeing with the Bremerton court’s instructions and accompanying
The three union commenters objected reading of the statute and therefore will references are not intended to forestall
to the application of the LMRDA to maintain the expanded language in the any such action, but rather to make clear
wholly public sector intermediate instructions for the Form LM–2. The the Department’s views regarding the
bodies pursuant to Bremerton as expanded language adopting the general meaning of the statutory terms.
contrary to the statutory language, Bremerton court’s construction of the One commenter mistakenly read the
established case law, and Department of statute will also be added to the instructions and the preamble language
Labor regulations at 29 CFR 451.3(a)(4). instructions for Forms LM–3 and LM–4, to include state or local central bodies
Additionally, the NEA and AFT but since no other changes will be made among those organizations that must
opposed the extension of the LMRDA to to those forms, neither the forms nor the file. The LMRDA and the Department’s
wholly public sector bodies through the instructions for those forms will be regulations at 29 CFR 451.5 make clear
regulatory process and commented that reprinted in the appendix. that a ‘‘state or local central body’’ is
such an extension should require In its comments, the NEA
excepted from the definition of labor
Congressional action. They further incorporated by reference the arguments
commented that the decision in presented by its state affiliates in organization in section 3(i) and the
Bremerton does not bring wholly public Alabama Education Association, et al. definition of a labor organization
sector intermediate bodies within v. Chao, No. 1:03CV00253 (D.D.C. filed deemed to be engaged in an industry
LMRDA coverage, and any reference to Feb. 14, 2003). There, the NEA’s state affecting commerce in section 3(j). The
Bremerton should, therefore, be taken affiliates argue that they represent only Department’s adoption of the reasoning
out of the new rules where such public employees and are self of the Bremerton court does not bring
reference is used to attempt coverage of governing, autonomous organizations these organizations within the ambit of
wholly public sector organizations. affiliated with the NEA, not subordinate the LMRDA, either explicitly or
The expanded language in the bodies within the meaning of section implicitly.
instructions merely incorporates and 3(j)(5) of the LMRDA and, therefore, not An additional comment urged the
restates the language of section 3(j) of subject to the LMRDA, even if the NEA Department to continue to seek full
the statute. The reference to the is subject. The AFL–CIO, in a comment disclosure from the Washington State
Bremerton decision clarifies that the related to the NEA state affiliates’ Education Association, as state law
Department intends to interpret this argument in Alabama Education provided no comparable protection for
language in a manner consistent with Association, et al. v. Chao, cautioned public sector employees. The
that decision. Bremerton is the most that neither the Department of Labor nor
Department will seek compliance from
recent court decision interpreting the Ninth Circuit can do away with the
section 3(j). The Department recognizes all organizations required by the
statutory limitation of the section 3(j)
that the interpretation of section 3(j) set proviso to entities that are LMRDA to file labor organization
forth in Bremerton represents a ‘‘subordinate’’ to a national or reports.
departure from previous court decisions international union covered by the B. Itemization of Major Receipts and
and the Department’s prior LMRDA. The AFL–CIO further Disbursements
administration of the Act. However, the commented that the proposal to amend
Department has concluded that the coverage language should not be used to 1. General Comments Concerning
Bremerton court’s interpretation is the preempt pending litigation, and the Itemization
correct reading of the statutory NPRM preamble should not be used to
language. Further, neither the create an argument in litigation that the The Department received numerous
Department nor the court has added Department of Labor’s adoption of this comments concerning proposed
statutory language or otherwise statutory instruction is entitled to Schedules 14 through 19. These
encroached on Congressional deference. Schedules call for individual
prerogatives here. The court, pursuant The question whether a particular identification of certain receipts and
to its constitutional authority, labor organization falls within the disbursements for various categories
interpreted terms contained in the Bremerton test is not decided by the that reflect the services provided to
statute, and the Department, operating proposed language of the instructions or union members. Receipts and
within its authority to administer the the references to Bremerton in the disbursements are allocated to
statute, has stated its intention to adopt NPRM. That coverage issue involves a Schedules 14 through 19 and are either
that interpretation. The stated intent of factual determination that will turn on listed as individual entries or as
aggregated entries. Individual (or more costly than it is under current descriptive purpose. Although some
‘‘major’’) receipts and disbursements, as disclosure rules.’’ commenters asserted that this is a
well as payments to or from a single Many commenters turned to recent dramatic policy shift tantamount to
entity or individual that aggregate to corporate finance scandals in describing imposing a new accounting system,
meet the disclosure threshold, must be their general support for greater unions have always been required to
reported. transparency among institutions, allocate each disbursement to one or
The Department received several whether governmental, business, or more disbursement categories on the
comments supporting itemization. Most labor organizations. They stated that Form LM–2. The revised form alters the
of these comments expressed general greed can infect any organization and categories but not the underlying
approval for requiring disclosure of that disclosure is its best remedy. As method of allocating these
financial information in greater detail. A noted by some commenters, the fiscal disbursements. Indeed, there are fewer
common theme of these comments was integrity of labor organizations has a disbursement categories on the new
a belief that the Department’s proposal profound impact on the financial form. After allocating the disbursement,
would increase the accountability of stability and security of employees. The the union officer or bookkeeper makes
union officials to union members, serve mismanagement, or failure, of labor a brief entry on the ‘‘purpose’’ for each
to discourage union corruption, and organizations can cause major transaction in a memo field. These sorts
improve overall union democracy. One disruptions in work relationships, of operations are routine within
comment cited a specific instance in retirement plans, and overall employee accounting systems; organizations
which union officials concealed well being. change the way disbursements are
improper transactions within aggregated The Department received voluminous classified in the normal course of
disbursements, which could have been comments opposing itemization and business.
prevented (or at least identified) by raising a number of concerns about the The AFL–CIO’s survey data also
itemized reporting. Similarly, necessity of reporting this information; suggests that many unions already
commenters related well-publicized potential problems involving adequate maintain their records and accounting
situations involving union officers who accounting systems; possible adverse systems in ways that are readily
allegedly misappropriated funds as consequences from disclosing the compatible with the requirements of the
examples of instances where required information; and a variety of final rule. For example, the AFL–CIO’s
itemization, by allowing members to other issues. survey data suggest: 59% of national
detect questionable transactions, would Several comments opposed and international unions record
have limited the damage to the union itemization in general as too costly or expenses by type of activity or
and its finances and, perhaps, deterred burdensome because current union functional category; 62% of unions can
the individuals involved from breaching accounting systems or practices do not generate the required itemization detail;
the obligations entrusted to them. Other capture all of the information required 86% of unions do not have trouble
commenters stated that without by the criteria, and that electronic downloading information from their
itemization ‘‘and the transparency it record keeping systems will have to be account systems into a spreadsheet;
brings to union finances ‘‘union reconfigured to comport with the 40% of national and international
members have little defense against the revised form. The Department believes unions have a system of accounts
potential mismanagement and the comments overstate the receivable that is immediately
misappropriation of union funds. technological difficulties involved in compatible with the final rule, and 66%
Unusual spending patterns or shifts in transforming existing accounting of national and international unions
expenses, as revealed in a Form LM–2, systems to accommodate itemization have a system of accounts payable that
a commenter stated, may tip union procedures. Preliminarily, union is immediately compatible with the
members off to fraud and abuse, officers and employees will need to final rule. Labor organizations that do
allowing them the option of disciplining study the instructions and forms, and not currently maintain electronic books,
or removing wasteful or corrupt union thereby gain an understanding of the or that use accounting software that
leaders. new requirements. The Department will cannot be modified to track the data
Other comments supported launch a compliance assistance required by the revised form, will
itemization because it replaces broad initiative that includes an overview of experience an increased burden, but as
categories with more useable, the requirements, a comparison to the the analysis under the Paperwork
informative, and detailed data. These old requirements, a tentative schedule Reduction Act indicates in Section V,
commenters emphasized the members’ of seminars for international, national, the burden is, on average, a modest one.
right and need to know how a union is intermediate and local unions hosted The burden of reporting the
spending their money to ensure that it throughout the country, an email list- individual items required by Schedules
is being managed well and spent wisely. serve to provide periodic updates to 14–19 is minimized by the electronic
Members expressed particular concerns interested parties, web-based materials reporting system, which creates
about the lack of information about that include frequently asked questions, efficiency gains by performing the
various categories of expenses, among a description of the Form T–1 administrative functions of the reporting
them political activities, joint labor- registration process, and other topics of system. To this end, the Department has
management programs, and the transfer interest to filers. provided technical specifications to
of funds to other entities. The Once union officials understand the assist labor organizations in converting
Regulatory Studies Program of the new reporting requirements, it may be financial data into a form supported by
Mercatus Center at George Mason necessary to make some adjustments to the Department’s electronic filing
University commented, ‘‘By increasing their recordkeeping systems. The most software. The technical specifications
the number of classification categories, important change that should be made contained in the appended Data
lowering the dollar level of disclosures, immediately involves the tracking of Specifications Document (DSD) inform
and by potentially increasing the disbursements and ‘‘other’’ receipts to affected unions of the various data
number of people who must participate ensure that each disbursement and formats that can be exported into the
in a potential fraud, the revised reports ‘‘other’’ receipt is allocated to the proper electronic form. Filers will have the
* * * should make committing fraud disbursement category with a option of exporting itemized data from
standard accounting reports in one of Together with reporting receipts and entity or organization must meet. The
several common file formats. There will disbursements by functional categories, argument is neither accurate nor
be a non-recurring burden as the filers the proposed rule will provide persuasive. First, as explained in detail
create the proper reports, which can information that will help ensure that in Section II(C), this argument is based
then be used in future years. It is union leadership is acting in the upon incorrect assumptions. Second,
important to note that smaller filers that interests of its membership. other agencies do, in fact, require
would only report a handful of itemized The Department disagrees with those itemized reporting of financial
transactions for the year may choose to comments that suggest itemization will transactions by certain kinds of
complete the form manually through overwhelm interested parties with organizations (for example, the Internal
copy-and-paste techniques rather than information. These comments rest on Revenue Service requires itemized
using the DSD to set up the necessary the erroneous premise that an reporting of disbursements by Section
accounting reports to export the individual seeking information must 527 organizations and the Federal
itemized data. As the analysis of the rely on hard-copy documents to review Election Commission requires itemized
burden associated with making the the Form LM–2. Labor organizations reporting of receipts and disbursements
changes required by the revised form, (with few exceptions), however, must by federal political committees. Third,
set forth in Section V, demonstrates, the file the form electronically. The new reporting practices for a regulated
burdens anticipated by many procedures provide more detailed, and community may vary depending on the
commenters are overstated. more accessible, information than the particular requirements imposed by
existing system by utilizing the various laws. The appropriate standards
As explained in Section V, the
advantages of computer technology. for financial disclosure by labor
Department agrees with some of the
Electronic filing permits the reviewer to organizations must be determined in
comments that, even though the
focus his or her review using a search light of the LMRDA, and not the
Department has received no comments
engine to guide the inquiry; on-screen practices, policies or criteria of other
over the years regarding its published
(or paper) review of each entry is laws. In that vein, the LMRDA sought to
assessments of the burden of filing the
unnecessary. Further, the current Form address the particular problems posed
current Form LM–2, the burden of filing
LM–2 informs the member only of the by labor organization reporting by
the current form may have been
aggregate disbursements (or receipts); requiring reports containing ‘‘such
underestimated. The Department has
the member must go through the trouble detail as may be necessary to disclose its
revised its assessment of the burden of obtaining more detailed information financial conditions and operations.’’
associated with the current form from the union concerning the See 29 U.S.C. 431(b). The fact that other
upward in response to the comments it individual transactions in order to find agencies, administering other laws,
received in order to improve the any meaningful information regarding utilize different reporting criteria and
estimate of the additional time and cost specific receipts and disbursements. practices is not a valid objection to
involved in filing the revised form. Even Itemized reporting provides the detailed requiring itemization for purposes of the
using these higher estimates and information in a searchable format as an LMRDA.
acknowledging that there will be initial matter. Finally, Statement B of
increased costs for reporting labor the revised Form LM–2 provides 2. Itemization of Confidential
organizations as a result of these aggregate figures for each disbursement Information
reforms, the Department has concluded Schedule. A member reviewing the One of the most significant concerns
that the advantages derived from the revised Form LM–2, therefore, has expressed by many comments
more detailed reporting outweigh the access to both the aggregate and the concerned the potential harm to union
extra burden imposed on unions. As individual disbursements for each interests in disclosing confidential
noted above, the FASB acknowledges category. Resort to the more detailed financial and personal information
the utility of itemized (or information remains at the member’s required by Schedules 14–19.
‘‘disaggregated’’) financial data. FAS No. discretion. Commenters contended that such
117, ¶ 118. By contrast, reporting in In a related vein, one comment detailed disclosure could adversely
general ‘‘bottom-line’’ amounts does not contended that the level of detail affect union interests and activities that
provide the level of detailed information required by itemization will inevitably should be kept confidential as a matter
that will effectively answer an result in unintentional reporting errors, of law or public policy. The comments
interested member’s inquiry. Moreover, ‘‘costly criminal investigations’’ for focused principally on disclosure of the
generalized reporting places the burden misreporting, and ‘‘prosecutorial information to individuals or
on the member to obtain the information abuse.’’ Two comments expressed an organizations outside the union that
from the union, including resort to additional concern that the errors could might use the information to impede
litigation if the union fails or refuses to be used to prosecute union officers legitimate union activities or otherwise
disclose the requested information under the LMRDA because the officers harm union interests. The comments
voluntarily. OLMS experience over must certify the correctness of the cited a variety of examples in which
years of auditing and investigating reported information. The commenters’ such itemization could be detrimental to
union financial activities indicates that suggestion that increased reporting the union itself or other organizations
increased access to information errors may prompt unwarranted and individuals involved with the
concerning a union’s financial picture investigations and prosecutions is union and its activities: (i) Identifying
will enable its members to protect their speculative and unsupported by any individuals paid by the union to seek
own interests through more effective evidence in the rulemaking record. employment with a non-union employer
vigilance over union funds, and will aid Moreover, only willful violations, not in order to assist the union in organizing
OLMS in future enforcement efforts. inadvertent errors, can result in criminal its workforce; (ii) revealing ‘‘job-
Disclosure of basic information about liability. See 29 U.S.C. 439. targeting’’ or ‘‘market recovery’’
major transactions is the most effective Several comments argued that programs; (iii) discouraging the union
means of providing information to itemization imposes a unique reporting from seeking legal advice if fee
union members who are interested in standard on unions that no other disclosure reveals the attorney-client
their organization’s financial affairs. oversight agency requires and no other relationship; (iv) violating legal rules
that limit discovery about experts in procedure should be made available for [union’s] financial interest in
litigation (e.g., FRCP 26(b)(4)(B)); (v) the following types of information: nondisclosure against the injury to the
violating confidentiality agreements in • Information that might identify interest of [a requesting union member]
settlements; (vi) revealing information individuals paid by the union to work and other union members in
about union organizing campaigns, in a non-union facility in order to assist determining how funds held in trust for
political activities and legal strategies; the union in organizing employees, them are being spent.’’ Mallick v. Int’l
(vii) affording tactical advantages to provided that such individuals are not Bhd. of Elec. Workers, supra, 749 F.2d
service vendors and opposing parties in employees of the union who receive at 785. In the Department’s view, this
contract negotiations; and (viii) more than $10,000 in the aggregate in result is not required by the statute and
endangering the lives of foreign labor the reporting year from the union (in is, in fact, inconsistent with the
activists supported by the union. In which case the statute requires that it be statutory mandate that any member be
some cases, the comments viewed reported, see 29 U.S.C. 431(b)(3)); permitted to examine records to verify
disclosure as the direct cause of a • Information that might provide the union’s financial report merely upon
potential harm; in other cases, the insight into the reporting union’s a showing of just cause, without regard
comments contended that disclosure organizing strategy; and to any competing interest of the union.
may provide clues from which an • Information that might provide a Accordingly, language has been added
adverse party could educate itself about tactical advantage to parties with whom to § 403.8 to make clear the
union activities, relationships, and the reporting union or an affiliated Department’s view that the fact that a
strategic goals. Some commenters made union is engaged or will be engaged in union has chosen not to disclose the
similar arguments with respect to the contract negotiations. identity of an entity that has received a
proposal to require itemization of With respect to these specific types of disbursement of $5,000 or more, on the
receipts. information, if the reporting union ground that disclosure to third parties
The Department agrees that there may believes that itemized disclosure of a might be adverse to the union’s
be some situations in which the specific major disbursement or interests, is just cause for union
potential harm to union interests aggregated disbursement would be members to inquire as to the identity of
occasioned by disclosing certain types adverse to the union’s legitimate the recipient or donor and the reason for
of confidential information warrants an interests, it may report the disbursement the transfer of funds. The statute
exception from the requirement to in the ‘‘All Other Disbursements’’ requires no additional showing to
provide itemized information regarding portion of either Schedule 15 require the union to permit a member to
major receipts that are not reported (Representational Activities) or examine the underlying records.
elsewhere on the form and major Schedule 19 (Union Administration) on Further, a reporting union will also be
disbursements. These situations are the Detailed Summary Page. The union permitted to report amounts received or
likely to be far more limited, however, must also enter a notation in Item 69 disbursed pursuant to a settlement that
than suggested by some comments. (‘‘Additional Information’’) identifying is subject to a confidentiality agreement,
Unions are not required to provide non- the Schedule(s) from which the union or that the union is otherwise prohibited
financial information regarding excluded any itemized receipts or by law from disclosing, in the ‘‘All
organizing strategy, notes of meetings, disbursements because of an asserted Other Receipts’’ or ‘‘All Other
or names of volunteers on a Form LM– legitimate interest in confidentiality. Disbursements’’ portion of the
2. Rather, they are required only to A union member, however, has the applicable Schedule on the Detailed
provide certain information regarding statutory right ‘‘to examine any books, Summary Page. Similarly, the
financial transactions. Generally records, and accounts necessary to Department agrees that in the extremely
speaking, the information disclosed will verify’’ the union’s financial report if rare situation where disclosure would
indicate simply that a disbursement was the member can establish ‘‘just cause’’ endanger the health or safety of an
made to, or money received from, a for access to the information. 29 U.S.C. individual, the information need only
particular individual for a purpose 431(c); 29 CFR 403.8 (2002). In the be reported in the ‘‘All Other Receipts/
described by the union. Although there Department’s view, any exclusion of Disbursements’’ portion of the
may be certain consequences as a result itemized disbursements from Schedules applicable Schedule. In these
of such disclosure—as where, for 15–19 would constitute a per se circumstances, non-itemized reporting
example, a union indicates that a demonstration of ‘‘just cause’’ for of the information, by itself, will not
payment has been made for ‘‘job purposes of the Act. Consequently, any constitute just cause for additional
targeting’’ that some might consider union member (and the Department, disclosure.
inappropriate—such consequences must which need not establish ‘‘just cause’’), Finally, some commenters asserted
be both serious and beyond the scope of but not a member of the public, upon that disclosure of itemized information
consequences intended by the LMRDA request, has the right to review the regarding benefits provided to
to warrant consideration of overriding undisclosed information that otherwise individuals, such as, for example, burial
the interest in disclosure embodied in would have appeared in the applicable expense benefits, would invade the
that statute. Schedule if the union withholds the privacy of those individuals. This
The Department has decided, information in order to protect argument, while persuasive, affects only
however, that commenters have made a confidentiality interests. The disbursements that may properly be
persuasive argument that certain Department has added to the final rule reported in Schedule 20 (Benefits).
information need not be made available a provision that clarifies the Accordingly, as discussed below, the
to the general public and that disclosure Department’s interpretation of the Department has decided to retain the
could be sufficiently adverse to union statute in light of the specific previous Schedule for Benefits, rather
interests that the modification described modification of the proposed than the one proposed in the NPRM,
below is warranted to permit labor itemization requirement in response to and to continue to permit labor
organizations to protect certain the numerous comments received in organizations to report these
confidential information on certain this regard. disbursements only in the aggregate.
schedules. Specifically, the Department Some courts have held that a finding The Department believes that the
has concluded that this special of just cause ‘‘requires balancing the modified disclosure procedures for
confidential financial information union. In these circumstances, there is Finally, labor organizations may resolve
satisfactorily address the privacy nothing in the revised regulation or any serious privacy concerns with
concerns raised by the comments. The forms that would prevent the union respect to the types of information
comments focus primarily on the from seeking a protective order or some specified above by exercising their
potential harm in disclosing a union’s other means of protecting its interests. option to report the disbursement in
confidential information about a The Department disagrees with the question in the ‘‘All Other
particular disbursement to the general comment that a union’s compelled Disbursements’’ entry for the schedule
public, especially individuals and disclosure of information relating to on the Detailed Summary Page. While
entities whose interests may conflict legal fees associated with an organizing concealing the identity of individuals or
with the union’s interests. The union campaign would improperly intrude entities receiving disbursements may
must report the disbursement in some upon the union’s attorney-client raise questions concerning the
form. The modified procedures enable privilege. This privilege does not disbursement’s legitimacy, such
the union to withhold the confidential generally extend to the fact of questions are precisely the reason that
information from general public consultation or employment, including labor organizations will be required to
disclosure while complying with the the payment and amount of fees. See indicate in Item 69 (‘‘Additional
Act’s reporting requirements. The McCormick on Evidence, § 90, (5th ed. Information’’) that they have used this
union, however, may not withhold the 1999, updated 2003). Further, while the procedure and that use of this procedure
information from its members because privilege might protect the identity of a will constitute ‘‘just cause’’ for union
they have a statutory right to examine client when sought from an attorney, a members who request access to the
the information underlying the reported client can be required to divulge the underlying information.
data if ‘‘just cause’’ exists. name of its attorney, which would be
Unless disclosure is prohibited by law relevant here. Id. Similarly, the 3. Itemization of Major Receipts
or would endanger an individual, the Department has concluded that the rule The Department proposed changes to
concerns justifying the decision to that limits discovery about experts in Schedule 14 to require additional
permit nondisclosure of specific litigation to ‘‘exceptional information for reporting ‘‘other
information derive from an interest in circumstances’’ is not relevant, in that receipts’’ in the reporting period. ‘‘Other
preventing members of the public, other the language of the rule protects the receipts’’ consist of all receipts that the
than union members and the ‘‘facts known or opinions held’’ of the labor organization does not report
Department, from gaining access to that expert, which would not be revealed in elsewhere in Statement B of Form LM–
information. In the Department’s view, a Form LM–2. See FRCP 26(b)(4)(B). Nor 2. Specifically, the Department
withholding on these grounds is the mere fact that a disbursement has proposed requiring a labor organization
information that should otherwise be been made likely to reveal a union’s to identify all the other receipts that are
disclosed in the Form LM–2 is a legal strategies. Further, to the extent ‘‘major’’ receipts. A ‘‘major’’ receipt is
sufficient basis for ‘‘just cause.’’ The that a payment to an attorney or expert either an individual receipt of $5,000 or
union’s concerns regarding disclosure to can meet the standards for non-itemized more, or the aggregate receipts from an
third parties arise outside the context of disclosure—that is, for example, individual source over the reporting
the members’ right to information. In because disclosure of a payment to an period totaling $5,000 or more. Each
order to protect both the union’s and its attorney would somehow provide a such receipt must be listed by payee
members’ competing interests, tactical advantage to a party with whom with the following information: the
recognizing that the failure to report the reporting union is engaged in name and address of the entity
specific information for a major receipt contract negotiations—a union may providing the receipt; the type of
or disbursement constitutes ‘‘just cause’’ utilize those procedures. The business or job classification of the
for examining withheld information in Department does not agree that it is entity; the purpose of the receipt; the
these circumstances, together with the necessary to permit unions to avoid the date of the receipt; and the amount of
aggregate reporting of disbursements for itemized reporting obligation simply the receipt.
benefits, strikes an appropriate balance. because disclosure might reveal the A variety of comments addressed the
Unions will have ample opportunity union’s political activities. Indeed, as proposed $5,000 threshold for ‘‘major’’
to argue that the Department’s demonstrated by the comments receipts. Some comments considered
interpretation of the ‘‘just cause’’ discussed in Section C (4), such the threshold too high because $5,000
provision of the statute (29 U.S.C. disbursements are likely to be of allows a margin within which union
431(c)) is in error before it discloses particular interest to union members officials may still commit financial
information that it has reported only in and no convincing argument has been improprieties, and prevents union
the non-itemized total. Unless a union advanced regarding any legitimate need members from reviewing the smaller
voluntarily discloses information when to keep such information confidential. amounts for potential improprieties, i.e.,
it is requested by a member, the member Other comments objected to reporting complete transparency for union
will still be forced to seek enforcement a recipient’s address because the finances. The comments recommended
of the right to this information in federal information was unnecessary or thresholds ranging from zero to $2,000
district court and the union will be able impinged on the recipient’s privacy as a means of obtaining greater (or
to argue to the court that the through its publication. The Department complete) information about a union’s
Department’s interpretation of the disagrees. The schedules only require receipts. Other comments considered
statutory requirement is incorrect. Even the disclosure of business addresses, if the threshold too low. The majority of
if the court agrees that use of this available, but at least the recipient’s city these comments recommended $25,000
reporting procedure is sufficient to and state. This information is necessary as an appropriate figure; others
support a finding of just cause, the for verifying the recipient’s existence suggested basing the threshold on a
union may argue that it has a legitimate and identity. The privacy concern is percentage of the union’s receipts (the
concern that a union member may questionable given the public higher of either 4% or $15,000, or a
further disclose the underlying records, availability of most addresses for level related to the GAAP concept of
or information about the underlying individuals and business entities on the materiality). A related recommendation
records, in a manner detrimental to the Internet and in telephone books. applied a graduated threshold that
increases with the increase in a union’s union may determine whether a receipt Reduction Act Analysis, in Section V,
income. In general, the proponents of must be reported as a major receipt, as the cost of maintaining sufficient
higher thresholds contended that the well as one that members may use with information to permit the aggregation of
$5,000 figure results in burdensome ease and certainty in reviewing the major receipts not reported elsewhere
reporting requirements and excessive Form LM–2. Some commenters from, and disbursements to, a single
detail. recommended that the Department entity over the course of the year,
The Department believes that $5,000 index the threshold annually for combined with all of the other changes
is an appropriate threshold for reporting inflation. The Department disagrees for as a result of this rule, were estimated
‘‘other’’ receipts. The comments the same reason it rejects the use of a in order to arrive at a realistic
underscore the competing interests in percentage-based threshold: adopting a assessment of the overall cost of these
setting a reasonable figure. Setting the figure that is subject to annual reforms. Balancing this cost for
threshold lower (or eliminating it fluctuation creates an unpredictable reporting unions against the benefits for
entirely) increases the number of standard. The Department believes all union members, and for unions
receipts that must be reported, which parties will benefit from a defined themselves, resulting from increased
correspondingly increases the standard that applies to all unions. The transparency—including the
information available for inspection. A Department also rejects the use of a enhancement of the ability of members
lower threshold, however, also would graduated threshold linked to union to fully participate in the democratic
increase the burden, particularly for income. This approach suffers from the governance of their unions and the
aggregated receipts from individual same defects as percentage-based deterrent value of disclosure in
sources. Raising the threshold would thresholds and thresholds indexed to preventing mismanagement and
reduce the reporting burden, but it also inflation, discussed above. Furthermore, misappropriation of union funds—the
would reduce the financial information a single standard unrelated to union Department has concluded that
captured for review and thereby income promotes the purposes of the itemization, to which only a portion of
undermine the goal of transparency. LMRDA. Although the economic this cost is attributable, is not only a
While a strong argument could be made significance to the union of $5,000 may worthwhile, but an essential, element of
that all disbursements are significant vary with the size of a union’s income, this reform.
and should be itemized, the Department the interest of the membership in having
concludes that some threshold must be 4. Itemization of Major Disbursements
access to a broad array of information
used that accommodates both the concerning the sources and uses of The Department also proposed to
purpose behind the disclosure of such union finances, and in the detection and require labor organizations to report
information and the concerns about the deterrence of fraud, remains constant. ‘‘major’’ disbursements in specified
burden of tracking and reporting the The proposed Schedule 14 requires a categories. A ‘‘major’’ disbursement is
information. The $5,000 threshold union to report aggregated receipts from either an individual disbursement
strikes a balance between the opposing each individual source if the total meeting the threshold-reporting amount
viewpoints. Full-time workers who were amount received from the individual or a series of payments to an individual
union members had median usual source is $5,000 or more. Some that, in the aggregate, reach the
weekly earnings of $740 in 2002. See comments opposed aggregation because threshold, in a single category. The
Union Members in 2002, Bureau of tracking each receipt throughout the Department requested comments on the
Labor Statistics News Release (USDL– fiscal year to determine whether all appropriate threshold for a ‘‘major’’
03–88) (http://www.bls.gov/ receipts from a specific source disbursement, proposing a $2,000–
news.release/union2.nr0.htm). Thus, it ultimately reach the threshold is $5,000 range. The Department also
is reasonable to assume that to union burdensome. The Department believes requested comments on whether
members, $5,000 represents a significant that aggregation of receipts is individual disbursements among
amount of money. A receipt (or appropriate. In terms of its interest to a different categories should be aggregated
aggregated receipts from an individual union member, there is no difference to reach the threshold.
source) in this amount may reasonably between a single $5,000 (or more) The Department received numerous
attract interest in the payment’s source. receipt from one source and several comments concerning the appropriate
The Department will continue to be receipts from one source totaling $5,000 threshold for itemizing disbursements
mindful of the need for any future or more. Consequently, reporting on the various Schedules. Several
adjustment in the threshold for aggregated receipts is equally important comments recommended setting the
itemization in order to ensure that the in terms of achieving transparency for a threshold in the $200–$500 range to
information reported is meaningful. union’s financial picture. increase the amount of information
The Department rejects the suggested Despite the concerns expressed by about disbursements that the unions
use of percentage-based thresholds numerous commenters, tracking must disclose; one comment suggested
rather than defined dollar amounts. A multiple receipts from a specific source setting the threshold at zero for the same
percentage-based threshold will vary throughout the fiscal year will not reason. Conversely, many comments
annually depending on the figure (e.g., impose unreasonable additional burden criticized the proposed threshold as too
annual receipts) from which it is on a reporting union. The revised form low. Several comments expressed
derived. This figure cannot be alters the categories but not the general opposition but did not provide
determined until the close of the fiscal underlying method of allocating these a specific alternative. Commenters that
year. In any given year, moreover, the disbursements, and, indeed, reduces the did propose an alternative threshold
base figure itself may be controversial if number of disbursement categories. typically recommended using a $25,000
the Department and the union disagree After allocating the disbursement to the figure. A few comments suggested
as to the monies that should be included proper category, the union officer need indexing the threshold to some other
in that figure. A percentage-based only make a brief entry on the figure (e.g., total assets, disbursements
threshold is therefore unstable and more ‘‘purpose’’ for each transaction in a or annual revenues) to establish a
difficult to enforce. A defined dollar memo field. These sorts of operations floating threshold linking it to the
threshold provides an unequivocal and are routine within accounting systems. union’s size or financial activity. As
predictable standard by which each As demonstrated in the Paperwork with itemization of ‘‘other’’ receipts, the
proponents of higher thresholds threshold will vary annually depending assistance, thus increasing the burden
contended that a lower baseline would on the base figure from which the on the labor organization. See id.
result in burdensome and excessive threshold is derived. This figure cannot A few comments opposed reporting
detail. be determined until the close of the aggregated disbursements to a single
The Department has decided to adopt fiscal year. In any given year, moreover, entity or individual if the total amount
$5,000, the highest proposed amount, as the base figure itself may be meets the threshold because the union
the threshold for itemizing controversial if the Department and the would have to track each disbursement
disbursements. As with the ‘‘other’’ union disagree as to the monies that through the fiscal year to determine
receipts threshold, the fundamental should be included in the base figure, whether the aggregated amount meets
issue involves a balancing of competing complicating a union’s ability to comply the threshold at the end of the year.
interests. Advocates of a low (or no) with, and the Department’s ability to Other comments treated aggregation as
threshold emphasized the need for enforce, the reporting requirements. part of itemization and opposed both
transparency of union finances; by Any disagreement over the base figure requirements because they perceived
lowering or eliminating the threshold, will necessarily affect the indexed the entire reporting process as imposing
the union must divulge a greater amount threshold and disrupt the reporting of burdensome and costly compliance
of financial information. Ultimately, disbursements. Thus, a figure that is requirements; providing too much
greater transparency enhances the subject to annual fluctuation creates an information to be useful; imposing a
deterrence of union financial unpredictable standard. A defined unique and more rigorous standard on
misconduct and provides union dollar threshold provides an labor unions than applies to any other
members with more knowledge about unequivocal and predictable standard organization; and requiring significant
the union’s activities, regardless of any by which each union may determine and costly changes to the union’s
potential financial mismanagement. whether a disbursement must be current accounting system.
Greater transparency, however, also reported. Although the economic With respect to tracking minor (less
involves a greater burden on the unions significance to the union of $5,000 may than $5,000) disbursements through the
in terms of reporting. Proponents of a vary with the size of a union’s income, fiscal year, the Department does not
higher threshold focused on this aspect, the interest of the membership in having believe the comments identify a
and urged the Department to set a high access to a broad array of information substantial basis for abandoning the
standard, e.g., $25,000. After concerning the sources and uses of aggregation principle. Once the union
consideration of both viewpoints, the union finances, and in the detection and installs or modifies its accounting
Department believes that a $5,000 deterrence of fraud, remains constant. software to appropriately chart each
threshold strikes the proper balance disbursement, tracking every
between the benefits and costs of The proponents of an indexed disbursement regardless of amount will
itemization. First, it is plain that threshold or a materiality standard not be burdensome. Indeed, unions
virtually any disbursement is significant premised their arguments on the belief already must track every disbursement,
in that it provides information on how that a bright line threshold will require and must know the type and amount of
the union is being run, and provides a reporting of immaterial disbursements. each disbursement, in order to report
potential avenue for fraud. Second, the As explained above, the Department’s them in the appropriate aggregate
Department has concluded that the adoption of a $5,000 threshold is based amounts for each category on the
threshold should be set at an amount in large part upon the view that receipts existing Form LM–2. Furthermore, the
that will, in effect, establish a uniform and disbursements of that amount are advantages of aggregation offset any
standard for determining that a significant to union members. Further, additional burden from tracking all
particular transaction, or set of the Department does not believe that the disbursements. Aggregation denies the
transactions, is reportable. Third, the GAAP’s test for materiality is persuasive incentive to break up a ‘‘major’’
threshold must accommodate the in this context. As a commenter noted, disbursement to a single entity or
concerns about the burden of tracking unlike commercial entities, which are individual in order to avoid the
and reporting the information. The accountable based on their profit or loss, threshold for itemizing the payment to
Department will continue to be mindful labor unions are accountable in terms of circumvent the reporting requirements
of the need for any future adjustment in the stewardship responsibilities of their of the statute. Aggregation therefore
the threshold for itemization in order to officers. Consequently, the use of a sum provides a more accurate picture of a
ensure that the information reported is that would have little effect on an union’s disbursements because it
meaningful. Several comments entity’s viability may be safely ignored focuses on the total amount of money
recommended using indexed thresholds by an investor who cares only for return the union pays a particular entity or
rather than defined dollar amounts. The on investment, but may be of individual, rather than only the ‘‘major’’
comments contended that indexed considerable interest to a union member disbursements. Given the benefits of
thresholds provide a more accurate when spent by his or her union, as the aggregation and the fact that unions are
basis for determining whether a union member’s interest extends well already required to track each
disbursement is significant in light of beyond a concern with the union’s disbursement, the Department rejects
the union’s overall level of outlay. Two bottom line, to the furtherance of its the position that aggregation will be
comments merely suggested adopting an overall mission. A materiality standard overly burdensome by requiring the
indexed threshold as a general would not give sufficient weight to union to track all disbursements,
proposition. Other comments identified these non-economic concerns, for a including those that ultimately will not
specific alternative formulae: 5% of union member is interested not solely in be reported as itemized payments.
total union assets; 5% of total the funds themselves, but the activities The Department invited comments on
disbursements; or a percentage based on of the union. See Statement of Financial whether to require itemization of
the GAAP concept of materiality. Accounting Concepts No. 2 (SFAC No. disbursements to an individual or entity
The Department rejects the indexed 2), ¶¶123–132. Further, adoption of the that, in the aggregate, total less than the
threshold approach because it does not vague materiality standard as the threshold amount in a particular
provide a desirable level of certainty for threshold for itemization would require Schedule once the threshold has been
the reporting community. An indexed unions to obtain substantial professional reached either in another Schedule or in
a combination of Schedules. The which requires that each vendor paid For instance, in the case of credit card
comments reflected little or no support with a credit card be treated as a transactions for which the union’s
for aggregation among the Schedules. separate disbursement, is an example of receipts and monthly statements do not
Although virtually all disbursements are a new burden that the Department’s provide the full legal name of a payee
significant, cross-Schedule aggregation analysis simply ignored. The union also and the union does not have possession
would perceptibly increase the burden noted that this recordkeeping of any other documents that would
on unions, as it would require an requirement was far from a standard contain the information, the union
additional modification to the union’s business practice. Although another should report the name as it appears on
accounting programs or procedures, and union noted that the proposed changes its receipts and statements. Similarly, if
would require internal accounting in reporting expenses paid by credit the union’s credit card receipts and
reports to be generated for all payees card would vastly increase the number statements do not include a full street
under all Schedules, rather than of individual transactions that must be address, the union should report as
permitting more focused inquiries on a entered, processed and reported, this much information as is available, but no
Schedule-by-Schedule basis. As noted union stated that it currently follows less than the city and state. A labor
elsewhere, the Department believes that standard business practices and divides organization may choose to report either
the $5,000 threshold strikes a balance the charges that are paid with a credit the date of the charge or the date of the
between the benefits of transparent card into separate accounting entries for payment for a credit card transaction as
financial disclosure and the burdens each underlying type of expense and long as the method of reporting is
caused by detailed reporting. The most responsible department. The union also consistent throughout the form.
effective means of preserving this noted that any credit card charge that is The Department has considered the
compromise in the context of categorical required to be reported as a comments that assert that an
reporting is to apply the threshold to disbursement to an individual officer or unreasonable burden will be incurred
each individual Schedule. Further, each employee (per the instructions for by the filers in recording each
Schedule reflects the distinctiveness of current Schedules 9 and 10) is coded so transaction in their recordkeeping
the disbursements in that particular that information is available for the systems, but is not persuaded by them.
category. If disbursements to an entity current Form LM–2 report. As noted by The burden is similar to the burden
or individual in a particular category are the preceding comment, unions are now already imposed by the current Form
minor as measured by the threshold for required to break out credit card LM–2 reporting requirements. The
reporting, then the union should not disbursements by category on the current Form LM–2 requires unions to
have to itemize those disbursements current form, rather than simply treating track all credit card transactions to
(and all other categories of the payment as a transaction solely determine whether each transaction
disbursements) simply because involving the creditor bank. To the must be reported on one of the
dissimilar disbursements in another extent any union may have disbursement schedules or elsewhere in
category are comparatively more misapprehended this requirement, the the report. The current form does not
substantial and do meet the threshold. revised Form LM–2 makes this point treat a payment to a credit card
Disbursements to an entity or individual explicitly. company as a single disbursement. For
must therefore reach the threshold for Another union commented that many instance, a single payment to a credit
each Schedule before a union must credit card transactions involve plane card company may include amounts
tickets or hotel bills and frequently have that must be reported in ‘‘Disbursements
itemize the disbursements attributable
charges issued when a trip is booked for Official Business’’ in column (F) of
to that specific category. Meeting the
and a credit issued if the trip is Schedule 9, ‘‘Other Disbursements’’ in
threshold for any one Schedule will
cancelled or changed and that the column (G) of Schedule 9, and ‘‘Office
have no effect on the obligation to
charges and credits may appear in and Administrative Expenses’’ on
itemize disbursements for any other
different monthly statements— Schedule 13. This has always been a
Schedule. This approach not only
sometimes in amounts that are not requirement. Many credit card
reduces the overall reporting burden,
exactly the same. The union stated that companies have made it easier to track
but also preserves the distinction among
it is not clear from the proposed information regarding vendors for
the various categories of disbursements
instructions if the Department intends
established by the Schedules. specific charges by allowing their
that such charges and refunds be
The Form LM–2 requires the union to customers to download the contents of
matched or reported separately. Such
provide the following information for monthly statements or individual
amounts must be tracked in the current
each itemized disbursement in transactions electronically via the
and revised Form LM–2, as they
Schedules 15–19: The recipient’s name Internet. Once these transactions have
constitute receipts and disbursements.
and address; the recipient’s business or been incorporated into the union’s
The method by which these amounts
job classification; the purpose or reason record keeping system they can be
should be tracked is set forth in the
for making the disbursement; the date treated like any other transaction for
instructions. Otherwise, as the union
on which the union made the purposes of assigning a description and
itself noted, if the transactions are
disbursement; and the disbursement’s reported without any attempt to match purpose.
amount. The Department received them, anyone trying to read and C. Disbursement Schedules 14–19
numerous comments objecting to understand the report will find it
reporting this information. A few 1. Reporting by Functional Category
virtually impossible to calculate the
comments expressed specific concerns amount of true expenses. The Department received a large
about the difficulty in tracking and The Department recognizes that filers number of comments on its proposal to
recording all of the required information will not always have the same access to require unions to report their
for credit cards, e.g., the date of information regarding credit card disbursements by defined categories
payment (rather than charge), and the payments as with other transactions. based, in part, on a grouping of
full name and address of the recipient. Filers should report all of the functional activities performed by a
In this context, one union stated that the information required in the itemization union, its officers, and employees. The
proposed treatment of credit cards, schedules that is available to the union. Department proposed to include eight
reporting categories on the Form LM–2: union’s financial transactions, which unions, would fail to achieve its goal of
(1) Contract negotiation and they characterized as a burdensome and better informing members about union
administration, (2) organizing, (3) time-consuming undertaking. Union finances and operations. As put by one
political activities, (4) lobbying, (5) commenters asserted that they lack the commenter, the proposal creates
contributions/gifts/grants, (6) general present capability to maintain their artificial and misleading categories of
overhead, (7) benefits, and (8) other records in a way that would allow them disbursements that will overwhelm a
disbursements. Almost all the national to meet the proposal’s requirements. member with a deluge of detail, not
and international unions that submitted The Department finds these contentions enlighten him. These comments rest on
comments addressed this issue, as did unpersuasive. Unions have always been the erroneous premise that an
most of the trade associations and required to allocate each disbursement individual seeking information must
public interest organizations. A number to a category on the Form LM–2. The sort through a paper submission to
of local union officials and members revised form alters and reduces the review the Form LM–2. Electronic
submitted comments, as did many number of categories, but not the reporting permits a union member to
‘‘agency fee payers’’ (and other allocation process. Accounting software focus his or her review using a search
individuals who did not indicate will need to be adjusted to reflect the engine to guide the inquiry; on-screen
whether they worked in units revised categories, but these sorts of (or paper) review of each entry is
represented by unions). operations are routine within unnecessary. Further, the current Form
The Department received several accounting systems and do not present LM–2 informs the member only of the
comments from trade associations, an unreasonable burden. One union aggregate disbursements (or receipts);
public interest organizations, union commenter noted that long distance the member must go through the trouble
members and others in support of the charges and utility payments, under the of obtaining more detailed information
proposal. They asserted that the revised rule, must be allocated across from the union concerning the
proposed changes in reporting multiple functional schedules and that individual transactions in order to find
requirements are necessary to allow such a process would pose a significant any meaningful information regarding
members and potential members to burden. This commenter has failed to specific receipts and disbursements.
better understand the operation of note, however, that these telephone and Itemized reporting provides the detailed
particular unions and to make informed utility payments would have to be information in a searchable format as an
choices about whether to join, or retain coded to a category under the existing initial matter. Finally, Statement B of
their membership in, these unions. They form, and further classified by general the Form LM–2 provides aggregate
stated that the proposed Form LM–2 groupings or bookkeeping categories. figures for each disbursement Schedule.
would permit a member to determine Several labor organizations A member reviewing the revised Form
the union’s priorities and whether they acknowledged that they already LM–2, therefore, has access to both the
accord with the member’s own priorities categorize their activities, including aggregate and the individual
and those of the general membership. disbursements, by functional category. disbursements for each category. Resort
The same information would inform Some explained that they do so in order to the more detailed information
individuals who may be considering to comply with Beck, but others remains at the member’s discretion.
voting for or joining a particular union. explained that functional reporting is a
Several commenters also expressed the useful financial management tool. Still Instead of putting unions to the
view that functional reporting would others said that they categorize for the burden and expense of creating the
better enable members, the Department, functions reported on the current form. detail required by the Department’s
and the public to uncover any improper At the same time, however, some proposal, one union expressed the view
use of union funds and deter union commenters explained that even with that the Department should rely on a
officials or employees from embezzling sophisticated functional accounting union member’s ability to vote out
or otherwise making improper use of systems in place, it would be difficult officials who are pursuing an unpopular
such funds. for unions to program their systems to agenda, not by imposing additional
Although some commenters stated meet the Department’s proposed paperwork requirements. Another
that the proposed changes would requirements. As demonstrated in the commenter suggested that the
impose some burdens on unions, these Section V, in the Paperwork Reduction Department could achieve its goal by
costs, in their opinion, are outweighed Act analysis, the Department has permitting unions to allocate their
by the gain in transparency. Today’s considered these burdens and expenditures, based on the estimates of
electronic recordkeeping systems, in determined that the burden is its officers and staff, and thus
one commenter’s opinion, make it reasonable. dispensing with the need to
possible for labor unions to provide a The AFL–CIO stated that the exhaustively ‘‘account for every sheet of
wealth of financial information with Department’s proposal would force each paper, every pen and pencil, etc.’’ The
minimal burden. The commenter also union to conform its operations to the Department has considered these
stated that the burden would decrease manner in which the Department proposals and has determined that they
once unions learn of the need to code assumes all unions operate or should would not effectively provide an
transactions in ways that fit the operate. In this connection, some of the adequate amount of reliable information
reporting categories. unions state that the Department’s to union members concerning the
A number of labor organizations proposal misapprehends the way in union’s financial operations and
stated that the proposed system, if which unions conduct their affairs. conditions. The revised reporting
adopted, would entail very substantial Many unions argued that the requirements will enhance union
burdens and costs to the union without Department’s proposal represents the democracy, by providing members with
significant gain, if any, in informing first time that unions have been information needed to cast an informed
union members about the operation of required to collect and report vote. In addition, the suggestion that
their union. A few commenters information by functional categories. unions should be allowed to allocate
indicated that there would be severe Several commenters expressed disbursements by estimate would
practical problems posed by the need to concern that the proposal, in spite of the necessarily produce reports of
‘‘code,’’ by function, virtually all the burden and expense it would impose on questionable accuracy.
One union stated that the Department more effectively further the the Department does not hold the same
could achieve its goal without such transparency goals of the LMRDA. See views on this issue as it did in 1993, the
drastic changes in the requirements by 29 U.S.C. 431(c). statute provides—now, as in 1993—the
using the methodology in the current The Department does not agree with Department latitude in determining the
Form LM–2. In its view, the Department the assertion that the better course is to form and amount of detail that should
could have taken the ‘‘natural simply disaggregate the categories in the be reported by unions. Most
categories’’ on the present Form LM–2 existing Form LM–2 to effect more significantly, there have been advances
and divided them into natural detailed reporting. In response to in technology (including its availability
‘‘subcategories,’’ or it could have specific comments, the Department has and application) in the last 10 years, as
developed schedules similar to those combined two proposed categories computers and financial management
presently required for ‘‘Office and (‘‘Contract Negotiation and programs have become much more
Administrative Expenses’’ or ‘‘Benefits.’’ Administration’’ and ‘‘Organizing’’) into widely used. Internet access is more
While such revisions would still involve a single schedule entitled commonly available and the benefit of
reporting disbursements in the ‘‘Representational Activities,’’ added a making information available over the
aggregate, members would have the category entitled ‘‘Union Internet has been generally, and
right under Section 201(c) of the Administration,’’ combined the congressionally, recognized. These
LMRDA, 29 U.S.C. 431(c), to obtain proposed categories for ‘‘Political changes make it possible to provide
more detailed data directly from their Activities’’ and ‘‘Lobbying’’ into a single substantially more information to union
union. The Department rejects the schedule, and eliminated the category members and the public with less
suggestion that unions should be entitled ‘‘Other Disbursements.’’ The burden on unions than the changes
allowed to design their own functional categories that remain are tailored to considered in 1992 and 1993 would
reporting categories or add categories to reflect the activities performed by have imposed at that time.
those prescribed by the Department. As unions, and will allow union members
Union commenters challenged
explained by the FASB in the to readily gauge whether the union is
assumptions that underlie the
Qualitative Characteristics of committing its resources in the sums
Department’s functional category
Accounting Information, at ¶ 16, not and proportions they consider
proposal on two related grounds. First,
even the FASB expects ‘‘all its policy appropriate. Requiring itemization of
they contended that unions are not
decisions to accord exactly with the major disbursements within the current
required to collect and report their
preferences of every one of its categories would not serve this purpose.
Union commenters faulted the expenses in the categories prescribed by
constituents.’’ the proposed rule by either ‘‘standard
proposal for failing to address the
Indeed, they clearly cannot do so, for the business practices’’ as reflected in
preferences of its constituents do not accord Department’s prior position, articulated
in 1993, that functional reporting GAAP or by ‘‘existing [federal] forms’’
with each other. Left to themselves, business such as the IRS Form 990. Second, the
enterprises, even in the same industry, would imposed a very substantial burden on
probably choose to adopt different reporting unions without significantly advancing unions asserted that the categories
methods for similar circumstances. But in a member’s understanding of his or her proposed by the Department do not
return for the sacrifice of some of that union’s operations and finances. There ‘‘describe the most common important
freedom, there is a gain from the greater is no merit to the assertion that the purposes for which unions spend
comparability and consistency that Department’s proposal failed to address money.’’ GAAP and the IRS Form 990,
adherence to externally imposed standards they assert, leave it to the reporting
brings with it. There also is a gain in the Department’s earlier position. The
NPRM described the Department’s organization to identify what the
credibility. The public is naturally skeptical
about the reliability of financial reporting if rulemaking efforts in 1992 and 1993; its organization believes to be its most
two enterprises account differently for the discussion addressed the same basic important functions. The union
same economic phenomena. points that were the focus of the 1992 commenters contended, in effect, that
and 1993 rulemaking and outlined the the Department seeks to impose one
Statement of Financial Accounting
reasons why the Department’s current artificial, static functional reporting
Concepts No. 2 (SFAC No. 2), ¶ 16. On
proposals are appropriate. The NPRM system on all unions without any regard
this point, the FASB also explained:
also identified aspects of the proposal as to how they presently account for
Information about an enterprise gains their expenditures. In support of these
that differ from the 1992 final rules,
greatly in usefulness if it can be compared arguments, the comments provided few,
with similar information about other thereby providing the public with a full
enterprises and with similar information exposition of the Department’s position if any, examples of the most common
about the same enterprise for some other and its views on the various points purposes for which unions spend
period or some other point in time. The addressed in 1992 and 1993. money, or appropriate reporting
significance of information, especially The commenters correctly noted that categories. The AFL–CIO argued that the
quantitative information, depends to a great the Department’s current proposals relevant accounting standards provide
extent on the user’s ability to relate it to some resemble the views expressed in support for two basic types of expense
benchmark. of the Department’s 1992 final rule more classification. The first type is ‘‘natural
Id., ¶ 111. Further, a union member’s closely than the later concerns that led expense classification,’’ which ‘‘group[s]
statutory right, under Section 201(c) of to the Department’s reconsideration of expenses according to the kinds of
the LMRDA, to examine records functional reporting and the rescission economic benefits received in incurring
underlying the report is a complement of the final rule. Although the 1993 th[e] expenses,’’ for example, ‘‘salaries
to, but does not supplant, a union’s rulemaking identified some perceived and wages, employee benefits, supplies,
statutory duty to report. In light of the problems with the 1992 final rule, rent, and utilities’’ (citing, AICPA Not-
comments from union members which the Department addresses in the For Profits Guide 514). The AFL–CIO
concerning the difficulties members instant rulemaking, the tension between asserted that the other basic type is
have faced in obtaining review of these the positions was based largely on ‘‘functional classification,’’ which
records, the Department has determined policy assessments as to the relative ‘‘group[s] expenses according to the
that altering the categories, rather than utility and burden associated with the purpose for which the costs are
merely relying on Section 201(c), would change in reporting requirements. While incurred.’’ Id. at 513. ‘‘The primary
functional classifications are program that they use functional reporting as a proposed by the Department, the
services and supporting activities.’’ Id. management tool and none of the larger Department cannot reasonably impose
The AFL–CIO then proceeded to argue unions has claimed an inability to such a requirement is unpersuasive.
that the categories proposed by the categorize receipts and disbursements. These comments appear to overlook the
Department have no inherent rationality Labor unions are not-for-profit Department’s responsibility to require
since some, like organizing and contract organizations and, as such, should reports that best fit the disclosure
administration, relate to functions or utilize functional reporting in preparing purposes of the LMRDA, not a revenue
programs, and others, like benefits, have financial statements. FAS 117, ¶ 26. As statute or a methodology developed
no functional or programmatic stated by the FASB, ‘‘[S]pecialized under a statute administered by the
relevance. accounting and reporting principles and National Labor Relations Board (NLRB).
As discussed, in Section II(D), the practices that require certain Each agency has the responsibility to
GAAP standards do not govern the organizations to provide information require information relevant to the role
content of LM Forms, and are not about their expenses by both functional established by its enabling statute.
entirely consistent with the and natural classifications are not The union commenters have provided
congressionally imposed disclosure inconsistent with the requirements of no support for the proposition that the
requirements of the LMRDA, 29 U.S.C. this Statement.’’ It also noted that not- interests served by the LMRDA are
431(b). Further, the Department for-profit organizations often provide obviated by other reporting obligations,
disagrees with the assertion that the use that information in regulatory filings to internal or external. Similar reporting
of functional categories is either the IRS and certain state agencies, requirements apply in the regulation of
unauthorized or inappropriate in any which are available to the public. FAS securities, public utilities, and health
respect. In the Department’s view, the 117, ¶ 3. The IRS requires not-for-profit care. In those settings, it would be
increased use of functional reporting organizations, including unions, to inaccurate to suggest that a corporation
categories in the Form LM–2 will report their expenditures by certain could meet its responsibility under a
promote transparency and categories and the IRS uses several particular securities, tax, employment or
accountability in the reporting of a functional categories that parallel, in other statute simply by submitting a
union’s financial condition and many respects, the categories in the copy of a report filed with a particular
operations. The revised Form LM–2, proposed Form LM–2. For example, agency without regard to whether it
utilizing both functional and ‘‘natural’’ both the Form 990 and the new Form conformed to the purposes of the actual
categories, will provide detailed LM–2 require political and lobbying statute involved. The argument is also
information about financial transactions disbursements to be reported. unpersuasive in the context of the
of labor organizations in an easily There is no merit to the contention LMRDA.
understood format. The new reports will that the proposed rule would
2. Beck Requirements
be usefully organized according to the unlawfully intrude upon the ability of
services and functions provided to unions to follow their own accounting A number of commenters expressed
union members. By using the new Form procedures for their own internal views regarding the effect of the
LM–2, members will be able to identify purposes. The report calls for the Department’s proposals on the
major receipts and disbursements for a submission of data in certain categories, obligation, imposed on some labor
variety of activities. The new Form LM– but does not preclude the use of other, organizations by the National Labor
2 strengthens enforcement of the internal manipulations of the data. Relations Act (NLRA), to allocate
LMRDA by giving members and the Unions may track expenses in any way expenditures in a way that distinguishes
public a more complete account of the they believe appropriate and, for their between activities that are germane to
financial operations of a union than own purposes or the purposes of third the union’s representational function
provided by the current Form LM–2. parties (for example, as required by a and those that are not. See
Moreover, achieving this improvement financial institution for a loan or a state Communication Workers of America v.
has been made easier and less costly by agency), they may report financial Beck, 487 U.S. 735 (1988). Labor
technological advances that enable matters in the manner appropriate to organizations that receive dues from
electronic recordkeeping and filing. that purpose. Further, contrary to some non-member ‘‘agency fee payers’’ in
Functional accounting is not a new commenters’ contentions, the states permitting union security
concept to labor organizations. The Department’s proposals effectuate the agreements requiring such payments as
current Form LM–2, through its use of broad purposes of the LMRDA, while, at a condition of employment must make
categories, requires labor organizations the same time, serving the law’s purpose such an allocation to ensure that agency
to report certain disbursements by to ensure that members be fully fee payers who object to paying the
function. Although the types of apprised of their union’s financial equivalent of full dues are not charged
functional categories are being updated condition and operations. As noted more than their fair per capita share of
to make them more useful to union above, these commenters have given the union’s costs involved in providing
members, it is unlikely that this would insufficient weight to the Department’s representational services to them. These
require Form LM–2 filers to make responsibility to determine the detail reporting and allocation requirements
wholesale changes in their accounting necessary to accurately disclose the are often referred to as Beck
systems. The Department has, however, unions’ financial conditions and requirements, a shorthand reference to a
included time in its burden hour operations and to establish categories leading Supreme Court case addressing
estimates to account for acquiring any that will identify the purpose of the obligation of unions to individuals
new or updated accounting software disbursements, 29 U.S.C. 431(b), and to who pay agency fees to unions in lieu
and modifying existing accounting, ‘‘[prescribe] the form of publications of membership dues.
recordkeeping, and reporting systems. and reports’’ required by Title II of the Comments generally supportive of the
Moreover, functional accounting is LMRDA, 29 U.S.C. 438. Department’s various reporting
required of not-for-profit organizations The argument that, because neither proposals were received from trade
under the standards established by the the IRS nor the Beck line of authority associations, public interest groups,
FASB. Many of the labor organizations require labor organizations to collect or union members, agency fee payers, and
that submitted comments acknowledged report information in the categories individuals apparently unrepresented
by unions. Several commented that the handling jurisdictional disputes with between the Form LM–2 and Beck
proposed rule would make it easier for other unions, and litigation before reports will lead to confusion among
agency fee payers to enforce the unions’ administrative agencies and the courts members or that such overlap will lead
obligation to allocate between their involving members of the unit. Also in to an increase in litigation by agency fee
representational and non- general terms, the non-chargeable payers.
representational functions upon the activities have been held to include 3. Schedule 15 (Representational
request of agency fee payers represented activities such as advocating political Activities)
by a particular union as required by support or opposition in elections of
Beck. In the current system, a union government officials, lobbying, The NPRM proposed a Schedule 15
member states, union officials have a including promoting or opposing (Contract Negotiation and
powerful incentive to classify non- legislation, advertising relating to non- Administration) and a separate
representational activities as chargeable matters, administration of Schedule 16 (Organizing). The proposed
representational, and the existing union benefits unavailable to non- Schedule for contract negotiation and
reporting forms permit this to be done members, union building fund administration called for reporting of
without detection. This problem, in the activities, the publication of newspapers disbursements for preparation for, and
member’s view, will be remedied by the or similar activities (to the extent they participation in, the negotiation of
Department’s proposals, because they report on non-representational matters), collective bargaining agreements and
will enable an agency fee payer to and litigation services that do not the administration and enforcement of
identify the percentage of receipts used directly concern the unit. See generally collective bargaining agreements,
for non-representational activities. This The Developing Labor Law (4th ed. including the administration and
member also asserted that the enhanced 2001) 1970–75, 2046–54; The arbitration of union member grievances.
reporting would permit access to Developing Labor Law (2002 The proposed Schedule for organizing
information without having to use a Supplement) 330–32; NLRB General required reporting of disbursements for
potentially adversarial process. Another Counsel Memorandum (Aug. 17, 1998), activities in connection with becoming
commenter stated that while it generally available at 1998 WL 1806351; NLRB the exclusive bargaining representative
approved of the Department’s proposals, General Counsel Memorandum (Nov. for any unit of employees, or to keep
the Department should require unions 15, 1988), available at 1988 WL 236187. from losing a unit in a decertification
to keep contemporaneous records in election or to another labor
It is not and has not been the intent organization, or to recruit new members.
order to meet Beck standards.
Other comments challenged the of the Department to collect information Based on comments received from labor
Department’s proposals on the following specific to the Beck requirements. The organizations and others, the
grounds: first, that they represent an NLRB, not the Department of Labor, is Department has decided to eliminate the
attempt to impose Beck requirements responsible for enforcing compliance separate category for reporting
generally on unions, even though the with Beck. At the same time, the partial organizing disbursements and to require
NLRB, not the Labor Department, is overlap of categories under the that disbursements for organizing be
responsible for Beck enforcement and proposed rule and those established by reported in combination with contract
the Beck requirements only apply to Beck is unremarkable. The Form LM–2 negotiation and administration
unions with agency fee payers; second, functional categories for reporting a disbursements in a single Schedule
they will cause an unnecessary burden union’s disbursements and estimating entitled ‘‘Representational Activities.’’
on unions that already prepare Beck the time expended by union officers and Several commenters expressed the
reports; and third, the Department’s employees in performing various union view that organizing activities should be
proposal to establish categories that do activities were designed to capture the reported in the same category as
not replicate Beck requirements will various kinds of disbursements and contract negotiation and administration,
create confusion and promote activities associated with conducting both to avoid unduly burdening labor
unnecessary and harassing litigation. union business. Beck seeks to identify organizations that must meet Beck
Beck requires affected unions, upon union activities that are not germane to requirements and to avoid disclosing
objection by an agency fee payer (a the representation provided to agency sensitive information regarding a labor
request by a member of the union does fee payers and therefore not properly organization’s organizing strategy. Some
not trigger the obligation), to subtract assessed to agency fee payers if they union commenters asserted that it is
from the amount of the dues required of object to subsidizing the union’s non- inconsistent with NLRB practice and
members a sum that reflects the per representational activities. The precedent to separate organizing from
capita share of the union’s non- information reported in the new Form the category for collective bargaining/
representational activities. In general LM–2 may be helpful to an agency fee contract administration. The NLRB, they
terms, the ‘‘chargeable’’ representational payer to roughly evaluate his or her stated, recognizes that the two activities
activities have been held to include union’s Beck compliance, but it is not are sometimes tightly intertwined.
such activities as collective bargaining, designed as a substitute for the Beck- Several labor organizations, including
contract administration, grievance specific reporting requirements, which most notably the Building and
arbitration, business meetings and social are established by the NLRB, as guided Construction Trades Department of the
events open to members and non- by judicial precedent. The Department AFL–CIO (BCTD), commented that it
member employees, union publications takes no position on whether disclosure simply is not possible in the
(to the extent they reflect the union’s of the information required by the Form construction industry to separate
representational activities), LM–2 satisfies Beck requirements. disbursements made in connection with
administration of benefits available to Similarly, Beck reports, principally organizing efforts from disbursements
members and non-members alike, because they lack the individual and made for contract negotiations and
national conventions, and expenses of transaction-specific information administration. In this regard, they refer
litigation related to negotiating and required by the revised Form LM–2, do to section 8(f) of the NLRA (29 U.S.C.
administering the agreement, handling not provide a useful alternative to the 158(f)). This section provides, inter alia,
grievances within the bargaining unit, Form LM–2. The Department is not that it is not an unfair labor practice for
fulfilling its duty of fair representation, persuaded that the partial overlap a construction industry employer to
enter into pre-hire collective bargaining the union at a disadvantage when attempting to organize a workplace in a
agreements with a labor organization organizing or negotiating contracts with new geographic area), employers would
whose majority status has not companies.’’ These regulations, he be able to easily discern from a labor
previously been established and which argued, ‘‘would give the company inside organization’s Form LM–2 what
agreement requires membership in the information to whether or not the union workplaces the union campaign is
union as a condition of employment. In would have the ability to sustain a strike targeting and what steps the union is
these ‘‘top down’’ bargaining situations, or the ability to fight unfair tactics by taking in pursuit of that campaign.
the BCTD explains, the terms and the company during organizing drives.’’ Several organizations urged the
conditions of employment are Several labor organizations Department to protect from disclosure
negotiated and agreed upon before any commented that sensitive information of information that, they asserted, could be
employees express support for or this type has generally not been used to reveal the target and location of
actually become members of the union. available to members, except on a an organizing drive. For example, by
The BCTD and others expressed the showing of just cause. See 29 U.S.C. requiring that the schedule contain
view that it is not possible in these 431(c). Moreover, they asserted that discrete data showing substantial
situations to separate disbursements where just cause has been disbursements to a hotel where union
into contract negotiations differentiated demonstrated, access to the information organizers are staying (particularly in a
from organizing. is given to union members only, small town or remote location, or one
Further complicating the situation for whereas the Department’s proposal with only a single industry or employer)
building trades unions, these unions would provide Internet access to this the Department’s proposal would enable
assert, is the fact that often these same sensitive information to the world, an employer to learn of the organizing
unions also engage in traditional regardless of the strength of the union’s drive and initiate action to undermine
‘‘bottom up’’ organizing. For such interest in confidentiality or the the campaign. The unions stated that
purposes, these unions would have to potential damage that release of this they attempt to keep such information
separately allocate disbursements for information might cause to the union— from an employer whose workforce is
organizing and contract negotiations. and without any showing of ‘‘just being organized. The Steelworkers
Several commenters who supported the cause.’’ The AFL–CIO noted that unions explained that until they receive a
proposal to establish the organizing would have no opportunity to protect substantial majority of signed
schedule argued that union members their confidentiality interests by seeking authorization cards, they do not disclose
needed detailed information on their protective orders. It further argued that to an employer that they have an
union’s organizing activities to enable information that the courts have held is organizing drive underway.
them to accurately assess their union’s not subject to disclosure, even when the Another commenter, an employer
overall success or failure in its § 201(c) standard of just cause is met, association, suggested that in lieu of
organizing efforts. The commenters cannot, a fortiori, be subject to routine shielding the employer’s name or the
argued that if, as the Department has annual disclosure under § 201(b) of the bargaining unit identity, the reporting
concluded, separate allocations cannot LMRDA. unions should be given an opportunity
be made in the pre-hire situation arising Numerous labor organizations to submit both redacted and unredacted
pursuant to section 8(f) of the NLRA, complained that under the Department’s versions of the Schedule and an
but separate allocations could be made proposal unions would be required to accompanying ‘‘Confidential Treatment
for other traditional organizing efforts list the names of union ‘‘salts,’’ Request.’’ Under this procedure, a
by the same union, a member would at individuals who receive subsidies from reporting union could offer grounds to
best get an incomplete picture and at a union to assist in its organizational the Department in support of its request
worst an inaccurate and misleading activities while working for an employer for identity exemption, and specify the
impression of the union’s disbursements that is the subject of the organizing time period sought for such exemption.
and overall effectiveness in organizing. drive. Two specific concerns were The Department would then review the
Labor organizations generally raised by the commenters: (1) The listed request, and either grant or deny the
opposed the creation of a separate individuals can be targeted by an requested redactions before making the
category for organizing. Comments from employer and subjected to discharge or Form LM–2 publicly available.
officers of labor organizations at both other retaliatory action; and (2) by Based on these comments, the
the national/international and local identifying these individuals by name Department has decided to eliminate the
levels expressed strong opposition to on the new schedule, employers would separate category for reporting
the proposal to create a new Form LM– be able to learn of an organizing drive organizing disbursements and to require
2 schedule on which all major in its early stages and take action to that disbursements for these activities
disbursements relating to a union’s undermine the union’s efforts. be reported in combination with
organizing efforts would be reported In the view of the AFL–CIO, Contract Negotiation and
and then made publicly available over publication of detailed information Administration disbursements in a
the DOL website. The common thread to about what types of investigators and single Schedule entitled
these comments was a significant consultants a union is using and for ‘‘Representational Activities.’’ The
concern that employers would become what purposes carried with it the Department agrees with the comments
privy to sensitive union information not potential to undermine the success of that organizing strategies deserve some
otherwise available, such as organizing the union organizing efforts. In its view, level of protection. In crafting the final
strategies or the extent of a union’s the Department’s concession that unions rule, the Department has balanced the
financial commitment to a given would not be required to reveal the legitimate need for members to be
campaign. As one union member who ‘‘name of the employer’’ or the ‘‘specific apprised of how union funds are
was active in organizing his workplace bargaining unit’’ that is the subject of expended for this important function
stated, the new requirements to list organizing activities is insufficient to with the need to minimize the risk of
major disbursements within eight protect the union’s interest in the disclosing sensitive information. By
categories ‘‘would do nothing to help confidentiality of these campaigns. The combining the categories, the
union members achieve better AFL–CIO noted that with regard to Department also meets the concerns
representation but would literally put smaller local unions (or larger unions expressed by the building trades unions
that they would be unable to allocate services as a ‘‘salt’’ in organizing an 4. Schedules 16 (Political Activities)
precise amounts to contract negotiations employer that exceed $5,000 but not and 17 (Lobbying)
and organizing efforts. $10,000, the labor organization may
By combining these Schedules, the choose to refrain from disclosing The Department proposed separate
Department believes that an employer specific information regarding such Schedules on the Form LM–2 for
would be far less likely to be able to payments on the Form LM–2, but only reporting disbursements for ‘‘political
identify itself as an organizing target if it indicates that this reporting activities’’—intended to influence the
merely by examining Schedule entries. procedure has been used and provides selection, nomination, election, or
Unless one or more disbursements to an the underlying information to any union appointment of anyone to a public
individual meet the threshold to member who requests it. See Section office, or a particular outcome in a
constitute a ‘‘major disbursement,’’ III(b)(2). ballot initiative, or for material assessing
disbursements would be aggregated a political candidate’s views on issues—
with other non-major disbursements for The Department disagrees with the and for ‘‘lobbying’’—for the purpose of
contract negotiations and administration view that it has applied the LMRDA passing or defeating new legislation,
and organizing, thus further shielding more stringently to unions than to advancing the repeal of existing laws, or
such data. Further, the confidentiality employers. Unlike the situation with the promulgation of rules or regulations
procedures, explained in Section regard to labor organizations, for over 40 (including litigation expenses). The
III(b)(2), allow a labor organization to years employers and their consultants Department received some comments
withhold any information that would have been statutorily required (29 U.S.C. supportive of the proposed category for
disclose the recipient or target of an 433(a) and (b)) to include particular political activities. Labor organizations
organizing expense in reporting the ‘‘persuader’’ information in their annual did not oppose the Schedules and the
disbursement on the Form LM–2. reports, while labor organizations have AFL–CIO did not challenge (apart from
The Department decided that this not. Implementation of this statutory its general opposition to any functional
approach is preferable to the suggestion scheme by the Department cannot be reporting) the Department’s premise that
by one commenter that unions submit considered as evidence of either anti- such information should be reported.
both a redacted and unredacted union or anti-employer bias, and the The AFL–CIO, however, contends that
schedule for organizing expenses and a suggestion of a double standard is the separate ‘‘political activities’’ and
request that certain expenses be unwarranted. ‘‘lobbying’’ Schedules should be
withheld from public disclosure. The The Department also rejects the combined into a single category. Based
statute requires the Secretary to publicly comment that strike benefits should be on the concerns expressed by comments
disclose the information it receives. 29 reported in the same category as other from labor organizations and others, and
U.S.C. 435. (‘‘The contents of the reports representational activities. The AFL– for the reasons described below, the
and documents filed with the Secretary CIO argued that because economic Department agrees that the two
* * * shall be public information.’’) pressure devices, such as strikes, work Schedules should be combined into a
Further, the concerns raised by the stoppages and lockouts, are ‘‘part and single revised Schedule 16, ‘‘Political
comments concerning sensitive parcel of the system’’ of collective Activities and Lobbying.’’
information, confidentiality, and the bargaining, this exclusion is bound to
burden involved in distinguishing One commenter stated its belief that
create a seriously distorted presentation the categories are closely related to each
organizing activities from contract of the reporting union’s collective
negotiation and administration can be other and that each is likely to draw a
bargaining disbursements. This relatively insignificant portion of the
addressed without the need to redact a argument is unconvincing. The amount
schedule, and thus more effectively reporting union’s resources. It explained
that a labor organization spends on that political activity and lobbying by
serve the transparency objectives of the representational activities, including
statute. unions typically involve
strike benefits, will be readily apparent communications with, and mobilization
Substantial case law under the NLRA
by adding the total disbursements in of, the union’s membership concerning
recognizes the employee status of
both schedules together. On the other issues of interest to the membership.
individuals paid by a union to seek
employment with an employer in order hand, only by maintaining a separate Lobbying, as distinct from membership
to assist the union in organizing its line item for Strike Benefits will union mobilization, it argued, thus is likely to
workforce and the need to protect them members be able to discern the true cost consume a relatively small amount of
from retaliatory conduct by their of the use of this economic weapon. union resources. The AFL–CIO added
employer. See, e.g., NLRB v. Town & Finally, we disagree with the that the Department’s proposal to
Country Electric, Inc., 516 U.S. 85 comment that a union’s compelled require the separate reporting of
(1995); Willmar Electric Service, Inc. v. disclosure of information relating to ‘‘political activity’’ and ‘‘lobbying’’ is
NLRB, 968 F.2d 1327 (D.C. Cir. 1992), legal fees associated with an organizing exacerbated by the requirement that
cert. denied, 507 U.S. 909 (1993). At the campaign would improperly intrude time estimates be recorded in 10%
same time, the individual’s status as an upon the union’s attorney-client increments. It asserted that many unions
employee of the union and the amount privilege. This concern is misplaced, as have programs that are at least as
of the payments received by him affects this privilege does not generally extend important to their members, and often
the obligation of the union to disclose to the fact of attorney consultation, consume more resources, than either
information that may reveal his identity. retention, or employment, including the ‘‘political activity’’ or ‘‘lobbying.’’ Some
On both the existing and the revised LM payment and amount of fees. See labor organizations noted that the
forms, if a ‘‘salt’’ is paid $10,000 or McCormick on Evidence, § 90 (5th ed. Department’s current reporting rules do
more per year as an employee of the 1999, updated 2003). Further, while the not require that payments by a political
union, the union is obliged by statute to privilege might protect the identity of a action committee be reported if such
list him by name on the Form LM–2 and client when sought from an attorney, a information already is reported to
to report the amount of his client can be required to divulge the federal, state, or local government
compensation. If a labor organization name of its attorney, which would be agencies. The proposal, it argued, layers
makes payments to an individual for relevant here. Id. another burden on the local unions,
adding unnecessary administrative time applicable to these other regimes. The activity. In part, this may be based on
and cost. Department has devised a definition, the unions’ misapprehension of the
Several commenters supported the reflected in the examples set forth in the proposal. As discussed above, the
itemization of political disbursements Instructions to Form LM–2, expressly Department’s proposed schedule is
by unions without distinguishing designed to provide a reasonable more comprehensive than the FEC and
between electoral politics and lobbying, amount of usable information to union IRS requirements that limit the activities
the distinction crafted by the members. that must be reported. For example,
Department’s proposal. No commenters The revised Form LM–2 is intended to under the Department’s proposed and
expressed any opposition to combining require unions to report many of the final rules, unions are required to report
the categories. A labor policy group disbursements that would not otherwise funds that they use in setting up a PAC
supported the Department’s expansive be reported. Labor unions, unlike most and raising funds for it, as well as
definition for political activities, tax exempt organizations under 26 lobbying activities normally associated
recognizing that under the definition U.S.C. 501(c), are not required to report with ‘‘governmental relations’’ and
unions ‘‘would be required to report any lobbying expenses to the IRS. See ‘‘member communications.’’ Further,
and all expenditures that are made for Instructions for Form 990 (for line 85); the Department’s decision to combine
any type of political activity, including Judith E. Kindall and John Francis the two Schedules will increase the
political activity directed at a union’s Reilly, Lobbying Issues 336 (IRS likelihood that the Schedule will be
own membership.’’ It asserted that publication available at IRS Web site), used to report a sufficient amount of
union members deserve to know the see also Rev. Proc. 95–35 (Aug. 7, 1995); information to prove useful to union
nature and extent of political activities, Rev. Proc. 98–19 (Feb. 2, 1998). In members.
lauding the Department’s efforts at contrast, labor organizations must As discussed, the revised Form LM–
transparency. The same commenter also include in Schedule 16 (Political 2 will provide union members with a
supported the Department’s proposal Activities and Lobbying) better understanding of their union’s
with regard to the reporting of lobbying ‘‘disbursements for political political activities, providing them a
expenses. In this connection, it asserted communications with members (or measure of the union’s financial and
that a labor organization, as a practical agency fee paying non-members) and human resources dedicated to these
matter, can avoid reporting its lobbying their families, registration, get-out-the- activities. Upon consideration of the
and political expenses to the IRS. The vote and voter education campaigns, comments, however, the Department is
commenter supported the Department’s and the expenses of establishing, persuaded that there is merit to the
effort to require unions to follow the administering and soliciting suggestion that the two schedules
same reporting requirements as contributions to union segregated should be combined into a single
generally applicable to tax exempt political funds (or PACs) and other schedule. Distinguishing between
organizations (but not unions) under the political disbursements.’’ Under the ‘‘political activities,’’ in the election-
IRS rules. It suggested, however, that the revised Form LM–2, labor organizations specific sense of that term, and
Department clarify the meaning of also are required to report ‘‘lobbying’’ is not always easy. And, for
‘‘lobbying’’ so that it includes ‘‘any disbursements supporting their dealings most union members, the distinction is
attempt to influence the general public, with the executive and legislative likely to be much less important than
or segments thereof, with respect to branches of the Federal, State, and local being assured that they can ascertain the
public policy and legislative matters.’’ governments and with independent purpose and amount of their union’s
Another policy group, while supportive agencies and staffs, including resource disbursements in the political
overall of the proposal, asserted that the disbursements for advocating or arena. In the Department’s view, this
Department’s proposed categories need opposing legislation (including new schedule will provide meaningful
to be modified to expressly include litigation challenging such legislation), information to union members without
‘‘grassroots lobbying’’ and ‘‘issue and advocating or opposing regulations requiring unions to submit separate
advocacy’’ by unions. (including litigation challenging such schedules for this purpose. Thus, the
The comments support the regulations). Thus, the Form LM–2 will Department has decided to include a
Department’s view, embodied in its gather information not otherwise single schedule (16) for political
proposal, that the itemization and reported, and further, the activities that activities and lobbying in the revised
aggregation of disbursements must be reported in the Form LM–2 are Form LM–2.
undertaken by unions in the political much broader than those included in
arena will provide information that is 5. Schedule 20 (Benefits)
the IRS definition and easier to apply
useful to union members and allow than the more nuanced IRS application This category, which tracks a category
them to better understand the amount (as evidenced by the three pages of in the current Form LM–2, captures
and purpose of their union’s activities instructions the IRS devotes to reporting information relating to all direct and
in this area. This information will membership dues and lobbying indirect benefit payments made by the
supplement the limited information expenses). Labor organizations also will union, including, for example,
now available to members under other be required to report disbursements on disbursements relating to life insurance,
statutory programs. See, e.g., Federal the Form LM–2 that would not be health insurance, and pensions. Direct
Election Campaign Act (FECA), 2 U.S.C. reported to the FEC because they are payments are made from the union’s
431; Lobbying Disclosure Act of 1995, 2 directed only at the union’s employees funds directly to its officers, employees,
U.S.C. 1601; IRS Form 990. While there and members and their families. Viewed members, and their beneficiaries.
are similarities between the information from this perspective, the Form LM–2 Indirect disbursements include, for
required under these other reporting does not duplicate any reports filed by example, a union’s payment of the
regimes and the LMRDA, Form LM–2 is unions with the IRS or the FEC. premium on group life insurance to a
designed for the special purpose of The Department believes that the separate and independent entity such as
providing meaningful information to unions’ comments understate the a trust or insurance company. The
union members who are not necessarily overall amount of disbursements and Department proposed that labor
informed regarding the various officer and employee time that will be organizations would be required to
exceptions and interpretations reported as lobbying or political separately identify all ‘‘major’’
disbursements during the reporting disbursement of benefits provides member education programs (other than
period in this category. information that may be of interest to political education, as discussed above).
The Department received only a few members as a measure of the union’s By adding this category, labor
comments specific to this category. The ‘‘fixed expenses,’’ allowing them to organizations will be able to accurately
AFL–CIO opposed the collection of evaluate the cost-benefit of the policies characterize the disbursements made for
benefits to employees and members in providing for the benefit payments. the many activities they undertake
a single category. In its view, ‘‘employee because of the requirements of the
benefits’’ is a ‘‘natural expense 6. Schedules 19 (Union Administration)
LMRDA or other activities associated
classification,’’ and the inclusion of and 18 (General Overhead)
with union administration.
‘‘member benefits’’ cannot be justified The Department proposed a Schedule With the creation of this new
on the grounds that the schedule has for general overhead, which would category, there no longer is a need for
been amended to convey more include disbursements for overhead that a category designated simply as ‘‘Other
information about union program do not support a specific function, such Disbursements,’’ and the Department
activities or supporting services. One as support personnel at the union’s will eliminate this category from the
labor policy group recommended that headquarters, and that, therefore, cannot Form LM–2. The ‘‘General Overhead’’
‘‘benefits’’ should be removed as a be reasonably allocated to the other category will be retained. This schedule
category and, instead, reported as ‘‘other disbursement schedules. Several labor includes disbursements that do not
disbursements.’’ The same group stated organizations noted that the categories support a specific function—for
that unions should have to specifically proposed by the Department would example, disbursements to support
identify other disbursements in order to force a large portion of the union’s personnel, such as maintenance and
minimize embezzlement. Several important and recurring activities into security staff at the union’s
comments related to the issue of overhead or other expenses. The SEIU headquarters—and that, therefore,
itemization, however, noted that a estimates that this latter category will cannot be reasonably allocated to the
requirement to disclose specific contain 90% of all its disbursements. other disbursement schedules.
information about benefit payments Several labor organizations expressed Wherever possible, however, the salary
could result in unwarranted invasions the fear that reporting disbursements in paid to support staff and other
of the privacy of individuals. the manner proposed by the Department disbursements for overhead that the
In light of the comments received, the will provide misleading information union tracks in relation to specific
Department is persuaded that the that will be used by those antagonistic programs or functions should be
privacy of individual benefit recipients, to unions to suggest that the union is allocated to the relevant category. For
including those receiving payments for diverting its funds to interests example, if a union has an organizing
medical procedures, insurance or unconnected with the union’s core department and a political affairs
pension claims, or burial benefits, representational function. Several labor department and currently apportions
should be protected. Accordingly, the organizations sought clarification telephone and utilities payments to both
Department has decided to retain the concerning particular activities. In the functional schedules, those
current schedule for reporting these AFL–CIO’s view, for example, the disbursements should be allocated to
types of disbursements, rather than Department seems to indicate that the corresponding schedule. Similarly,
using an itemized schedule, and all certain governance expenses, like the salary paid to other support staff
payments to individuals for such meetings and conventions, are to be should be allocated at the same ratio as
purposes should be reported only on reported as ‘‘general overhead the program staff they support. For
this schedule. A reporting labor expenses,’’ even though accounting example, if the union’s secretary-
organization, thus, will be required to principles counsel in favor of including treasurer employs a staff of ten
report an aggregate amount of any direct such expenses as ‘‘general management employees and the secretary-treasurer
benefit disbursements, which are those expenses.’’ In this regard, the AFL–CIO reports 60% of his time on activities
made to officers, employees, members, states that under Beck standards union relating to union administration, 10%
and their beneficiaries from the union’s governance activities are treated as on political or lobbying activities, and
funds, and need only identify the entirely chargeable whereas those same 20% on representational activities, the
recipients of such disbursements by a standards provide that union overhead staff salaries should be allocated to the
general description, for example, ‘‘union costs generally should be allocated corresponding schedules using these
members.’’ Indirect disbursements— between chargeable and non-chargeable percentages rather than reporting the
those made to a separate and categories. Several commenters salaries as ‘‘general overhead.’’ If the
independent entity, such as an expressed the view that the categories labor organization does not currently
insurance company that pays benefits to prescribed by the Department’s proposal apportion disbursements for utilities or
covered individuals—will also be fail to account for many basic, recurring similar expenses according to program
reported in the aggregate and the entity union activities. or function, it will not be required to do
to which the payment is made will be In response to these comments about so on the Form LM–2, but may choose
identified by a general descriptive term. the large number of disbursements to do so to provide greater clarity for its
These changes also address the relating to union administration, the members. In any event, the labor
comments made by labor organizations Department has added a new Schedule organization should accurately describe
concerning the reporting burden. 19 (Union Administration) to capture the purpose of the disbursement,
The Department is not persuaded, this information. In this schedule, labor whether it is reported in a specific
however, that this schedule should be organizations will report disbursements functional category or as ‘‘General
modified in any other respect. As relating to the nomination and election Overhead.’’
discussed in Section II(D) and Section of union officers, the union’s regular
III(C)(I), accounting principles do not membership meetings, intermediate, 7. Schedule 17 (Contributions, Gifts and
restrict a regulatory agency from national, and international meetings, Grants)
combining ‘‘natural expense’’ and union disciplinary proceedings, the The existing Form LM–2 requires
program functions in a report. administration of trusteeships, and the reports of all disbursements for
Moreover, a union’s aggregated administration of apprenticeship and contributions, gifts and grants during
the reporting year. The NPRM proposed disbursements in order to minimize certifies under penalty of perjury that no
that labor organizations be required to embezzlement. funds used in a job targeting program
separately identify any ‘‘major’’ receipts In the Department’s view, it is have been derived from wages paid to
during the reporting period. Although appropriate to keep this schedule. As employees on Davis-Bacon covered
the Department proposed no changes to noted in the Department’s proposal, projects. The commenter also asserted
this category, a few comments specific such funds should be reported in the that similar modifications should be
to this category were received. The other functional categories as made to the Department’s T–1
AFL–CIO asserted that the Department appropriate (and, where in excess of the proposals.
was mistaken in establishing a separate $5,000 threshold, itemized as a The Department has determined that
category for ‘‘contributions, gifts and contribution, gift, or grant). Nonetheless, it would be inappropriate in this
grants.’’ It noted that such funds, as there will be some disbursements that rulemaking to require reporting
recognized by the Department itself in cannot be easily allocated to another requirements specific to job targeting
its proposal, should be reported in any functional category. By keeping this funds. In the Department’s view,
specific services category to which they category, union members will be able to receipts and disbursement of job
relate (not as part of the residual more easily identify such targeting funds that exceed the
schedule). The AFL–CIO asserted that disbursements. If the reported itemization threshold will be disclosed
this recognition by the Department aggregated amount warrants further as a result of the general reforms
evinces that the schedule does not inquiry, members may request further implemented by this rule. Additionally,
constitute a separate major program information from the union to the Department notes that the NPRM
service. The AFL–CIO also submitted a determine whether such voluntary made no reference to the possibility of
report prepared by Dr. Ruth Ruttenberg payments conform to the union’s creating reporting requirements specific
as an attachment to its comments, internal rules and to evaluate whether to job targeting funds. The unions and
which argued, based on a survey of 65 they were made for legitimate and the organizations that engage in job
national and international AFL–CIO worthy purposes. targeting initiatives have an obvious
affiliates, that only 60% of all reporting interest in whether specific reporting
8. Job Targeting
national and international unions requirements should apply. They
The Department received a few should be provided a full opportunity to
capture the required data and of these
comments requesting that the address this issue before the Department
unions ‘‘less than 18% of reporting
Department establish an explicit promulgates a rule specific to the
unions are currently able to report
requirement that unions report concern identified by the commenter. If,
contributions to an entity aggregating to
particular details for certain ‘‘job- however, a labor organization has an
$2,000 or more and then allocate the targeting funds’’ (and funds serving the
disbursements by prescribed functional interest in, and contributes $10,000 or
same purpose, but labeled as ‘‘industry more to, an entity that meets the
category.’’ advancement,’’ or ‘‘market recovery’’ definition of a trust and that entity
These particular comments appear to funds). One commenter asserted that makes targeted disbursements for the
reflect a misunderstanding about what these funds have become widespread in purpose of increasing employment
unions now are required to report under the construction industry and that opportunities for its members, the labor
the current Form LM–2. First, unions express reporting requirements are organization must file a Form T–1 if the
are currently required to report essential to correct widespread entity has $250,000 or more in annual
information about disbursements for violations of the Davis-Bacon Act. The receipts.
‘‘contributions, gifts and grants,’’ thus commenter asserted that the Labor
calling into question the validity of the Department, the NLRB, and two courts D. Schedules 1 and 8—Accounts
statement that only approximately 40% of appeal (D.C. and Ninth Circuits) Receivable and Payable Aging
of unions capture data related to this recognize that job targeting programs are Schedules
category. Second, the reported inability antithetical to the purposes of the Davis- The Department proposed the
of a few unions to report contributions Bacon Act because they represent an creation of new aging schedules for
at the lowest proposed threshold level unlawful payment from the workers’ accounts receivable and accounts
and then ‘‘allocate the disbursement by wages to the contractors performing payable that would require labor
prescribed functional category’’ suggests Davis-Bacon jobs and tend to distort organizations to report: (1) Individual
that the Ruttenberg report confuses this local prevailing wages. The commenter accounts that are valued at $1,000 or
aspect of the Department’s current argued that the Department has allowed more and that are more than 90 days
proposal with the Department’s 1992 this practice to continue unchecked. As past due at the end of the reporting
reporting rule. While that rule contained a result, according to the commenter, period or were liquidated, reduced or
such a requirement, the Department’s millions of dollars are being written off during the reporting period;
current proposal requires only that misappropriated by unions from their and (2) the total aggregated value of all
contributions, gifts and grants be members’ Davis-Bacon wages, through other accounts (that is, those that are
reported in Schedule 17, without any the device of compulsory dues (as well less than $1,000) that are more than 90
further allocation to any additional as payroll deductions), and returned to days past due at the end of the reporting
‘‘functional’’ categories. Other aspects of the benefit of employers via job period or were liquidated, reduced or
the AFL-CIO’s Ruttenberg report are targeting funds. written off during the reporting period.
discussed below. The commenter recommended that A number of comments criticized as
Some commenters who supported the the Department require unions to report: too low the $1,000 threshold for
proposal suggested some modifications. the employers receiving the job targeting itemizing individual accounts payable
One policy group recommended that funds; the amounts paid to each and receivable that are more than 90
‘‘contributions, gifts, and grants’’ should employer; the project(s) for which the days past due at the end of the reporting
be removed as a category and, instead, employer received the funds; and the period. Some unions with substantial
should be reported as ‘‘other source of the funds. As an alternative, receipts asserted that the Department
disbursements’’ and that unions should the commenter suggested that such was mistaken in stating that ‘‘[t]he
have to specifically identify other accounting could be avoided if a union threshold of $1,000 eliminates the
burden of individually reporting routine in their view are relatively insignificant accounts that may be symptomatic of
collections of dues and other fees,’’ 67 in light of the very substantial finances embezzlement by union officers or
FR 79285. The unions stated that union of some unions. By setting the threshold employees. Under the new schedules,
dues would routinely be reported on the at $5,000, the interests of union such delinquencies would have been
accounts receivable aging schedule members will still be adequately served reported and such disclosure might
under the $1,000 threshold. Some by ensuring the disclosure of significant have deterred the fraud, in the first
unions stated that for unions with union accounts that have not been paid instance.
substantial dues it is not that unusual or collected in a timely manner. Itemization of delinquent accounts is
for union members to fall more than Several unions also broadly criticized also preferable to either aggregate
$1,000 behind in dues payments. the itemization requirement, disputing reporting or sole itemization of
Unions stated that the itemization of that itemization would benefit anyone. liquidated accounts in that it provides
$1,000 accounts would be unduly These commenters stated that reporting union members with a more detailed
burdensome (resulting in thousands of aggregate numbers for accounts payable picture of the union’s finances,
small entries), would invade the privacy and receivable would be far less including with whom the union
rights of union members, and would be burdensome to unions without diluting conducts business and the manner in
of little informational value. One the value of the information to which that business is conducted. The
organization commented that in the members. The commenters explained itemization requirement is tailored to a
context of Schedule 5 (individual that accounts more than 90 days past union member’s legitimate interest in
marketable securities), the notice of due are relevant, if at all, only as they knowing, for example, whether the
proposed rulemaking stated, ‘‘$1,000 relate to an individual union’s overall union continues to do business with an
can now be considered a de minimis cash flow. Several organizations stated entity that fails to pay its debts or
amount.’’ 67 FR 79285. This that there is no analogous requirement whether the union continually falls
organization suggested that the of itemization placed on public behind in payments to a certain vendor.
Department set the thresholds for companies, as the SEC requires only Some unions complained that the
Accounts Receivable Aging Schedule aggregate reporting. Itemized accounting ordinary interaction between national
(Schedule 1), Accounts Payable Aging is also inconsistent with GAAP, these and international unions and their
Schedule (Schedule 8), and Investments commenters argued. Finally, a number locals regarding per capita tax payments
Other Than U.S. Treasury Securities of unions proposed an alternative that routinely results in delayed payment of
(Schedule 5) at $5,000 in order to be unions disclose only those accounts locals’ per capita taxes until more than
consistent. Several other unions payable or receivable that are liquidated 90 days after the tax is technically due.
advocated raising the accounts payable or written off at the end of the reporting Reporting these payments on the
period. accounts receivable schedule, they
and receivable threshold to at least
In the Department’s view, itemized argued, would be burdensome and
$5,000. One commenter proposed a new
disclosure is important because it uninformative. The Department believes
threshold of $10,000. On the other side,
provides a vital early warning signal of that a national or international union
one organization asserted that the
financial distress. In setting the may set the specific date (and manner
$1,000 threshold was too high and
reporting threshold at 90 days, the of collection) of these per capita tax
should be lowered to require disclosure
Department took into account the payments, but once the date is chosen,
of smaller accounts. One organization
typical payment cycle of 30 days for that date controls when the per capita
stated $1,000 was the correct level, and
most accounts and determined that an payment is due. If, at the end of the
one union stated that the requested
account unpaid after three payment reporting period, a local union has
information would not be a burden at intervals warrants ‘‘flagging’’ as a matter failed to pay $5,000 or more for 90 days
the $1,000 level. Finally, a few unions of good business practice. Union or more past the specified date—
recommended eliminating the dollar members similarly will benefit from this irrespective of the customary interaction
amount altogether and replacing it with information as a gauge of their union’s between union and local—that
an alternative threshold, such as, for overall fiscal management and provide delinquent account must be disclosed
example, 10% of the union’s aggregate them with the ability to identify on the Form LM–2. The union is free to
receipts. These commenters noted that particular transactions or a series of provide any explanatory information
such an approach is consistent with the transactions that may merit further concerning the delayed payment along
Department’s regulation of employee review. Although there is no general with these per capita aged accounts.
benefit plans investments. accounting principle that holds that 90 Several unions also criticized the
In response to these comments, the days is a significant time period, it is a accounts payable and receivable
Department has decided to raise the benchmark often used, inasmuch as the schedules on the basis that these
threshold for itemization in Form LM– normal pay cycle for accounts is closer schedules require accrual-based
2 Schedules 1 and 8 to $5,000. This to 30 days. As one commenter pointed accounting and many unions only keep
dollar threshold is consistent with the out, the Washington Teachers’ Union accounting records on a cash basis.
weight of the comments and had failed to timely pay many of its bills Many union accounting systems, other
corresponds with the itemization in the years leading up to the discovery commenters argued, track only income
threshold developed for other disclosure of embezzlement and misappropriation and expenses, not receipts and
requirements under Form LM–2 of funds by union officials. disbursements. Moreover, one
including: (1) Investments Other Than As the commenter noted, early accounting firm commented that unions
U.S. Treasury Securities (Schedule 5); reporting of delinquent accounts that operate on a cash basis system will
and (2) Itemization of Receipts and payable might have prevented the fraud have to review their books and records
Disbursements (Schedules 14–21). In against the teachers’ union before to tabulate each individual account
the Department’s view, the higher millions of dollars were diverted. The irrespective of the precise threshold for
threshold will significantly reduce the Department’s own investigations in itemized reporting. As noted above, the
burden identified by some unions of other cases reveal situations where a LMRDA itself requires some accrual
having to itemize accounts, such as union’s failure to pay its per capita taxes basis accounting information, such as
individual union dues receivable, which is part of a pattern of delinquency on assets and liabilities. See 29 U.S.C.
431(b)(1)–(3). Because the current Form what the schedule looks like, union constitute a significant burden on
LM–2 requires this information, the new insiders who wish to embezzle money reporting labor organizations. Rather,
Form LM–2 imposes no qualitative or to defraud the union will willfully the comments expressed various views
change in the nature of union financial evade Department reporting of the usefulness of the information that
disclosure, even if the specific requirements. Commenters stated that would be disclosed under the
schedules for accounts payable and corrupt officials are not likely to record Department’s proposal as compared to
receivable are new. Moreover, no unions their activities on disclosure forms. The information that would be disclosed
will be forced to manually review Department acknowledges this under alternative thresholds suggested
previous books and records to identify problem—one that is a recurring by the comments.
delinquent accounts because the new concern in any reporting or disclosure Two local labor organizations stated
rule only applies to fiscal years system. While it is true that even the that the itemization of marketable
beginning January 1, 2004, or thereafter. most thorough disclosure form will not securities under the Department’s
Every union will thus have be entirely effective in eradicating fraud, proposal would pose no difficulty for
approximately three months (at least, the new requirements significantly reporting labor organizations, but
and as many as 14 months depending advance the cause by making financial asserted that the schedule would
on the union’s fiscal calendar) from fraud more difficult to hide. The new provide no information that would
publication of the rule to make any financial disclosure forms require assist union members. In the view of
necessary adjustments to their record greater specificity and accountability for these locals, the existing schedule on
keeping practices before the first fiscal union funds across the board, including the current Form LM–2 was adequate.
year for which such information must delinquent accounts payable and One commenter stated that the
be reported even begins. receivable. In the Department’s view, information required to be reported
One union asserted that the Secretary the more detailed reporting required by under the Department’s proposal would
lacks authority to require itemization of the revised Form LM–2 will allow the be intrusive without providing any
accounts payable and accounts Department and union members to more useful information.
receivable and that the Secretary is only closely scrutinize a union’s finances and The AFL–CIO expressed the view that
authorized under section 201(b) of the more easily identify ‘‘gaps’’ or apparent the $1,000 threshold of the current Form
LMRDA to require disclosure of inconsistencies in reports. The greater LM–2, given contemporary financial
categories of financial information—not the risk to the actual or would be reality, could be considered de minimis,
itemized information. A number of perpetrator that improper conduct will and that only more substantial
unions similarly commented that the be discovered, the less likely such investments should be required to be
underlying individual financial data conduct will occur or go undetected. itemized under the Department’s
composing the aggregate categories is The revised disclosure forms are thus a proposal. The AFL–CIO also suggested
already available to union members critical part of the oversight by the that any lower threshold might exceed
upon a showing of just cause under 29 Department and union members over the Department’s authority because, in
U.S.C. 431(c). The Department’s the financial operations of unions. Both the AFL–CIO’s view, the Department is
response to these arguments is set forth this Department and the Department of constrained to require unions to report
above. Justice, in prosecuting criminal fraud, only information material to the
Several commenters raised concerns rely heavily on union members to financial condition and operations of
about individual privacy if unions were review and evaluate the financial unions. In its view, most transactions
forced to itemize accounts payable and disclosures of their unions and report lower than $1,000 would not be material
receivable over $1,000, including any suspected activity for investigation, to even a union with meager revenues.
concern that, for example, union as may be appropriate. A trade association supported the
members owing dues would be Department’s proposal to raise the
identified by name on the Department E. Schedule 5—Investments Other Than threshold for reporting individual
website. Commenters requested U.S. Treasury Securities securities and other investments to
therefore that the Department clarify The Department’s proposed Schedule $5,000. In the association’s view,
that all union dues—both individual 5 required a labor organization to list: investments worth only $1,000 should
and per capita—are exempt from the each marketable security that has a book be considered de minimis. The
accounts receivable aging schedule as value of more than $5,000 and association further suggested that the
suggested by the notice of proposed constitutes more than 5% of the total Department should also set a $5,000
rulemaking. The Department notes the book value of all the union’s marketable threshold for individual accounts to be
increased threshold of $5,000 should securities; and each other investment reported in Schedule 1—Accounts
eliminate nearly all concerns about (e.g., mortgages purchased on a block Receivable Aging Schedule and
individual union dues appearing on the basis or investments in a trust) that has proposed Schedule 8—Accounts
accounts receivable schedule. It would a book value of more than $5,000 and Payable Aging Schedule, two new
be unusual—and likely take years—for a constitutes more than 5% of the total schedules proposed by the Department.
union member to become more than book value of all the union’s other A labor relations foundation, contrary to
$5,000 delinquent on union dues. If a investments. The current Schedule 2 of the Department’s proposal to raise the
union member is more than 90 days the Form LM–2 requires labor threshold dollar amount to $5,000,
delinquent on dues in excess of $5,000, organizations to list such securities and argued that $1,000 was not de minimis
that fact should be disclosed. Per capita investments if they have a book value of and that a higher threshold would invite
tax payments do not implicate privacy $1,000 and exceed 20% of the total book corruption.
concerns and, as discussed above, must value of the respective securities and Two intermediate labor organizations
be disclosed when an account is over 90 investments of the union. The agreed that $5,000 was appropriate as a
days past due and exceeds $5,000. Department invited comments regarding dollar threshold, but they urged the
Several unions contended the whether the two thresholds of the Department to raise the percentage
accounts payable aging schedule will proposal are appropriate. threshold from 5% to 15% of the total
falter on its stated purposes of deterring None of the comments indicated that book value of the reporting labor
financial fraud because, irrespective of the Department’s proposal would organization’s marketable securities and
other investments. Two other comments the largest marketable securities and 19 investments that would be itemized
from local labor organizations of its largest other investments. By under the Department’s dual thresholds
recommended that the threshold for providing this information to union of 5% and $5,000. The Department
requiring itemization of individual members, they will be able to make their believes that ordinarily the disclosure of
investments be based solely on a own judgments regarding the value and an investment equal to 5% of a labor
percentage of the total book value of all appropriateness of the union’s holdings organization’s total holdings would
of the union’s marketable securities or and thereby the soundness of that provide useful information to members
other investments. Finally, the comment important aspect of their union’s regarding the soundness and
of a firm of certified public accountants financial operations and condition. appropriateness of a union’s
also recommended a single threshold The Department also has concluded management of that aspect of its
but suggested that the threshold be that neither of the proposed thresholds financial affairs.
based solely on the book value of the should be either raised or deleted.
Raising the threshold percentage for F. Schedules 11 and 12—Disbursements
individual security or other investment.
proposed Schedule 5, for example, from to Officers and Employees
The commenter recommended that such
a threshold be set at a book value of 5% to 15% of the total book value of a The Department received more than
between $25,000 and $100,000. labor organization’s marketable 150 comments on its proposal to revise
Upon careful consideration of the securities and other investments would the information to be reported by unions
varying views on reporting investments, require a labor organization to list at about disbursements to their officers
the Department has concluded that the most six marketable securities and a and employees and to require unions to
proposed dual thresholds of $5,000 and maximum of six other investments report, by estimation and category, how
5% are appropriate to provide union (because 15% × 7 = 105%), rather than these individuals expend their working
members with useful information about a maximum of nineteen of each type. time on behalf of the union. The
the union’s investments without Reporting these few investments would Department proposed that unions would
unnecessarily burdening unions. The portray a limited picture of a union’s report for each officer and certain
Department has not been persuaded that numerous and very diverse investments. employees (all those paid a yearly salary
it should require unions to report The 5% threshold will disclose to union of more than $10,000) their net salaries
individual union investments with less members a fuller, more accurate picture and the amounts of withholdings for
than a book value of $5,000. The of the soundness of the union’s each individual, along with the amount
Department believes that the current selection of investments and of that of taxes paid by the union in connection
threshold of $1,000 (on Schedule 2 of important aspect of the overall financial with the individual’s compensation.
the current Form LM–2), especially condition and operations of the union Under the current report, only gross
considered in light of the asset price without imposing a significant reporting salaries are required to be reported for
increases that have occurred since 1962, burden on the organization. each officer and employee.
when the reporting threshold was set at Similarly, raising the book value Withholdings and taxes are reported,
that level, would require a union to threshold of individual marketable but only on an aggregated basis.
report holdings too small to provide securities and individual other The Department also proposed to
significant, useful information to union investments to amounts from $25,000 to require unions to provide an estimate of
members. This would be true whether $100,000 would foreclose disclosure of the time expended by their officers and
such holdings represented at least 20% all but the very largest union holdings. employees in each of eight functional
of the union’s total investments (in each Especially among labor organizations categories prescribed generally for
of the covered investment categories: that file the Form LM–2 or other Form union receipts and disbursements. The
‘‘marketable securities’’ and ‘‘other LM–2 filers without extensive Department proposed that unions report
investments’’), the requirement investment holdings, thresholds set at each individual’s work time, per
prescribed by the current From LM–2, book values of $25,000 to $100,000 category, rounded to the nearest 10%.
or as little as 5% of the union’s total might except any investment from being The proposed categories are discussed
investments, as proposed by the disclosed. In the Department’s view, in greater detail at Section III(C)(1). In
Department. members of such unions would have a 1992, the Department issued a final rule,
Under the Department’s proposal, a substantial interest in examining, and later rescinded, that also would have
union is required to report for each of reaching conclusions regarding, the required unions to identify, on an
the two investment categories its value and appropriateness of the individual-by-individual basis, how
nineteen largest investments, if any, union’s limited holdings and the their officers and employees expended
over $5,000, as measured by the book implications with respect to the general their work time. The 1992 rule also
value of the investments. For example, condition and operations of the required unions to report
unions with total marketable securities organization. disbursements, including officer and
valued at less than $20,000 would only As indicated above, two commenters employee salaries, in various categories.
have to report a maximum of four recommended that the Department That rule, however, required unions to
holdings in each category. adopt a single threshold based on a report the actual percentages of time
The Department does not find percentage of the total book value of the expended by the officers and employees
persuasive the comments that argued union’s investments as the basis for in each of the categories.
that the Department’s proposals were determining when a union must report The Department’s current proposal
intrusive, not useful, or not material. As individual investments for both also invited comments on whether
noted above, because only investments marketable securities and other unions should be required to more
that exceed 5% of the union’s holdings investments. The Department recognizes exactly calculate, by category, how the
are reported and no union can have that in some circumstances the use of a officers and employees expended their
more than 19 such investments (5% × single threshold percentage, such as the time. The Department inquired whether
20 = 100%), the proposed Schedule 5 Department’s proposed threshold of 5% a precise accounting of their time would
will never require any labor of the total book value of investments, be more useful to union members than
organization to disclose to members of would not change the number or mix of the proposal to allow estimates that are
the labor organization more than 19 of marketable securities and other rounded to 10%.
Several commenters supported the A labor policy group expressed the One commenter expressed the view
Department’s proposal. One commenter view that the timekeeping requirement that the provision for reporting in 10%
stated that an estimate of the amount of would be burdensome, especially for increments does not relieve any of the
time spent by union employees and larger unions. It nonetheless supported administrative burden imposed by the
officers in performing their various the Department’s proposal because the Department’s timekeeping proposal. In
duties will provide significant new salaries and duties of a union’s officers its view, detailed records must be kept
evidence to union members about the and employees are an important part of just to approximate the time expended
priorities of their union leadership. union expenditures and reflect the by each officer or employee. The
Together with the proposed requirement priorities established by union commenter stated that it is unfair to
that unions report receipts and leadership. require union officers and staff to keep
disbursements by functional category, a Unions generally opposed the time records, when, in its view, this
commenter wrote, these requirements proposal, typically for the same reasons obligation is not required of top
will provide information that will be they objected to the Department’s business executives or government
very helpful to employees in making proposed requirement that they officials.
decisions about whether to support or categorize their receipts and One commenter stated that the
join a union. Another commenter disbursements by functional category. Department’s proposed schedules fail to
asserted that the estimates would enable See discussion at Section III(C)(1). One reflect the wide variety of tasks
union members to understand how their international union predicted that if the performed by the union officers in order
leaders are spending their time and help contemplated changes are adopted: (1) to serve their members’ interests, e.g.,
ensure that union leadership is acting in Union officers would be prevented from attending union meetings, preparing
the interests of its membership. fulfilling their responsibilities; (2) newsletters, providing union-sponsored
A trade association stated that it unions would be forced to hire health/safety services, and operating job
strongly supports the Department’s employees to track disbursements and training and enhancement programs.
proposal, adding, however, that unions allocate expenditures; (3) local unions According to this commenter, the
should be required to identify more would have to reconfigure their proposed categories are misleading in
specifically any time allegedly spent in accounting systems; (4) union officers that they suggest that besides collective
the category of ‘‘other disbursements.’’ and employees would have to be trained bargaining, union officers and
One local union stated that the on how to translate their daily activities employees only participate in political
estimation requirement strikes the right to fit the categories; (5) unions would and lobbying activities. This commenter
balance between the need for become the target of inappropriate suggested that all of the other activities
information and the burden imposed on government intervention; and (6) union would be considered as ‘‘other’’
labor organizations. The same union, officers would be subjected to criminal suggesting that the individuals spend
however, stated that it would object to penalties for inadvertent discrepancies the majority of their time on matters less
any requirement for more detailed time in completing the form. significant to members.
keeping than proposed by the The AFL–CIO stated that there is no The AFL–CIO contended that two of
Department. way to ‘‘exactly calculate’’ how officers the categories proposed by this
Another commenter asserted that the and employees spend their time. The Department (‘‘benefits’’ and
time reports would enable agency fee AFL–CIO submitted a survey that, it ‘‘contributions, gifts, and grants’’) have
payers to quickly identify the contended, demonstrates that any no employee activity associated with
percentage of time used for non- attempt to require something more exact them. These are pure expense
representational matters and, therefore, than good faith estimations would categories, and the only employee
determine whether their agency fees impose significant new costs on unions. activity associated with them will be the
have been properly calculated. In this According to its survey, only 4% of the relatively minor activity connected to
commenter’s view, the proposed unions that responded now have the disbursement. Thus, in the AFL–CIO’s
changes would reduce the burden on capability to allocate officer and staff opinion, it is highly misleading to
unions to defend suits from agency fee time by the functions proposed by the include these as two of the eight
payers attempting to determine the Department. The AFL–CIO stated that categories in which officer and staff
proper amount of their agency fees. only 10%-20% of responding unions time is allocated. In its view, two other
One labor consultant expressed the stated that they have any type of categories (‘‘general overhead’’ and
view that implementation of the electronic systems to keep track of ‘‘other’’) are largely residual and do not
proposed functional time reporting officer or employee time by category. relate directly to any major union
proposal would not result in significant The AFL–CIO noted that any programs. By narrowing the choice of
and costly changes to most unions’ requirement that unions maintain program categories to only four
accounting systems. He stated that many contemporaneous timekeeping records categories—contract negotiation and
unions already have their officers and would greatly increase the burden on administration, organizing, political and
employees completing activity report the union without any corresponding lobbying—it asserts that the form will
forms or time sheets that categorize their gain in the value of the information inflate the amount of staff time reported
time into major program areas and that obtained. The AFL–CIO also contended as ‘‘other.’’
the automated accounting systems used that the Department’s authority does not One individual commenter asked the
by these unions can be modified easily, extend to prescribing particular types of Department to clarify whether an
if necessary, to conform to the recordkeeping. Another union individual should record all the time he
Department’s proposed categories. He complained that the recordkeeping or she expends on union business
added that unions that do not utilize requirement would limit the services (typically 60 hours or more per week in
time reporting systems could adopt the provided by the union. It estimated that his estimate). This commenter
policies and procedures followed by even if recordkeeping requires only 20 questioned the proper reporting of
unions with systems already in place. minutes per day to perform, this attendance at a Labor Day parade on a
The same commenter asserted that translates into the loss of many hours legal holiday or a political rally that
officers should be required to report that could be devoted to delivering takes place during regular working
actual time, not estimated time. services to the union’s members. hours. Another commenter questioned
the proper reporting of time spent by an should be guided by the purpose of the So long as the union has a reasonable
officer attending a funeral for an reporting requirement—providing operating procedure in place and takes
employer representative on a joint accurate information to union reasonable steps to ensure that officers
union-employer committee. members—in deciding how best to and employees are following that
A union sought clarification whether characterize their activities for reporting procedure, the individual responsible
a union can report all the hours worked estimated time. Finally, no official who for submitting the report generally has
by its support staff (e.g., receptionists, makes a good faith, reasonable effort to no reason for concern. Only ‘‘willful’’
stenographers, secretaries, and mail accurately report estimated time need violations—actions that are intentional
room personnel) under a single fear criminal liability, even if the or taken in reckless disregard of legal
category, or is required to provide an estimate proves arguably inaccurate. See requirements—will give rise to liability.
estimate for each individual by each of 29 U.S.C. 439. See 29 U.S.C. 439. While the
the functional categories. The Department has determined, as a responsible official’s reporting duties
The AFL–CIO contended that the general rule, that it is unnecessary to have increased, the standard by which
proposed rule has the potential for impose on unions a requirement that
this duty is measured has remained
reporting misleading information. In they report their time on a more precise
this regard, it states that the NPRM, but unchanged.
basis than a 10% estimation. The
not the proposed instructions, indicates Department is not requiring unions to The final Form LM–2 instructions
‘‘[t]he time allocated among the keep detailed time records. The labor have been revised to clarify how
categories for each officer [or employee] organization need only estimate the particular activities should be reported
should total 100% of that [individual’s] time spent on each activity. It is up to and how some common multi-task
time.’’ This possible requirement, the labor organization to determine the activities may be allocated. See Section
coupled with the 10% increment for least burdensome way to provide the III(C). As discussed in the final
estimates, creates the risk of distorting information. However, the Department instructions, union officers and
how the individual spends his or her believes the 10% estimation will be employees should provide estimates
time. The AFL–CIO posed the question sufficient to enable members to evaluate based on the total number of hours they
of how a union should report an how the time of the union’s officers and work on union business, not merely the
employee’s time if she spends 85% to employees is directed and whether it first 40 hours or other measure of an
90% of her time on ‘‘contract reflects an appropriate use of the individual’s paid workweek. Despite the
negotiation and administration,’’ 5% to union’s financial resources. To avoid Department’s efforts to provide clear
7% of her time on ‘‘political activities,’’ the misperception that a union’s officers instructions, the quality of the estimates
and the same amount of her time on and employees spend no time in a reported will ultimately depend upon
‘‘lobbying.’’ A union expressed concern category (or categories)—a possibility if the care taken by the reporting unions
about the liability of union officials who time in a category is less than 5%—we in making them. Nevertheless, the
will be required to sign the union’s have revised the instructions to provide Department believes that permitting
report. In its view, it is unfair to impose that where the time reported by an unions to estimate the time spent in
this obligation upon the reporting individual in an activity is less than 5% specific activities provides a appropriate
officials, given what it considers the of his total work time, he should use his balance between the dual objectives of
subjective nature of the reporting and or her best estimate to the nearest providing as much useful and relevant
the official’s inability to verify any percentage and report this amount. information to union members while
estimates provided by other individuals. Similarly, in reporting aggregate totals reducing, to the extent practicable and
The Department believes that of time, the union, instead of rounding appropriate, any burden on reporting
requiring unions to report the estimated down to zero, must report its best
amount of time expended by their unions. Reporting unions will be
estimate to the nearest percentage and encouraged to provide information that
officers and employees will provide report this amount. This change should
useful information to their members. It is objective, accurate, and reliable
enable unions to ensure that reported
will enable members to determine better because they will want their members to
time estimates add up to 100% for each
how the union utilizes its human be aware of the time spent by their
employee and this requirement has been
resources. A union’s own labor costs union’s officers and employees in
made clear in the instructions.
represent a substantial portion of its The Department does not believe that activities on their behalf. Moreover,
yearly disbursements, and the allocation allowing unions to customize categories because the information will be
of the time expended by the officers and or establish subcategories of existing presented in a clear and complete
employees serves the same purpose as categories, as some commenters manner, union members will be in a
the allocation of a union’s other proposed, would promote the purposes position to determine whether the time
disbursements. Moreover, by reporting of the statute. As discussed in further reported appears to be appropriate and
how its officers and employee spend detail above with respect to the use of accurate, thus encouraging unbiased
their time, by functional category, union functional categories for reporting reporting. Because union members elect
members are better able to gauge the disbursements, a ‘‘customizing’’ their officers and are responsible for the
union’s total investment of resources— approach would result in vast governance of their union, even
labor and capital—to a group of differences in reporting formats from estimated reporting of the manner in
activities. Based on its review of the union to union. This divergence would which officers and employees spend
entire record, the Department concludes eliminate a baseline of comparison, their time will be far more useful than
that such reporting will not impose result in confusion, and decrease the the total lack of any such information in
undue burden on the union or the value of information reported to Form LM–2 prior to these revisions.
individuals on its payroll. While union members and the public. Similarly, the Accordingly, even though allocating
officials will be required to exercise concerns about the difficulty of attesting time by estimated percentages is not as
judgment in making the necessary to the time estimates appear to be precise as exact measurements of time,
estimates, it should be remembered that overstated. The union should be able to the fact that the estimates will be
only a good faith estimate, not precise determine without difficulty the manner reviewed with interest by union
reporting, is required. Union officials in which time estimates are to be made. members is itself an incentive that is
likely to ensure the quality of the Statement B on which the reporting to advance these goals. Consequently,
information reported. labor organization will report the the Department has decided not to
Several commenters opposed the aggregate amount of withholding taxes require labor organizations to report
$10,000 salary threshold. The law’s and other payroll deductions from all membership in these categories.
purpose, as stated by one commenter, salaries, the total disbursed, and the Most comments indicated that,
was to require unions to report the total withheld but not disbursed. This contrary to statements in the NPRM,
salaries of only their highest paid change will protect individual privacy unions do not currently keep
officers and staff. Under the and also reduce the union’s reporting membership information in the
Department’s rules, however, unions are burden for these schedules. The categories required by the new Schedule
required to report the salaries of reporting union must then allocate each 13. Commenters provided several
virtually all their employees. The officer’s and employee’s gross salary, examples of different methods of
$10,000 threshold is established by based on a good faith estimate, rounded categorizing members, including:
statute, 29 U.S.C. 431(b), and therefore to the nearest 10%, among five specified • The International Union of
the Department is without authority to schedules (Representational Activities, Operating Engineers (IUOE) does not
change the threshold amount. Political Activities and Lobbying, maintain information on members by
No commenters specifically Contributions, General Overhead, and category.
supported the proposal to require Administration). • The American Federation of
unions to report the net pay, Teachers (AFT) tracks members, for
withholdings, and tax payments for G. Schedule 13—Membership Categories accounting purposes, by ‘‘full
each officer and employee, but a Several commenters indicated their membership equivalents.’’
number of comments opposing the support for the Department’s proposal to • The International Brotherhood of
proposal were submitted. An require unions to report the total Electrical Workers (IBEW) tracks
international union argued that the number of members according to members by industry.
proposed reporting of net salaries is various types of membership categories. • The building trades unions do not
contrary to standard business practices These commenters agreed that the track apprentice, retired or inactive
and governmental regulations involving newly required information would be members.
an organization’s payroll. It asserted (as useful to union members. A number of • One union indicated that they
did one individual) that no other profit commenters, including several classify members as ‘‘active’’ and
or nonprofit organization reports net International unions, disagreed with the ‘‘retired.’’
wages. Moreover, it observed that a proposed changes to the unions’ annual • Retired members in the United
publicly traded corporation is required reporting requirements. Some Association of Plumbers (UA) maintain
only to disclose the gross commenters expressed doubt about the active status (and pay dues) to maintain
compensations of its chief executive authority of the Department to require certain benefits.
officer (CEO) and four senior executive It thus appears that while each union
unions to submit detailed demographic
officers if, and only if, that maintains membership information in
information in their annual reports.
compensation exceeds $100,000. some manner, it may not maintain that
Others expressed doubt that union
The AFL–CIO stated that the information in the precise categories
members were interested in the more
Department’s current requirement that contemplated by the proposed new
detailed membership information. Some
unions report the gross salaries of their Schedule 13. Union commenters also
commenters, while supporting the basic
officers and employees provides indicated that, because they do not
approach of the NPRM, suggested that
members with sufficient information to maintain membership information in
the Department require unions to report
meet any legitimate purpose under the the categories contained in the new
information in additional categories.
LMRDA. It contended further that the Schedule 13, it would be similarly
These suggested categories included
LMRDA provides no statutory difficult for unions to report the total
information on:
authorization for the Department to • Members working on projects amount of dues paid by each of the
collect this type of personal financial covered by the Davis-Bacon Act various categories of members and the
information about union officers and • All employers with whom the amount that the union paid or received
employees. In this regard, it asserted union has collective bargaining in per capita dues for each category.
that the statute does not authorize the agreements (CBA) While the Department continues to
Department to inquire, even indirectly, • The length and duration of each believe that information regarding the
into such matters as whether an CBA number and type of members of a
individual officer elects to purchase • The number of employees in each reporting labor organization is
supplemental insurance or allocates covered bargaining unit information that is important to the
substantial portions of his or her • Male and female members members of that organization, the
paycheck to the United Way. • Members in each state for unions Department also agrees that each labor
Based on the concern that the that cover more than one state. organization should be able to maintain
Department’s proposal could interfere The purpose of the Department’s such information in the manner that the
with the legitimate privacy interests of proposed Schedule 13 is to give union believes will be most useful to it
union officers and employees, the members a clearer sense of the current as an institution. Accordingly, the
Department has determined that the health and future viability of their union Department has concluded that each
better course is to maintain the current and to give members a sense of what reporting labor organization should be
practice of requiring unions to report changes should be made to the union in permitted to name and report on its own
the gross salary (before taxes and other order to improve the organization. Over categories of members so long as the
deductions) for each officer and time, this information will enable union provides a definition of each
employee, on an individual basis. members to judge how effectively their category in Item 69 (Additional
Accordingly, in keeping with the dues are being spent on organizing and Information). For example, if a union
current Form LM–2, Schedules 11 and if any additional resources should be feels that it is best for it to maintain
12 have been adjusted to reflect this devoted to that activity. None of the membership statistics on ‘‘active,’’
change and a line item added to proposed additional categories appears ‘‘retired’’ and ‘‘apprentice’’ members,
then it should report that information in international union. In some respects— organizations, however, expressed their
the appropriate place on the schedule as where, for example, an international disagreement with the proposal that
and provide a definition of each union derives substantial support and unions begin to file Form LM–2 and
category in Item 69. The union will not funding from the members of affiliated Form T–1 electronically after the
be required to manufacture or report subordinate unions—such ‘‘double issuance of the final rule. These
information for membership categories reporting’’ may not necessarily be an commenters indicated that mandatory
it does not keep. inaccurate reflection of the financial electronic filing would be a
This change will address the most health of the labor organization. considerable burden to unions,
prominent areas of concern highlighted particularly those unions with volunteer
by the comments. First, unions, and H. Mandatory Electronic Filing
or part-time officers and staff. The union
their members, presumably have some For several years, and with substantial commenters noted that the Department’s
interest in the statistics if the union is Congressional urging, assistance and claim that electronic filing will be more
already keeping them. Second, it should leadership, the Department has pursued efficient is untested, particularly
be no great burden for unions to report the development and implementation of because the software that will allow
membership statistics that they are electronic filing of annual reports unions to transfer their electronic data
already keeping in the normal course of required by the LMRDA, along with an to the reports is not yet available. One
business. The Department recognizes indexed and easily searchable computer commenter also noted that the
that the requirements for reporting database of the information submitted, Department had indicated in a
membership in the final rule may not accessible by the public over the Government Accounting Office (GAO)
disclose as much information to the Internet. See H.R. Conf. Rep. 105–390, report that any electronic filing of
members as the original proposal. The 1997 U.S.C.C.A.N. 2061; H.R. Conf. Rep. reports should be voluntary. The
Department believes, however, that the 105–825; H.R. Conf. Rep. 106–419; H.R. Department notes that its earlier views
final rule will disclose more needed Conf. Rep. 106–479; H.R. Conf. Rep. were shaped by the less mature
information to the members concerning 106–1033; H.R. Conf. Rep. 107–342, technology that then existed and
their unions without undue burden. 2002 U.S.C.C.A.N. 1690; H.R. Conf. Rep. without the benefit of continued and
At least one organization, a provider 108–10, 2003 U.S.C.C.A.N. 4. In repeated Congressional urging to make
of information regarding labor furtherance of that goal, the Department all such reports available on line. The
organizations to companies, labor proposed that all Form LM–2 annual Department’s present view is shaped by
attorneys, union democracy groups and reports be filed electronically and today’s technology, its impact on the
academics, cited the tendency of labor proposed to develop software to enable
ability to obtain, process, disclose, and
organizations that have national, that process.
utilize information, as well as the
intermediate and local bodies to double- The Department received several
comments, including comments from increased awareness of the importance
count members and to report the same
members of Congress, accountants, and of transparency to the governance of
persons as members of more than one of
other organizations, that supported institutions.
the related organizations. This practice,
according to this commenter, can give mandatory electronic filing. The In addition, several unions
members an inaccurate picture of a commenters indicated that electronic commented that the Department has
labor organization’s overall strength and filing is consistent with the overestimated unions’ capability to file
is due, at least in part, to the differences recordkeeping requirements for human reports electronically. For example, the
in the definition of ‘‘member’’ used by resource professionals working under International Union of Operating
different labor organizations. In this other federal statutes and would bring Engineers (IUOE) stated that despite a
regard, the Department notes that the the financial disclosure requirements of concerted effort on their part to have
statute defines the term ‘‘member’’ to unions under the LMRDA into the locals file their per capita reports
include modern era. The commenters pointed electronically, only 21 of the 147 IUOE
out that millions of people of all locals do so. In addition, the
any person who has fulfilled the
requirements for membership in such economic groups now conduct their International Longshoremen’s
organization, and who neither has financial business, including managing Association (ILA) reports that none of
voluntarily withdrawn from membership nor their 401(k) and IRA accounts, on the its over 100 locals that file LM–2 reports
has been expelled or suspended from Internet. The commenters explained currently files electronically. A survey
membership after appropriate proceedings that mandatory electronic filing would conducted by the AFL–CIO indicates
consistent with lawful provisions of the also be consistent with the that only 14% of the national and
constitution and bylaws of such organization. Congressional directives to ESA every international unions and only 9% of the
29 U.S.C. 402(o). Every labor year since 1997 to establish an local unions file their Form LM–2
organization should use this definition electronic filing system to provide reports electronically. The Department
to determine whether an individual is a greater public access to the materials notes, however, that, in fact, a much
member of the labor organization for filed under the LMRDA. smaller percentage of unions have
purposes of Schedule 13. Applying this A few commenters did not think the actually filed their Form LM–2 reports
definition, however, may well result in Department’s proposal went far enough. electronically, a circumstance that is
two or more labor organizations These commenters suggested that all hardly surprising inasmuch as this filing
reporting certain individuals as unions, even those with receipts of less option did not exist until December of
members because those individuals pay than $200,000, be required to file their 2002, when the Department’s system
dues to, and fulfill all other LM forms electronically. In addition, at became able to utilize digital signatures.
requirements for membership in, a local least one commenter suggested that The Department’s experience further
labor organization and in an affiliated labor organizations be required to reflects that far more of the reports filed
intermediate and/or national or provide a link on their own website to in paper are actually prepared
international labor organization. In fact, the union’s electronically posted LM electronically, even though they are
membership in an affiliated local labor form, whether located at the submitted by mail to the Department.
organization may well be a requirement Department’s LM website or elsewhere The fact that the AFL–CIO reports many
for membership in an intermediate or on the union’s website. Many labor more reports filed electronically than
actually have been filed suggests manually, if they wish. The technical committed, however, to taking the steps
confusion on the part of those asking the feasibility study performed by SRA for necessary to effectuate the new system
survey questions, or those answering the Department indicated that the with minimal problems.
them, or both. proposal could be implemented with Although the Beaconfire study also
The unions that commented stated relative ease, and this understanding is suggests that costs to labor organizations
that it would be expensive and perhaps consistent with the Department’s own may be higher than the Department
not feasible for them to develop the new familiarity with recordkeeping software assumed, Beaconfire acknowledges that
accounting systems, purchase the new and union recordkeeping practices. their figures, like those developed by
computers, and train their staff to make While the AFL–CIO disputes the SRA, are merely estimates. Beaconfire
the changeover to electronic filing number of current electronic filers of assumed, without explanation, that the
within the timeframe required by the Form LM–2, it argues that there are average data file to be transmitted by
proposed effective date. For example, actually nearly twice as many electronic unions to the Department will be
the United Food and Commercial accounting programs in use by labor substantially larger than the size
Workers (UFCW) estimates that it will organizations than the Department assumed by SRA. SRA, by contrast,
cost two million dollars and take two assumed. In fact, many of the larger stated that it extrapolated file size
years to make the necessary changes. labor organizations that commented on requirements based on the data types
Similarly, a study conducted for the the proposal argued not that they were and volume currently being reported on
AFL–CIO estimates that it will take two unfamiliar with electronic accounting Form LM–2, taking into account the fact
to four years for unions to make the programs but that their own that data volume varies significantly
conversion to electronic filing. sophisticated programs capture different from union to union. For data that is not
Therefore, the commenters suggested data than that required by the currently being reported, SRA made
that the Department conduct a pilot Department’s proposal. ‘‘worst case’’ assumptions that it viewed
program during which some, but not all, The NPRM noted a substantial as conservative. See Technical
unions are required to file number of filers using the Department’s Feasibility Study for an On-Line
electronically. In the alternative, the software to complete the existing LM Financial Downloading System, SRA,
commenters suggested that the reports; in fact, more recent data Sec. 3.4.1. Without an explanation of
Department devise a phase-in period indicate that 76% of the Form LM–2 Beaconfire’s contrary assumptions, it is
during which the requirement for reports filed in 2002 were completed difficult to assess their validity,
electronic filing is postponed, giving using the Department’s software. The particularly in light of the recognized
unions time to adapt their systems and AFL–CIO figures cited above, indicating incentive on the part of regulatees ‘‘to
train their people to meet the new that far fewer labor organizations use inflate cost estimates in the hope of
requirements. the software, cannot refute the securing a less stringent regulation.’’
These comments suggest that the Department’s actual usage data. First, McGarity and Ruttenberg, Counting the
relevant issue with respect to electronic the Department’s data is based on Cost of Health, Safety, and
filing is not whether it should be review of all reports filed during the Environmental Regulation, 80 Texas
required, but rather how and when it year, whereas the AFL–CIO survey is Law Review 1997, 2044–45 (2002).
should be accomplished. Indeed, in based upon questions answered by a In addition, the Beaconfire study fails
light of the Congressional direction that relatively small number of filers. to recognize that the information
these reports should be filed and made Second, the AFL–CIO provided only required by the new Form LM–2 is not
available electronically, and the delay survey results, not the actual survey structurally complex or fundamentally
and expense attendant to scanning instrument, and there is little different from the information that has
paper forms in order to make them information provided by which to assess been reported on the current form. The
available on the Internet, electronic its validity. Finally, as noted above, if study, which notes problems
filing is clearly necessary and beneficial. the AFL–CIO’s assertions regarding its encountered in the initial development
In response to numerous comments numbers are read literally, they are of the Department’s e.LORS program,
arguing that more lead-time is required, higher, in some respects, than the also fails to take into account the
the Department has modified the Department’s own numbers, indicating, Department’s plans to leverage existing
proposed effective date for electronic at best, some confusion on the part hardware and software components and
filing, but remains firmly convinced that either of those asking the AFL–CIO to integrate the enhanced reporting
the technological concerns associated survey questions, or those answering system into the Department’s existing
with electronic filing are overstated. them, or both. infrastructure.
First, the electronic filing requirement The most comprehensive response to In revising its estimates of the likely
applies only to the largest labor the SRA technical feasibility report, a cost of compliance with this rule, and
organizations, those that have over study performed by Beaconfire in particular of compliance with the
$250,000 in annual receipts. Thus, 4,732 Consulting, Inc., was submitted along requirement that labor organizations file
unions (about 19% of the total) will be with the AFL–CIO’s comment. This the Form LM–2 electronically, the
required to file their reports study does not claim that labor Department carefully considered the
electronically. Unions with annual organizations cannot file their annual information in the record regarding the
receipts less than this threshold (62,668 Form LM–2 reports electronically, but existing capabilities of labor
or about 81% of the total) will not be that the Department has underestimated organizations. The AFL–CIO submitted
subject to this requirement. See the cost and time involved in converting survey data from its affiliates that
discussion in the Paperwork Reduction to an electronic filing system. Most of suggests: 12.5% of local unions do not
Act analysis (Section V(F), from which the issues raised by the Beaconfire study use computer accounting software; 21%
these numbers are derived. These relate not to the cost of compliance for of national and international unions and
unions, which are less likely than the labor organizations, but rather to the 33% of local unions would need new
larger unions to have full-time staff cost to the Department to develop the hardware; 62% of national and
familiar with electronic bookkeeping software that will allow labor international unions and 75% of local
and reporting, can still file the simpler organizations to submit their reports unions would need new or upgraded
Form LM–3 or Form LM–4 reports electronically. The Department is software; and 14% of all unions said it
would be impossible to expand the rule without knowing how the software manage their finances. This technology
recordkeeping capacity of their current will work. has been available for several years and
accounting systems to accommodate the In light of all of these concerns, the is used by many individuals to manage
additional data required by the Department reassessed its estimate of their family finances. As discussed
proposed rule. The AFL–CIO survey the burden and cost of complying with elsewhere, the changes that need to be
also found that all national and this revision of Form LM–2 and revised made by unions in their bookkeeping
international unions maintain their its estimate significantly upward. The and accounting practices are
accounting data on in-house computer Department has never contended that incremental ones. The Department
systems—but many of those systems are the changes would be without cost; the believes that most unions’ existing
incapable of interfacing with the real question is whether the increase in financial software will accommodate the
Department’s software. Information cost, once it is accurately measured, is minimal changes required to comply
submitted by the AFL–CIO also justified by the increased benefits to with the rule. For data entry purposes,
suggests, however, that: 79% of national union members. The Department has the only changes required will be the
concluded, on balance, that modification of the categories and fields
and international unions and 67% of
technological advances have made it to chart the union’s accounts in a way
local unions will not need any new
possible to provide the level of detail that tracks the reporting categories.
computer hardware; 38% of national
necessary for union members to have a While the Department acknowledges
and international unions and 25% of more accurate picture of their union’s that it will take the individuals
local unions will not need any new or financial condition and operations responsible for tracking each union’s
upgraded computer software; and 86% without imposing an unwarranted financial matters some time to
can expand their current accounting burden on reporting unions. familiarize themselves with the
systems to include the additional fields OLMS staff who review the reports instructions in order to modify
to accommodate functional reporting. filed and provide compliance assistance categories, the actual time required to
Moreover, raising the Form LM–2 filing to unions have found that a majority of add the modified accounts to the
threshold to $250,000 will enable 501 of unions required to file Form LM–2 use tracking software will be nominal (from
the smallest filers, and those most likely computerized recordkeeping systems a few days to a week or more).
to have software and hardware issues, to and have embraced the technology Similarly, as discussed below, there is
file the less burdensome Form LM–3. necessary to provide reports in no apparent obstacle for unions to
Further, as identified in the technical electronic form. Several OLMS field comply with the actual electronic
feasibility study performed by SRA, the offices report that even smaller unions submission of the information to the
Department is committed to developing that file Form LM–3 reports keep Department, an obligation that no union
reporting software for LM–2 filers that is electronic books. The development of will have to meet until about 18 months
compatible with the major export electronic software that will permit after the publication of the final rule.
formats available in commercial, off-the- unions that keep their records After considering the comments
shelf accounting software. Finally, in electronically to import data from their regarding implementation, the
the event that a labor organization programs to the Form LM–2 software Department has chosen to delay the
encounters severe difficulties, the should reduce the burden of reporting effective date of the rule to provide
hardship exemption will be available for financial information with the additional time for all labor
its use. specificity required by the final rule. organizations to make the adjustments
While labor organizations have not necessary to record the information
One union noted that it is going to be
previously been required to report all of required. The Department believes that
very difficult and maybe impossible for
this information, they have been a pilot program is unnecessary. If the
unions using a commercial off-the-shelf
required to make judgments regarding technology was not mature or the rule
bookkeeping system (Quickbooks,
the appropriate characterization of was introducing a concept or
Peachtree, etc.) to find a way to
disbursements in order to report those requirement unfamiliar to unions, a
incorporate these details into their disbursements by category in the pilot program might have served a
accounting databases. Almost all current form. Once the necessary useful purpose. The rule, however,
unions, it observed, will have to do adjustments have been made to relies on mature technology that is in
special programming to find a way to do electronic recordkeeping systems, no common use among unions, businesses,
this. For the integrity of all the other additional burden will be entailed by and other organizations. The
accounting functions, the system must the need to make similar judgments Department’s investigative and audit
show the payee of the check (e.g., with respect to fewer categories. Labor experience reflects that unions are well
American Express), but for the revised organizations that do not currently experienced in tracking receipts and
Form LM–2 the system will have to maintain electronic books, or that use disbursements and reporting this
ignore that vendor and instead insert the accounting software that proves information to members. Unions also
names of the hotels, airlines, incompatible with the software have demonstrated considerable
restaurants, etc. Finally, one union developed by the Department, will proficiency in using software to obtain
asserted that the Department’s burden experience an increased burden. these results.
estimates are completely mistaken, and The Department has given serious For similar reasons, the Department
are based on alleged efficiencies to be consideration to the comments believes it unnecessary to phase-in the
gained from using software that the suggesting that the Department employ new rule. As discussed, the Department
Department purports will seamlessly a pilot program before implementing a does not believe that unions will
export financial data. In its view, it is final rule or allow a delayed phase-in of encounter significant problems in
impossible to determine which, if any, the electronic reporting requirement. As revising their current bookkeeping and
financial software packages will be explained (and further elaborated accounting procedures to meet the
compatible with the Department’s below), the Department’s final rule reporting requirements. And, to the
software. There is no way, in its builds upon the existing technology extent unions are concerned about the
opinion, to comment meaningfully on used by large and small businesses, actual submission of the data to the
the burden associated with the proposed labor unions, and other organizations to Labor Department, that will not occur
until about 18 months after this rule only temporary. As noted above, the • Establishing a section on the OLMS
issues (and then only for unions that concerns expressed about website devoted to the revised Form
have fiscal years beginning on January ‘‘criminalization’’ of innocent mistakes LM–2 and making regular updates to it.
1, 2004). Moreover, the rule has a built- are misplaced because sanctions are • Developing a ‘‘list serve’’ system to
in ‘‘phase-in’’ component that will available only for willful violations and send email messages to unions,
allow for adjustments to be made, if and thus depend upon intentional or accountants, union members, and other
when problems arise. Because each reckless actions by responsible officers. interested individuals to provide up-to-
labor organization’s filing date is Finally, the Department continues to the-minute information to assist in
dependent on its chosen fiscal year, the be fully committed to providing meeting the reporting requirements for
filing of annual financial reports is extensive compliance assistance at all the revised Form LM–2.
staggered throughout the year. stages of implementation. OLMS is • Developing guidance to assist
In the event that any labor developing compliance assistance unions to configure off-the-shelf
organization encounters serious materials outlining and explaining the software to best capture the information
difficulties with electronic filing, the changes to Form LM–2 and new Form needed to provide the data required for
hardship exemption will be available. T–1 and will present seminars and submitting the LM–2 and T–1 reports.
The Department proposed a hardship workshops advising union officers of
exemption modeled after the procedures I. Effective Date
the new reporting requirements.
used by the SEC (17 CFR 232.201–202) Contemporaneously with the The Department proposed to make the
and invited comments regarding publication of this rule, the Department use of the revised Form LM–2 and the
whether the hardship exemption is making available a Data new Form T–1 mandatory for reports for
procedures are appropriate and whether Specifications Document that will fiscal years commencing after the
there are any alternative procedures that enable the unions’ staffs to prepare their publication of the final rule. The
might better address legitimate bookkeeping systems in order to submit Department specifically invited
problems. International unions their reports electronically to the comments concerning whether one year
commented that the hardship Department. If unions do not complete is an appropriate time period before
exemption should be broadened to this interface, they will still be able to labor organizations are required to use
permit a reasonable phase-in period and use the Form LM–2 software by the ‘‘cut the new forms and whether labor
that smaller Form LM–2 filers be given
and paste’’ method or by keying organizations should be required to use
permanent exemptions because of the
information directly into the electronic the revised form to report information
burden and cost of electronic filing.
form. The Form LM–2 software will be for a fiscal year that begins within 30
Trade associations, on the other hand,
available to download from the OLMS days of the date that a final rule is
argue that hardship exemptions should
website at www.olms.dol.gov well before issued. One commenter said the
be narrowly limited and that labor
any labor organization will have to use effective date was appropriate observing
organizations should be required to
it to file their reports, which will give that ‘‘[t]he proposed electronic filing
affirmatively prove hardship. Some
the Department plenty of time to procedures and effective dates strike a
commenters asked for clarification of
conduct compliance assistance and reasonable balance between limiting
the standards to be used when
evaluating hardship claims. An attorney answer questions posed by the filing reporting burdens and increasing
for a local union expressed concerns community. members’ access to important
over the possible criminalization of The Department’s extensive information.’’ Two other comments
innocent errors given the present lack of compliance assistance will include from organizations proposed that the
clear guidance on the proposed rule. some or all of the following actions: effective date should be even earlier.
One association commenter suggested • Mass mailings to all reporting These commenters indicated that while
that individual union members be unions explaining the final rule and the the new rule would require additional
permitted to appeal the grant of an effective date. reporting burdens, the essential
exemption to their union. • Briefings for national/international information to be reported remained
The Department has decided to retain unions, including meetings with unchanged. These commenters also
the hardship exemption and not to national/international secretary- expressed concern that unions would
attempt to define with more treasurers and their staffs and follow-up file the new forms late as many unions
particularity the circumstances in which training sessions. do with the current forms.
it might be available. The exemption • Training OLMS staff on the new The majority of the comments
was left deliberately broad in order to forms software and how to respond to specifically dealing with the rule’s
permit accommodation of a wide range inquiries from users. effective date opposed the proposed
of variable situations. Moreover, the effective date saying that it was too
• Establishing and publicizing a toll-
Department is unaware of any problem soon. The commenters, most of whom
free telephone number for software
experienced by the SEC in using a were labor organizations, argued that
trouble-shooting.
similar formulation. If, however, unions the final rule should not be imposed
• Maintaining a help desk with a toll- until the software that will be provided
have serious difficulty with electronic
filing, the hardship exemption presents free telephone number and a dedicated by the Department is tested,
a fail-safe option for any reporting labor email address for handling reporting implemented and fully operational.
organization that needs it. With respect inquiries. Several unions suggested that the
to the suggestion that a union member • Development of users’ guides for effective date be delayed six months to
be allowed to challenge his or her the new forms software. two years. Some commenters said that
union’s exercise of the hardship • Development of Powerpoint given the Department’s experience with
exemption, the Department does not briefings on the new forms software. e.LORS and the SEC’s experience with
believe that such an appeal would be • Presentation of Powerpoint its reporting system, a delay of two to
practical. Exemptions will be granted briefings by OLMS field offices in four years before full implementation
only upon a proper showing of need by compliance assistance sessions with was more realistic. Other commenters
the union and the exemption will be filers. suggested that the Department’s
software be subject to a separate review required for submitting the LM–2 and able to make any needed adjustments to
and comment process after it is issued. T–1 reports, a tentative schedule of their bookkeeping and data processing
The Department continues to believe seminars for international, national, practices to capture and allocate
that an earlier or immediate effective intermediate and local unions hosted transactions in the categories prescribed
date would not be appropriate for a throughout the country, an email list- by the Form LM–2 and to later transmit
proposed rule of this magnitude. Some serve to provide periodic updates to such data without incurring an undue
interim period will be needed for interested parties, web-based materials burden.
unions to adapt their recordkeeping that include frequently asked questions, Addressing unions’ additional
practices to the new requirements. a description of the Form T–1 concerns, it is the Department’s position
Similarly, there will be a later need for registration process, and other topics of that neither the time spent by the SEC
the Department and labor organizations interest to filers. in the development of its Electronic
to test and implement the reporting Once union officials understand the Data Gathering, Analysis, and Retrieval
software that will be provided by the new reporting requirements it will be (EDGAR) system nor the time required
Department. The aim of the Department necessary to make some adjustments to for the Department to implement its
is to balance some reasonable amount of their recordkeeping systems. Most e.LORS system provide appropriate
time that unions will need to adapt to changes will be very minor. The most paradigms for determining the time
the new reporting requirements and the crucial change involves the tracking of necessary to implement mandatory
members’ immediate interest in disbursements to ensure that each electronic filing of the Form LM–2.
knowing how their dues money is spent. disbursement is allocated to the proper First, the phase-in of the mandatory
This member interest is reflected in the electronic filing on the SEC’s EDGAR
disbursement category with a
numerous comments from members system was completed on May 6, 1996,
descriptive purpose. Each union will
indicating general support for the over seven years ago. See 61 FR 13544;
track new disbursements according to
proposed changes and emphasizing the http://www.sec.gov/info/edgar/
the account classifications created by
members’ right to have information regoverview.htm. Since then, technology
that union and classify them according
concerning their union. has continued to develop, building, in
In addressing unions’ concerns, it is to the disbursement categories of the
revised Form LM–2. Some commenters part, on experience gained from using
appropriate to sketch the tasks to be systems like EDGAR, and computerized
undertaken by unions to meet the asserted that this is a dramatic policy
shift tantamount to imposing a new recordkeeping and communication have
requirements of the new reporting become more accessible and better
regime. The tasks involve two phases of recordkeeping system, which would
cause a significant burden, but this understood. As the SEC itself
preparation. First, filers will need to commented, in implementing recent
study and understand the new ignores the fact that unions have always
been required to allocate each improvements:
requirements, make adjustments to the
union’s recordkeeping system, and train disbursement to one or more Recent technological advances, most
staff. Second, filers that choose to take disbursement categories on the Form notably the rapidly expanding use of the
LM–2. For example, unions have always Internet, have led to unprecedented changes
advantage of the electronic importation
been required to allocate credit card in the means available to corporations,
features of the Department’s reporting government agencies, and the investing
software will need to create reports payments to multiple categories of the
Form LM–2 based upon the purposes of public to obtain and disseminate
within their accounting systems that information. Today many companies,
will be used to export their data to each charge. A single credit card charge regardless of size, make information available
populate the reporting forms. As to a travel agent may include expenses to the public through Internet web sites. On
discussed in greater detail below, the that must be allocated to three or more those sites and through links from one web
first phase likely can be completed different places on the Form LM–2. The site to others, individuals may obtain a vast
within a few weeks of the rule’s Department has changed the categories amount of information in a matter of seconds.
publication and certainly by the but not the underlying method of Advanced data presentation methods using
allocating these disbursements. In fact, audio, video, and graphic and image material
effective date of the rule, whereas the
there actually fewer disbursement are now available through even the most
second phase need not be completed inexpensive personal computers or laptops.
until the form is filed, at the earliest, categories on the new form and the five
nearly 18 months after publication of new categories are thoroughly defined 65 FR 24788–89.
this rule (and then only for unions that in the instructions to the form. After Moreover, the EDGAR system is far
have fiscal years beginning on January allocating the disbursement, they will more complex and multi-faceted than
1, 2004). enter a brief purpose for each the filing of the one or two forms
The grace period of about three transaction in a memo field. These sorts contemplated by this rule. In fact,
months is relevant to the first phase of operations should be easy to perform EDGAR accommodates the filing of over
discussed above, which begins since such changes to the classification 75 separate forms by a variety of
immediately upon publication of the of transactions and the creation or different types of entities. See http://
final rule. The preamble, instructions modification of accounts are made on a www.sec.gov/info/edgar/
and forms will be the authoritative week-to-week or day-to-day basis in the forms.htm#common. The fact that such
source of information regarding the new normal course of business. It may a massive system could be implemented
reporting requirements. Union officials require some retraining to understand with a three-year phase-in period over
will use these documents to understand the new categories and the use of the seven years ago lends support to the
what is required of them. Additionally, memo field, but this is guidance that Department’s assertion that the far
the Department will provide substantial bookkeepers are accustomed to simpler architecture required to permit
compliance assistance that will include receiving. Nothing during this phase is similar organizations to file two forms,
an overview of the requirements, a particularly time consuming, difficult, at most, can be implemented in much
comparison to the old requirements, or outside the common routine of less time. In addition, the Department
guidance to assist unions to configure individuals engaged in bookkeeping and will be able to utilize both the
off-the-shelf software to best capture the accounting. In sum, the Department architecture developed for e.LORS, as
information needed to provide the data believes that Form LM–2 filers will be well as experience gained in developing
and implementing that system, to T–1 (Trust Annual Report) in order to The association also suggested that it
facilitate the establishment of a system fulfill the purpose of the statutory might be appropriate to require smaller
of mandatory electronic filing for the reporting requirements. labor organizations, otherwise eligible to
current Form LM–2. Although some A ‘‘trust in which a labor organization file their labor organization annual
commenters also pointed to delays in is interested’’ is defined in Section 3(l) financial report on Forms LM–3 or LM–
publication of recordkeeping rules by of the LMRDA (29 U.S.C. 402(l)) as 4, to file their annual reports on the
the Occupational Safety and Health follows: more detailed Form LM–2 for any year
Administration, those delays are * * * a trust or other fund or organization in which such organizations meet the
irrelevant inasmuch as they were related (1) which was created or established by a requirement for filing the Form T–1.
to policy changes, not technical labor organization, or one or more of the Many unions submitted comments
difficulties. See 68 FR 38601. trustees or one or more members of the that would except some unions from the
The Department continues to believe governing body of which is selected or Department’s proposal. These
that labor organizations will have appointed by a labor organization, and (2) a commenters stated that unions,
adequate time to conform to the revised primary purpose of which is to provide regardless of the size of their
forms and comply with the more benefits for the members of such labor membership or their financial resources
detailed reporting requirements. As organization or their beneficiaries. would have virtually the same
indicated above, unions will have a The Department sought comments on responsibility and tasks, even though
minimum of approximately 18 months a number of issues relating to this new only a small number of the unions
before their first report on the new form, which are discussed below. would have the staff or other resources
forms is due. During this time, they to obtain, prepare, and file timely and
already will have made changes to their A. Who Should Be Required To File a accurate information on Form T–1.
bookkeeping practices needed to Form T–1 Many commenters stressed the
capture the information that will be 1. Labor Organizations That File Forms limited human resources available to
reported. Thus, the unions will be able LM–3 and LM–4 some unions. These commenters
to focus their efforts on training their observed that many unions have no
The Department proposed that all clerical employees and must rely either
staff in the new requirements of the
labor organizations, including smaller on part-time officers or, in very many
actual reporting software. As the
Department has acknowledged, there labor organizations eligible to file their cases, unpaid members who volunteer
were some complications with the labor organization annual financial their services after work hours. In the
implementation of the previous e.LORS report on Forms LM–3 and LM–4, as view of these commenters, very few of
system. The Department has learned well as larger labor organizations those officials and employees have the
from this process. Building upon the required to file Form LM–2, would be computer or accounting experience or
existing infrastructure, the Department required to file Form T–1 for any trust training sufficient to readily process and
is employing more advanced technology in which a labor organization is submit the necessary financial
in developing the reporting software interested if the total annual receipts of information for the Form T–1 in
than was the case in the initial e.LORS the trust were at least $200,000 and to electronic format.
project. Similar software has proven which the labor organization Commenters stated that many labor
efficient with other government contributed at least $10,000, or to which organizations conduct and record their
agencies. $10,000 was contributed on behalf of financial and other union affairs by
As discussed above, the Department the labor organization, during the hand and seldom have ready access to
has decided to delay the effective date reported year. The proposed Form T–1 current-generation computers, software,
of the final rule by postponing its is designed to require unions to report and other electronic equipment. These
application until unions begin their next financial information about union funds commenters expressed concern that
fiscal year after December 31, 2003, i.e., that have been invested in such trusts, these organizations, which already often
about three months after publication of information that has not been disclosed find it necessary to hire professional
this rule. Approximately two thirds (2⁄3) under the current reporting regimen for assistance to meet current reporting
of the reporting unions begin their fiscal unions. The proposed reporting scheme requirements, in many cases would be
year on January 1. The first report was established to discourage constrained further to hire and rely on
containing the information required circumvention or evasion of the computer, accounting, legal, and other
under the new rule for these unions reporting requirements for such trusts, consulting assistance to comply with
would be due on March 31, 2005. Labor while imposing minimal burdens on the Department’s Form T–1 proposal.
organizations that use a fiscal year labor organizations. The Department Additionally, these commenters stated
beginning on a date other than January invited comments on whether this that such unions would find it
1 will have even more time to comply. aspect of the Department’s proposal necessary to expend significant amounts
strikes an appropriate balance between of their resources for training on how to
IV. Summary of Changes to the the need for transparency and any meet their reporting obligations. The
Proposal to Require Form T–1 burden on labor organizations. commenters further stated that, because
Reporting for Trusts Numerous commenters expressed there is a significant turnover of the
The Department proposed to require their views on the reporting burden that organization’s part-time and unpaid
all unions to report the assets, liabilities, the proposal would entail. Some officials and employees, those costs may
receipts, and disbursements of all funds commenters discussed the likely impact not only be a significant but also a
or organizations that are not wholly on unions without substantial resources recurring expense for small
owned by the union, but that meet the invested in covered trusts. A business/ organizations. Commenters stated that
statutory definition of a ‘‘trust in which trade association asserted that the many organizations would be faced with
a labor organization is interested,’’ that reporting burden on such unions would the dilemma of raising the dues of, or
have annual receipts of $200,000 or be significantly less than on unions with cutting services to, their members.
more and to which the labor more substantial assets, given that the The Department has been persuaded
organization contributes at least $10,000 burden likely would be proportional to that the relative size of a union, as
during the reporting year on a new Form the size of a union’s overall finances. measured by its overall finances, will
affect its ability to comply with the a labor organization is interested, it is These organizations stated that, at a
proposed requirements relating to trusts appropriate to retain the existing minimum, unions be required to append
in which the union has an interest. For inclusion of the receipts of a subsidiary to their Form LM–2 filings the pertinent
this reason, the Department has decided (which is more clearly and more audit or annual report filed with the
to limit the requirement for filing Form narrowly defined than a single entity) in other government agency.
T–1 to labor unions that have receipts the receipts of a reporting union for the In response to these comments, the
of at least $250,000 per year, the same sole purpose of deciding whether the Department has continued to provide
filing threshold that applies to union must file a Form LM–2. four exceptions to the Form T–1
organizations that must file their annual Otherwise, removing the requirement requirements: (1) A PAC fund, if
financial reports on Form LM–2. for unions with annual receipts of publicly available reports on the PAC’s
Accordingly, the Department’s final rule $250,000 or less to file a report funds are filed with federal or state
excepts from the trust reporting regarding trusts in which they are agencies; (2) any political organization
requirement labor unions that are interested would permit unions to for which reports are filed with the IRS
eligible to file Forms LM–3 and LM–4. allocate assets to a wholly owned, under 26 U.S.C. 527; (3) employee
Because the proposed requirement controlled and financed entity and benefit plans filing a complete and
that Form LM–3 and –4 filers file a avoid even the reporting requirements timely report under ERISA; and (4) any
Form T–1 for trusts in which they are imposed with respect to such entities covered trust or fund for which an
interested was the only significant before these reforms. independent audit has been conducted
change proposed with respect to Forms in accordance with standards prescribed
LM–3 and LM–4, neither these forms 2. Other Exemptions in the final rule. For the first three
nor the Instructions for them will be The Department originally proposed categories, the exception is complete.
included in the appendix to this rule. In four express exemptions to the Form T– No Form T–1 is required. For the fourth
addition, a change will be made to the 1 Trust Annual Report: (1) Where an category, a union must file the Form T–
Instructions for Form LM–2 to make organization makes freely available, and 1, but can file the independent audit in
them consistent with the unchanged specifies the location of, an audit of the lieu of providing the financial
Instructions for Forms LM–3 and –4, trust pursuant to 29 U.S.C. 186(c)(5)(B); information otherwise required by Form
which provide that the term ‘‘total (2) where an organization files publicly T–1. The audit will be required to meet
annual receipts’’ includes receipts of available reports about the trust as a either the requirements of 29 CFR
any subsidiary organization, defined as Political Action Committee (PAC) with 2520.103–1 et seq. (relating to annual
* * * any separate organization of which the a state or federal agency; (3) where a reports and financial statements
ownership is wholly vested in the reporting report about the trust as a political required to be filed under ERISA) or the
labor organization or its officers or its organization is filed with the Internal standards described in detail in the
membership, which is governed or controlled Revenue Service pursuant to 26 U.S.C. Instructions to Form T–1.
by the officers, employees, or members of the 527; or (4) where the trust is required to The standards prescribed in the Form
reporting labor organization, and which is file an annual report pursuant to ERISA T–1 Instructions, generally, require that
wholly financed by the reporting labor (29 U.S.C. 1023). The Department the audit be performed by an
organization. invited comments concerning whether independent qualified public
While an entity that meets the the proposed Form T–1 procedures— accountant who, after examining the
definition of a subsidiary will also be a including the enumerated exemptions to financial statements and other books
trust in which the union is interested, Form T–1 filing—were appropriate and records of the trust, as the
the assets of which would not normally given the facts and circumstances of accountant deems necessary, certifies
be included in ‘‘total annual receipts’’ of current union reporting. that the trust’s financial statements are
the reporting union, an exception to the Many labor organizations supported presented fairly in conformity with
normal rule will be added to the the proposed Form T–1 exemptions as accepted accounting principles. Notes to
Instructions to make clear that the assets a reasonable approach that provides the financial statements included in the
of a trust should not be included unless valuable financial disclosure, while audit must disclose, for the preceding
the trust is also a subsidiary, as defined avoiding needless duplication of effort. twelve month period: Losses, shortages,
above. The NPRM pointed out that one Other unions, apparently either or other discrepancies in the trust’s
alternative to the proposed criteria for mistaken about, or unaware of, the finances; the acquisition or disposition
filing a Form T–1 would be to require parameters of the exemptions, criticized of assets, other than by purchase or sale;
a report for any entity that is dominated the Form T–1 on the ground that many liabilities and loans liquidated, reduced,
or controlled to such a degree that trusts are heavily regulated by ERISA or written off without the disbursement
assets, liabilities, receipts and (and other federal laws) and are already of cash; and loans made to union
disbursements of the entity effectively required to file similar financial reports officers or employees. The audit must be
are those of the union itself. with government agencies. In the accompanied by schedules that disclose,
Commenters were specifically invited to Department’s view, these comments are for the preceding twelve month period:
comment on the fact that assets and best read to provide implicit support for A statement of the assets and liabilities
receipts of such an entity ‘‘would be the proposed exemptions. Several of the trust, valued at current value, and
reportable as assets and receipts of the commenters suggested that the the same data displayed in comparative
union itself (rather than assets of an Department extend the Form T–1 form for the end of the previous fiscal
organization in which the union has an exemption to any entity willing to be year of the trust; a statement of trust
interest)’’ and that the addition of such audited by an independent certified receipts and disbursements; and a list of
amounts might require a union to file a public accountant and willing to make all entities, including the name and
Form LM–2 rather than a Form LM–3 or that audit publicly available, description of the entity, with which the
LM–4. See 67 FR 79285. Although, as irrespective of whether the trust trust conducted $10,000 or more of
explained in Section IV. A. 3, the currently files an audit or report with a commerce during the reporting period,
Department has rejected reporting based government agency. Finally, several as well as the aggregated total of all
on ‘‘single entity’’ status in favor of the trade associations suggested that the receipts/disbursements with each such
statutory definition of a trust in which Form T–1 permit no exemptions at all. entity during the reporting period.
These standards overlap partially with this context the need for itemization is One comment suggested that in some
the standards required by the ERISA less significant than it is in reporting the circumstances the $10,000 threshold for
rule, with changes necessary to serve union’s non-trust assets because the labor organization contributions to a
the particular needs of the Department Form T–1 does not apply to trust was too high. That comment urged
in administering the ‘‘interested trust’’ disbursements by labor organizations the Department to modify the proposal
provisions of the LMRDA, as discussed directly. The Form LM–2 already so that a union that contributes either
throughout this section of the preamble. captures specific union disbursements $10,000 or 10% of its total annual
See generally AICPA, Professional and accounts payable to trusts. The receipts, whichever is less, would be
Standards, Special Reports, AU §§ 600 Form T–1 is designed to provide required to file Form T–1. The comment
and 623; FASB, FAS 117, Final information about an entity created by reasoned that amounts of less than
Statements for Not-for-Profit the labor organization, or trustees or $10,000 may be significant, relative to
Organizations, ¶¶ 45, 47, 63. members of the governing body of the organizations overall finances, for
The new audit alternative is aimed at which are selected or appointed by the some unions, and that members of such
promoting disclosure while avoiding labor organization, a primary purpose of unions should have the benefit of
duplication for trusts that are already which is to provide benefits for the knowing how their money is being
subject to an independent audit. The labor organization’s members or their spent. As noted above, the Department
audit option enables unions to avoid beneficiaries. invited comments about the impact that
reporting the detailed financial Many union members recommended the proposed trust reporting
information on a Form T–1 if they are generally greater scrutiny of joint requirement would have on unions with
already receiving an audit that meets the employer-union funds authorized under relatively small assets. The commenters
specifications set forth above, by simply the LMRA. Moreover, while many union have persuaded the Department that
filing a copy of such an audit along with members were critical of the current some smaller unions could encounter
the first page of a Form T–1, which state of joint funds disclosure and significant and recurring difficulties in
provides identifying information. The sought greater Department oversight of complying with the Department’s
criteria set forth above are in line with these funds, these comments can be proposal. The Department’s decision to
standard business practices (id.) and read equally as supporting the limit the requirement for filing Form T–
provide the kind of information in requirements that unions specify where 1 to those unions with annual receipts
which union members who submitted the audit is available. At least one union of at least $250,000 has rendered moot
comments on this issue demonstrated member stated that the critical problem the suggestion to adopt an alternative
an interest. The information required in was that requests for information about Form T–1 filing threshold for union
such an audit, however, is somewhat these funds were ignored—not that the contributions of the lesser of $10,000 or
more general than that otherwise substance of the information provided 10% of the union’s total annual receipts.
required on a Form T–1. For example, was insufficient. Similar reasoning
an audit need not specify the purpose supports extending the opportunity to The Department recognizes that
for disbursements of $10,000 or more by reporting labor organizations to file a amounts less than $10,000 may be
the trust, but need only list the qualifying audit in place of a Form T– comparatively more significant to some
identities of those with whom the trust 1 for any trust. The Department unions. However, the Department
engaged in $10,000 transactions. believes, however, that such audits believes that the value of such
As discussed earlier, no union is should be filed with the Department, information to union members is
required to file an audit for a covered rather than maintained separately from outweighed by the burden such
trust. Instead, the union may choose to the labor organization’s other financial reporting could have on unions without
meet the reporting requirement by information. Their filing with the a professional or even full-time staff.
submitting either: (1) A statement that a Department will promote transparency Such unions also may have
qualifying report (as identified above in and accountability by allowing union comparatively more difficulty in
the categories listed) has been filed with members to access all trust information obtaining the detailed information and
a separate government agency; (2) a quickly and easily in one location. preparing the detailed trust report on
copy of an independent audit meeting Form T–1, especially in electronic
the standards prescribed above; or (3) a 3. Form T–1 Reporting Threshold format.
completed T–1 Form. These The Department proposed a reporting A number of commenters expressed
requirements should not be read as threshold based on the trust’s annual the view that the $10,000 union
diminishing or affecting in any way a receipts and a union’s annual contribution threshold for filing Form
trust’s disclosure obligations under contributions to the trust (or the T–1 was too low and recommended
other applicable law including, but not contribution made on the labor various alternatives:
limited to, ERISA, state and federal organization’s behalf, or as a result of a
reporting laws governing PAC funds, negotiated agreement to which the labor • Two comments suggested that the
IRS regulations governing political organization is a party). The Department $10,000 threshold served a limited
organizations, and Section 302(c) of the proposed $200,000 in annual receipts as purpose because a benefit program
Labor Management Relations Act the trust threshold and $10,000 as the would readily meet that threshold; the
(LMRA), 29 U.S.C. 186(c). threshold for a union’s contributions to comments cited as an example the fact
The audit process provides a valuable the trust. Although most of the that a union with as few as 49 members
qualitative check on the entity’s comments received focused on the size who work full-time and contribute $.10
finances by an independent examiner. of a labor organization’s contribution, per hour to a benefit program would
Among other regulatory schemes, the rather than the size of a reportable trust, meet the threshold. A third comment
SEC, as noted above, recognizes the the Department has decided to raise the suggested that the union annual
important, rigorous role independent reporting threshold to require unions to contribution threshold be raised to
audits serve in its regulation of public report only trusts with annual receipts $25,000.
companies. The Department recognizes of $250,000 or more, consistent with the • Two comments stated that the
that the audit option may not provide increase in the reporting threshold for Department’s proposal would require a
the same detail as the Form T–1, but in the Form LM–2. union to file detailed reports on Form
T–1 regarding trusts in which a union established by a labor organization or such labor organizations meet the
may have only a 5% ownership interest. one or more of the members of the annual contribution threshold that
Those comments urged the Department governing body of which is selected or would trigger the obligations to file
to revise the proposal so that the appointed by a labor organization. Thus, Form T–1 under the Department’s
threshold was based on ownership or by definition one or more labor proposal, all labor organizations that are
control of at least 50% of the trust. organizations probably will have required to file Form T–1 will submit
• For similar reasons, three comments significant involvement in the affairs of virtually the same report. Members of
suggested that a threshold of 20% or the trust. As a result, the Department the other participating labor
25% or some other percentage of the anticipates that in most instances the organizations that do not meet the
receipts of the trust would be a better reporting union, either by itself or in annual contribution threshold and that
measure of the union’s relationship with combination with other reporting are not required to file Form T–1 would
the trust that would permit the union to unions, in practice will exercise have access to those trust reports
obtain details of the trust’s financial sufficient influence to require or because the reports are public
operations to be reported on the Form persuade the trust to provide the information under section 205 of the
T–1. information necessary to file a Form T– LMRDA, 29 U.S.C. 435. However, the
The Department has not been 1. It seems likely that in the great Department believes that it is
persuaded that these comments provide preponderance of circumstances it impractical to restrict the reporting to a
a sufficiently balanced and workable would not be necessary for a reporting single labor organization. Although it
alternative to the Department’s union to have anything approaching might be possible to impose the
proposal. The $10,000 threshold for 50% ownership or control of the trust in reporting obligation only on the labor
union contributions proposed by the order to obtain the necessary organization that makes the largest
Department represents, in the information from the trust to prepare contribution to the trust, this rule might
Department’s view, the most and file Form T–1. be difficult to apply unless trusts were
appropriate compromise between an The Department disagrees with the mandated to maintain an easily
amount that is sufficiently high so that suggestion that a union’s reporting accessible and dynamic report of
an undue reporting burden is not threshold be based on the union’s share contributions by each participant in the
imposed on unions with limited of a particular trust’s annual receipts. trust, a condition that the Department is
finances and an amount that is Under this approach, for example, a unable to impose. Allowing self-
sufficiently low so that trusts will be union would have to file a Form T–1 selection among unions also would be a
reported if they receive contributions only if the union’s per annum possible option, but there is no
equal to a significant proportion of the contribution reflects 20% or 25% of the guarantee that this would be workable.
reporting union’s other financial affairs. total contributions received by the trust There is no mechanism by which this
Thus, a threshold contribution of during this period. This approach obligation could be enforced, and a
$25,000 seems excessively high, would operate to except from reporting particular union’s failure to abide by
especially in relation to the other information relating to substantial any voluntary arrangement would deny
financial affairs of labor organizations. contributions by a union, even though members of several unions information
Setting the threshold at this level would such contributions could represent the to which they are entitled. Thus, in the
deny members information about primary investment of the union. Department’s view, this alternative does
financial transactions involving a Moreover, this approach would deny not ensure that members would receive
significant amount of money relative to members information, given the purpose
information about their union’s trust
the union’s overall finances and other of the trust, that is uniquely important
holdings on a regular, predictable, and
reportable financial transactions. to them as union members, even though
Basing a union’s obligation to file a enforceable basis.
the contributions of their particular
trust report on the percentage of the union represents only a relatively small The Department also sought
union’s ownership or control of the trust fraction of the contributions received by comments on an alternative ‘‘single
also does not appear to be a workable the trust. A formula setting the entity’’ test to identify those funds or
or appropriate approach. Union threshold at 20% or 25% of the annual other organizations for which a union
ownership and control in the context of receipts of the trust might exclude from should report assets, liabilities, receipts
a union’s participation in a trust that the reporting requirement those large and disbursements. The NPRM defined
provides benefits to the union trusts that have numerous participating a ‘‘single entity’’ as one that is
membership are very difficult concepts unions. Thus, even though the trust’s ‘‘dominated or controlled by the labor
to quantify. Even if percentages of entire contributions come from unions, organization to such a degree that assets,
ownership or control were susceptible no information would be disclosed by liabilities, receipts and disbursements of
to reasonably precise calculations, in this trust unless a contributing union the entity effectively are those of the
view of the many variables present in exceeds the suggested percentage of union itself.’’ Id. The test focuses on
these situations, there is no readily total contributions. For example, if a such factors as commonality of
apparent figure that would ensure the union need only file a Form T–1 for a ownership, directors and/or officers,
cooperation of the various trusts. trust if it contributes 20% of the trust’s exercise of control, personnel policies,
In any event, it seems unlikely that annual receipts, no disclosure will be and operations. If a related organization
significant ownership or control need be required for even the smallest reportable and the union are effectively a ‘‘single
vested in a single reporting labor trust, i.e., a trust with annual receipts of entity,’’ then the union would be
organization in order to ensure trust $250,000, unless a single union required to include the related
cooperation so that the labor contributes at least $50,000 annually to organization’s financial information as
organization may obtain trust the trust, even though the trust receives part of the union’s own finances on the
information sufficient for filing a Form all or most of its funding from a group appropriate LM form. The Department
T–1. A trust in which a labor of six or more unions. invited comments on the following
organization is interested is defined in The Department recognizes that specific issues: (i) Whether requiring a
section 3(l) of the LMRDA to mean an where one or more labor organizations union to report financial data for any
organization that was created or participate in a trust and fewer than all organization qualifying as a ‘‘single
entity’’ would provide better After consideration of the comments of entries alone for large trusts would be
information to interested union received, the Department has decided overwhelming. Other commenters
members than the current requirements against adopting the proposed ‘‘single supported itemization of Form T–1
for reporting trusts in which the union entity’’ test. The Department agrees that receipts and disbursements. One
has an interest; (ii) whether a union the test is less effective than other organization cited the recent
could easily identify organizations that criteria for determining whether a union Washington Teachers’ Union
satisfy the ‘‘single entity’’ test; and (iii) is responsible for reporting financial embezzlement case as an example of
whether the proposed ‘‘single entity’’ information from related organizations. financial corruption that might have
rule may affect some smaller unions if The criticisms underscore the been prevented by Form T–1
the combined assets and receipts of the difficulties faced by union members in itemization. Commenters noted that the
union and the related organization obtaining financial information from a Form T–1 included a schedule to report
exceed the $200,000 threshold for union: A union could conceal its officer and employee salaries but
requiring use of the proposed Form LM– relationship with the related comments that argued generally that the
2. organization, which would deny form was too burdensome did not
The Department received very few interested union members the specifically address that schedule. After
comments addressing the ‘‘single information necessary for initiating carefully considering the comments, the
entity’’ test, all of which opposed the inquiries; or a union could refuse to Department continues to believe that
proposal. One comment criticized the disclose information on the basis that unions should provide their members
proposed test because it would be more the organization does not meet the with financial information about its
costly to enforce and less effective than standard for a ‘‘single entity’’ significant financial investments with
the current ‘‘bright-line’’ standard (i.e., relationship. In either case, the covered trusts. However, the final rule
the $10,000 contribution threshold). The Department would have to resort to reduces the burden of reporting
comment suggested that a union could litigation to obtain the withheld information about such trusts.
financial information. The ‘‘single As is the case with respect to
simply deny that a related organization
entity’’ test does not reduce these itemization on Form LM–2, the
qualifies as a deemed ‘‘single entity’’
obstacles. Moreover, the Department Department believes the benefits of
and not disclose the financial
acknowledges that the test may be disclosure to union members will
information; interested union members
difficult to apply in some cases. The test outweigh any corresponding burdens
would then have to litigate the issue. upon union officials. Union members
requires close scrutiny of the related
According to the commenter, the have expressed through their comments
organization to determine whether a
relationship between the union and the serious concern over union dues that are
sufficient commonality of personnel,
other organization might not be deposited into trusts and joint ventures
policies and operations exists to deem
apparent to the union members and, as and unaccounted for thereafter. Large
the union and the organization a ‘‘single
a consequence, members would have no trusts will be required to itemize
entity.’’ Union members may encounter
reason to make inquiries about the numerous entries. These trusts,
significant difficulties in obtaining the
relationship between the organizations. necessary information to make the however, will have available to them the
With respect to the impact on smaller comparison, which could reduce the same bookkeeping and accounting
unions, the comment noted that the incentive to conduct such inquiries. software available to unions. Thus, for
proposal might encourage those unions Even a fully informed investigation may the reasons discussed with respect to
to under-report assets to avoid the Form not produce a conclusive answer the Form LM–2, no undue burden is
LM–2 threshold. The comment because reasonable minds could differ imposed upon covered trusts in
suggested lowering the Form LM–2 about the relationship between the compiling the information needed for
threshold or importing the proposed organizations. In contrast, a ‘‘bright the union to file the Form T–1.
Form LM–2 changes into the Form LM– line’’ standard based on a specified Moreover, there has been no suggestion
3 if the Department is concerned about dollar threshold is unambiguous and that covered trusts are ill equipped to
under-reporting. Another comment easy to apply. The threshold determines comply with the bookkeeping or
rejected the Department’s view that the whether the union’s ‘‘interest’’ in reporting requirements established by
related organization’s finances must be another entity is sufficient to require its the final rule. Moreover, the trust
combined with the union’s finances for disclosure. This approach imposes no information will be readily accessible to
all purposes. The comment believed significant burden on interested union any union member with access to the
‘‘single entity’’ reporting only requires members. Internet. In sum, unions have not
the union to report the related asserted that a trust in which a union is
organization’s finances, but not to B. Information Required for a Trust in interested will encounter any significant
combine the two organizations’ income Which a Labor Organization Is burden in connection with the
to determine the applicable LM form. Interested collection of information needed to
Determining the LM Form filing The Department proposed requiring complete a Form T–1, and none is
threshold on the combined receipts of labor organizations to report, on a Form apparent. The unions also have failed to
both entities is ‘‘absurd on its face,’’ T–1, itemized receipts and demonstrate that they will encounter
stated the comment, because a ‘‘single disbursements of a covered trust. The any significant burden in providing the
entity’’ finding recognizes two discrete comments on this proposal, in large information to the Department, a burden
legal entities and is thus unlike a part, mirrored those with respect to that, in any event, is less significant
finding that an organization is a itemization on Form LM–2. Several than the preparation of the Form LM–
‘‘subsidiary’’ of a labor organization commenters suggested that itemization 2. Unlike the Form T–1, the Form LM–
under the current Form LM–2. A third was likely to significantly burden 2 imposes on the reporting union the
comment broadly rejected the ‘‘single affected unions with little direct responsibility to capture the
entity’’ test because it would create corresponding benefit. Labor information needed to prepare the
‘‘misleading’’ information about local organizations, they argued, do not required report with this Department.
unions and generate ‘‘useless’’ financial currently have accounting systems for Many commenters opposed the
data. this type of itemization and the number specific threshold of $10,000 for
itemized receipts or disbursements on in its place, require the union to state filing threshold is met; communicating
the Form T–1. Again, these comments whether the trust has loaned money to with the trust; communicating with
were similar to those on thresholds in officers or employees of the union other participating labor organizations;
Form LM–2. Some commenters during the reporting period on terms obtaining the necessary information;
suggested a greater dollar figure such as that are substantially more favorable and preparing and filing the Form T–1.
$25,000 (possibly indexed to inflation) than terms available to others, or has A comment from a third union stated
or a percentage of the total receipts or forgiven loans to officers or employees that the governing rules of its national
disbursements of the trust such as 20% of the union during the reporting union require its books and LM report
or 25%. Commenters asserted that the period. If the union answers in the to be audited and filed with the national
use of a percentage threshold would be affirmative, information about the loan union before the deadline for filing the
more consistent with the Department’s must be provided in Item 25 (Additional local union’s LM form and that
current regulation of employee benefit Information). This information will be requiring Form T–1 to be filed at the
plans. One organization recommended a beneficial to union members without same time would make it even more
disjunctive threshold for itemization of burdening every reporting union. difficult for locals of that national to
$10,000 or 10%, the latter to capture Several labor organizations raised meet their reporting deadline for their
those instances where a union privacy challenges to the Form T–1 annual reports.
contributes less than $10,000 but still itemization requirement, specifically The Department’s intention in
controls a significant portion of the that disclosing the name and address of permitting a union to file its Form T–
trust. Finally, one union member individuals receiving trust funds (as 1 within ninety days after the trust’s
recommended that every disbursement well as the date, purpose, and amount fiscal year was to ease the burden for
be itemized regardless of size. of the transfer) would be unwise and both the trust and the union. The
As discussed in greater detail above, likely unlawful under federal privacy Department anticipates that a trust more
the Department continues to believe that laws. Some commenters recommended readily will be able to provide necessary
$10,000 is the appropriate threshold for aggregating all disbursement amounts. information to the reporting labor
itemization. This amount, in the While aggregating all disbursements organization at the conclusion of the
Department’s view, represents a would substantially reduce the amount trust’s fiscal year and that a labor
substantial transaction that would be of and quality of the information reported organization will have correspondingly
interest to union members. For that on a Form T–1, the Department is less difficulty in obtaining information
same reason, a percentage threshold sympathetic to the concerns that the at that time.
would be inappropriate, as it would disclosure of information in a Form T– The Department recognizes that
deny information to members of unions 1, which will be available on the reporting labor organizations must
with considerable assets about Internet, should not result in the obtain this information from their trusts,
substantial transactions, denying them disclosure of private information but most of the steps outlined by the
information about transactions that regarding individuals. Accordingly, the commenters above should take little
might have a significant impact on the Department has concluded that labor time. A labor organization should
union’s finances. Conversely, the organizations will be permitted to use a readily be able to determine from its
Department believes that the other procedure similar to that used with own records whether the labor
proposals to eliminate any threshold, or respect to sensitive information reported organization’s own contributions to the
to replace it with a lower dollar figure on the Form LM–2 itself. If the labor trust equaled or exceeded $10,000
or a percentage of the assets of the union organization concludes that disclosure annually. A labor organization is likely
(or the trust) (which could operate to of specific information about a trust’s to know from past audits or other
require itemization of transactions of disbursements to, or receipts from, information provided by the trust
less than $10,000) would impose an individuals will result in the whether the trust’s annual receipts
unwarranted burden on the unions inappropriate disclosure of private approximate $250,000 or more, and,
without corresponding benefit to the information regarding such individuals, whether or not the labor organization
members, given the unlikely impact on the disbursement or receipt may be has that information, the labor
the overall financial health of most aggregated with, and reported only as a organization’s request to the trust for
unions of transactions that are between part of, the total amount of information necessary for filing Form T–
$10,000 and a de minimis amount. In disbursements and receipts below the 1 could simply be conditioned on the
the Department’s view, the difference itemized reporting threshold. The labor trust having that level of annual
between the reporting threshold for organization that elects to use this receipts. It should not be necessary to
itemized transactions under the Form procedure, however, must indicate on seek any information or assistance from
LM–2 ($5,000) and the threshold under the Form T–1 that it has done so and the other unions that participate in the
Form T–1 ($10,000) is appropriate use of this procedure will constitute trust. Even the assembly of information
because the finances of a trust are less ‘‘just cause’’ for union members to by the trust and the subsequent
likely to directly impact union members examine more specific information preparation of Form T–1 by union
than the expenditures by the union regarding these transactions, unless officials should not require substantial
itself. disclosure is prohibited by law or would expenditures of time, inasmuch as the
One commenter questioned the endanger the health or safety of an Form T–1 requires only relatively basic
wisdom of setting a $250 reporting individual. information regarding receipts,
threshold under Schedule 4 for loans to disbursements and payments to officers
officers, employees, or members. The C. Deadline for Filing a Form T–1 and employees of the trust. The time
commenter stated that such threshold Comments from two unions stated and difficulty a labor organization may
would require the reporting of routine that requiring the Form T–1 to be filed experience in obtaining and filing
transactions, including relatively small within ninety days after a trust’s fiscal information on Form T–1 is thus
credit card balances and most loans year would not provide sufficient time minimized.
from a credit union trust. In response, for labor organizations to take all Two commenters, a union and an
the Department has decided to eliminate necessary steps for filing Form T–1, accountant, observed that reporting
this Schedule from the Form T–1, and, including: determining whether the unions may not control a trust for which
information must be filed on Form T– means to effectuate union self- its trusts, it is unlikely that many Form
1 and that it may be difficult for some government. The statute provides no T–1 reports, if any, will be required in
unions to obtain the necessary authority to waive this deadline, even the first year. For example, if a union’s
information from trusts. Though the when a union has made a good faith fiscal year begins on January 1, 2004, its
trusts may have legal identities separate effort to comply with the deadline. The Form LM–2 will be due at the end of
from reporting unions, the Department Department has concluded that neither March of 2005. If that union has an
anticipates that in many and probably the current nor the revised reporting interest in a trust that begins its fiscal
most instances the reporting union forms for labor organizations are likely year on October 1, the first fiscal year
either by itself or in combination with to pose unreasonable difficulties for for which a Form T–1 will be required
other reporting unions will in practice union officials who are reasonably for such a trust is the fiscal year that
exercise sufficient influence to require diligent in their efforts to timely file the ends on September 30, 2005. Obviously,
or persuade the trust to provide the union’s Form LM–2 and any Form T–1. no Form T–1 will be available to file
necessary information. In this Another commenter, also an with the union’s first revised Form LM–
connection, if the union’s members accountant, suggested that a reporting 2 filed in March. If, however, a union
request further information about a labor organization be permitted to file that begins its fiscal year on January 1,
particular trust or further details about information from the ‘‘latest available’’ 2004, has an interest in a trust that also
a reported transaction, the union must report by the trust and that it would be begins its fiscal year on January 1, 2004,
disclose to the member any relevant simpler to require Form T–1 to be filed the union should file a Form T–1
information within its possession at the at the same time that the labor covering the trust’s 2004 fiscal year
time of the inquiry and make a good organization must file its annual report, when the union files its Form LM–2 in
faith effort to obtain additional namely within ninety days after the end March of 2005.
information from the trust. of the labor organization’s fiscal year,
The Department recognizes that there V. Regulatory Procedures
rather than ninety days after the end of
may be some instances in which a trust A. Executive Order 12866
the trust’s fiscal year. As discussed
will not fully cooperate in providing
above, only certain reports will be This rule has been drafted and
timely information to the reporting
acceptable as substitutes for the Form reviewed in accordance with Executive
union. However, the Department
T–1. Nonetheless, this comment Order 12866, section 1(b), Principles of
expects that, in those infrequent
suggests a reasonable approach that will Regulation. The Department has
instances, the reporting union officials
will be able to demonstrate that they ensure that union members are able to determined that this rule is not an
made a good-faith effort to obtain timely obtain relevant information about a trust ‘‘economically significant’’ regulatory
information from the trust. In such in which his or her union has an action under section 3(f)(1) of Executive
situations, the Department is prepared interest, while reducing any burden for Order 12866. Based on an analysis of
to exercise any available investigative the reporting union. Thus, the the data the rule is not likely to: (1)
and other authority to assist the Department has decided to require a Have an annual effect on the economy
reporting union to obtain the necessary reporting labor organization to file its of $100 million or more or adversely
information. One commenter, an Form T–1(s), or qualifying audits in affect in a material way the economy, a
accountant, suggested that some of the substitution for Form T–1(s), at the same sector of the economy, productivity,
information required to be reported on time as it files its own Form LM–2. The competition, jobs, the environment,
Form T–1 may be reported by the trusts Form T–1, or qualifying audit, however, public health or safety, or state, local, or
under other federal reporting need not cover the same reporting year tribal governments or communities; (2)
requirements with later reporting as the Form LM–2. Rather, the reporting create a serious inconsistency or
deadlines and that unions that file labor organization must provide, at the otherwise interfere with an action taken
reports regarding those trusts should be time it files its Form LM–2, a Form T– or planned by another agency; or (3)
permitted to use those later deadlines. 1 or qualifying audit for the trust’s most materially alter the budgetary impact of
The Department concludes that a rule recent fiscal year that ended during the entitlements, grants, user fees, or loan
with such uncertain deadlines would be labor organization’s reporting year— programs or the rights and obligations of
difficult to administer and would not be essentially the ‘‘latest available’’ report. recipients thereof. The Department
easily ascertained and applied by all If the trust’s fiscal year coincides with estimates the total cost of the final rule
parties, including labor organizations, the reporting labor organization, the to be $79.9 million in the first year,
their members, the trusts, the labor organization will have 90 days in $44.1 million in the second year, and
Department, and the public. which to obtain the necessary $43.2 million in the third year (see the
One commenter, a union business information to complete a Form T–1, or following Paperwork Reduction Act
representative, urged the Department to the audit. If a trust’s fiscal year ends on section for a description of how these
include a procedure for granting a different date than the labor costs were estimated). The three-year
extensions of time to labor organizations organization’s, the reporting union will average cost of the rule is $55.7 million
for filing their financial reports. The have, in addition, any time between the per year. The Department also estimates
commenter argued that some labor end of the trust’s most recent fiscal year a benefit of $2.6 million per year in
organizations already find it difficult to and the end of the union’s own fiscal savings for 501 smaller unions because
file current LM forms in a timely year to obtain the information. they can file the less burdensome Form
manner. Section 207 of the LMRDA Moreover, this requirement, like all LM–3 as a result of increasing the new
expressly states that each labor other changes made by this rule, will be Form LM–2 reporting threshold to
organization annual financial report effective for fiscal years beginning on or $250,000. Further, there are substantial
must be filed within ninety days after after January 1, 2004. Accordingly, a unquantifiable benefits that result from
the organization’s fiscal year. This union will be required to file a Form T– the greater transparency of labor
requirement is consistent with the 1 only for fiscal years beginning on or organizations’ financial information to
evident intention of Congress that union after January 1, 2004, of trusts in which its members and other benefits of
members and others have access to it has an interest. Because a union need deterring fraud or discovering it earlier.
regular and timely annual reports as a only file the ‘‘latest available’’ report for As a result, the Department has
concluded that a full economic impact efforts to comply with the requirements misplaced, as is the objection that its
and cost/benefit analysis is not required of the Order. As explained below, the view of the most cost effective
for the rule under section 6(a)(3) of the purpose of Executive Order 12866 is to alternative was not proposed. The
Order. However, because of its facilitate the effective internal principles, objectives, and requirements
importance to the public, the rule was management of the Federal Government of Executive Order 12866 are designed
treated as an otherwise significant with respect to the development of to guide and assist the agency and OIRA
regulatory action and was reviewed by regulatory actions. Indeed, Sections during the development of the agency
the Office of Management and Budget 6(a)(3)(E) and 6(b)(4)(D) in fact provide rule and are not addressed to the public.
(OMB). that an agency and OIRA will make The remedy for any agency failure to
One commenter stated that the available to the public various comply with some requirement of the
Department failed to meet certain information and documents regarding Executive Order, as the excerpt from
requirements of Executive Order 12866. the development of agency rules only Section 10 referred to above makes
Specifically, the comment asserted that ‘‘[a]fter the regulatory action has been clear, is not judicial review at the behest
the Department failed in several published in the Federal Register or of the regulated or benefited community
respects to adhere to the ‘‘Principles of otherwise issued to the public.’’ under the proposed rule; rather, the
Regulation’’ set forth in Section 1(b) of Inasmuch as Executive Order 12866 is remedy is the President’s directive in
the Order: intended solely for the internal Section 8 of the Order that the agency’s
a. The Notice of Proposed Rulemaking management of federal regulatory rule may not be published in the
did not demonstrate that the actions, the Order does not provide for Federal Register or otherwise issued to
Department engaged in any judicial review or other public review of the public until OIRA either waives or
investigation and assessment of the the procedures and substantive completes its review.
problems addressed by the proposed requirements of the Order during the Some of the procedural and
rule. developmental stages of a rule. That is substantive requirements of Executive
b. The Notice of Proposed Rulemaking underscored in several provisions of the Order 12866, as expressly indicated in
did not demonstrate that the Order. For example, Section 10 of the Section 1(b)(6) (‘‘recognizing that some
Department considered any non- Order states: ‘‘This Executive Order is costs and benefits are difficult to
regulatory alternatives for intended only to improve the internal quantify’’), are not susceptible to precise
accomplishing the objectives of the management of the Federal Government definition and measurement. The
proposed rule. and does not create any right or benefit, insistence of the comment that the
c. The Notice of Proposed Rulemaking substantive or procedural, enforceable at Department did not choose ‘‘the most
provided no evidence that the proposed law or equity by a party against the cost effective means to address the
rule would reduce financial United States, its agencies or alleged problem’’ is itself not a
mismanagement of labor organizations instrumentalities, its officers or statement that can be assessed with
or was the most cost effective means to employees, or any other person.’’ objective precision. Any calculus of the
address the objectives of the rule. The nature of Executive Order 12866 costs and benefits of the proposed rule
d. There is no documentation that the as a tool for the development and is based in significant part on the value
Department’s proposed rule is based on internal review of federal rules also is of transparency and accountability in
the best reasonably obtainable evident throughout the text of the Order. union financial affairs as well as on very
information. For example, ‘‘The Principles of difficult projections regarding the
e. The proposed rule ignores the Regulation,’’ which the comment impact of the accessibility of financial
preference expressed in Section 1(b)(8) appears to have treated as setting forth information on sound union financial
of Executive Order 12866 for substantive legal requirements, is management and union democracy
performance objectives rather than introduced by the statement that generally. That increased transparency
design standards. agencies ‘‘should’’ adhere to those in union financial affairs will deter
The comment also asserted that the principles ‘‘where applicable.’’ Section some mismanagement and malfeasance,
requirements for significant regulatory 1(b)(8), as the comment suggests, promote democratic values in unions,
action set forth in Executive Order expresses a preference for rules that and prevent the loss of trust by members
12866 were not properly observed in establish performance objectives rather and the loss of confidence by the public
that: than rules that mandate specific generally in unions and their officials
a. The Department did not engage in behavior or the specific manner of cannot be seriously doubted. But the
any cost-benefit analysis of the compliance, but states that this should Department recognizes that it is very
proposed rule. be sought ‘‘to the extent feasible.’’ difficult to quantify and balance the
b. The Department did not seek the Section 1(b)(6), as suggested by the associated costs and benefits of those
involvement of those intended to benefit comment, provides for an assessment of matters with any precision.
from and expected to be burdened by the costs and benefits of a proposed rule The Department has concluded,
the proposed rule. but adds, ‘‘recognizing that some costs therefore, that to the extent feasible,
c. The Office of Information and and benefits are difficult to quantify.’’ In appropriate, and necessary, the
Regulatory Affairs (OIRA) of the Office the instant rulemaking, the Department Department has disclosed in the Notice
of Management and Budget (OMB) did has assessed fully the costs and benefits of Proposed Rulemaking and, more
not take sufficient time to review the associated with the final rule. extensively, in this preamble to the final
Department’s proposed rule for The commenter’s demand that the rule the pertinent aspects of the
purposes of Executive Order 12866. efforts of the Department and OIRA to Department’s assessment of the
As an initial matter, the Department comply with the procedural and problem, the information relied on, the
firmly believes it has complied fully substantive principles, objectives, and costs and benefits involved, the
with E.O. 12866 in all relevant respects. requirements of Executive Order 12866 alternatives considered, and the most
The comment appears to have a be documented in detail, be described appropriate remedy. For the various
fundamental misapprehension of the exhaustively for the review of the public reasons outlined above and contrary to
purpose and function of Executive at this time, and be evidenced in the the apparent assumption of the
Order 12866 and of the Department’s Notice of Proposed Rulemaking is comment, Executive Order 12866 did
not require the Department to set forth regulation that became effective on it essentially impossible for anyone to
in the Notice of Proposed Rulemaking or October 1, 2000, that the maximum determine with any degree of specificity
in this preamble other evidence of the annual receipts allowed for a labor what union operations their dues are
Department’s efforts to comply with the union or similar labor organization and spent on, without which the purposes of
Order in developing and submitting this its affiliates to be considered a small the LMRDA are not met.
proposal to OIRA for review. organization or entity under section Today’s union members need relevant
601(4), (6) of the Regulatory Flexibility information provided in a usable format
B. Small Business Regulatory Act was $5.0 million. 13 CFR 121.201 in order to make the decisions necessary
Enforcement Fairness Act [Code Listing 813930]. This amount was to exercise their rights as members of
The Department has concluded that adjusted for inflation to $6.0 million by democratic institutions. The
this rule is not a ‘‘major’’ rule under the a regulation that became effective on information provided members on the
Small Business Regulatory Enforcement February 22, 2002. Accordingly, the current forms lags well behind the
Fairness Act of 1996 (5 U.S.C. 801 et following analysis assesses the impact financial information available to them
seq.). In reaching this conclusion, the of these regulations on small entities as in other contexts of their lives as
Department has determined that the rule defined by the applicable SBA size consumers, citizens, and investors. The
will not likely result in (1) An annual standards. Department is committed to maintaining
effect on the economy of $100 million accountability and promoting
1. Statement of the Need for, and transparency with full and fair
or more; (2) a major increase in costs or
Objectives of, the Rule disclosure by labor organizations.
prices for consumers, individual
industries, Federal, State or local The following is a summary of the Providing additional detail on Form
government agencies, or geographic need for, and the objectives of, the final LM–2 and requiring similar disclosure
regions; or (3) significant adverse effects rule. A more complete discussion is on the new Form T–1 of information
on competition, employment, contained in the preamble above. about trusts in which the labor
investment, productivity, innovation, or The Department is revising the forms organization has an interest is necessary
on the ability of United States-based labor organizations use to file the to give union members an accurate
enterprises to compete with foreign- annual financial reports required by the picture of their labor organization’s
based enterprises in domestic or export Labor-Management Reporting and financial condition and operations and
markets. Disclosure Act of 1959, as amended to prevent the circumvention or evasion
(LMRDA or Act). This final rule of the statutory reporting requirements.
C. Unfunded Mandates Reform modifies Form LM–2, which is the The revision of Form LM–2 is also
For purposes of the Unfunded report required to be filed by the largest necessary to improve its usefulness as a
Mandates Reform Act of 1995, this rule labor organizations and creates a new deterrent to financial fraud and
does not include a Federal mandate that Form T–1 for these unions to report the mismanagement. OLMS case files
might result in increased expenditures assets, liabilities, receipts, and repeatedly demonstrate that this goal of
by State, local, and tribal governments, disbursements of trusts in which a labor the Act is not being met. Over the past
or increased expenditures by the private organization has an interest. To reduce five years, OLMS investigations resulted
sector of more than $100 million in any the burden on smaller labor in over 640 criminal convictions. As a
one year. The basis for the Department’s organizations, the final rule also raises remedy, the courts ordered the
estimate of the likely cost of compliance the threshold for filing Form LM–3 to responsible officials to pay $15,446,896
with this rule is set forth above. annual receipts of between $10,000 and in restitution, in addition to debarring
$249,999 to correspond with the higher them from union service for a combined
D. Executive Order 13132 (Federalism) Form LM–2 threshold ($250,000). These total of almost ten thousand years. In
The Department has reviewed this forms are prescribed by the Secretary of many cases the broad aggregated
rule in accordance with Executive Order Labor to implement the Act and categories on the existing forms enabled
13132 regarding federalism and has incorporated by reference in the union officers to hide embezzlements
determined that the rule does not have applicable regulations. and financial mismanagement. More
federalism implications. Because the Over the past forty years, the detailed reporting of all financial
economic effects under the rule will not functions and operations of unions have transactions is likely to discourage and
be substantial for the reasons noted evolved while the forms used by unions reduce corruption because it would be
above and because the rule has no direct to file annual financial reports required more difficult to hide financial
effect on States or their relationship to by the LMRDA have remained mismanagement from members and
the Federal government, the rule does substantially unchanged. The forms no strengthen the effective and efficient
not have ‘‘substantial direct effects on longer serve their underlying purpose enforcement of the Act by the
the States, on the relationship between because they fail to provide union Department.
the national government and the States, members with sufficient information to The objective of this rule is to
or on the distribution of power and reasonably disclose to them ‘‘the increase the transparency of union
responsibilities among the various financial condition and operation[s]’’ of financial reporting by revising the
levels of government.’’ labor organizations as required by the LMRDA disclosure forms and to take
LMRDA. As noted previously, it is advantage of modern technology to
E. Regulatory Flexibility Analysis impossible for union members to reduce the reporting burden. This will
The Regulatory Flexibility Act of evaluate in any meaningful way the enable workers to be responsible,
1980, 5 U.S.C. 601, et seq., requires operations or management of their informed, and effective participants in
agencies to prepare regulatory flexibility unions when the financial disclosure the governance of their unions;
analyses, and to develop alternatives reports filed with OLMS simply report discourage embezzlement and financial
wherever possible, in drafting large expenditures (e.g., $62 million) for mismanagement; prevent the
regulations that will have a significant broad, general categories like ‘‘Grants to circumvention or evasion of the
impact on a substantial number of small Joint Projects with State and Local statutory reporting requirements; and
entities. The Small Business Affiliates.’’ The large dollar amount and strengthen the effective and efficient
Administration (SBA) determined, in a vague description of such entries make enforcement of the Act by OLMS.
2. Summary and Assessment of the Department’s choice of options Another alternative considered by the
Significant Issues Raised by Comments discussed or the Department’s ultimate Department was to phase-in the
and Changes Made to the Proposed Rule decisions concerning these options, the effective date for the Form LM–2
as a Result of Such Comments AFL–CIO has not shown and cannot changes in order to provide smaller
Many comments, although not show that the Department did not Form LM–2 filers additional lead time
directed specifically at the initial consider the options or acted in bad to modify their recordkeeping systems
regulatory flexibility analysis, raised faith by not proposing them. In order to to comply with the new reporting
issues related to the effect of the reduce the burden on smaller unions, requirements. This alternative also was
proposed rule on small entities, and in the Department, among other revisions supported by a number of commenters.
response, the Department made many for the same purpose, adopted the After reviewing the comments, the
alternative, identified in the NPRM, to Department has changed its proposal,
significant changes to its proposal.
raise the reporting threshold for the which would have required unions to
These issues and changes are discussed
Form LM–2 from $200,000 to $250,000. use the new Form LM–2 to file the
in detail above. The following addresses
As discussed in detail in the preamble, report for any fiscal year beginning
comments that are specifically related to
other revisions, adopted in response to immediately after the publication of the
the Department’s initial regulatory
comments, should make compliance by final rule, and instead is requiring labor
flexibility analysis.
smaller unions easier than if the organizations to use the revised Form
The AFL–CIO argues that the
Department’s proposal was left LM–2 to file the report for the fiscal
Department did not meet the standards
unchanged. years that begin on or after January 1,
of the Regulatory Flexibility Act and its The AFL–CIO contended that the
requirements that agencies consider the 2004, about three months after
Department failed to satisfy its publication of this rule. This change
impact of rules on small entities. obligation under the Regulatory
Although the AFL–CIO acknowledges provides approximately two-thirds of
Flexibility Act to actively solicit the reporting unions with sufficient lead
that the Department included a participation of small entities as part of
Regulatory Flexibility Analysis time within which to adjust their
its planning for this rulemakings. The procedures to keep track of the
describing the impact of the proposed Department disagrees with this view
rule on small entities, the AFL–CIO information they will need to prepare a
and notes that it engaged in a Form LM–2 and to submit, 15 months
claims that a purported lack of analysis substantial outreach effort, even before
indicates that the Department’s inquiry after the start of their next fiscal year
publication of the NPRM, in order to (beginning on January 1, 2004), or
was not conducted in good faith. For solicit ideas for improving the
example, the AFL–CIO argues that the nearly 18 months after the publication
effectiveness of the annual financial of this rule, the report to the
Department never seriously considered report to achieve the disclosure
the alternatives listed in the initial Department, and even more time to the
intended by Congress in establishing the remaining third of reporting unions that
Regulatory Flexibility Act analysis. The LMRDA’s reporting requirements. To
AFL–CIO contends that these use different dates for their fiscal years.
this end, Department officials Thus, no union will have less than
alternatives were just ‘‘straw men’’ that conducted numerous consultations with
the Department considered only briefly, about three months to change its
union representatives, including face-to- bookkeeping and accounting systems to
knowing that they would be discarded. face meetings with 39 unions. After
Among the alternatives that the capture data that later will be needed to
publication of the proposal, Department submit the Form LM–2.
Department should have considered and officials continued to meet with unions
proposed for small unions, according to that requested meetings and added With this change, unions will have
the AFL–CIO, were: (1) The ‘‘phasing notes of meetings with six unions adequate time to conform to the revised
in’’ of the effective date for the rule; (2) during the public comment period to forms and comply with the more
a permanent waiver of the electronic the rulemaking record. detailed reporting requirements. The
filing requirement; and (3) an exemption An alternative suggested by public comments and OLMS auditing
from functional reporting. These commenters that directly affects the and accounting experience confirm that
alternatives are addressed in the smallest unions to whom the new rule many local (and therefore generally
preamble and the discussion below. applies was to adjust upward for smaller) unions already collect and
The Department noted in the NPRM inflation the Form LM–2 filing maintain some (and in some cases most)
that the SBA’s definition of ‘‘small threshold from $200,000, the adjusted of the information required by the new
entity’’ may not be appropriate in the amount set in 1994. The Department has form. Moreover, unions must already
context of labor unions and their adopted this alternative and increased track and maintain records for all
regulation under the LMRDA. the Form LM–2 threshold to $250,000 in disbursements in order to report total
Nonetheless, the Department performed the final rule. As a result, 501 unions disbursements for the variety of
an Initial Regulatory Flexibility that currently file a Form LM–2 will functional categories on the current
Analysis for the NPRM and addressed now be able to satisfy the requirements Form LM–2. The survey data submitted
each of the categories, applying the of the LMRDA by filing the simpler by the AFL-CIO suggests that 16 to 22%
SBA’s definition as required by 5 U.S.C. Form LM–3. It should also be noted that of local unions already have the
603. The Department has also submitted the final $250,000 threshold is capability to itemize and track receipts
a Final Regulatory Flexibility Analysis significantly higher than the earlier and disbursements (including credit
with this final rule as required by 5 thresholds for filing the Form LM–2 card transactions), as required by the
U.S.C. 604. Thus, the Department has when they are adjusted for inflation— final Form LM–2. Further, after the
met the procedural requirements of the 1959 ($20,000), 1962 ($30,000), and research and review of different types of
Act. 1981 ($100,000). The Department will commercial-off-the-shelf accounting
The Department specifically continue to monitor this threshold, as software, the Department believes that
considered and discussed in some detail well as all other thresholds established updating and modifying accounting
five options in its Initial Regulatory by this rule, and may make future systems to track all of the information
Flexibility Analysis. Despite the AFL– adjustments if economic conditions required by the revised forms should be
CIO’s disagreement with the warrant such a change. accomplished easily, given the lead time
built into the final rule. The steps relieved of the burden of compiling a associated with electronic filing is not
required of unions to adjust their separate form and need only insist that through a permanent waiver, but
bookkeeping and accounting procedures entities with annual receipts of through a hardship exemption (a term
are discussed in the preamble. OLMS $250,000 or more, to which they borrowed from the SEC’s electronic
also plans to provide compliance contribute $10,000 or more, or to which filing procedures), and that, for the
assistance to any labor organization that that amount is contributed on their majority of filers, electronic filing is the
requests it. In addition, a review of the behalf, provide only very basic least burdensome option.
proposed revisions was undertaken to information regarding their fiscal The Department gave serious
reduce paperwork burden for all Form operations. consideration to the comments
LM–2 filers and an effort was made Another commenter suggested that a suggesting a pilot program or a delayed
during the review to identify ways to reporting labor organization be phase-in of the reporting requirements,
reduce the impact on small entities. The permitted to file information from the but has concluded that such alternatives
Department believes it has minimized ‘‘latest available’’ report by the trust. are unnecessary. After reviewing the
the economic impact of the form This commenter observed that it would recordkeeping and reporting
revision on small unions to the extent be simpler to require Form T–1 to be requirements of the current Form LM–
possible while recognizing workers’ and filed at the same time that the labor 2, the public comments that were
the Department’s need for information organization must file its annual report, received, and the modifications that
to protect the rights of union members namely within ninety days after the end unions may have to make to their
under the LMRDA. of the labor organization’s fiscal year, accounting and recordkeeping systems
To reduce the burden on small labor rather than ninety days after the end of to comply with the final rule, the
organizations, several commenters the trust’s fiscal year. Although the Department believes that Form LM–2
suggested that unions be required to file ‘‘latest available’’ report of the trust may filers will be able to make the
annual independent audits as an not be a sufficient substitute for a Form adjustments before the start of their first
alternative to filing the Form LM–2. T–1 (depending on whether it meets the reporting period under the final rule—
Although some commenters argued that prescribed audit criteria as discussed in a minimum of about three months from
requiring unions to obtain annual audits the preamble), this suggestion presents the date of the rule’s publication—
is within the Department’s statutory a reasonable alternative that should both without incurring an undue burden. The
authority, no provision of the LMRDA alleviate burden for the reporting labor most important change involves the
vests the Secretary of Labor with any organization and minimize confusion tracking of receipts reported in
express authority to require unions to for those interested in this information. Schedule 14 and disbursements to
obtain audits and the Department has Thus, the Department has decided to ensure that each disbursement is
chosen not to attempt to impose such a require a reporting labor organization to allocated to the proper disbursement
requirement. Moreover, an annual audit file all Form T–1s, or qualifying audits category on the revised Form LM–2 with
requirement would require a reporting in substitution for Form T–1s, if it so a descriptive purpose and that all of the
union to incur the expense of obtaining chooses, at the same time that it files its required information (name, address,
the services of an independent auditor own Form LM–2. purpose, date, and amount) is captured
and thus impose an additional burden To reduce the burden on smaller labor for each ‘‘other’’ receipt and
on small unions, many of which, in the organizations, a few commenters, disbursement.
Department’s experience, are not including the AFL–CIO, suggested that Some commenters stated that this is a
currently obtaining private audits. the Department establish a permanent dramatic change in the Form LM–2 and
Finally, this alternative was rejected waiver for electronic filing and/or pilot would impose a significant burden on
because audits typically do not reveal testing of electronic filing as alternatives unions in order to change their
the detail on the financial operations of to the Department’s proposal. As recordkeeping systems before the
unions that is required by the statute (29 discussed in the preamble, the effective date of the final rule. However,
U.S.C. 431) and requiring such detail Department has rejected the permanent this position fails to recognize that
with the appropriate audit standards waiver alternative because for several unions have always been required to
would be no less burdensome than the years Congress has urged the allocate each disbursement to one or
final forms. Department to implement the electronic more disbursement categories on the
A union, however, could meet its filing of annual reports required by the current Form LM–2 (and to maintain
trust reporting obligation under the final LMRDA, along with an indexed and those records). For example, unions
rule by utilizing any exceptions easily searchable computer database of have always been required to allocate
provided for in the rule, including the the information submitted, accessible by credit card payments to multiple
submission of an independent audit of the public over the Internet. See H.R. categories of the LM–2 based upon the
the trust that meets the minimum Conf. Rep. 105–390, 1997 U.S.C.C.A.N. purposes of each charge. A single credit
standards prescribed by the rule. In 2061; H.R. Conf. Rep. 105–825; H.R. card charge to a travel agent may
permitting this last exception, the Conf. Rep. 106–419; H.R. Conf. Rep. include expenses that must be allocated
Department recognizes that although 106–479; H.R. Conf. Rep. 106–1033; to three or more different places on the
most audits do not provide an adequate H.R. Conf. Rep. 107–342, 2002 current LM–2. Although the Department
substitute for the full disclosure of U.S.C.C.A.N. 1690; H.R. Conf. Rep. 108– has changed the functional categories on
information generally required under 10, 2003 U.S.C.C.A.N. 4. Moreover, as the final form, the underlying method of
the LMRDA, this statutory purpose can the public comments suggest, the allocating these disbursements and
be achieved in the trust reporting relevant inquiry with respect to maintaining the records remains the
context so long as the information is electronic filing is not whether it should same.
verified by an independent examiner be required, but rather how and when Changing accounting and
and meets the standards prescribed by it should be accomplished. After recordkeeping systems to capture all of
the rule. By permitting a labor significant research and analysis (as the required information (name,
organization to submit an audit in place discussed above), the Department has address, purpose, date, and amount) for
of a Form T–1, smaller labor decided that the best method to address each other receipt and disbursement can
organizations that file a Form LM–2 are any legitimate excessive burden be accomplished before January 1, 2004.
Filers will need to study and filing, a hardship exemption will be function. Moreover, functional
understand the new requirements and available. accounting is required of not-for-profit
may have to work with their staff or A few commenters suggested that organizations under the standards
vendors to make adjustments to the unions only be required to report the established by the FASB and some of
union’s accounting and recordkeeping debts they have written off as a less the labor organizations that submitted
systems, and then train the staff. burdensome alternative to reporting all comments acknowledged that they use
However, these sorts of operations— debts above the proposed $1,000 functional reporting as a management
changing the way disbursements are threshold that are 90 days or more past tool. Furthermore, many commenters
classified and the types of information due. This alternative was rejected overlooked the fact that the IRS requires
recorded—are routine in the normal because: (1) The Department believes not-for-profit organizations, including
course of business and relatively easy to that raising the itemization threshold to unions, to report their expenditures by
perform within accounting systems. $5,000 for reporting debts will alleviate certain categories and that the IRS uses
Moreover, as discussed in the preamble, much of the burden suggested by several functional categories that
the public comments suggest that 60% commenters as a multitude of relatively parallel, in many respects, the categories
of the national and international unions small accounts will no longer have to be in the proposed Form LM–2. For
already maintain written records for the listed, particularly for smaller unions; example, both the IRS Form 990 and the
information required by the new ‘‘other (2) as discussed above, itemized new Form LM–2 require disclosure of
receipts’’ schedule and that many disclosure is important because it disbursements related to political
unions already maintain records as part provides a vital early warning signal of activity and lobbying (even though,
of their normal business practice that financial distress and possible fraud as unions typically report no information
reflect the required detail for in the Washington Teachers’ Union under these categories to the IRS).
disbursements for the revised form case; and (3) the itemization Finally, as explained above, the
(even though between 10 and 40% of requirement is tailored to a union Department has made significant
unions could not provide all of the member’s legitimate interest in changes to the functional categories and
required detail). Finally, because each knowing, for example, whether the associated schedules in the new Form
labor organization’s filing date is union continues to do business with an LM–2 to minimize the burden,
dependent on its chosen fiscal year, entity that fails to pay its debts or particularly on small unions.
many unions will have more than three whether the union continually falls
behind in payments to a certain vendor. 3. Number of Small Entities Covered
months to complete any changes they
Moreover, the public comments suggest Under the Rule
may have to make to their accounting
and recordkeeping systems. that the majority of unions already The primary impact of this final rule
Additionally, the Department will collect most, if not all, of the will be on the largest labor
provide substantial compliance information required by the accounts organizations, defined as those that have
assistance to unions to assist them in receivable and accounts payable $250,000 or more in annual receipts.
understanding the new requirements schedules on the final form, which is There are approximately 4,778 labor
and making adjustments to their not surprising considering the current organizations of this size that are
recordkeeping and reporting practices. Form LM–2 requires aggregate reporting required to file Form LM–2 reports
This initiative will include guidance of accounts receivable and accounts under the LMRDA (just 19.0% of all
that provides an overview of the payable. labor organizations covered by the
requirements, a comparison of the old Finally, a few commenters, together LMRDA). The Department estimates that
and new requirements, the types of with the AFL–CIO, suggested an 4,463 of these unions, or 93.4%, are
account changes unions may have to exemption from functional reporting to considered small under the current SBA
make, guidance to assist unions to reduce the burden on smaller labor standard (annual receipts less than $6.0
configure off-the-shelf software to best organizations. The Department has million). These unions have average
capture the information needed to rejected this alternative because it annual receipts of approximately $1.1
provide the data required for submitting would: (1) Eliminate the availability of million and an average of 14 officers
the LM–2 and T–1 reports, a schedule meaningful information to over 12.3 and 4 employees. The rule will also
of seminars for unions hosted million union members in unions with reduce the burden on 501 small unions
throughout the country, an email list- less than $6.0 million in annual receipts that will be able to file Form LM–3
serve to provide periodic updates to (the current SBA small entity standard instead of Form LM–2 because of raising
interested parties, web-based materials for unions) and significantly reduce the the LM–2 threshold to $250,000. These
that include frequently asked questions, transparency and accountability in the estimates are based on 2001 and 2002
a description of the Form T–1 reporting of union financial condition data from the Office of Labor-
registration process, and other topics of and operations, which may have far Management Standards e.LORS system.
interest to filers. greater impact on, and relevance to, This system contains annual receipt
Filers that choose to take advantage of union members, particularly since such data on all Form LM–2, LM–3, and LM–
the electronic importation features of lower levels of union organizations 4 filers. Although these estimates may
the Department’s reporting software will generally set and collect dues and not be predictive of the exact number of
need to create reports within their provide representational and other small unions that will be impacted by
accounting systems that will be used to services for their members; and (2) not this final rule in the future, the
complete the revised Form LM–2 and provide any additional deterrence to Department believes these estimates to
new Form T–1. However, this work fraud and embezzlement by officials in be sound and are derived from the best
need not be completed until the form is smaller labor organizations. available information.
ready to be filed, no earlier than 15 Moreover, functional accounting is
months after the effective date of the not a new concept to labor 4. Reporting, Recordkeeping and Other
final rule and nearly 18 months after organizations, large or small. The Compliance Requirements of the Rule
publication. Further, in the event that current Form LM–2, through its use of This final rule is not expected to have
any labor organization encounters categories, requires labor organizations a significant economic impact on a
severe difficulties concerning electronic to report certain expenditures by substantial number of small entities.
The LMRDA is primarily a reporting comply with these requirements, The average annual reporting and
and disclosure statute. It establishes reporting unions may need to make recordkeeping burden for the current
various reporting requirements for labor adjustments in their recordkeeping and Form LM–2 is $8,381 or 0.3% of average
organizations, labor organization bookkeeping procedures and, in some annual receipts for all Form LM–2 filers.
officers and employees, employers, instances, to make changes in The average additional first year cost
surety companies, and employer computing hardware or software to file (including first year non-recurring
consultants pursuant to Title II of the the reports electronically. None of these implementation costs) of the final rule
Act. Accordingly, the primary economic expenses is expected to have a for the 4,463 unions considered to be
impact of the final rule will be the cost substantial impact on the 4,463 unions small by SBA standards for filing both
to reporting unions of compiling, the revised Form LM–2 and new Form
considered to be small by SBA
recording, and reporting required T–1 is less than $17,876, or 1.6% of
standards (because they amount to only
information. The final rule establishes a average annual receipts (see Table 1).
new set of reporting requirements for 1.7% of these unions’ average annual
receipts over three years), in large part The average total first year cost of the
those labor organizations with receipts
because the public comments and revised Form LM–2 and new Form T–
of $250,000 or more. See the following
OLMS’s auditing experience confirm 1 on small unions is $26,257, or 2.3%
Paperwork Reduction Act section
that labor organizations, like most small of total annual receipts. Further, the
(Overview of Changes to Form LM–2,
entities following standard business average total cost for small unions falls
and Overview of the New Form T–1) for
greater detail on the reporting, practices, already maintain at least some to $18,322 or 1.6% of total annual
recordkeeping, and other compliance of the receipt and disbursement records receipts in the second year.
requirements of the rule. In order to required by the final rule. BILLING CODE 4510–CP–P
The Department believes that it is would incur many of the costs incurred receipts are likely to have far less
very unlikely that small unions with by the typical Form LM–2 filer. (For complicated accounts covering far fewer
about $250,000 in annual receipts example, unions near this amount of transactions than the typical Form LM–
ER09OC03.000</GPH>
2 filer (with receipts between $500,000 disbursements that will have to be based on years of reviewing union
and $49.9 million).) However, to assess individually itemized and reported by records in audits and investigations,
the ‘‘maximum’’ or ‘‘worst-case’’ impact smaller labor organizations. (OLMS suggests that the AFL–CIO estimates of
on small unions, the Department experience in reviewing union records costs are more likely to be too high than
considered the unlikely event that a over the years in the course of audits too low.
small union with $250,000 in annual and investigations suggests that smaller Unions with total annual receipts of
receipts could incur the average unions typically have fewer large less than $250,000 (81.0% of all LMRDA
compliance burden for unions with disbursements). As noted above, the covered unions) can still elect to file a
annual receipts of $500,000 to $49.9 Department will continue to monitor all simplified report. Over 47.3% of all
million for the revised Form LM–2 and of the reporting thresholds in the Form labor organizations may file a Form LM–
the new Form T–1. Under this unlikely LM–2 to attempt to ensure that both the 3 that entails a lesser burden than the
scenario, the total additional cost of the level of reporting and the information Form LM–2. The final rule makes no
final rule would be $20,596 in the first reported remain relevant and change to the Form LM–3 and the only
year, or 8.2% of annual receipts, and meaningful in light of changes in the changes to its instructions clarify the
$11,206 in the second year, or 4.5% of economy. reporting obligation of intermediate
annual receipts (see Table 1). For a Raising the threshold for filing a Form bodies that have no private employee
small union with $500,000 in annual LM–2 from $200,00 to $250,000 will members, but are subordinate to
receipts, the maximum additional cost enable 501 of the smallest unions that national or international labor
of the final rule would be 4.1% of previously were required to file a Form organizations that are covered by the
receipts in the first year and 2.2% in the LM–2 to now use the Form LM–3. The LMRDA. The instructions state that
second year. latter form requires significantly less such intermediate bodies must file an
As noted in section 3 above, the final recordkeeping and reporting annual financial report. The very
rule will apply to 4,463 unions that requirements than Form LM–2, thus smallest unions, with total annual
meet the SBA standard for small reducing the burden on unions with receipts of less than $10,000 (33.7% of
entities, or just 18.0% of all unions with annual receipts between $200,000 and all LMRDA covered unions), can elect to
annual receipts of less than $6 million $249,999. The 501 unions affected will file an abbreviated report, Form LM–4,
that must file an annual financial report save an average of $5,104 from the cost which further reduces their
under the LMRDA (the other, even of filing the current Form LM–2, recordkeeping and reporting burden.
smaller, unions can file the less because they can file the less The Department also has made several
burdensome Form LM–3 or Form LM– burdensome Form LM–3 rather than the other changes to the proposed rule that
4). Further, just 1,574 unions with current Form LM–2. In addition, each of will reduce the burden on small unions.
annual receipts from $250,000 to these unions also will avoid an average Raising the reporting threshold for
$499,999, or 6.3% of all unions covered $19,640 per year in costs that they itemizing accounts receivable and
by the LMRDA, would be affected by the would incur if they had to file the new accounts payable to $5,000 will reduce
final rule. Even less (than 6.3% of the Form LM–2 and an average $1,253 per the number of items that must be
total) would incur the maximum year because they will not have to file reported, particularly for small unions
additional costs of the final rule a Form T–1. Thus, each of the 501 that have few accounts receivable and
described above. Therefore, the unions affected by raising the Form LM– accounts payable. Removing the
Department has decided that the final 2 threshold from $200,000 to $250,000 itemization requirement for the benefits
rule does not have a significant impact will avoid $17,616 in potential costs schedule will reduce the reporting
on a substantial number of small increases (i.e., $19,640 + $1,253— burden for all unions and protect the
entities. Moreover, raising the Form $3,277) by virtue of this change. privacy of individual benefit recipients,
LM–2 filing threshold from $200,000 to Burden hour differences between the including those receiving payments for
$250,000 will enable 501 of the smallest smaller labor organizations that are large medical procedures, insurance or
LM–2 filers to use the less burdensome enough to be required to file Form LM– pension claims, or burial benefits.
Form LM–3 and save them an average 2 and the largest labor organizations are Changing the reporting requirements on
of $5,104 per year compared to filing the more likely to result from differences in the membership schedule will enable
current Form LM–2. Smaller unions that the financial operations of the unions union members to easily obtain useful
file Form LM–3 or LM–4 also will not themselves. Only the largest filers, those information without requiring unions to
have to file any Form T–1. that have annual receipts in the manufacture or report information for
millions, are likely to have extensive membership categories it does not keep.
5. Steps Taken To Minimize the Impact financial transactions. Unions with Finally, the new audit alternative for
on Small Entities receipts of between $250,000 and $1.0 Form T–1 is aimed at promoting
The Department has raised the million, which account for over 2,833 of disclosure while reducing the
reporting threshold for the final Form the 4,778, or 59.3% of Form LM–2 filers, recordkeeping and reporting burdens for
LM–2 and new Form T–1 to $250,000 are likely to have less difficulty using unions with trusts that are already
from the $200,000 threshold in the the revised form. A survey of affiliated subject to an independent audit.
proposed rule. The Department has also unions submitted by the AFL–CIO Small entities will also benefit from
determined that the itemization during the public comment process OLMS’s electronic labor organization
threshold for disbursements should be suggests that the median cost of the final reporting system (e.LORS), which
set at the high end of the range proposed rule will be just $5,724 per year for utilizes technology to collect, maintain,
($2,000 to $5,000) and that specific unions with less than $1.0 million in and disclose the information it collects.
information be required only if the receipts compared to more than The objectives of e.LORS are: (1) The
amount of an ‘‘other receipt’’ or $820,000 for unions with $100.0 million electronic filing of Forms LM–2, LM–3,
disbursement is $5,000 or more or, if to $250.0 million in annual receipts. As and LM–4 via the Internet; (2) LMRDA
such receipts from or disbursements to explained more fully below, the program enhancements to improve
a single entity, aggregate to $5,000 or predictive value of the AFL–CIO survey accuracy, completeness, and timeliness
more during the reporting year. This is open to question in some respects. of Forms LM–2, LM–3, and LM–4; and
change will reduce the number of The Department’s own experience, (3) the public disclosure of reports with
a searchable database via the Internet. understandable by reporting unions; (5) internal processes and financial
Labor organizations are directed to use the disclosure requirements are operations.’’
an electronic reporting format and implemented in ways consistent and As labor organizations have become
OLMS will make software available for compatible, to the maximum extent more multifaceted and have created
downloading over the Internet that practicable, with the existing reporting hybrid structures for their various
enables labor organizations to report and recordkeeping practices of unions activities, the form used to report
financial information that can be that must comply with them; (6) this financial information with respect to
electronically compiled in the proper preamble informs unions of the reasons these activities has remained relatively
format for electronic filing. that the information will be collected, unchanged and has become a barrier to
The use of electronic forms makes it the way in which it will be used, the the complete and transparent reporting
possible to download information from Department’s estimate of the average of labor organization’s financial
previously filed reports directly into the burden of compliance, which is information intended by the LMRDA.
form; enables officer and employee mandatory, the fact that all information Moreover, just as in the corporate sector,
information to be imported onto the collected will be made public, and the there have been a number of financial
form; makes it easier to enter fact that they need not respond unless failures and irregularities involving
information by manually typing in the the form displays a currently valid OMB pension funds and other member
data, by electronically importing data by control number; (7) the Department has accounts maintained by labor
schedule, or by electronically importing explained its plans for the efficient and organizations. These failures and
data for the entire form; automatically effective management and use of the irregularities result in direct financial
performs calculations and checks for information to be collected, to enhance harm to union members. If union
typographical and mathematical errors its utility to the Department and the members had more complete,
and other discrepancies, which reduces public; (8) the Department has understandable information about their
the likelihood of having to file an explained why the method of collecting unions’ financial transactions,
amended report; and allows the information is ‘‘appropriate to the investments, and solvency, they would
submission of the form electronically purpose for which the information is to be in a much better position than they
via the Internet. The error summaries be collected’’; and (9) the changes are today to protect their personal
provided by the software, combined implemented by this rule make financial interests and to exercise their
with the speed and ease of electronic extensive, appropriate use of rights of self-governance. The purpose
filing, will also make it easier for both information technology ‘‘to reduce of the final rule is to provide them with
the reporting labor organization and burden and improve data quality, such information. The information
OLMS to identify errors in both current agency efficiency and responsiveness to collection achieved by this rule is
and previously filed reports and to file the public.’’ See 5 CFR 1320.9; 44 U.S.C. integral to this purpose. The paperwork
amended reports to correct them. 3506(c). The Department’s PRA analysis requirements associated with the rule
OLMS also has revised the are necessary to enable workers to be
contains a summary, background on the
instructions for the final Form LM–2 responsible, informed, and effective
current Form LM–2, an overview of
and Form T–1 to provide examples and participants in the governance of their
changes to each form, and the burden
guidance on how to complete the report unions; discourage embezzlement and
associated with the current forms and
and maintain records, and will provide financial mismanagement; prevent the
final rule. The Department also
compliance assistance for any questions circumvention or evasion of the
discusses various comments, specific to
or difficulties that may arise from using statutory reporting requirements; and
the PRA, that are not fully addressed
the software. A help desk is staffed strengthen the effective and efficient
elsewhere in the preamble. As
during normal business hours and can enforcement of the Act by the
be reached by calling a toll-free discussed, the Department has revised
Department.
telephone number: 1–866–4–USA–DOL its burden estimates for the final rule, Pursuant to the PRA, the information
(1–800–487–2365). based upon its review of the comments collection requirements contained in
and adjustments to its baseline estimate this final rule have been submitted to
F. Paperwork Reduction Act of the costs associated with the OMB for approval. Within 30 days from
This statement is prepared in requirements of the Department’s the date of publication of this final rule,
accordance with the Paperwork current rule relating to the submission you may direct comments by fax (202–
Reduction Act of 1995, 44 U.S.C. 3501 of annual financial reports by labor 395–6974) to: Desk Officer for the
(PRA). See 5 CFR 1320.9. As discussed organizations. Department of Labor/ESA, Office of
in the preamble to this final rule and the In this rulemaking, the Department Management and Budget.
analysis that follows, the rule has sought to improve the usefulness
implements an information collection and accessibility of information to 1. Summary
that meets the requirement of the Act in members of labor organizations subject This final rule modifies the annual
that: (1) The information collection has to the LMRDA. The LMRDA reporting reports required to be filed by the largest
practical utility to labor organizations, provisions were devised to protect the labor organizations, prescribed by the
their members, other members of the basic rights of union members and to Secretary of Labor to implement the Act
public, and the Department; (2) the rule guarantee the democratic procedures and incorporated by reference in the
does not require the collection of and financial integrity of labor applicable regulations. As discussed
information that is duplicative of other organizations. The 1959 Senate report above and throughout the preamble to
reasonably accessible information; (3) on the version of the bill later enacted the final rule, the revised paperwork
the provisions reduce to the extent as the LMRDA stated clearly, ‘‘the requirements are necessary to effectuate
practicable and appropriate the burden members who are the real owners of the the purposes of the LMRDA by
on unions that must provide the money and property of the organization providing union members with
information, including small unions; (4) are entitled to a full accounting of all information about their unions that will
the forms, instructions, and explanatory transactions involving their property.’’ enable them to be responsible,
information in the preamble are written A full accounting was described as ‘‘full informed, and effective participants in
in plain language that will be reporting and public disclosure of union the governance of their unions;
discourage embezzlement and financial adopt the holding of Bremerton Metal annual financial report on the current
mismanagement; prevent the Trades Council, AFL–CIO. Supporting Form LM–2, Labor Organization Annual
circumvention or evasion of the documentation need not be submitted Report, within 90 days after the end of
statutory reporting requirements; and with the forms, but labor organizations the union’s fiscal year, to disclose its
strengthen the effective and efficient are required, pursuant to the LMRDA, to financial condition and operations for
enforcement of the Act by the maintain, assemble, and produce such the preceding fiscal year. The current
Department. The manner in which the documentation in the event of an Form LM–2 is also used by covered
collected information will serve these inquiry from a union member or an labor organizations with total annual
purposes is discussed throughout the audit by an OLMS investigator. receipts of $200,000 or more to file a
preamble to the final rule. The Department’s NPRM in this terminal report upon losing their
Two forms that will implement the rulemaking contained an initial PRA identity by merger, consolidation or
new reporting requirements and their analysis, which was also submitted to, other reason.
instructions are published in the and approved by, OMB. Based upon The current Form LM–2 consists of 24
appendix to this final rule: the revised careful consideration of the comments questions that identify the labor
Form LM–2, a form now filed by the and the changes made to the organization and provide basic
largest unions to report their annual Department’s proposal in this final rule, information (in primarily a yes/no
financial information, and the new the Department has made significant format); a statement of 11 financial
Form T–1, a form also to be filed by the adjustments to its burdens estimates. items on different assets and liabilities;
The costs to the Department for a statement of receipts and
largest unions to report the assets,
administering the annual financial disbursements; and 15 supporting
liabilities, receipts, and disbursements
report requirements of the LMRDA also schedules. The information that is
of trusts in which they have an interest.
were adjusted. These federal annualized reported includes: whether the union
The forms are designed to take
costs, undifferentiated by form, are has any subsidiary organizations and
advantage of technology that makes it
separately discussed after the burdens trusts; whether the union has a political
possible to increase the detail of
on the reporting unions are considered. action committee; whether the union
information that is required to be Based upon the analysis presented discovered any loss or shortage of funds;
reported, while at the same time making below, the Department estimates that the number of members; rates of dues
it easier to file and publish the contents the total first year burden to comply and fees; the dollar amount for seven
of the reports. Union members thus will with the revised Forms LM–2 and LM– asset categories, such as accounts
be able to obtain a more accurate and 3 and the new Form T–1 to be 3.4 receivable, cash, and investments; the
complete picture of their union’s million hours, 1.4 million hours and 0.2 dollar amount for four liability
financial condition and operations million hours, respectively. The total categories, such as accounts payable and
without imposing an unwarranted first year compliance costs associated mortgages payable; the dollar amount
burden on reporting unions. The rule with this burden, including the cost for for 16 categories of receipts such as dues
also includes a clarification of the computer hardware and software, are and interest; and the dollar amount for
Department’s interpretation of Section estimated to be $116.0 million for the 18 categories of disbursements such as
3(j)(5) (29 U.S.C. 402(j)(5)) of the Form LM–2, $39.0 million for the Form payments to officers and repayment of
LMRDA, in agreement with the recent LM–3 and $5.5 million for the new loans obtained. Five of the supporting
decision of the U.S. Court of Appeals for Form T–1. The actual cost of the final schedules include a detailed itemization
the Ninth Circuit in Chao v. Bremerton rule, however, is not $160.5 million in of loans receivable and payable, the sale
Metal Trades Council, AFL–CIO, 294 F. the first year. It is the difference and purchase of investments and fixed
3d 1114 (2002). The Department adopts between cost of the current forms and assets, and payments to officers. There
that court’s view that any ‘‘conference, the revised Form LM–2 and new Form are also 10 supporting schedules for
general committee, joint, or system T–1, or $79.9 million the first year receipts and disbursements that provide
board, or joint council’’ that is ($160.5 million—$80.6 million). The union members with more detailed
subordinate to a national or average three-year cost of the final rule information by general groupings or
international labor organization is itself is $55.7 million. Therefore, this final bookkeeping categories to identify their
a labor organization under the LMRDA rule is not a major economic rule. purpose. Unions are required to track
and will be required to file an annual Both the burden hours and the their receipts and disbursements in
financial report if the national or compliance costs associated with the order to correctly group them into the
international labor organization is a revised Form LM–2 and the new Form categories on the current form.
labor organization engaged in an T–1 decline in subsequent years. The The Department also has developed
industry affecting commerce within the Department estimates that the total an electronic reporting system for labor
meaning of section 3(j) of the LMRDA. burden averaged over the first three organizations, e.LORS, which uses
This clarification applies to all financial years to comply with the revised Form information technology to perform some
reports required to be filed under the LM–2 and the new Form T–1 to be 2.8 of the administrative functions for the
LMRDA. The final rule also increases million hours and 0.1 million hours, current forms. The objectives of the
the filing threshold for the Form LM–3, respectively. The total compliance costs e.LORS system include the electronic
a form filed by unions with less annual associated with this burden averaged filing of current Forms LM–2, LM–3,
receipts than Form LM–2 filers and over the first three years are estimated and LM–4, as well as other LMRDA
requiring a less detailed accounting than to be $93.8 million for the Form LM–2 disclosure documents; disclosure of
Form LM–2, a change that will reduce and $3.5 million for the new Form T– reports via a searchable Internet
the recordkeeping and reporting burden 1. database; improving the accuracy,
for smaller unions. The final rule did completeness and timeliness of reports;
not raise the filing threshold for Form 2. Background on Current Form LM–2 and creating efficiency gains in the
LM–4 and did not otherwise revise the Every labor organization whose total reporting system. Effective use of the
Form LM–4, although the instructions annual receipts are $200,000 or more system reduces the burden on reporting
for Form LM–4 have been altered to and those organizations that are in organizations, provides increased
reflect the Department’s decision to trusteeship must currently file an information to union members, and
enhances LMRDA enforcement by 3. Overview of Changes to Form LM–2 One change to Form LM–2 is the
OLMS. The OLMS Internet Disclosure The Department, among other requirement that unions provide an
site is available for public use. The site revisions for the purpose of reducing the estimate of the time expended by their
contains a copy of each labor burden on small unions, adopted the officers and employees on each of the
organization’s annual financial report alternative, identified in the NPRM, to several categories prescribed generally
for reporting year 2000 and thereafter as raise the reporting threshold for the for union receipts and disbursements
well as an indexed computer database Form LM–2 from $200,000 to $250,000. including: representational activities;
on the information for each report that The new rule adjusts upward the Form union administration; general overhead;
is searchable through the Internet. The LM–2 filing threshold of $200,000 set in political activities and lobbying; and
Department is developing an enhanced 1994 to account for inflation. As a result contributions, gifts, and grants.
e.LORS system for the revised Form of raising the Form LM–2 threshold to However, the Department is not
LM–2 and new Form T–1. $250,000 in the final rule, 501 unions requiring unions to keep detailed time
records, and it is left up to the labor
To ease the transition to electronic that currently file a Form LM–2 will
organization to determine the least
disclosure, OLMS includes e.LORS now be able to satisfy the requirements
burdensome way to provide the
information in its outreach program, of the LMRDA by filing the simpler
information.
including compliance assistance Form LM–3. It should also be noted that Another change to the Form LM–2 is
information on the OLMS website, the final $250,000 threshold is the addition of two new schedules for
significantly higher than the earlier accounts receivable and accounts
individual guidance provided through
thresholds for filing the Form LM–2— payable. The new schedules require the
responses to e-mail, written, or
1959 ($20,000), 1962 ($30,000), and reporting of (1) The name of any entity
telephone inquiries, and formal group
1981 ($100,000). or individual with which the labor
sessions conducted for union officials In comparison to the current Form
regarding compliance. The current organization had an account payable
LM–2, the revised Form LM–2 includes: valued at $5,000 or more that was more
forms are provided on CD–ROM discs at three fewer questions (21 instead of 24)
no cost to labor organizations, can be than 90 days past due at the end of the
that identify the labor organization and reporting period or that was liquidated,
downloaded from the OLMS website, provide basic information (in the same
and are available from OLMS field reduced or written off during the
general yes/no format); the same 11 reporting period, and (2) the name of
offices and from the OLMS National financial items on assets and liabilities any entity or individual with which the
Office. OLMS has also implemented a in Statement A; an updated Statement B labor organization had an account
system to permit union officers to that asks for information on fewer receivable valued at $5,000 or more that
submit forms electronically with digital categories of receipts (13 instead of 16) was more than 90 days past due at the
signatures. Unions are currently and disbursements (17 instead of 19); end of the reporting period or that was
required, however, to pay a minimal fee and five additional supporting liquidated, reduced or written off during
to obtain electronic signature capability schedules (20 instead of 15). The the reporting period. However, as noted
for the two officers who sign the form. updated Statement B (Receipts and above, the Department is not requiring
Information about this system can be Disbursements) also drops six old Form LM–2 filers to use accrual
obtained on the OLMS Web site at categories of disbursements and adds accounting. Although the LMRDA and
www.olms.dol.gov. Digital signatures five new categories that will provide the current Form LM–2 already require
ensure the authenticity of Form LM–2 more useful information to union some accrual basis accounting
reports without compromising members on the amount of union funds information, under the final rule unions
efficiency. As discussed in the spent on representational activities, may choose the method by which to
Regulatory Flexibility Analysis and the strike benefits, union administration, track their finances ‘‘on a cash basis,
preamble, additional compliance general overhead, and political activities accrual basis, a hybrid of the two, or
assistance will be provided in and lobbying. some other method of accounting ‘‘so
connection with the new reporting and Over half (8) of the 15 current long as they can accurately report the
filing requirements. supporting schedules are not changing. information required by the Form LM–
These include loans receivable, loans 2.
Filing labor organizations have payable, other assets, other liabilities,
several advantages with the current The revised Form LM–2 also includes
fixed assets, sale of investments and a new schedule for reporting their
electronic filing system. With e.LORS, fixed assets, purchase of investments number of members by membership
information from previously filed and fixed assets, and benefits. The category. Each labor organization,
reports and officer or employee schedule for itemizing investments has however, is permitted to name and
information can be directly imported to only a minor modification involving report on its own membership
Form LM–2. Not only is entry of the information that is maintained in the categories (in the same manner as it
information eased, the software also normal course of business—the keeps its membership records). It
makes mathematical calculations and reporting threshold has changed from appears from the public comments
checks for errors or discrepancies. over $1,000 and 20% of the total book received on the Department’s proposal
Ready acceptance of the benefits of value of the union’s investments to over that each union maintains membership
electronic reporting is predictable based $5,000 and 5% of the total. Two other information in some manner; however,
on experience with software that OLMS supporting schedules (Office and a union will not be required to
has developed and distributed to labor Administrative Expense, and Other manufacture or report information for
organizations for completing the current Disbursements) on the current form membership categories it does not keep.
Forms LM–2, LM–3, and LM–4. have been dropped from the revised The Form LM–2 also has been revised
Approximately 76% of unions that form and the disbursements that were to require unions to individually
currently file Form LM–2, LM–3, and reported on those schedules will now be identify receipts and disbursements for
LM–4 take advantage of the ability to reported elsewhere on the revised Form two of the current supporting schedules
enter data electronically on a LM–2 (such as the schedules for union (Other Receipts and Contributions,
computerized form. administration or general overhead). Gifts, and Grants) and four of the new
supporting schedules (Representational files publicly available reports with a union will be excused from filing
Activities, Union Administration, Federal or state agency. For such trusts, electronically for the period of the
General Overhead, and Political and the union is required only to state on exemption.
Lobbying Activities). Currently, two of the Form LM–2 that such a report has
4. Overview of Changes to Form LM–3
these schedules provide some detail been filed and where union members
about various receipts and can obtain the report. In addition, a The only revision in the final rule to
disbursements by general groupings or labor organization may substitute an Form LM–3 is the change that increases
bookkeeping categories to identify their independent audit for most of the the size of labor organizations that are
purpose. However, the revised Form information that otherwise would be permitted to file the form from
LM–2 will require labor organizations to required on a Form T–1, provided the $199,999.99 to $249,999.99 in total
individually identify receipts or audit meets certain criteria described in annual receipts. This is required
disbursements, reported in six the preamble above. because the Form LM–2 reporting
supporting schedules, of $5,000 or As discussed above, the instructions threshold is increasing to $250,000.
more, or total receipts or total to Form LM–2 also adopt the recent The instructions to Form LM–3 also
disbursements, reported in each of those holding in Chao v. Bremerton Metal adopt the holding in Chao v. Bremerton
schedules, from an entity or individual Trades Council, AFL–CIO, clarifying Metal Trades Council, AFL–CIO, as the
that aggregate to $5,000 or more during that any ‘‘conference, general Department’s interpretation of section
the reporting period. For individually committee, joint, or system board, or 3(j)(5) of the LMRDA. The Department
identified receipts and disbursements, joint council,’’ which is subordinate to estimates that this will add 50 new
unions will have to report the name, a national or international labor Form LM–3 filers.
address, purpose, date, and amount organization is itself a labor 5. Overview of the Form LM–4
associated with the transaction. organization under the LMRDA and will
Under the final rule, labor be required to file an annual financial After carefully reviewing the
organizations that file the Form LM–2 report if the national or international comments, the Department has decided
are required to report the major receipts labor organization is a labor not to change the Form–LM–4 in the
and disbursements of trusts in which organization engaged in an industry final rule.
the labor organization has an interest. affecting commerce within the meaning 6. Overview of the New Form T–1
Currently, a union only has to report of section 3(j) of the LMRDA. See 29
information about subsidiary U.S.C. 402(j)(5). The Department A labor organization will be required
organizations, defined as ‘‘wholly estimates that this will add 100 new to file Form T–1 if it has an interest in
owned, wholly controlled, and wholly Form LM–2 filers. a trust, as defined in the LMRDA; if the
financed by the reporting union.’’ Under Finally, under the rule, each labor union and the trust each have annual
the final rule, if a union’s financial organization that has annual receipts of receipts of $250,000 or more; and the
contribution to a trust, or a contribution $250,000 or more is required to file a union makes a financial contribution to
made on the union’s behalf, is less than Form LM–2 electronically with the the trust, or a contribution is made on
$10,000 or the union has an interest in Department. Based on reports filed with the labor organization’s behalf, of
a trust that has annual receipts of less OLMS and the experience of its $10,000 or more. If a union’s financial
than $250,000, the union only has to investigators, the Department recognizes contribution to a trust, or a contribution
report on Form LM–2 the existence of that a majority of current Form LM–2 made on the union’s behalf, is less than
the trust and the amount of the union’s filers currently use computerized $10,000 or the union has an interest in
contribution or the contribution made recordkeeping systems and now a trust that has annual receipts of less
on the union’s behalf. If the contribution possess, or can easily acquire, the than $250,000, the union only has to
is $10,000 or more and the annual technology necessary to submit reports report the existence of the trust and the
receipts of the trust are $250,000 or in electronic form. Several OLMS field amount of the union’s contribution or
more, the labor organization will be offices report that even smaller unions the contribution made on the union’s
required to report the receipts and that file Form LM–3 reports now behalf.
disbursements of the trust on the new maintain their accounts electronically. Also to minimize the burden, unions
Form T–1. Unions will be required to The availability of electronic software will not have to file a Form T–1 for
separately identify each entity or that will permit unions that keep their organizations that meet the statutory
individual from which the trust records electronically to export data definition of a trust if the trust files a
received $10,000 or more during the from their programs to the Form LM–2 report pursuant to 26 U.S.C. 527, or
reporting period. Unions will also be software should reduce the burden of pursuant to the requirements of ERISA,
required to separately identify any reporting financial information with the or if the organization is a Political
entity or individual to which the trust specificity required by the final rule. Action Committee (PAC) and files
made disbursements of $10,000 or more, Under the final rule, unions have the publicly available reports with a Federal
or that aggregated to $10,000 or more, choice to complete the reports for or state agency. For such trusts, the
during the reporting period. For submission by either utilizing the union need only state on the Form LM–
individually identified receipts and Department’s software to automatically 2 that such a report has been filed and
disbursements, unions will have to transmit the information or by ‘‘cutting where union members can obtain the
report the name, address, purpose, date, and pasting’’ the information into the report. In addition, a labor organization
and amount associated with the Department’s on-line form. If, however, may choose to substitute an
transaction. a labor organization is unable to file independent audit for most of the
Unions will not have to file a Form T– electronically without undue burden or information that otherwise would be
1 for organizations that meet the expense, it can request a hardship required on a Form T–1, provided the
statutory definition of a trust if the trust exemption from the Department. If the audit meets the criteria prescribed by
files a report pursuant to 26 U.S.C. 527, Department determines that the grant of the final rule. In such instances, the
or pursuant to the requirements of the exemption is appropriate and union is not required to provide the
ERISA, or if the organization is a consistent with the public interest and financial details for the trust otherwise
Political Action Committee (PAC) and the protection of union members, the required of filers.
The new Form T–1 follows the format The Department has carefully necessary for the proper functioning of
of the revised Form LM–2. The Form T– considered these various comments as the Department. The AFL–CIO contends
1, however, is similar to Form LM–4 in well as the rest of the record and has that the Department’s paperwork
that it is much shorter and requires less relied on many of the commenters’ analysis in the NPRM was
information than the Form LM–2. The observations in refining its burden fundamentally flawed and dramatically
Form T–1 includes: 20 questions that analysis. In many instances, as underestimated the paperwork burdens
identify the trust, provide basic identified below, the Department has and costs to unions in complying with
information (in a yes/no format), and used the data supplied by the the proposed reporting requirements.
the total amount of assets, liabilities, commenters to better estimate how The AFL–CIO also argued that the
receipts and disbursements of the trust; much time filers take to complete the proposed rule is not the least
a schedule that separately identifies any current Form LM–2 and could take to burdensome approach that the
individual or entity from which the complete the revised Form LM–2. By Department could have taken to achieve
trust receives $10,000 or more during taking this information into account, the the goal of the LMRDA and the
the reporting period; a schedule that Department has increased the baseline rulemaking to make union financial
separately identifies any entity or burden assumptions for the current reports and underlying data more useful
individual that received disbursements Form LM–2 that underlie most of the and accessible to their members. And,
that aggregate to $10,000 or more from Department’s estimates. At the same as a final observation, the AFL–CIO
the trust during the reporting period and time, the Department could not use all stated that the proposed rule might shift
the purpose of disbursement; and a of the data submitted by the the cost of developing and
schedule of disbursements to officers commenters in refining burden implementing electronic filing upon the
and employees of the trust. estimates. Some of the data, for reporting unions.
example, was no longer relevant to the The AFL–CIO’s contention that the
7. Recordkeeping and Reporting Burden changes in the reporting requirements
analysis because a proposed
Hour Estimates for the Current, Revised, are not necessary for the proper
requirement was revised or eliminated
and New Forms functioning of the Department lacks
altogether in the final rule necessitating
The Department received several the revision or elimination of the merit. The Secretary is charged under
comments on the recordkeeping and burden associated with the proposed section 208 of the LMRDA, 29 U.S.C.
reporting burdens associated with the requirement. In other instances, the 438, with the authority and
current Form LM–2, and the proposed information, while illustrative of responsibility for determining ‘‘the form
Form LM–2 and Form T–1, and the problems that had been identified by a and publication of reports required to be
Department’s initial PRA analysis. Many particular union or unions, could not be filed under this title.’’ Unions, in turn,
union members and a number of used to arrive at an average burden hour are required to file annual reports
nonprofit organizations commented on estimate for unions generally or within containing certain listed minimum
the usefulness of the information one of the defined tiers. For example, information ‘‘in such detail as may be
provided on the proposed forms and ALPA explained that it uses a necessary accurately to disclose its
expressed the view that the benefits of particularly sophisticated accounting financial condition and operations for
the additional information outweighed program in maintaining its financial its preceding fiscal year.’’ 29 U.S.C.
the marginal increase in recordkeeping information and would incur significant 431(b). These reports are statutorily
and reporting costs. Other commenters burden in converting their program to required, not primarily for the proper
expressed strong contrary views. Many comply with the proposed rule, but this functioning of the Department, but for
of these comments already have been information could not be used to disclosing to the members of the
addressed in the preamble. accurately estimate how many other organization how their dues money has
Although the Department received unions have similarly sophisticated been used in the past year. As stated in
only a few comments that were specific accounting programs and could incur its proposal and supported by many of
to the Department’s compliance with similar burdens. Other information was the public comments received on the
the requirements of the PRA, it did not used because it was based on a proposal, the Department believes that
receive many comments on the NPRM misunderstanding of the NPRM. For the minimal information reported on the
PRA analysis and burden hour example, some commenters stated that current Form LM–2 forms is inadequate
estimates. The AFL–CIO and the local unions would incur significant to ensure that unions are reporting and
Mercatus Center, the latter an economic costs associated with converting to an using funds in ways their members
policy group based at George Mason accrual accounting method when the would approve. As discussed in the
University in Virginia, submitted NPRM proposed no such requirement. preamble, comments by union members
detailed comments and data. A third In most cases, the Department has explained their difficulties in obtaining
commenter, the Center for Progressive reported data regarding its burden hour information about their union’s finances
Regulation (CPR), self-described in its estimates to the nearest hundredth, as it and expressed frustration in their
comments as a newly formed, did in the NPRM. Contrary to the inability to find out where their dues
Washington, D.C.-based, organization of perception of a few commenters, the money was going. The more detailed
academics specializing in legal, Department’s practice is not intended to reporting requirements in the final rule
economic and scientific issues suggest greater precision than the will increase members’ awareness of
surrounding federal regulation, underlying data would reflect. Instead, how their dues money is being spent by
expressed views critical of the the figures used by the Department are their unions. This is consistent with the
Department’s initial burden analysis. derived from the Department’s intent of the LMRDA and highlights the
The latter organization, however, did computations based on assumptions, purpose served by the rule’s information
not include in its submission any rounded to the nearest hundredth by an collection provisions.
alternative data for the Department to Excel spreadsheet. The suggestion that the Department’s
consider. Some unions also submitted initial burden analysis was
comments critical of the Department’s a. General Comments fundamentally flawed is unpersuasive.
analysis and provided some alternatives The AFL–CIO argued that the The AFL–CIO has failed to identify any
for the Department to consider. proposed information gathering is not analytical shortcomings in the
Department’s approach. Instead, the estimate for filers for completing the problems that unions might encounter
AFL–CIO’s contention rests, in large current Form LM–2. in classifying information by the
part, on its view that the Department The AFL–CIO provided some categories included in the Department’s
has underestimated the baseline burden information that appears to contradict proposals in developing burden hour
hour data used by the Department for the burden hour estimates discussed estimates because of the subjective/
the current Form LM–2 and that, above. The AFL–CIO’s report included qualitative nature of the information.
therefore, the Department has an estimate of burden for the current The Department used almost all of the
underestimated the burden for the Form LM–2, based on an average of 52 AFL–CIO information concerning the
revised form. As discussed below, this hours for each individual employed by computer software and hardware
baseline was based on what the a union (but without specifying the capabilities of unions. This information
Department believed was the accepted average number of individuals it used as added accuracy to the Department’s
burden associated with the current a divisor). This figure is not consistent own data and estimates.
Form LM–2, as reflected in the with its 1,500 and 200 burden hour The argument that the Department’s
Department’s numerous, unchallenged estimate, when applied to the proposal shifted the cost of developing
submissions to OMB in obtaining Department’s 2001 or 2002 e.LORS data and implementing electronic filing to
OMB’s approval to continue using the that contains the reported number of unions by making unions responsible,
form. Based on the information employees and officers for all Form LM– in part, for some of the software
submitted by the AFL–CIO and other 2 filers. Thus, in the Department’s view, development ignores the fact that the
commenters in response to the the AFL–CIO’s per employee estimate Department will provide, at no cost to
Department’s proposal, and the may not accurately reflect a true unions, the software that allows unions
Departments own analysis, however, the average. For this reason, the Department to file electronically with the
Department has adjusted its burden chose, instead, to rely on the AFL–CIO’s Department. Reporting unions, however,
hour estimates upward for the current alternative, per union, estimate of the may be required to make changes to the
form. These adjustments are discussed number of hours required to complete way that they record the information in
in detail below. the current Form LM–2. order to prepare the revised Form LM–
Some of the AFL–CIO data involved 2 and submit it electronically, and the
Contrary to the AFL–CIO’s view, the
broad subjective or qualitative Department has included the costs of
Department’s paperwork analysis in the
categories that could not be used to such changes in the estimates discussed
NPRM was well reasoned, especially in
estimate burden hours. For example, the below. The AFL–CIO’s disagreement
the absence of any earlier challenge to
estimate that 45% of local unions said with the Department’s burden estimate
the Department’s prior assessment of the
that it would be quite difficult to in the NPRM was based, in part, on its
time required to prepare the current extremely difficult to compile the name, view that unions currently experience
Form LM–2. As discussed below, the address, date, amount, and purpose for considerable difficulty in timely
Department has revised its estimates in all charges by functional category, is reporting annual financial information,
preparing the PRA analysis for the final illustrative of the effort associated with and that the Department’s proposals, by
rule and presents a more refined the itemization requirement in the final adding new requirements, are overly
assessment by the Department of any rule but can not be used to develop burdensome. In support of this position,
burden imposed on reporting unions actual burden hour estimates. Moreover, the AFL–CIO included information
under the new Form LM–2. this estimate also demonstrates that about the unions’ current record on
The Department used the AFL–CIO 55%, or a majority, of local unions find timeliness. While, as discussed above,
and other commenters’ estimates when the change less difficult. Of course, the the Department has used the burden
they provided information that the Department did not use the AFL–CIO’s hour estimates provided by the AFL–
Department did not have and that data in computing the burden of CIO to reassess the Department’s
increased the accuracy of its estimates complying with the revised Form LM– estimate of the time required for
by adding to the Department’s own data 2 to the extent that the data pertained completing the current forms,
and auditing experience. The to requirements that were addressed in qualitative assessments of difficulty or
Department used the following AFL– the Department’s proposal, but not timely-submission data could not be
CIO data estimating the average burden embodied in the final rule. used to develop burden hour estimates.
for completing the current Form LM–2: The Department also used the AFL– The Department also did not utilize the
1,500 hours each for 141 national and CIO data on the number of unions using information used by the AFL–CIO to
international unions and 200 hours each functional reporting to refine its support its assertion that the
for 5,038 local unions. The latter recordkeeping burden estimates. Department had failed to consider
number reflects the number of unions in Specifically, the AFL–CIO data relating whether, and the extent to which,
the 2002 OLMS e.LORS data. These to the unions’ ability to itemize unions might need additional resources
figures yield a weighted average of 239 disbursements were used to corroborate to comply with the proposal. Although
hours, which the Department rounded the Department’s data and auditing this information illustrates the need to
up to 240 hours for use in making experience. The Department notes, use external support staff or the need to
additional burden assessments. The however, that the data either understate hire additional in-house staff to address
Department had to make some the unions’ capacity to report the higher burden hours associated with
assumptions about the local unions due information by functional categories or the revised Form LM–2, the information
to the scarcity of data. The AFL–CIO by implication shows that a substantial is not helpful for estimating average or
only surveyed 23 local unions on their number of unions are not in compliance total burden hours, but simply
actual experience with the current form. with the current reporting requirements illustrates the choices unions have to
Since the AFL–CIO did not include (the current report requires the tracking comply with the current and final rule.
estimates for consulting, accounting, of all receipts and disbursements in The AFL–CIO’s contention that the
legal, or similar costs, the Department order to place them in the appropriate Department could have chosen less
had to assume additional hours for these schedule and category on the current burdensome alternatives to achieve the
activities in order to arrive at a weighted form). However, the Department did not same objectives is unpersuasive. As
average for computing a total burden use the AFL–CIO data relating to demonstrated by the final rule, the
Department has made numerous modify existing accounting systems, 32 will be incurred by filers. The labor
changes to its proposal that reduce the hours; incorporate electric signatures, costs reflect the Department’s
paperwork burden associated with the 16 hours, systems testing, 24 hours, and assumption that the unions will rely
rule. Throughout the preamble, the employee training, 32 hours (8 hours x upon the services of some or all of the
Department has explained its position 4 employees). To compute the following positions (either internal or
on adopting, or not, alternative compensation costs associated with external staff, including union
proposals suggested by the commenters. these tasks, it used $27.80 as ‘‘fully president, union secretary-treasurer,
The Department, in crafting the final loaded wage rate of union employees.’’ accountant, bookkeeper, computer
rule, has sought to reduce the Mercatus also noted that the programmer, lawyer, consultant) and
paperwork burden on unions, without Department’s analysis did not the compensation costs for these
compromising the Department’s appropriately recognize that the positions, as measured by wage rates
statutory obligation to ensure that union Department’s proposal would have an and employer costs published by the
members are provided annual reports on impact beyond the union’s bookkeeping Bureau of Labor Statistics or derived
their unions’ finances. Both the NPRM and accounting staff. Mercatus noted from data reported in e.LORS. The
and the final rule, in the Department’s that the rule likely would affect the Department also made assumptions
view, fully comply with its manner by which union staff document relating to the time that particular tasks
responsibilities under the LMRDA and or record their activities, and that such or activities would take. The activities
the PRA. The final rule establishes the costs, though minimal on a transaction generally involve only one of the three
least burdensome approach practicable basis, will have a measurable cost in the distinct ‘‘operational’’ phases of the
to provide union members and the aggregate. The Department has rule: first, tasks associated with
Department with the information considered such costs in its analysis of modifying bookkeeping and accounting
required by the LMRDA. the final rule. practices, including the modification or
The comments submitted by the purchase of software, to capture data
b. Methodology for the Burden
Mercatus Center were largely supportive needed to prepare the required reports;
Estimates
of the Department’s proposal, including and second, tasks associated with
the Department’s effort to specifically In reaching its estimates, the recordkeeping; and third, tasks
estimate the burden hours associated Department considered both the one- associated with sending or exporting the
with the unions’ compliance with the time and recurring costs associated with data in an electronic format that can be
proposal. The organization, however, the final rule. Separate estimates are processed by the Department’s import
suggested that the burden estimates included for the initial year of software. Since the analysis is designed
could be improved if the Department implementation as well as the second to provide estimates for a
capitalized its estimates of costs and and third years. For filers, the ‘‘representative’’ union the
provided additional documentation of Department included separate estimates, Department’s estimates largely reflect
the Department’s own costs associated based on the relative size of unions as weighted averages. Where an estimate
with the rule. Although capitalization measured by the amount of their annual depends upon the number of unions
would be a reasonable alternative to the receipts. The size of a union, as subject to the LMRDA or included in
direct cost approach used in this measured by the amount of its annual one of the tier groups, the Department
rulemaking, the Department believes receipts, will affect the burden on has relied upon data in the e.LORS
that averaging the costs over the first reporting unions. For example, larger system (for the years stated for each
three years, as the Department has done unions have more receipts and example in the text or tables).
here, yields approximately the same disbursements to itemize and more The following methodology and
result in estimating burden. Moreover, employees who have to estimate their assumptions underlie the Department’s
in this rulemaking, there was relatively time allocation. burden estimates:
little to be capitalized. Only the The primary impact of this final rule • The size of a union, as measured by
computer equipment and software and will be on the largest labor the amount of its annual receipts, will
the one-time labor costs could be organizations, defined as those that have affect the burden on reporting unions.
considered for capitalization. In its $250,000 or more in annual receipts. Larger unions have more receipts and
analysis, the Department has assumed There are approximately 4,778 labor disbursements to itemize and more
that most of the computer equipment organizations of this size that are employees who have to estimate their
and software would be purchased for required to file Form LM–2 reports time allocation. Three tiers, based on
normal business operations. The under the LMRDA (just 19.0 percent of annual receipts, have been constructed
minimal additional costs associated all labor organizations covered by the to differentiate the burdens among Form
with the final rule have been allocated LMRDA). The rule will also reduce the LM–2 filers.
in the first year. This same procedure burden on 501 small unions that will be • A union’s use of computer
was used for the one-time labor costs. able to file Form LM–3 instead of Form technology, or not, to maintain its
While the procedure used by DOL does LM–2 because of raising the LM–2 financial accounts and prepare annual
not include any ‘‘opportunity costs’’ for threshold to $250,000. These estimates financial reports under the current rule,
capital (e.g., interest charges), DOL are based on 2001 and 2002 data from will affect the burden on reporting
believes that its estimates, by using, in the OLMS e.LORS system. This system unions. Although few LM–2 filers do
effect, a three year life cycle for all such contains annual receipt data on all Form not have computers, the larger the union
costs has reasonably estimated the LM–2, LM–3, and LM–4 filers. Although the greater likelihood that it will be
burden. these estimates may not be predictive of using a specialized accounting program
Mercatus estimated that the average the exact number of small unions that instead of commercial-off-the-shelf
burden associated with the will be impacted by this final rule in the accounting software.
Department’s proposal, per union, at future, the Department believes these • Relative burden associated with the
about 180 hours. It broke down its estimates to be sound and are derived final rule will correspond to the
estimates as follows: install new from the best available information. following predictable stages: review of
software, 4 hours; design/adjust report The Department’s estimates include the rule, instructions, and forms;
forms and format structures, 72 hours; costs for both labor and equipment that adjustments to or acquisition of
accounting software and computer later years as users gain experience. 104.0 hours to collect and report their
hardware; installation, testing, and Estimates for each of the first three years information on the current Form LM–3.
review of the Department’s reporting and a three-year average will provide In addition, the Department assumes
software; changing accounting useful information to assess the burden. that all Form LM–3 filers will take an
structures and developing, testing, A weighted average provides a average 8.0 hours for accounting and 4.0
reviewing, and documenting accounting ‘‘snapshot’’ of the burden associated hours for legal review to complete the
software queries as well as designing with the form for an individual current form for an average total burden
query reports; training union officers reporting union. of 116.0 hours per respondent (see Table
and employees involved in bookkeeping • Burden can be usefully reported as 2). Further, the Department estimates
and accounting functions; training an overall total for all filers in terms of that 64.0 hours of the total is for
union officers and employees to hours and cost. This burden, for most
recordkeeping burden and 52.0 hours is
maintain information relating to purposes, can be differentiated for each
for reporting burden. These estimates
transactions and estimating the amount individual form. The Federal burden
cannot be reasonably estimated by form. and assumptions are based on the
of time they expend in prescribed
• The estimated burden associated similarity of the Form LM–3 and Form
categories; the actual recordkeeping of
data under the revised procedures with the current LM-forms is the LM–2 recordkeeping and reporting
associated with itemizing receipts and appropriate baseline for estimating the requirements, as well as the relative
disbursements and allocating them by burden and cost associated with the differences in the size of the unions that
functional categories; aging accounts final rule. complete the two forms.
receivable and accounts payable; c. Baseline Adjustments: Current Forms The Department has also updated the
allocating time for officers and average annual cost of complying with
employees by functional categories; After reviewing the public comments, the current Form LM–2 and LM–3
preparing a download methodology to the Department assumes that 5,038 local recordkeeping and reporting
either submit electronic reports using unions now take 200 hours and 141 requirements as follows: The average
‘‘cut and paste’’ methods or the import/ national and international unions take
total cost per respondent is $8,381 for
export technology allowing for a more 1,500 hours to collect and report their
the current Form LM–2 and $3,277 for
automated transfer of data to the information on the current Form LM–2
Form LM–3. These figures include
Department; the development, testing, for a weighted average of approximately
estimates for consulting, accounting,
and review of any translator software 240.0 hours for each of the 5,179
respondents. In addition, the legal, and programming costs and are
that may be required between a union’s weighted averages across all
accounting software and Department’s Department assumes that Form LM–2
filers take an average 24.0 hours for respondents and are based on total
reporting software; obtaining digital compensation rates not hourly wage
signatures for the union officers; accounting, 16.0 hours for
programming, 8.0 hours for legal review, rates. The total annual cost for all
additional review by the president and
and 4.0 hours for consulting assistance respondents is estimated to be $43.4
secretary-treasurer; and completing a
to complete the current form for an million for Form LM–2 and $37.2
continuing hardship exemption request
if necessary. average total burden of 292.0 hours per million for Form LM–3 (see Table 2). It
• Burden can be categorized as respondent (see Table 2). Further, the should be noted that although it may
recurring or non-recurring, with the Department estimates that 160.0 hours appear that the Department has applied
latter primarily associated with the of the total is for recordkeeping burden inconsistent dollar costs per hour to the
initial implementation stages. and 132.0 hours is for reporting burden. burden hour estimates, the dollar costs
Recordkeeping burden, as distinct from The difference in the number of per hour naturally differ between forms
reporting burden, will predominate responses in Table 2 reflects that fewer because of the varying amounts of
during the first months of unions filed LM–2’s and LM–3’s in 2002 accountant time, bookkeeping time, and
implementation. than in 2001 according to OLMS e.LORS the time of the union secretary-treasurer
• Burden can be reasonably estimated data. and president associated with each
to vary over time with the greatest The Department also estimates that form, which yield different weighted
burden in the initial year, decreasing in 11,356 local unions will take an average average costs per hour.
ER09OC03.001</GPH>
d. New Form LM–2 commercial off-the-shelf accounting the new reporting software. Finally, in
To estimate the burden hours and software program and will most likely Tier 3, there are the 46 unions with
costs for the revised Form LM–2 and the use the ‘‘cut and paste’’ feature of the annual receipts of $50.0 million or
new Form T–1 the Department divided new reporting software (see Table 3). In more. The Department assumes that
Form LM–2 filers into three groups or Tier 2, there are 3,158 unions with unions within this tier most likely use
tiers, based on the amount of unions’ annual receipts from $500,000 to $49.9 some type of specialized accounting
annual receipts. In Tier 1, there are million. The Department assumes that software program and also will use all
1,574 unions with annual receipts from unions within this tier most likely use of the electronic filing features of the
$250,000 to $499,999.99. The some type of commercial off-the-shelf new reporting software. Table 3
Department assumes that unions within accounting software program and will summarizes the Characteristics of Form
this tier probably use some type of use all of the electronic filing features of LM–2 filers by annual receipts.
For each of the three tiers, the 14.6 hours to install and set up, or computer hardware; 11% of national
Department estimated burden hours for reconfigure the computer hardware and and international unions and 40% of
the additional nonrecurring (first year) accounting software (these are weighted local unions would need new software;
recordkeeping and reporting averages of $1,500 for computer and 51% of national and international
requirements, the additional recurring hardware and $250 for accounting unions and 35% of local unions would
recordkeeping and reporting burden software across all LM–2 filers). need to upgrade their software. An
hours, and a three-year annual average Although many unions currently have additional 12.5% of local unions do not
for the additional nonrecurring and the hardware and software that is use computers; however, the
recurring burden hours. necessary for the recordkeeping and Department assumes that 86.4% (501) of
The Department estimates that LM–2 reporting requirements of the final rule, these unions will no longer have to file
filers will spend an average of nearly data submitted by the AFL–CIO suggests the Form LM–2 because of the higher
$1,000 for computer hardware, that 21% of national and international reporting threshold ($250,000) for the
hardware upgrades, accounting unions and 33% of local unions would form. For those unions without
ER09OC03.002</GPH>
software, and software upgrades, and need to purchase and install new computers, the Department also
estimated that it would take an average The Department estimates an average seven minutes a week) and an hour at
of 14.6 (nonrecurring) hours to install 30-minute reduction in burden for the the end of the year, the Department
and/or upgrade the computer hardware changes to pages one and two and assumed that officers of the largest Form
and software. In addition, for all unions Statement B of the Form LM–2 (for all LM–2 files (Tier 3, with annual receipts
the Department estimated that it would three tiers) for reporting three fewer yes/ of $50 million or more) will spend 60
take an average of 8.9 (nonrecurring) no questions and 5 fewer minutes for minutes a month during the year
hours to install, test, and review the reporting three fewer receipt categories (approximately 14 minutes a week) and
OLMS reporting software. and two less disbursement category on an hour at the end of the year.
The Department estimates that it will Statement B. The burden reduction is It is also assumed that Tier 1
take unions an average of 76.8 less for Statement B because the respondents will use the same features
(nonrecurring) hours to change their information that is currently reported on in the new software that are in the
accounting structures; develop, test, four lines must be still be gathered for existing OLMS software to complete the
review, and document accounting the revised form, but are added together officer and employee schedules, and
software queries; design query reports; and reported on just one line of the that it will take them an average of 2.0
and train accounting personnel. Unions revised form. additional hours to complete each
that use a fiscal year beginning on The Department estimates no schedule in addition to the average of
January 1 will need to spend less than reduction or increase in burden for Tier 6.0 hours to complete the officer
half of these hours (32.5) making 1 filers associated with the eight schedule and 10.0 hours to complete the
changes before January 1, 2004, in order unchanged schedules on the revised existing schedules. However, for Tier 2
to be ready to begin the recordkeeping Form LM–2. It is assumed that Tier 1 and Tier 3 filers, the Department
necessary to be able to file the revised respondents will use the same features estimates an additional 6 hours to
Form LM–2. Unions will have until 90 in the new software that are in the export and transmit data for the officer
days following the end of their fiscal existing OLMS software to complete and employee schedules (3 hours for
year to spend the remainder of these these schedules. However, for Tier 2 each schedule) and a 25% decrease in
hours (44.3) making changes that will be and Tier 3 filers the Department reporting burden that results from
necessary to actually populate the Form estimates a 50% decrease (12.5 hours or moving from the current manual or ‘‘cut
LM–2, which will be due, at the earliest, 1.6 hours per unchanged schedule) in and paste’’ method on the existing form
at the end of March 2005. These reporting burden that results from to an electronic data export capability
moving from the current manual or ‘‘cut on the revised form. No additional
estimates are based on the Department’s
and paste’’ method on the existing form recordkeeping burden is estimated for
review of a variety of accounting
to an electronic data export capability the officer and employee disbursement
software packages, its evaluation of the
for the unchanged schedules on the schedules because the Department is not
recordkeeping requirements of the
revised form. requiring unions to maintain detailed
current Form LM–2, and its review of The Department estimated the burden time records.
the public comments. The Department associated with the three Form LM–2 For the two new schedules for
relied upon the expertise of schedules that are being revised: accounts receivable and accounts
investigators with first-hand knowledge investments, all officers and payable, the Department estimates that
of union financial reporting, including disbursements to officers, and on average unions will take 4.9
the use of software, to determine which disbursements to employees. Each has a additional hours (of nonrecurring
four commercial off-the-shelf software nonrecurring burden for respondents to burden) to develop, test, review, and
packages were most commonly used by adapt to the revisions (e.g., new document accounting software queries;
unions to maintain their finances and schedule reporting thresholds and design query reports; prepare a
prepare financial reports. Using these additional detail) of 4.7, 15.6 and 7.8 download methodology; and train
four common off-the-shelf software hours, respectively. For the revised personnel.
packages, Department investigators officer and employee schedules, the The Department also estimates that on
determined that it was possible to set up Department estimates an average of 60 average unions will take an additional
categories or accounts tailored to minutes of training for each officer and (recurring) 0.8 hours of recordkeeping
capture the information necessary to employee and from 30 to 60 minutes per burden to age their accounts receivable
comply with the requirements of the month and an additional 60 minutes per and accounts payable, and an additional
rule. The software packages tested year for each officer and employee to 1.4 (recurring) hours to prepare the new
utilize a common processing format. estimate the amount of time spent on schedules. OLMS e.LORS data and the
Many unions with commercial-off- each of the functional categories on the public comments suggest that many
the-shelf accounting software will take schedule each month and then sum Form LM–2 filers with receipts of less
less time and other, typically larger, them for the entire year (as described in than $50 million (99% of all filers) have
unions with specialized accounting the preamble, the Department is only few or no accounts receivable or
systems may take more time. Further, requiring officers and employees, as a accounts payable that meet the
the public comments suggest that many general rule, to estimate their time to the threshold for the relevant schedule and
unions already have accounting systems nearest 10%). In calculating the average that 50% of the national and
that maintain at least some, if not all, of time union officers and employees will international unions already maintain
the required information for spend estimating their time, the accounts receivable and accounts
disbursements and other receipts. Department assumed that the task will payable in the format required by the
Therefore, as discussed above, the be more time consuming for officers and final rule. Therefore, the Department
Department continues to believe that employees of larger unions. For has included a relatively small amount
unions will have adequate time to example, while the Department of additional recordkeeping and
conform their accounting systems to the assumed that officers and employees of reporting burden hours associated with
revised forms before the start of the first the smallest Form LM–2 filers (Tier 1, these schedules.
reporting period for which they will be with annual receipts of less than For the new ‘‘other receipts’’
required to report on the new Form LM– $500,000) would spend 30 minutes a schedule, the Department estimates that
2 (no earlier than January 1, 2004). month during the year (approximately on average unions will take 10.3
additional hours (of nonrecurring download methodology; and train query reports; prepare a download
recordkeeping and reporting burden) to personnel. Further, the Department also methodology; and train personnel.
change accounting structures; develop, estimates that on average unions will The Department also estimates that on
test, review, and document accounting take an additional (recurring) 6.0 hours average unions will take an additional
software queries; design query reports; time to prepare the new schedules. This 2.1 (recurring) hours to prepare the new
prepare a download methodology; and additional reporting burden is a net schedules. Since the final rule does not
train personnel. Further, the Department estimate that includes a 50% decrease require unions to manufacture or report
also estimates that on average unions in reporting burden that results from information for membership categories
will take an additional (recurring) 0.6 moving from the current manual or ‘‘cut they do not keep, the Department has
hours to prepare the new schedule. The and paste’’ method for the existing not estimated any additional
additional reporting burden is a net ‘‘other disbursements,’’ ‘‘office and recordkeeping burden for this schedule.
estimate that includes a 50% decrease administrative expense,’’ and For the revised Form LM–2, the
in reporting burden that results from ‘‘contributions, gifts, and grants’’ Department estimates that unions will
moving from the current manual or ‘‘cut schedules to an electronic data export take an average of two hours to obtain
and paste’’ method for the existing capability on the revised form for the each electronic signature (two
schedule to an electronic data export Tier 2 and Tier 3 filers. Moreover, signatures are needed). There is also a
capability on the revised form for the OLMS e.LORS data indicates that charge of $45 to obtain each electronic
Tier 2 and Tier 3 filers. Moreover, disbursements on these five schedules signature and a $5 processing fee. The
OLMS e.LORS data indicates that ‘‘other account for just 23.2% of total Department also estimates that the
receipts’’ represent only 8.8% of total disbursements and that the average union president and secretary-treasurer
receipts and that the average amount amount that would have to be itemized will take an average of 4 additional
that would have to be itemized on the on the schedules is $822,953, or hours (two hours each) to review and
schedule is $309,999. Therefore, Form $164,591 per schedule. Therefore, Form sign the form on top of the 2.4 hours
LM–2 filers would have to electronically LM–2 filers would have to electronically they already spend reviewing the
report at most an average of just 62 other report at most an average of just 33 current form. The additional time for
receipts per year (and probably far less disbursements per schedule per year the president and secretary-treasurer to
since some receipts will be more than (and probably less since some review and sign the form declines to
$5,000). The Department also estimates disbursements will be more than two hours the second year and one hour
that on average unions will take an $5,000). the third year as they become more
additional (recurring) 2.7 hours of familiar with the revised form.
recordkeeping burden. Currently, this The Department also estimates that on
Finally, the Department estimates that
supporting schedule requires some average unions will take an additional
5% of Form LM–2 filers will submit a
detail (description and amount) for (recurring) 22.0 hours of recordkeeping
Continuing Hardship Exemption
other receipts but does not require the burden to record the name, address, and
Request in the first year and that it will
date or name and address. The public date of disbursements. Currently, three
take 1.0 hour to prepare this request.
comments also suggest that 60% of the disbursement supporting schedules
The Department further estimates that
national and international unions require some detail (description and
3% of Form LM–2 filers will submit a
already maintain written records for the amount) but do not require the date or
hardship request in the second year and
information required by the new ‘‘other name and address. The public
that 1% will submit a request in the
receipts’’ schedule. comments also suggest that many
third year. The Department assumes that
unions maintain records as part of their
For the five new disbursement most, if not all, of the hardship
normal business practice that reflect the
schedules (representational activities; exemptions that will be requested will
required detail for disbursements, but
union administration; general overhead; come from the smaller tier 1 Form LM–
that 10 to 40% of unions could not 2 filers. Therefore, the Department
contributions, gifts and grants; and
political activities and lobbying), the provide all of the detail required by the estimates that there will not be a
Department estimates that on average Department’s proposal. reduction or increase in reporting
unions will take 10.3 additional hours For the new membership schedule, burden hours aside from the additional
(of nonrecurring recordkeeping and the Department estimates that on 1.0 hour to make the request since the
reporting burden) to change accounting average unions will take 4.9 additional amount of time to ‘‘cut and paste’’ and
structures; develop, test, review, and hours (of nonrecurring burden) to print the reports is not much different
document accounting software queries; develop, test, review, and document on average than the time to ‘‘cut and
design query reports; prepare a accounting software queries; design paste’’ and electronically submit.
The Department estimates the average hours per respondent in the first year respondent in the second year, and
reporting and recordkeeping burden for (including non-recurring 536.0 hours per respondent in the third
the revised Form LM–2 to be 710.1 implementation costs), 539.4 hours per year. The Department estimates the total
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annual burden hours for respondents for revised Form LM–2 to be $116.0 million Moreover, as explained above, the
the revised Form LM–2 to be 3.4 million in the first year, $83.1 million in the Department believes that it is very
hours in the first year, 2.6 million hours second year, and $82.5 million in the unlikely that small unions with
in the second and third years. third year (see Table 5). These amounts $250,000 in annual receipts would incur
The Department estimates the average include the total cost of the revised many of the costs incurred by the
annual cost for the revised Form LM–2 Form LM–2; the cost of the changes typical Form LM–2 filer. Even the AFL–
to be $24,271 per respondent in the first implemented in this final rule, as noted CIO, in commenting on the more
year (including non-recurring above, is $79.9 million the first year (the burdensome proposed Form LM–2
implementation costs), $17,387 per difference between the combined costs estimated that unions with annual
respondent in the second year, and of the revised Form LM–2 plus the new receipts of less than $500,000 would
$17,262 per respondent in the third Form T–1 and the cost of the current
incur an average cost of just $3,750 for
year. The Department also estimates the Form LM–2). The average three-year
the proposed changes.
total annual cost to respondents for the cost of the final rule is $55.7 million.
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e. Form LM–3 and assumptions are based on the dollar cost estimate is also based on
similarity of the Form LM–3 and Form total compensation costs and not hourly
The Department also estimates that LM–2 recordkeeping and reporting wage rates. The total annual cost for all
11,356 local unions take an average requirements, the fewer number of respondents is estimated to be $39.0
104.0 hours to collect and report their schedules that need to be reported on million for Form LM–3 (see Table 6). It
information on the current Form LM–3. the Form LM–3, as well as the relative should be noted that although it may
In addition, the Department assumes differences in the size of the unions that appear that the Department has applied
that all Form LM–3 filers will take an complete the two forms. inconsistent dollar costs per hour to the
average 8.0 hours for accounting and 4.0 The Department has also updated the burden hour estimates, the dollar costs
hours for legal review to complete the average annual cost of complying with per hour naturally differ between forms
current form for an average total burden the current Form LM–3 recordkeeping because of the varying amounts of
of 116.0 hours per respondent (see Table and reporting requirements to $3,277. accountant time, bookkeeping time, and
2). Further, the Department estimates Again, this figure includes estimates for the time of the union secretary-treasurer
that 64.0 hours of the total is for consulting, accounting, legal, and and president associated with each
recordkeeping burden and 52.0 hours is programming costs and is a weighted form, that yield different weighted
for reporting burden. These estimates average across all respondents. The average costs per hour.
It should also be noted that by file Form LM–2 would only have to file 176 hours per year (116 hours for Form
increasing the filing threshold for Form the less burdensome Form LM–3. Each LM–3 compared to the 292 hours that
LM–2, 501 small unions who currently of these unions will save an average of they are expending to file the current
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Form LM–2) and altogether save 88,176 The Department estimates the burden develop, test, review, and document
hours. In monetary savings, the required for preparing to complete the accounting software queries; design
increased threshold amounts to an Form T–1 for all three tiers to be 2.4 query reports; prepare a download
average savings of $5,104 per year, or a non-recurring hours to provide the new methodology; and train personnel for
total $2.6 million per year. These Form T–1 requirements to the trust, 4.3 each of the schedules. Further, the
savings accrue because unions with hours for reviewing the new form and Department also estimates that on
annual receipts above $200,000 but less instructions, and 8.0 non-recurring (first average Form T–1 respondents will take
than $250,000 will be able to file the year) hours for installing, testing, and 1.2 (recurring) hours to prepare,
less burdensome and less costly Form reviewing the OLMS provided software. transmit/report, and report the new
LM–3. Additionally, these unions will The time to read and review the form receipts schedule and 1.4 hours to
not be required to file Form T–1 if they and instructions is estimated to decline report the new disbursements schedule.
have a trust nor will they incur the to 2.0 hours the second year and 1.0 The Department also estimates that on
increased costs related to the revised hour the third year as unions and trusts average Form T–1 respondents will take
Form LM–2. become more familiar with the revised 8.3 hours (recurring) of recordkeeping
form. (see Table 7) burden for each schedule to maintain
f. New Form T–1 The Department estimates the average the additional information required by
To estimate the burden hours and reporting burden required to complete the final rule.
costs for the new Form T–1 three pages one and two of the Form T–1 for For the new Form T–1 disbursements
important assumptions were made to each of the three tiers to be 6.1 hours to officers and employees of the trust
estimate the number of responses. First, and the average recordkeeping burden
schedule the Department estimates that
it was assumed that 15% of the 1,574 associated with the items on pages one
it will take respondents an average 2.8
tier 1 LM–2 filers with annual revenues and two to be 1.6 hours. These estimates
hours (of nonrecurring burden) to
of from $250,000 to $499,999.99 would are proportionally based on the
develop, test, review, and document
recordkeeping and reporting burden
file one Form T–1. Second, it was accounting software queries; design
estimate for the first two pages of the
assumed that 35% of the 3,158 tier 2 query reports; prepare a download
current Form LM–4, which are very
Form LM–2 filers with annual revenues methodology; and train personnel.
similar to the first two pages of the new
of from $500,000 to $49.9 million would Further, the Department estimates it
Form T–1. The first two pages of Form
file an average of 2.6 Form T–1s. Third, will take on average 0.8 hours to
LM–4 have 21 items (8 questions that
it was assumed that 100% of the 46 tier prepare, export and transmit or report
identify the union, four yes/no
3 Form LM–2 filers with annual the new schedule. No additional
questions, seven summary numbers for:
revenues of $50 million or more would recordkeeping burden is estimated for
Maximum amount of bonding, number
file an average of five T–1 reports each. the officer and employee disbursement
of members, total assets, liabilities,
Although 939 Form LM–2 filers report receipts, and disbursements, total schedule because the Department is not
having a subsidiary, it is difficult to disbursements to officers, and a space requiring trusts to maintain detailed
estimate how many more entities fall for additional information). The first time records over what is kept as normal
within the broader definition of trusts or two pages of Form T–1 have 25 items business practice.
funds to be reported under the final (14 questions that identify the union The Department also estimates that it
rule. and trust, six yes/no questions, just four will take 2.0 hours for the Trust to
For each of the three tiers, the summary numbers for total assets, review the Form T–1 and 1.0 hours for
Department estimated burden hours for liabilities, receipts, and disbursements, this information to be sent to Form LM–
the additional nonrecurring (first year) and a space for additional information). 2 filer. In addition, the Department
recordkeeping and reporting For comparison, the first part of Form estimates that the union president and
requirements, the recurring LM–3 (before the schedules) has 56 secretary-treasurer will take 4.0 hours to
recordkeeping and reporting burden items with two statements on assets, review and sign the form. The time for
hours, and a three year annual average liabilities, receipts, and disbursements. the president and secretary-treasurer to
for the nonrecurring and recurring For the new receipt and disbursement review and sign the form declines to 2.0
burden hours similar to the way it schedules the Department estimates that hours the second year and 1.0 hour the
estimated the burden hours for Form on average T–1 respondents will take third year as they become more familiar
LM–2 filers (see previous discussion). 9.8 hours (of nonrecurring burden) to with the revised form.
The Department estimates the average third year. The Department estimates The cost estimates are based on wage-
reporting and recordkeeping burden for the average annual cost for the new rate data obtained from the
the new Form T–1 to be 71.7 hours per Form T–1 to be $1,986 per respondent Department’s Bureau of Labor Statistics
respondent in the first year (including in the first year (including non-recurring (BLS) for personnel employed in service
non-recurring implementation costs), implementation costs), $934 per industries (i.e., accountant, bookkeeper,
33.9 hours per respondent in the second respondent in the second year, and $838 etc.) and adjusted to be total
year, and 30.4 hours per respondent in per respondent in the third year. compensation estimates based on the
the third year (see Table 8). The BLS Employer Cost data. The estimates
Department estimates the total annual The Department also estimates the used for salaries of labor organization
burden hours for respondents for the total annual cost to respondents for the officers and employees are obtained
new Form T–1 to be 199,000 hours in new Form T–1 to be $5.5 million in the from the annual financial reports filed
the first year, 94,000 hours in the first year, $2.6 million in the second with OLMS and are also adjusted to be
second year, and 84,000 hours in the year, and $2.3 million in the third year. total compensation estimates.
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h. Federal Costs Associated With Final K. Environmental Impact Assessment contributed during the reporting period
Rule The Department has reviewed the by the labor organization or on the labor
The annualized federal cost final rule in accordance with the organization’s behalf or as a result of a
associated with revised Form LM–2 and requirements of the National negotiated agreement to which the labor
the new Form T–1 is estimated to be Environmental Policy Act (NEPA) of organization is a party. A separate report
$7.9 million. This includes operational 1969 (42 U.S.C. 4321 et seq.), the shall be filed on Form T–1 for each such
expenses such as equipment, overhead, regulations of the Council on trust within 90 days after the end of the
and printing as well as salaries and Environmental Quality (40 U.S.C. part labor organization’s fiscal year in the
benefits for the OLMS staff in the 1500), and the Department’s NEPA detail required by the instructions
National Office and field offices that are procedures (29 CFR part 11). The final accompanying the form and constituting
involved with reporting and disclosure rule will not have a significant impact a part thereof, and shall be signed by the
activities. The estimate also includes the on the quality of the human president and treasurer, or
annualized cost for redesigning the environment, and, thus, the Department corresponding principal officers, of the
forms, developing and implementing has not conducted an environmental labor organization. No Form T–1 need
the electronic software, and assessment or an environmental impact be filed for a trust if an annual financial
implementing digital signature statement. report providing the same information
capability. and a similar level of detail is filed with
L. Executive Order 13211 (Actions another agency pursuant to federal or
G. Executive Order 13045 (Protection of Concerning Regulations That state law, as specified in the
Children From Environmental Health Significantly Affect Energy Supply, instructions accompanying Form T–1.
Risks and Safety Risks) Distribution, or Use) In addition, an audit that meets the
In accordance with Executive Order This final rule is not subject to criteria specified in the Instructions for
13045, the Department has evaluated Executive Order 13211, because it will Form T–1 may be substituted for all but
the environmental safety and health not have a significant adverse effect on page 1 of the Form T–1. If, on the date
effects of the final rule on children. The the supply, distribution, or use of for filing the annual financial report of
Department has determined that the energy. such trust, such labor organization is in
final rule will have no effect on trusteeship, the labor organization that
List of Subjects in 29 CFR Parts 403 and has assumed trusteeship over such
children. 408 subordinate labor organization shall file
H. Executive Order 13175 (Consultation Labor unions, Reporting and such report as provided in § 408.5 of
and Coordination With Indian Tribal recordkeeping requirements. this chapter.
Governments)
Text of Final Rule 3. Section 403.5 is amended by:
■
The Department has reviewed this a. In paragraph (a), removing the words
■
final rule in accordance with Executive ■ In consideration of the foregoing, the
‘‘and one copy’’ and removing the
Order 13175, and has determined that it Department of Labor, Office of Labor-
commas preceding and following those
does not have ‘‘tribal implications.’’ The Management Standards, hereby amends
words.
final rule does not ‘‘have substantial parts 403 and 408 of title 29 of the Code
direct effects on one or more Indian of Federal Regulations as set forth below. ■ b. In paragraph (b), removing the
tribes, on the relationship between the words ‘‘and one copy’’ and removing the
Federal government and Indian tribes, PART 403—LABOR ORGANIZATION commas preceding and following those
or on the distribution of power and ANNUAL FINANCIAL REPORTS words.
responsibilities between the Federal ■ 1. The authority citation for part 403 is ■ c. Adding a new paragraph (d) to read
government and Indian tribes.’’ revised to read as follows: as follows:
I. Executive Order 12630 (Governmental Authority: Secs. 202, 207, 208, 73 Stat. § 403.5 Terminal financial report.
Actions and Interference With 525, 529 (29 U.S.C. 432, 437, 438); * * * * *
Constitutionally Protected Property Secretary’s Order No. 4–2001, 66 FR 29656,
May 31, 2001. (d) If a trust in which a labor
Rights) organization with $250,000 or more in
This final rule is not subject to § 403.2 [Amended] annual receipts is interested loses its
Executive Order 12630, Governmental ■ 2. Section 403.2 is amended by: identity through merger, consolidation,
Actions and Interference with a. Removing the words ‘‘together with or otherwise, the labor organization
Constitutionally Protected Property a true copy thereof’’ at the end of shall, within 30 days after such loss, file
Rights, because it does not involve paragraph (a) and removing the comma a terminal report on Form T–1, with the
implementation of a policy with takings preceding those words. Office of Labor-Management Standards,
implications. ■ b. Adding paragraph (d) to read as signed by the president and treasurer or
follows: corresponding principal officers of the
J. Executive Order 12988 (Civil Justice
labor organization. For purposes of the
Reform) § 403.2 Annual financial report. report required by this paragraph, the
This final rule has been drafted and * * * * * period covered thereby shall be the
reviewed in accordance with Executive (d) Every labor organization with portion of the trust’s fiscal year ending
Order 12988, Civil Justice Reform, and annual receipts of $250,000 or more on the effective date of the loss of its
will not unduly burden the Federal shall, except as otherwise provided, file reporting identity.
court system. The final rule has been a report on Form T–1 for every trust in
■ 4. Section 403.8 is amended to:
written so as to minimize litigation and which the labor organization is
provide a clear legal standard for interested, as defined in section 3(l) of ■ a. Designate the existing text as
affected conduct, and has been reviewed the Act, 29 U.S.C. 402(l), that has gross paragraph (a).
carefully to eliminate drafting errors and annual receipts of $250,000 or more, ■ b. Add new paragraphs (b) and (c) to
ambiguities. and to which $10,000 or more was read as follows:
§ 403.8 Dissemination and verification of or negotiating strategy or individuals § 408.5 [Amended]

reports. paid by the labor organization to work
* * * * * in a non-union facility in order to assist ■ 6. Section 408.5 is amended by:
(b)(1) If a labor organization is the labor organization in organizing ■ a. Adding the words ‘‘and any Form T–
required to file a report under this part employees, provided that such 1 reports’’ after the words ‘‘on behalf of
using the Form LM–2 and indicates that individuals are not employees of the the subordinate labor organization the
it has failed or refused to disclose labor organization who receive more annual financial report’’ and before the
information required by the Form than $10,000 in the aggregate in the words ‘‘required by part 403 of this
concerning any disbursement, or receipt reporting year from the union. chapter’’.
not otherwise reported on Statement B, (3) This provision does not apply to
to an individual or entity in the amount disclosure that is otherwise prohibited ■ b. Removing the words ‘‘together with
of $5,000 or more, or any two or more by law or that would endanger the a true copy thereof’’ at the end of the
disbursements, or receipts not otherwise health or safety of an individual. section and removing the comma
reported on Statement B, to an (c) In all other cases, a union member preceding those words.
individual or entity that, in the has the burden of establishing ‘‘just Signed in Washington, DC this 2 day of
aggregate, amount to $5,000 or more, cause’’ for purposes of paragraph (a) of October, 2003.
because disclosure of such information this section. Victoria A. Lipnic,
may be adverse to the organization’s
legitimate interests, then the failure or PART 408—LABOR ORGANIZATION Assistant Secretary for Employment
refusal to disclose the information shall TRUSTEESHIP REPORTS Standards.
be deemed ‘‘just cause’’ for purposes of Appendix
paragraph (a) of this section. ■ 5. The authority citation for part 408 is
(2) Disclosure may be adverse to a revised to read as follows: Note: This appendix, which will not
labor organization’s legitimate interests Authority: Secs. 202, 207, 208, 73 Stat. appear in the Code of Federal Regulations,
under this paragraph if disclosure 525, 529 (29 U.S.C. 432, 437, 438); contains the revised Form LM–2 and the new
would reveal confidential information Secretary’s Order No. 4–2001, 66 FR 29656, Form T–1 and the instructions for these
concerning the organization’s organizing May 31, 2001. forms.
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[FR Doc. 03–25487 Filed 10–8–03; 8:45 am]

BILLING CODE 4510–CP–C
ER09OC03.097</GPH>

Department of Labor: 2003025487

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29 CFR Parts 403 and 408

§ 403.8 Dissemination and verification of or negotiating strategy or individuals § 408.5 [Amended]

[FR Doc. 03–25487 Filed 10–8–03; 8:45 am]

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