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Tuesday,

March 4, 2008

Part III

Department of Labor
Office of Labor-Management Standards

29 CFR Part 403


Labor Organization Annual Financial
Reports; Proposed Rule
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11754 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

DEPARTMENT OF LABOR hearing impairments may call (800) • ‘‘Trust in which a labor organization is
877–8339 (TTY/TDD). interested’’ means a trust or other fund or
Office of Labor-Management organization (1) which was created or
Only those comments submitted established by a labor organization, or one or
Standards through www.regulations.gov, hand- more of the trustees or one or more members
delivered, or mailed will be accepted. of the governing body of which is selected or
29 CFR Part 403 Comments will be available for public appointed by a labor organization, and (2) a
RIN 1215–AB64 inspection during normal business primary purpose of which is to provide
hours at the above address. benefits for the members of such labor
Labor Organization Annual Financial organization or their beneficiaries.
FOR FURTHER INFORMATION CONTACT: Kay 29 U.S.C. 402(l).
Reports
H. Oshel, Director of the Office of
AGENCY: Office of Labor-Management Policy, Reports and Disclosure, at: Kay II. Background
Standards, Employment Standards H. Oshel, U.S. Department of Labor, A. Introduction
Administration, Department of Labor. Employment Standards Administration,
Office of Labor-Management Standards, The Department proposes to establish
ACTION: Notice of proposed rulemaking; a Form T–1 to capture financial
request for comments. 200 Constitution Avenue, NW., Room
N–5609, Washington, DC 20210, (202) information pertinent to ‘‘trusts in
SUMMARY: The Department of Labor’s 693–1233 (this is not a toll-free which a labor organization is
Employment Standards Administration number), (800) 877–8339 (TTY/TDD). interested’’ (‘‘section 3(l) trusts’’),
(‘‘ESA’’) proposes to promulgate a rule information that historically has largely
SUPPLEMENTARY INFORMATION: gone unreported despite the trusts’
that establishes a form to be used by
labor organizations to file trust annual I. Statutory Authority significant effect on labor organization
financial reports with ESA’s Office of financial operations and their members’
This proposed rule is issued pursuant own interests. This proposal is part of
Labor-Management Standards to section 208 of the LMRDA, 29 U.S.C.
(‘‘OLMS’’), provides appropriate the Department’s continuing effort to
438. Section 208 authorizes the better effectuate the reporting
instructions, and revises relevant Secretary of Labor to issue, amend, and
sections of 29 CFR Part 403 relating to requirements of the LMRDA. The
rescind rules and regulations to LMRDA’s various reporting provisions
such reports. The proposed changes are implement the LMRDA’s reporting
made pursuant to section 208 of the are designed to empower labor
provisions. Secretary’s Order 4–2007, organization members by providing
Labor-Management Reporting and issued May 2, 2007, and published in
Disclosure Act (‘‘LMRDA’’), 29 U.S.C. them the means to maintain democratic
the Federal Register on May 8, 2007 (72 control over their labor organizations
438. The proposed rule will apply FR 26159), contains the delegation of
prospectively. and ensure a proper accounting of labor
authority and assignment of organization funds. Labor organization
DATES: Comments must be received on responsibility for the Secretary’s members are better able to monitor their
or before April 18, 2008. functions under the LMRDA to the labor organization’s financial affairs and
ADDRESSES: You may submit comments, Assistant Secretary for Employment to make informed choices about the
identified by RIN 1215–AB64, only by Standards and permits re-delegation of leadership of their labor organization
the following methods: such authority. The proposal and its direction when labor
Internet—Federal eRulemaking Portal. implements section 201 of the LMRDA, organizations provide financial
Electronic comments may be submitted which requires covered labor information required by the LMRDA. By
through www.regulations.gov. To locate organizations to file annual, public reviewing the reports, a member may
the proposed rule, use key words such reports with the Department, detailing ascertain the labor organization’s
as ‘‘Labor-Management Standards’’ or the labor organization’s cash flow priorities and whether they are in
‘‘Labor Organization Annual Financial during the reporting period, and accord with the member’s own priorities
Reports’’ to search documents accepting identifying its assets and liabilities, and those of fellow members. At the
comments. Follow the instructions for receipts, salaries and other direct or same time, this transparency promotes
submitting comments. Please be advised indirect disbursements to each officer both the labor organization’s own
that comments received will be posted and all employees receiving $10,000 or interests as a democratic institution and
without change to www.regulations.gov, more in aggregate from the labor the interests of the public and the
including any personal information organization, direct or indirect loans (in government. Furthermore, the LMRDA’s
provided. excess of $250 aggregate) to any officer, reporting and disclosure provisions,
Mail: Mailed comments should be employee, or member, loans (of any together with the fiduciary duty
sent to: Kay H. Oshel, Director of the amount) to any business enterprise, and provision, 29 U.S.C. 501, which directly
Office of Policy, Reports and Disclosure, other disbursements. 29 U.S.C. 431(b). regulates the primary conduct of labor
Office of Labor-Management Standards, The statute requires that such organization officials, operate to
U.S. Department of Labor, 200 information shall be filed ‘‘in such safeguard a labor organization’s funds
Constitution Avenue, NW., Room N– detail as may be necessary to disclose [a from depletion by improper or illegal
5609, Washington, DC 20210. labor organization’s] financial means. Timely and complete reporting
Because of security precautions the conditions and operations.’’ Id. also helps deter labor organization
Department continues to experience Section 208 directs the Secretary to officers or employees from embezzling
delays in U.S. mail delivery. You should issue rules ‘‘prescribing reports or otherwise making improper use of
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take this into consideration when concerning trusts in which a labor such funds.
preparing to meet the deadline for organization is interested’’ as she ‘‘may The proposed rule helps brings the
submitting comments. find necessary to prevent the reporting requirements for labor
OLMS recommends that you confirm circumvention or evasion of [the organizations and section 3(l) trusts in
receipt of your mailed comments by LMRDA’s] reporting requirements.’’ 29 line with contemporary expectations for
contacting (202) 693–0123 (this is not a U.S.C. 438. Section 3(l) of the LMRDA the disclosure of financial information.
toll-free number). Individuals with provides: Today labor organizations are more like

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11755

modern corporations in their structure, and their officers and representatives.’’ organizations and employers (and labor
scope, and complexity than the labor 29 U.S.C. 401(a). The statute was consultants aligned with the employers)
organizations of 1959.1 The balance designed to remedy these various ills whose employees were represented by
between wages/salaries paid to workers through a set of integrated provisions the labor organizations in question or
and their ‘‘other compensation’’ has aimed at labor organization governance might be organized by them. Similar
changed significantly during this time. and management. These include a ‘‘bill arrangements were also found to exist
For example, in 1966, over 80 percent of rights’’ for labor organization between labor organization officials and
of total compensation consisted of members, which provides for equal the companies that handled matters
wages and salaries, with less than 20 voting rights, freedom of speech and relating to the administration of labor
percent representing benefits. U.S. assembly, and other basic safeguards for organization benefit funds. See
Department of Labor, Report on the labor organization democracy, see 29 generally Interim Report of the Select
American Workforce (2001) 76, 87. By U.S.C. 411–415; financial reporting and Committee on Improper Activities in the
2007, wages dropped to 71.8 percent of disclosure requirements for labor Labor or Management Field, S. Report
total compensation and benefits grew to organizations, their officers and No. 85–1417 (1957); see also William J.
29.2 percent of the compensation employees, employers, labor relations Isaacson, Employee Welfare and Benefit
package. U.S. Department of Labor, consultants, and surety companies, see Plans: Regulation and Protection of
Bureau of Labor Statistics Chart on Total 29 U.S.C. 431–436, 441; detailed Employee Rights, 59 Colum. L. Rev. 96
Benefits, available at http://data.bls.gov/ procedural, substantive, and reporting (1959).
cgi-bin/surveymost. Moreover, labor requirements relating to labor Financial reporting and disclosure
organization members today are better organization trusteeships, see 29 U.S.C. were conceived as partial remedies for
educated, more empowered, and more 461–466; detailed procedural these improper practices. As noted in a
familiar with financial data and requirements for the conduct of key Senate Report on the legislation,
transactions than ever before. Labor elections of labor organization officers, disclosure would discourage
organization members, no less than see 29 U.S.C. 481–483; safeguards for questionable practices (‘‘The searchlight
consumers, citizens, or creditors, expect labor organizations, including bonding of publicity is a strong deterrent.’’); aid
access to relevant and useful requirements, the establishment of labor organization governance (Labor
information in order to make fiduciary responsibilities for labor organizations will be able ‘‘to better
fundamental investment, career, and organization officials and other regulate their own affairs. The members
retirement decisions, evaluate options, representatives, criminal penalties for may vote out of office any individual
and exercise legally guaranteed rights. embezzlement from a labor whose personal financial interests
In August and September of 2007, organization, a prohibition on certain conflict with his duties to members’’);
Department officials met with loans by a labor organization to officers facilitate legal action by members
representatives of the community that or employees, prohibitions on against ‘‘officers who violate their duty
would be affected by the proposed Form employment by a labor organization of of loyalty to the members’’; and create
T–1, including officials of labor certain convicted felons, and a record (The reports will furnish a
organizations and their legal counsel, to prohibitions on payments to employees, ‘‘sound factual basis for further action in
hear their views on the need for reform labor organizations, and labor the event that other legislation is
and the likely impact of changes that organization officers and employees for required’’). S. Rep. No. 187 (1959) 16
might be made. The Department prohibited purposes by an employer or
reprinted in 1 NLRB Legislative History
developed its proposal with these of the Labor-Management Reporting and
labor relations consultant, see 29 U.S.C.
discussions in mind and it requests Disclosure Act of 1959 412.
501–505; and prohibitions against The Department has developed
comments from this community and
extortionate picketing, retaliation for several forms for implementing the
other members of the public on any and
exercising protected rights, and LMRDA’s financial reporting
all aspects of the proposal.
deprivation of LMRDA rights by requirements. The annual reports
B. The LMRDA’s Reporting and Other violence, see 29 U.S.C. 522, 529, 530. required by section 202(b) of the Act, 29
Requirements The LMRDA was the direct outgrowth U.S.C. 432(b) (Form LM–2, Form LM–3,
In enacting the LMRDA in 1959, a of a Congressional investigation and Form LM–4), contain information
bipartisan Congress made the legislative conducted by the Select Committee on about a labor organization’s assets,
finding that in the labor and Improper Activities in the Labor or liabilities, receipts, disbursements,
management fields ‘‘there have been a Management Field, commonly known as loans to officers and employees and
number of instances of breach of trust, the McClellan Committee, chaired by business enterprises, payments to each
corruption, disregard of the rights of Senator John McClellan of Arkansas. In officer, and payments to each employee
individual employees, and other failures 1957, the committee began a highly of the labor organization paid more than
to observe high standards of publicized investigation of labor $10,000 during the fiscal year. The
responsibility and ethical conduct organization racketeering and reporting detail required of labor
which require further and corruption; and its findings of financial organizations, as the Secretary has
supplementary legislation that will abuse, mismanagement of labor established by rule, varies depending on
afford necessary protection of the rights organization funds, and unethical the amount of the labor organization’s
and interests of employees and the conduct provided much of the impetus annual receipts. 29 CFR 403.4.
public generally as they relate to the for enactment of the LMRDA’s remedial Labor organizations with annual
activities of labor organizations, provisions. See generally Benjamin receipts of at least $250,000 and all
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employers, labor relations consultants, Aaron, The Labor-Management labor organizations in trusteeship
Reporting and Disclosure Act of 1959, (without regard to the amount of their
1 There are now more large labor organizations 73 Harv. L. Rev. 851, 851–55 (1960). annual receipts) must file the Form LM–
affiliated with a national or international body then During the investigation, the committee 2. 29 CFR 403.2–403.4. This form may
ever before. In 2006, 4,452 labor organizations,
including 95 national and international labor
uncovered a host of improper financial be filed voluntarily by any other labor
organizations, reported $250,000 or more in total arrangements between officials of organization. The Form LM–2 now
annual receipts. several international and local labor requires receipts and disbursements to

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be reported by functional categories, different ways. Some may be funded the trust; a schedule that separately
such as representational activities; with employer contributions and jointly identifies any individual or entity from
political activities and lobbying; administered by trustees appointed by which the trust receives $10,000 or
contributions, gifts, and grants; union labor organizations and employers. By more, individually or in the aggregate,
administration; and benefits. Further, requiring that labor organizations file during the reporting period; a schedule
the form requires filers to allocate the the Form T–1, labor organization that separately identifies any entity or
time their officers and employees spend members and the public will receive the individual that received disbursements
according to functional categories, as same benefit of transparency they now that aggregate to $10,000 or more,
well as the payments that each of these receive under the Form LM–2. Under individually or in the aggregate, from
officers and employees receive, and it this proposal, any labor organization or the trust during the reporting period and
compels the itemization of certain trust official who places their own the purpose of disbursement; and a
transactions totaling $5,000 or more. personal financial interests above their schedule of disbursements of $10,000 or
This form must be electronically signed duty to the labor organization and the more to officers and employees of the
and filed with the Department.2 trust—and third parties complicit with trust. Under the proposal, exceptions
The labor organization’s president these officials—will find it more are provided for labor organizations
and treasurer (or its corresponding difficult to circumvent and evade their with section 3(l) trusts where the trust,
officers) are personally responsible for legal obligations. as a political action committee (‘‘PAC’’)
filing the reports and for any statement The Department proposes to require a or a political organization (the latter
in the reports known by them to be labor organization with total annual within the meaning of 26 U.S.C. 527),
false. 29 CFR 403.6. These officers are receipts of $250,000 or more to file a submits timely, complete and publicly
also responsible for maintaining records Form T–1 for each trust of the type available reports required of them by
in sufficient detail to verify, explain, or defined by section 3(l) of the LMRDA, federal or state law with government
clarify the accuracy and completeness of 29 U.S.C. 402(l) (defining ‘‘trust in agencies. A partial exception is
the reports for not less than five years which a labor organization is provided for a trust for which an audit
after the filing of the forms. 29 CFR interested’’) where the labor was conducted in accordance with
403.7. A labor organization ‘‘shall make organization during the reporting prescribed standards and the audit is
available to all its members the period, either alone or in combination made publicly available. As proposed, a
information required to be contained in with other labor organizations, (1) labor organization choosing to use this
such reports’’ and ‘‘shall * * * permit selects or appoints the majority of the option must complete and file the first
such member[s] for just cause to members of the trust’s governing board, page of the Form T–1 and a copy of the
examine any books, records, and or (2) contributes more than 50 percent audit.
accounts necessary to verify such of the trust’s revenue; contributions The Department specifically invites
report[s].’’ 29 CFR 403.8(a). made on behalf of the labor organization comments on whether the trust’s
The reports are public information. 29 or its members shall be considered the ‘‘employer identification number’’
U.S.C. 435(a). The Secretary is charged labor organization’s contribution. (‘‘EIN’’) should be reported on the first
with providing for the inspection and The proposed Form T–1 uses the page of the Form T–1. This number
examination of the financial reports, 29 same basic template as prescribed for could be used by members of labor
U.S.C. 435(b); for this purpose, OLMS the Form LM–2. Both forms require the organizations to cross-check the
maintains: (1) A public disclosure room labor organization to provide specified information on the Form T–1 with other
where copies of such reports filed with aggregated and disaggregated reports submitted by the trust, such as
OLMS may be reviewed and; (2) an information relating to the financial its filings with the Internal Revenue
online public disclosure site, where operations of the labor organization and Service (‘‘IRS’’).
copies of such reports filed since the the trust. Typically, a labor organization This proposal contains many of the
year 2000 are available for the public’s will be required to provide information same features proposed by the
review. on the Form T–1 explaining certain Department in 2002 and incorporates
transactions by the trust (such as some changes in the 2003 and 2006 final
III. Proposal disposition of property by other than rules, which are discussed below. The
A. Introduction market sale, liquidation of debts, loans proposal limits the reporting obligation
or credit extended on favorable terms to to those labor organizations that alone
Labor organization members need to officers and employees of the trust); and or in combination with other labor
be provided with information about the identifying major receipts and organizations maintain management
finances and operation of section 3(l) disbursements by the trust during the control or financial domination over a
trusts, which, by statutory definition are reporting period. The proposed Form T– section 3(l) trust. For purposes of
established and maintained primarily to 1, however, is shorter and requires less measuring a labor organization’s
provide benefits to the members and/or information than the Form LM–2. As financial dominance, as discussed
their beneficiaries. 29 U.S.C. 402(l). proposed, the Form T–1, unlike the below, funds paid into the trust by an
Section 3(l) trusts are created for a Form LM–2, does not require that employer on behalf of the labor
myriad of purposes; common examples receipts and disbursements be identified organization or its members are treated
include credit unions, strike funds, by functional category. The proposed the same as contributions made from the
redevelopment or investment groups, Form T–1 includes: 14 questions that labor organization’s own funds.
training funds, apprenticeship identify the trust, six yes/no questions Two threshold requirements that were
programs, pension and welfare plans, covering issues such as whether any contained in the 2003 and 2006 rules
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building funds, and educational funds. loss or shortage of funds was discovered relating to the amount of a labor
These trusts are funded in a number of during the reporting year and whether organization’s contributions to a trust
the trust had made any loans to officers ($10,000 per annum) and the amount of
2 The Form LM–2 and its instructions are
or employees of the labor organizations the contributions received by a trust
published at 68 FR 58449–523 (Oct. 9, 2003) and
are available at http://www.olms.dol.gov. Copies of
at terms below market rates, statements ($250,000 per annum) are not included
the Form LM–3 and Form LM–4 are also available regarding the total amount of assets, in the proposal. The Department
at http://www.olms.dol.gov. liabilities, receipts and disbursements of believes that the labor organization’s

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control over the trust either alone or evasion of * * * reporting one or more unions and employers, and
with other labor organizations, requirements’’), the court examined the although the unions retain a controlling
measured by its selection of a majority Form T–1 portion of the rule to management role, no individual union
of the trust’s governing body or its determine whether the Department’s wholly owns or dominates the trust, and
majority share of receipts during the interpretation of the statute was therefore the use of the funds is not
reporting period, provides the permissible. Id. at 386–87; see also reported by the related union.’’ Id. at
appropriate gauge for determining Chevron U.S.A., Inc. v. Natural 389 (emphasis added). In citing these
whether a Form T–1 must be filed by Resources Defense Council, Inc., 467 examples, the court explained that
the participating labor organization. In U.S. 837, 843 (1984). The AFL–CIO ‘‘absent circumstances involving
contrast to the 2003 and 2006 rules, the argued that the Department’s Form T–1 dominant control over the trust’s use of
Department’s proposal does not include rule was impermissible, in part, because union members’ funds or union
an exemption for section 3(l) trusts that it encompassed joint trusts, which by members’ funds constituting the trust’s
are part of employee benefit plans that operation of statute were independent of predominant revenues, a report on the
file a Form 5500 Annual Return/Report a labor organization’s control. 409 F.3d trust’s financial condition and
under the Employee Retirement Income at 388; see 29 U.S.C. 186(c). In rejecting operations would not reflect on the
Security Act (‘‘ERISA’’). this argument, the court noted that the related union’s financial condition and
B. Judicial Review of Earlier Form T–1 statutory definition of ‘‘trust in which a operations.’’ Id. at 390. For this reason,
Rulemaking union is interested,’’ 29 U.S.C. 402(l), while acknowledging that there are
included joint trusts, such as Taft- circumstances under which the
This proposal follows the Hartley employer-funded benefit plans,
Department’s earlier efforts to Secretary may require a report, the court
and agreed with the Department’s disapproved of a broader application of
implement a Form T–1 reporting interpretation that such trusts could be
obligation. The proposal is an outgrowth the rule to require reports by any labor
used to evade the reporting organization simply because the labor
of these earlier efforts and takes into requirements. 409 F.3d at 387–88. The
account the guidance provided by the organization satisfied a reporting
court agreed with the Department’s threshold (a labor organization with
United States Court of Appeals for the reasoning that ‘‘[s]ince the money an
District of Columbia Circuit in its 2005 annual receipts of at least $250,000 that
employer contributes to such a ‘trust’ contributes at least $10,000 to a section
review of the 2003 Form T–1 rule, 68 FR * * * might otherwise have been paid
58374 (American Federation of Labor 3(l) trust with annual receipts of at least
directly to the workers in the form of $250,000). Id.
and Congress of Industrial
increased wages and benefits, the
Organizations v. Chao, 409 F.3d 377 In reaching its conclusion, the court
members * * * have a right to know
(2005)). rejected an underlying premise of the
In November 2003, the American what funds were contributed, how the
money is managed and how it is being rule that a labor organization’s
Federation of Labor and Congress of appointment of a single member to a
Industrial Organizations (‘‘AFL–CIO’’) spent.’’ Id. at 387. The court held that
‘‘[s]ection 208 does not limit the trust’s governing board could trigger a
filed a complaint against the reporting obligation, even though the
Department, challenging the combined [Department] to requiring reporting only
in order to disclose transactions labor organization’s contribution to the
Form LM–2 and Form T–1 rule. The suit trust constituted a fraction of the trust’s
was filed with the U.S. District Court for involving the misuse of labor
organization members’ funds because total revenues. Id. The court explained
the District of Columbia; through this that ‘‘[w]here a union has minimal
action, the AFL–CIO asked the court to leaving the decision about disclosure to
such trusts * * * would allow unions control over trust fund spending and a
order temporary, preliminary, and union’s contribution is so small a part
permanent relief to enjoin and vacate to circumvent or evade reporting on the
use of members’ funds diverted to the of the trust’s revenues, and the trust is
the Department’s rule. The rule was not otherwise controlled by unions or
upheld on its merits by the district court trust.’’ Id. at 388–89.
dominated by union members’ funds,
(AFL-CIO v. Chao, 298 F.Supp.2d 104 The court recognized that reports on
the trust lacks the characteristics of the
(D.D.C. 2004). On appeal, the D.C. trusts that reflect a labor organization’s
financial condition and operations are unreported transactions in the examples
Circuit in its 2005 opinion unanimously
within the Department’s rulemaking on which the [Department] based the
upheld the Form LM–2 rule as a
authority, including trusts ‘‘established final rule.’’ Id. at 391. In these
reasonable exercise of the Department of
by one or more unions or through circumstances, in contrast to the
Labor’s LMRDA rulemaking authority.
collective bargaining agreements calling examples relied upon by the
In a divided decision, however, the
for employer contributions, [where] the Department, the element of management
court vacated the Form T–1 rule
union has retained a controlling control or financial dominance is
because, in its view, the Department
management role in the organization,’’ missing. Id.
exceeded its authority by ‘‘requiring
general trust reporting.’’ 409 F.3d at and also those ‘‘established by one or In light of the decision by the D.C.
378–79, 391. The court framed the issue more unions with union members’ Circuit and guided by its opinion, the
before it as ‘‘whether Form T–1 funds because such establishment is a Department again reviewed the proposal
comports with the statutory reasonable indicium of union control of as it related to the Form T–1 and the
requirements that the Department ‘find that trust.’’ Id. The court acknowledged comments received on the proposal. The
[such rule is] necessary to prevent’ that the Department’s findings in Department then issued a final rule on
evasion of LMRDA Title II reporting support of its rule were based on September 29, 2006, but the rule was
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requirements.’’ Id. at 386 (quoting particular situations where reporting vacated on procedural grounds by the
section 208 of the LMRDA, 29 U.S.C. about trusts would be necessary to U.S. District Court for the District of
438). prevent evasion of the related labor Columbia in AFL–CIO v. Chao, 496
Given what it viewed as the ambiguity organizations’ own reporting F.Supp.2d 76 (D.D.C. 2007). In light of
inherent in the word ‘‘necessary’’ as obligations. Id. at 387–88. One example this court decision, the Department
used in section 208 (authorizing reports included a situation where ‘‘trusts [are] provides this new proposal for notice
‘‘necessary to prevent circumvention or funded by union members’ funds from and comment.

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


established by one or more unions with Restatement (Third) of Agency § 8.01 (T.D. No. 6,
only if the trust was a ‘‘subsidiary’’ of
union members’ funds because such 2005) et seq.; see also 1 American Law Institute, the reporting labor organization, i.e., an
establishment is a reasonable indicium Principles of Corporate Governance § 1.14 (1994)), entity, as defined by the Department,
of union control of the trust,’’ as well as public disclosure requirements, government that is wholly owned, wholly
regulation, and the availability of civil and criminal
where there are characteristics of process, complement these obligations and help
controlled, and wholly financed by the
‘‘dominant union control over the trust’s ensure a trustee’s observance of his or her fiduciary labor organization. Thus, the former
use of union members’ funds or union duty. rule, which was crafted shortly after the

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11759

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

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11760 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

$20,000 from the labor organization’s enrichment). In another case, nepotism payments, file a Form T–1 if, among
welfare benefit fund; and (8) a former and no-bid contracts depleted a labor other conditions, it contributed $10,000
training director of a labor organization’s health and welfare funds or more to a section 3(l) trust during the
organization’s pension and welfare fund of several million dollars. The problems reporting period. The proposal,
was charged and convicted of receiving associated with the fund included, however, invited comment on whether
gifts and kickbacks from a vendor that among others, paying the son-in-law of adequate disclosure could be achieved
provided training for labor organization a board member, a local labor instead by expanding the definition of
members. organization official, a salary of ‘‘subsidiary’’ to include trusts that were
The comments received from labor $119,000 to manage a scholarship closely related to the labor organization
organizations and their members on the program that gave out $28,000 per year; but not ‘‘100% owned, controlled and
2002 proposal generally opposed any paying a daughter of this board member financed by the [union].’’ 67 FR 79285.
reporting obligation concerning trusts $111,799 a year as a receptionist; and The Department suggested that this
(beyond the requirement then paying $123,000 for claims review work alternative would borrow from the test,
applicable to the ‘‘wholly-owned’’ that required only a few hours of effort used in other contexts, to determine
subset of section 3(l) trusts). Labor a week. See Steven Greenhouse, whether multiple companies constitute
organization members, however, Laborers’ Union Tries to Oust Officials a ‘‘single entity.’’ The Department
recommended generally greater scrutiny of Benefits Funds, N.Y. Times, June 13, explained that this approach would be
of labor organization trust funds. These 2005, at B5.4 If the Department’s based on various factors, including an
commenters included several members proposed rule had been in place, the assessment as to the integration of the
of a single international labor members of the affected labor companies’ operations and their
organization. They explained that under organizations, aided by the information common management.
the labor organization’s collective disclosed in the labor organizations’ In the 2003 rule, the Department
bargaining agreements, the employer Form T–1s, would have been in a much explained that it had received only a
sets aside at least $.20 for each hour better position to discover the improper few comments on the ‘‘single entity’’
worked by a member and that this use of the trust funds and thereby test. After considering the comments,
amount was paid into a benefit fund minimize the injury to their stake in the the Department determined that the test
known as a ‘‘joint committee.’’ The trust. Further, the fear of discovery may
would be less effective than other
commenters asserted that some of the have deterred the wrongdoers from
approaches, because it could be easily
funds were ‘‘lavished on junkets and engaging in the offending conduct in the
parties’’ and that the labor organization evaded by labor organizations seeking to
first place.
used the joint committees to reward As the foregoing discussion makes conceal their relationship with a trust.
political supporters of the labor clear, the proposed Form T–1 rule will The Department further explained that
organization’s officials. They stated that add necessary safeguards to deter even if information concerning the
the labor organization refused to circumvention and evasion of the relationship between the trust and the
provide information about the funds, LMRDA’s reporting requirements. labor organization was readily available,
including amounts paid to ‘‘union Under the proposal, it will be more the test could prove difficult to apply
staff.’’ From the perspective of one difficult for labor organizations and and thus was a poor substitute for a
member, the labor organization did not complicit trusts to avoid the disclosure ‘‘bright line’’ standard pegged to a
want ‘‘this conflict of interest’’ to be required by the LMRDA. Labor specified dollar threshold. Several
exposed. organization members will be able to comments received by the Department
The need for this proposal is also review financial information they may suggested that the labor organization’s
demonstrated by additional examples of not otherwise have had, empowering control over, not merely its participation
improper administration and diversion them to better oversee their labor in, a trust should fix any reporting
of funds from section 3(l) trusts. Labor organization’s officials and finances as obligation, and thus objected to the
organization officials in New York were contemplated by Congress. Department’s proposal imposing a
convicted in a ‘‘pension-fund fraud/ general reporting obligation on all large
D. Specific Aspects of the Proposed labor organizations. The AFL-CIO’s
kickback scheme’’ where labor
Form T–1 objection to the proposal was twofold:
organization officials were bribed by
members of organized crime to invest 1. Determining Management Control or ‘‘If the union does not control the trust,
pension fund assets in corrupt Financial Domination the trust cannot be used to circumvent
investment vehicles. The majority of the the reporting requirements; and if the
In 2002, the Department proposed to
funds were to be invested in legitimate union does not control the trust it
require that any labor organization,
securities, but millions of dollars were cannot compel the trust to divulge the
regardless of its size or the proportion
placed into a sham investment, the body detailed financial information
of the trust’s receipts represented by its
of which was to be used to fund [required].’’ It explained: ‘‘[T]he
kickbacks to the labor organization 4 Various concerns about the administration of Department’s proposal does not require
officers with the hope that the return on joint trusts are addressed in legal periodicals such that the union have effective control
investment from the majority of the as Note: Conflict of Interest Problems Arising from over the trust. Without de facto, or
legitimately invested assets would cover Union Pension Fund Loans, 67 Colum. L. Rev. 162 actual, control over a trust’s financial
(1967), 162–63; and Stephen Fogdall, Exclusive
the amounts lost as kickbacks. U.S. v. Union Control of Pension Funds: Taft-Hartley’s Ill- management, a labor organization has
Reifler, 446 F.3d 65 (2d Cir. 2006); see considered Prohibition, 4 U. Pa. J. Lab. & Emp. L. no mechanism by which it can
The Final Report of the New York State 215 (2001–2002), 228–31 (providing examples of circumvent or evade the Act’s reporting
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misuse and exemplary use of trust funds). See also requirements.’’ Further, even though the
Organized Crime Task Force: Stephen Brill, The Teamsters, 151, 201–16, 221–60
Corruption and Racketeering in the New (discussing problems with administration of AFL-CIO did not embrace the ‘‘single
York City Construction Industry (1990) Teamster funds, especially the Central States entity’’ approach, it viewed this
27–29, 91–92, 182–84 (describing Pension Fund); James B. Jacobs, Mobsters, Unions, approach as ‘‘a helpful starting point.’’
and Feds (2006) 181 (describing the looting of
devices typically used by labor Teamster Local 560’s benefit funds); Robert Fitch,
While disagreeing with the mechanisms
organization officials and third parties Solidarity for Sale (2006), 149–52 (misuse of New suggested by the Department, it
to divert trust funds for their own York Mason Tenders pension fund). acknowledged that the Department

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11761

possessed the authority ‘‘for developing management control and financial the interests of the labor organization. In
an analytical framework for identifying domination. such instances, the funds cover
’significant trusts’’ as to which financial Under this proposal, Form T–1 expenses that otherwise would be paid
disclosure should be required.’’ A local reports would be required on Taft- from the labor organization’s general
labor organization, while generally Hartley trusts where the contributions treasury and reported on the Form LM–
opposed to the Form T–1, stated that ‘‘it by or on behalf of the labor organization 2.
seems reasonable that ownership or or its members comprise a majority of Under this proposal, management
control can only be attributed to parties the trust’s receipts.6 Taft-Hartley trusts domination or financial control is
holding over 50% ownership of an are statutorily defined trusts, determined by looking at the
organization.’’ established by a labor organization for involvement of all labor organizations
The ‘‘single entity’’ alternative was the sole and exclusive benefit of the contributing to or managing the trust. As
mentioned in the D.C. Circuit’s opinion contributing employer’s employees, discussed above, the Department’s
in AFL-CIO v. Chao, but the court did their families, and dependents that meet experience, as noted by the D.C. Circuit
not approve or disapprove of this several prescribed conditions, including in its 2005 opinion, demonstrates that
a written agreement with the participating labor organizations may
approach. 409 F.3d at 390–91. Instead,
employer(s) concerning the basis on ‘‘retain a controlling management role,
the court focused its inquiry on the
which such payments are to be made [even though] no individual union
extent of the labor organizations’
and joint administration by an equal wholly owns or dominates the trust.’’
relationship with section 3(l) trusts and
number of employee and employer 409 F.3d at 389. This occurs, for
indicia of their management control or
representatives. See section 302(c) of the example, where a trust is created from
financial domination of the trusts. Id. at
Labor Management Relations Act, 29 the participation of several labor
388–89. As discussed previously, the
U.S.C. 186(c); see Steven J. Sacher, organizations with common affiliation,
appeals court found that the Secretary
James S. Singer, et al., editors, Employee industry, or location, but none alone
had not demonstrated how a labor holds predominant management control
Benefits Law (2d ed. BNA 2001) 179–83,
organization’s contribution of $10,000, over or financial stake in the trust.
642–43, 1177–03. Typically the
an amount that could be infinitesimal Absent the Form T–1, the contributing
establishment of such trusts and their
given the trust’s other contributions, labor organizations, if so inclined,
funding is set through collective
could be indicative of the labor would be able to use the trust as a
bargaining. Such payments comprise a
organization’s ability to exercise any vehicle to expend pooled labor
portion of the employer’s labor
effective control over the trust. organization funds without the
expenses, along with salaries, wages,
The court indicated that the Secretary and employer administered benefits. disclosure required by Form LM–2 and
could require a labor organizations to Thus, the money paid into the trusts the members of these labor
file a Form T–1 where labor reflects payments that otherwise could organizations would continue to be
organizations exercise management be made directly to employees as wages, denied information vital to their
control or financial domination over a benefits, or both, but for their interests. If a single labor organization
trust. The court did not establish a assignment to the trusts. may circumvent its reporting obligations
control test, leaving the Department to The administration of a Taft-Hartley when it retains a controlling
fashion a test consistent with the fund is under the control of the labor management role or financially
LMRDA and its policy preferences. organization and employer trustees, not dominates a trust, then a group of labor
After considering various alternatives, the employees or their beneficiaries. organizations may also be capable of
including a case-by-case determination, While the disbursements from the funds doing so. A rule directed to preventing
or one based on whether a labor often represent individual payments to a single labor organization from
organization or labor organizations hold employees or their beneficiaries by circumventing the law must, in all logic,
the largest but not predominant share of reason of health or other claims, be similarly directed to preventing
the trust’s interests (or the contributions payments also often reflect more multiple labor organizations from also
to the trust during a reporting period), collective interests of employees such as evading their legal obligations.
the Department is proposing a bright developing apprenticeship or vocational Because labor organizations filing the
line approach. Under the proposal, a training programs or operating job Form LM–2 already are required to
labor organization is required to file a targeting programs, payments that serve identify section 3(l) trusts on the Form
report only where it alone or in LM–2, the proposed rule will not add
combination with other labor 6 A labor organization’s obligation to report on any significant reporting burden with
organizations (1) selects or appoints the section 3(l) trusts is based on the majority control respect to identifying the section 3(l)
majority of the members of the trust’s and financial domination tests embodied in the trusts. The Form LM–2 requires labor
proposed rule. Thus, the designation of a trust as organizations to provide the full name,
governing board, or (2) contributes more a ‘‘Taft-Hartley Trust,’’ a ‘‘welfare benefit trust,’’ or
than 50 percent of the trust’s revenue other designation will not control the coverage address, and purpose of each section
during the annual reporting period; question. Examples of trusts for which a Form T– 3(l) trust in which it participates. The
contributions made on behalf of the 1 may be required include training or educational Form T–1 will be filed for only a subset
funds, strike funds, and redevelopment or of the labor organization’s section 3(l)
organization or its members shall be investment funds. Other examples, depending upon
considered contributions by the labor their particular characteristics, would include trusts trusts. No Form T–1 will be required for
organization.5 The test is responsive to such as Multiple Employer Welfare Arrangements, any trust not required to be listed on the
the concerns expressed by the D.C. Multi-Employer Plans, Voluntary Employees’ Form LM–2.
Beneficiary Associations, or other similar plans. In most cases labor organizations
Circuit in that the test looks to the
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This is not an exhaustive list. At the same time, a


relationship between the labor labor organization should also be mindful that a
already possess information to
organization or labor organizations and designation of an entity as something other than a determine whether a Form T–1 is
the trust and relies on principles of trust or its description as a particular kind of trust required for a particular section 3(l)
does not except the labor organization from filing trust. If a labor organization selects or
a Form T–1 for the entity if it meets the filing
5 As a result, multiple unions may be required to standards. Again, the coverage question is to be
appoints a member of the trust’s
report on a single trust. This aspect of the rule is based on the majority control and financial governing board, it will know how the
discussed in detail below in section II D.7. domination tests embodied in the proposed rule. other members are selected and whether

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11762 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

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

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11763

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

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11764 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

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

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11765

withhold information that otherwise T–1, but it believes that this approach could be satisfied under this approach.
would be reported, in order to prevent is an acceptable trade-off for reducing After further consideration, the
the divulging of information relating to the overall reporting burden on the Department has determined that the use
the labor organization’s prospective labor organization and the section 3(l) of the Form 5500 as a substitute for the
organizing or negotiation strategy. trust. The Department invites comments Form T–1 would not meet these
on this proposed alternative. Under the purposes, and thus this proposal does
6. Exemptions and Alternative Means of
audit alternative, a labor organization not include the filing of the Form 5500
Compliance
need only complete the first page of the covering the section 3(1) trust as an
The Department proposes to except Form T–1 (Items 1–15 and the exemption to the Form T–1 filing
from the labor organization’s Form T–1 signatures of the organizations’ officers) requirement.
reporting requirement a trust that is and submit a copy of an audit of the The Form 5500 Annual Return/Report
established as a PAC or an organization trust that meets all the following is a system of forms and schedules filed
exempt under Internal Revenue Code standards: by employee benefit plans subject to
section 527 (section 527 political • The audit is performed by an ERISA. A common misconception is
organization) if the trust files timely, independent qualified public that Form 5500 reports are filed for all
complete and publicly available reports accountant, who after examining the section 3(l) trusts. They are not. Since
with federal or state agencies, as financial statements and other books there is no uniform filing obligation
required by federal or state law. The and records of the trust, as the under ERISA for section 3(1) trusts,
Department also proposes a partial accountant deems necessary, certifies labor organization members, the public,
exception where an independent audit that the trust’s financial statements are and OLMS investigators would have to
of the trust has been conducted in presented fairly in conformity with expend considerable time and resources
accordance with proposed standards Generally Accepted Accounting to determine whether a section 3(l) trust
discussed below and the audit is filed Principles or Other Comprehensive has filed the Form 5500 and, if so,
with OLMS along with page 1 of Form Basis of Accounting. whether it filed all the information and
T–1. The purpose of limiting the filing • The audit includes notes to the schedules required of it under ERISA.
requirements in this way is to minimize financial statements that disclose, for Although a section 3(1) trust may
any overlapping reporting obligations the preceding twelve-month period: form part of an ‘‘employee pension
that exist under certain other laws • Losses, shortages, or other benefit plan’’ or ‘‘employee welfare
where such reports are publicly discrepancies in the trust’s finances; benefit plan’’ subject to ERISA, the
available and provide information • The acquisition or disposition of ERISA statute does not apply to all
roughly comparable to that required by assets, other than by purchase or sale; section 3(1) trusts. Strike funds,
the Form T–1. Additionally, an audit • Liabilities and loans liquidated, recreational plans, and hiring hall
that satisfies the proposed standards reduced, or written off without the arrangements are examples of funds in
and that is submitted along with page 1 disbursement of cash; which labor organizations participate
of the Form T–1 similarly would be an • Loans made to labor organization that fall outside ERISA coverage. See 29
acceptable substitute. Each of these officers or employees that were granted CFR 2510.3–1. Further, under the
alternative methods for meeting the at more favorable terms than were Department’s ERISA regulations, some
labor organization’s Form T–1 available to others; and section 3(l) trusts that are part of
obligation provides significant, timely • Loans made to officers and employee benefit plans subject to ERISA
financial information about the trust employees that were liquidated, are not required to file the Form 5500
that is updated on a regular basis (for reduced, or written off. or are allowed to file abbreviated
PAC and section 527 reports, typically • The audit is accompanied by financial schedules. See 29 CFR
more frequently than the Form T–1) and schedules that disclose, for the 2520.104–20 (simplified reporting for
requires the itemization of receipts and preceding twelve-month period: plans with fewer than 100 participants)
expenditures.7 These reports provide a • A statement of the assets and and 29 CFR 2520.104–22 (conditional
level of transparency similar to the liabilities of the trust, aggregated by exemption for apprenticeship and
proposed Form T–1. categories and valued at current value, training plans). For general information
The Department proposes that the and the same data displayed in on ERISA’s Form 5500 annual reporting
audit must meet the requirements comparative form for the end of the requirements, see U.S. Department of
(modeled on section 103 of ERISA, 29 previous fiscal year of the trust; and Labor, Reporting and Disclosure Guide
U.S.C. 1023, and 29 CFR 2520.103–1 • A statement of trust receipts and for Employee Benefit Plans, (reprinted
(relating to annual reports and financial disbursements aggregated by general 2004) available at http://www.dol.gov/
statements required to be filed under sources and applications, which must ebsa/pdf/rdguide.pdf (last visited Nov,
ERISA)) described in the Form T–1 include the names of the parties with 8. 2007).
instructions. The Department recognizes which the trust engaged in $10,000 or Moreover, the focus of the financial
that the audit option may not provide more of commerce and the total of the reporting required on the Form T–1 and
the same detail as required by the Form transactions with each party. the Form 5500 are not identical. As
Under the earlier proposal and rules, noted above, the Form T–1 implements
7 Significantly, these forms set the itemization a labor organization was not required to section 201 of the LMRDA, which
threshold below the $10,000 amount proposed for file a Form T–1 for a section 3(l) trust requires covered labor organizations to
the Form T–1. They require aggregation of receipts if the trust was part of an employee file annual, public reports with the
and disbursements; itemization is required for any benefit plan required under ERISA to Department, detailing the labor
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receipts from or disbursements to an individual or


entity that total $200 or more during prescribed
file a Form 5500. Although the organization’s cash flow during the
reporting cycles. See Federal Election Commission, Department acknowledged that this reporting period, and identifying its
Instructions for FEC Form 3X and Related option would not provide labor assets and liabilities, receipts, salaries
Schedules, available at http://www.fec.gov/pdf/ organization members and the public and other direct or indirect
forms/fecfrm3xi_06.pdf (last visited Nov. 8, 2007);
IRS, Instructions for Form 8872, available at
with all the information required by the disbursements to each officer and all
http://www.irs.gov/pub/irs-pdf/i8872.pdf (last Form T–1, it appeared that the employees receiving $10,000 or more in
visited Nov. 8, 2007). disclosure purposes of the LMRDA aggregate from the labor organization;

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11766 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

direct or indirect loans (in excess of • Whether any labor organizations discussed a fund with annual
$250 aggregate) to any officer, employee, now require section 3(l) trusts to contributions over $300,000 in which
or member; loans (of any amount) to any provide reports to the labor seven locals participated. The
business enterprise; and other organization, on a regular basis, at least contributions from, or on behalf of, each
disbursements. Although there may be annually and in comparable or greater local ranged from about $10,000 to
some overlap with the Form T–1 in detail to the Form T–1, including an about $100,000. The fund had four
cases where a section 3(1) trust is part itemization of receipts and management and four labor trustees;
of an employee benefit plan required to disbursements, and, if so three from different locals contributing
file a Form 5500 with detailed financial Æ Whether the itemization threshold to the trust and a fourth from the labor
schedules a Form 5500 filing would not is higher or lower than $10,000; and organizations’ parent organization. The
include the itemization of Æ Whether the report is mailed to labor organization also explained that it
disbursements or receipts required by each member or made publicly available is common for local labor organizations
the Form T–1. to members by other means; in different crafts (affiliated with
Further, the Form T–1 must be filed • Whether documents provided for different parent bodies) to participate in
within 90 days of the end of the labor internal use by the trustees of a section a fund. It explained that in these
organization’s fiscal year and must 3(l) trust, if publicly disclosed, would instances, it would be unusual for a
cover the section 3(1) trust’s most recent adequately meet the disclosure single craft or local to represent a
fiscal year, i.e., the fiscal year ending on requirements of the LMRDA; majority of the labor organization
or before the closing date of the labor • Whether the proposed rule enables trustees. It stated that in such
organization’s own fiscal year. This labor organizations and section 3(l) circumstances it is unrealistic to suggest
requirement is mandated by the trusts sufficient time to compile and that any single labor organization or
LMRDA’s requirement that a labor report on information needed to craft controls the trust.
organization file its financial reports complete the Form T–1 in those As suggested by the Department’s
within 90 days of the close of the labor instances where the labor organization proposal and the apprenticeship and
organization’s fiscal year. 29 U.S.C. and the trust have the same fiscal year, training fund just discussed, it is not
437(b). The Form 5500 is not due, by i.e., where the Form T–1 must be filed uncommon for multiple labor
comparison, until the end of the seventh within 90 days of the close of the trust’s organizations to participate in a section
month following the end of the plan’s fiscal year; and 3(l) trust without any single labor
fiscal year, with an available extension • If the proposed rule will impose organization contributing a majority of
of up to an additional two and one half substantial difficulties for labor the trust’s revenues. In some trusts, such
months. In the case of a labor organizations and trusts in the instances as strike funds, labor organizations may
organization and a section 3(1) trust that discussed in the preceding bullet point, be the sole contributors to the fund; in
have the same fiscal year, the Form T– and, if so, how these difficulties may be others, such as Taft-Hartley trusts, the
1 would be due well in advance of the ameliorated in a way that ensures the trust will be funded by employers, but
Form 5500 due date. On the other hand, timely receipt of information about such such funds are established through
if a trust’s fiscal year ends three months trusts by members of labor organizations collective bargaining agreements and
after the labor organization’s fiscal year, and the public. the employer contributions are made for
Labor organizations or other members the benefit of the members of the
the Form T–1 will not be due until
of the public are encouraged to submit participating labor organizations or their
twelve months after the end of the
representative copies of any such beneficiaries.
trust’s fiscal year. It should be noted,
reports or other documents of the type Trusts in which several labor
however, that the trust’s fiscal year is organizations participate typically will
described.
established by the trust and will be the consist solely of funds that are
same for both Form T–1 and Form 5500 7. Each Labor Organization With
contributed on behalf of their members.
reporting purposes. Annual Receipts of at Least $250,000
In many instances, none of the
The persons required to sign the Form Participating in a Section 3(L) Trust participating labor organizations
T–1 and Form 5500 also are not With Other Labor Organizations Must contributes a majority of the trust’s
identical. Under the proposed Form T– File a Form T–1 revenues. Thus, unless a reporting
1, the form must be signed by the The proposal does not differentiate obligation is imposed on one or more of
president and treasurer, or among the reporting obligations of labor the labor organizations on some basis
corresponding principal officers, of the organizations contributing to the same other than majority contributions, no
labor organization. By comparison, the trust. Any labor organization that labor organization members will receive
Form 5500 filed for an employee benefit satisfies the reporting threshold will any information on the trust’s finances.
plan that includes a section 3(1) trust is have to submit the Form T–1, even In its 2002 proposal, the Department
signed by the plan’s ‘‘administrator,’’ as though the labor organization’s share illustrated the need for reporting on
defined in section 3(16) of ERISA.8 For may only represent a relatively small section 3(l) trusts with four examples in
these reasons, the Form 5500 does not portion of the total contributions made which labor organizations had evaded
appear to be an adequate substitute for to the trust by labor organizations. their reporting obligations through their
the Form T–1. In response to the Department’s 2002 involvement with such trusts. (These
The Department invites comments on proposal, an international labor same examples are discussed in this
organization explained that it was not proposal.) One of these examples
8 Section 3(16)(A) of ERISA, 29 U.S.C. 1002
uncommon for several locals to involved the improper diversion of
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(3)(16)(A), defines the term ‘‘administrator’’ to


mean: ‘‘(i) the person specifically so designated by
participate in an apprenticeship and funds from a strike fund in which no
the terms of the instrument under which the plan training fund that would be funded by single labor organization held a
is operated; (ii) if an administrator is not so payments from employers pursuant to controlling interest. The absence of any
designated, the plan sponsor; or (iii) in the case of negotiated agreements providing for ‘‘a labor organization reporting obligations
a plan for which an administrator is not designated
and a plan sponsor cannot be identified, such other
cents per hour’’ contribution for hours facilitated the improper disposition of
person as the Secretary may by regulation worked by each of their employees. As thousands of dollars (over $60,000 per
prescribe.’’ an example, the labor organization month) from the strike fund. As

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11767

discussed above, a single labor allocate the reporting costs among the assistance, the Department has pursued
organization may circumvent its Form labor organizations, as determined by the development and implementation of
LM–2 reporting obligations when it the trust, and will keep their total costs electronic filing of annual reports
retains a controlling management role or only marginally higher than if a Form required by the LMRDA, along with an
financially dominates a trust; there is no T–1 was required to be filed by only one indexed and easily searchable computer
basis to conclude that a group of labor of the participating labor organizations. database of the information submitted,
organizations is not equally capable of In earlier rulemaking efforts, several accessible by the public over the
doing so. Disbursements from a trust of commenters expressed concern that a Internet. See H.R. Conf. Rep. 105–390,
pooled labor organization money reflect section 3(l) trust could refuse to provide 1997 U.S.C.C.A.N. 2061; H.R. Conf. Rep.
the contributing labor organizations’ the information needed to complete the 105–825; H.R. Conf. Rep. 106–419; H.R.
financial conditions and operations as Form T–1. Several commenters Conf. Rep. 106–479; H.R. Conf. Rep.
clearly as the disbursements from a trust expressed concern about a labor 106–1033; H.R. Conf. Rep. 107–342,
funded by a single labor organization. A organization’s liability for failure to file 2002 U.S.C.C.A.N. 1690; H.R. Conf. Rep.
rule directed to preventing a single labor a timely report, given that the trust 108–10, 2003 U.S.C.C.A.N. 4.
organization from circumventing or might refuse to provide the information The Department has had in place
evading the law should not permit the and the labor organization may be systems for electronic submission and
same conduct when it is undertaken by unable to compel production. The disclosure since 2001 (the systems were
more than one labor organization. Department acknowledges that this may later augmented for submissions under
Under the proposal, multiple labor remain a possibility under this proposal. the 2003 final rule). There have been no
organizations may be required to report However, given that the reporting significant problems with the system.
on a single trust. In fashioning this obligation under the proposal only Where minor problems have arisen, the
proposal, the Department considered arises where a labor organization, alone Department has taken steps to
two alternatives: fixing the obligation on or in combination with other labor successfully resolve the problems.
the labor organization with the greatest organizations, maintains management Moreover, the existing system was
stake in the trust; or allowing one of the control or financial domination over a originally designed for the submission
participating labor organizations to trust, the possibility of such of both Form LM–2 and Form T–1.
voluntarily take on this responsibility. intransigence appears remote. The This proposal will utilize this existing
While these alternatives may provide an Department’s view is supported by the system for electronic submissions,
appropriate basis for fairly and roughly public comments received about the minimizing any difficulty by labor
allocating the reporting burden, each 2002 proposal. No comment suggested organizations in submitting the reports
suffers from the same basic infirmity— that any administrator of a section 3(l) electronically. This system will allow
labor organization members are not trust had expressed an intention to the Department to make the reports
likely to view reports filed by other withhold from a labor organization available for electronic disclosure, and
labor organizations when searching for information required to complete the enable labor organization members and
information on the financial activities of Form T–1. Further, although there were others to search and otherwise utilize
their own labor organization and its some statements that a trust would be data in the Department’s Form T–1
trusts. Members of other labor bound by its own fiduciary obligations database. Despite the familiarity of users
organizations participating in the trust in determining whether to make the with the existing system, the
would have more difficulty obtaining information available, there was no Department recognizes that some labor
information no less vital to their suggestion that any trust held the view organizations nonetheless may
interests than the information provided that it would violate such duty by encounter some temporary problems in
to members of the reporting labor providing the information required by electronically submitting the Form T–1.
organization. Furthermore, this the form. Thus, the Department expects Thus, under the proposal, a labor
reporting gap could allow some labor that trusts will routinely and voluntarily organization that must file a Form T–1
organizations and individuals to evade comply in providing such information may assert a temporary hardship
their reporting obligations under the to reporting labor organizations. exemption or apply for a continuing
LMRDA. Nevertheless, in those rare instances hardship exemption to prepare and
Improper payments would be much where a trust balks at providing the submit the report in paper format. If a
easier to conceal if the Form T–1 were necessary information, the labor labor organization files both Form LM–
filed only by some of the participating organization may request that the 2 and Form T–1, the exemption must be
labor organizations (some vendors or Department use its available separately asserted for each report,
contributors to the section 3(l) trust may investigatory authority to assist the although in appropriate circumstances
only be known by members of a reporting labor organization to obtain the same reasons may be used to
particular labor organization). For these information necessary to complete the support both exemptions. As proposed,
reasons, the Department has determined Form T–1. The Department expects that if it is possible to file Form LM–2, or
that where multiple labor organizations labor organizations and labor one or more Form T–1s, electronically,
appoint a majority of the members of the organization officials will take timely, no exemption should be claimed for
trust’s governing board, or their reasonable, and good faith actions to those reports, even though an
contributions constitute greater than 50 obtain the necessary information from exemption is warranted for a related
percent of the trust’s annual revenues, section 3(l) trusts and, where they have report. The key aspects of the proposed
each will be required to file a Form T– done so, the Department will not assert hardship exemption follow:
1. In making this determination, the a willful and knowing violation of the Temporary Hardship Exemption:
mstockstill on PROD1PC66 with PROPOSALS3

Department recognizes that the section filing requirement against the labor • If a labor organization experiences
3(l) trust, not the reporting labor organization, its president, or secretary- unanticipated technical difficulties that
organizations, will compile most of the treasurer. prevent the timely preparation and
necessary information and that this submission of an electronic Form T–1,
information, in large part, will be 8. Requirement of Electronic Filing it may be filed in paper format by the
identical for each participating labor For several years, and with required due date. An electronic format
organization. This will operate to Congressional urging and financial copy of the filed paper format document

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11768 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

shall be submitted to the Department Form T–1 is due. As stated in the Department has concluded that a full
within 10 business days after the proposal: economic impact and cost/benefit
required due date. Unanticipated Form T–1 must be filed within 90 days of analysis is not required for the rule
technical difficulties that may result in the end of the labor organization’s fiscal year. under Section 6(a)(3) of the Order.
additional delays should be brought to The Form T–1 shall cover the trust’s most However, because of its importance to
the attention of the OLMS Division of recent fiscal year, i.e., the fiscal year ending the public, the rule was treated as a
Interpretations and Standards. on or before the closing date of the labor significant regulatory action and was
• The applicant must comply with organization’s own fiscal year. reviewed by the Office of Management
special instructions for submitting the Under the proposal, labor and Budget.
Form T–1 in paper format. organizations will file a Form T–1 and
• If neither the paper filing nor the Unfunded Mandates Reform
Form LM–2 together. The filing will be
electronic filing is received in the due 90 days after the labor For purposes of the Unfunded
timeframe specified, the report will be organization’s fiscal year ends. The Mandates Reform Act of 1995, this
considered delinquent. Form T–1 will be based on the latest proposed rule does not include a federal
Continuing Hardship Exemption: available information for the trust’s mandate that might result in increased
• A labor organization may apply in most recent fiscal year reported to the expenditures by state, local, and tribal
writing for a continuing hardship labor organization by the trust or from governments, or increased expenditures
exemption if Form T–1 cannot be filed a qualifying audit. The Department’s by the private sector of more than $100
electronically without undue burden or intention in permitting a labor million in any one year.
expense. Such written application shall organization to file Form T–1 within
be received at least thirty days prior to Executive Order 13132 (Federalism)
ninety days after the labor
the required due date of the report(s). organization’s fiscal year ending date, The Department has reviewed this
The written application shall include, rather than requiring it to be filed proposed rule in accordance with
but not be limited to, the following: (1) within ninety days after the trust’s fiscal Executive Order 13132 regarding
The justification for the requested time year ending date, is to ease the burden federalism and has determined that the
period of the exemption; (2) the for both the trust and the labor proposed rule does not have federalism
estimated burden and expense that the organization. The Department implications. Because the economic
labor organization would incur if it was anticipates that a trust will be able to effects under the rule will not be
required to make an electronic more readily provide necessary substantial for the reasons noted above
submission; and (3) the reasons for not information to the reporting labor and because the rule has no direct effect
submitting the report(s) electronically. organization at the conclusion of the on states or their relationship to the
The applicant must specify a time trust’s fiscal year and that a labor federal government, the rule does not
period not to exceed one year. organization will have correspondingly have ‘‘substantial direct effects on the
• The continuing hardship exemption less difficulty in obtaining information States, on the relationship between the
shall not be deemed granted until the at that time. The Department intends to national government and the States, or
Department notifies the applicant in include in the instructions that are on the distribution of power and
writing. If the Department denies the published as part of the final rule responsibilities among the various
application for an exemption, the labor examples of the rule’s application to levels of government.’’
organization shall file the report(s) in trusts and labor organizations that have Initial Regulatory Flexibility Analysis
electronic format by the required due the same or different fiscal years.
date. The Regulatory Flexibility Act of 1980
• If the request is granted, the labor IV. Regulatory Procedures (‘‘RFA’’), 5 U.S.C. 601 et seq., requires
organization shall submit the report(s) agencies to prepare an initial regulatory
Executive Order 12866
in paper format by the date prescribed flexibility analyses in drafting
by OLMS. The applicant must comply This proposed rule has been drafted regulations that will have a significant
with special instructions for submitting and reviewed in accordance with economic impact on a substantial
the Form T–1 in paper format. Executive Order 12866, section 1(b), number of small entities.
• The filer may be required to submit Principles of Regulation. The In the 2003 and 2006 Form T–1 rules,
Form T–1 in electronic format upon the Department has determined that this the Department undertook regulatory
expiration of the period for which the proposed rule is not an ‘‘economically flexibility analyses, utilizing the Small
exemption is granted. significant’’ regulatory action under Business Administration’s (‘‘SBA’’)
• If neither the paper filing nor the section 3(f)(1) of Executive Order 12866. ‘‘small business’’ standard for ‘‘Labor
electronic filing is received in the Based on a preliminary analysis of the Unions and Similar Labor
timeframe specified, the report will be data, the rule is not likely to: (1) Have Organizations.’’. Specifically, the
considered delinquent. an annual effect on the economy of $100 Department used the $5 million
million or more or adversely affect in a standard established in 2000 (as
9. Effective Date material way the economy, a sector of updated in 2005 to $6.5 million) for
The Department proposes to provide the economy, productivity, competition, purposes of its regulatory flexibility
labor organizations significant lead time jobs, the environment, public health or analyses. See 65 FR 30836 (May 15,
to prepare for submitting the initial safety, or state, local, or tribal 2000); 70 FR 72577 (Dec. 6, 2005). This
Form T–1. Under the proposal, the final governments or communities; (2) create same standard has been used for the
rule will take effect no less than 30 days a serious inconsistency or otherwise Department’s initial regulatory
mstockstill on PROD1PC66 with PROPOSALS3

after its publication in the Federal interfere with an action taken or flexibility analysis in this proposed rule.
Register. Furthermore, at the earliest, no planned by another agency; (3) The Department recognizes that the
report will be due until 15 months after materially alter the budgetary impact of SBA has not established fixed, financial
the rule’s effective date. Thus, labor entitlements, grants, user fees, or loan thresholds for ‘‘organizations,’’ as
organizations whose fiscal years begin programs or the rights and obligations of distinct from other entities. See A Guide
after the rule’s effective date will have recipients thereof, or (4) raise novel for Federal Agencies: How to Comply
more than 15 months before their initial legal or policy issues. As a result, the with the Regulatory Flexibility Act,

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11769

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

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11770 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

businesses will be able to determine Form T–1 reports; the Department largest filers, those that have annual
whether the business and the labor estimates that these organizations will receipts in the millions, are likely to
organization official have made required file approximately 2,077 reports have multiple trusts which will require
reports. The purpose of the LMRDA annually (on average about .49 reports substantial changes in their accounting
disclosure requirements is to prevent per labor organization). practices in order to report these trusts
financial malfeasance of labor The affiliation among labor on the new form. Labor organizations
organization money. 67 FR 79282–83. organizations may have an impact on with receipts of between $250,000 and
This purpose is demonstrably frustrated the number of organizations that should $2 million, which account for over
when existing reporting obligations fail be counted as ‘‘small organizations’’ 3,441 of the 4,452 Form LM–2 filers, are
to disclose, for example, opportunities under section 601(4) of the RFA, 5 likely to have fewer trusts for which
for fraud. (Examples of situations where U.S.C. 601(4). Section 601(4) provides they will have to file a Form T–1 than
money in section 3(l) trusts was being in part: ‘‘the term ‘small organization’ the organizations with greater annual
used to circumvent or evade the means any not-for-profit enterprise receipts.
reporting requirements can be found in which is independently owned and
operated and is not dominant in its 6. Clarification, Consolidation and
the preamble and at 67 FR 79283.)
As explained in the preamble, field.’’ However, for purposes of Simplification of Compliance and
additional trust reporting is necessary to analysis here and for ready comparison Reporting Requirements for Small
ensure, as intended by Congress, the full with the RFA analyses in its earlier Entities
and comprehensive reporting of a labor Form T–1 rulemakings, the Department OLMS has updated the e.LORS
organization’s financial condition and has used the $6.5 million receipts test system to allow labor organizations to
operations, including a full accounting for ‘‘small businesses,’’ rather than the file Form T–1 as they file the current
to labor organization members from ‘‘independently owned and operated Form LM–2. Under the proposed rule,
whose work the payments were earned. and not dominant’’ test for ‘‘small labor organizations are directed to use
67 FR 79282–83. The proposed rule will organizations.’’ Application of the latter an electronic reporting format to
prevent circumvention and evasion of test likely would reduce the number of maintain financial information. This
these reporting requirements by labor organizations that would be information can then be electronically
providing labor organization members counted as small entities under the compiled in the proper format for
with financial information concerning RFA. We are seeking comment on the electronic filing.
their labor organization’s trusts when accuracy of this assumption.9 OLMS will provide compliance
the labor organization, alone or in assistance for any questions or
4. Relevant Federal Requirements difficulties that may arise from using the
combination with other labor
Duplicating, Overlapping or Conflicting reporting software. A help desk is
organizations, selects the majority of the
With the Rule staffed during normal business hours
directors or provides the majority of the
funds. To the extent that there are federal and can be reached by telephone.
rules that duplicate, overlap, or conflict The use of electronic forms makes it
2. Legal Basis for Rule with this proposed rule, a specific possible to download information from
The legal authority for the notice of exemption from the requirements of this previously filed reports directly into the
proposed rule-making is section 208 of rule has been provided. It should be form; enables officer and employee
the LMRDA, 29 U.S.C. 438. Section 208 noted, however, that some section 3(l) information to be imported onto the
provides that the Secretary of Labor trusts, i.e., those that are part of form; makes it easier to enter
shall have authority to issue, amend, employee benefit plans subject to ERISA information; and automatically performs
and rescind rules and regulations coverage and disclosure requirements, calculations and checks for
prescribing the form and publication of are currently required to report some typographical and mathematical errors
reports required to be filed under title similar information to the Employee and other discrepancies, which reduces
II of the Act, including rules prescribing Benefits Security Administration on an the likelihood of having to file an
reports concerning trusts in which a annual report Form 5500. However, this amended report. The error summaries
labor organization is interested, and information does not include certain provided by the software, combined
such other reasonable rules and information captured by the proposed with the speed and ease of electronic
regulations as she may find necessary to Form T–1 that is specifically focused on filing, will also make it easier for both
prevent the circumvention or evasion of disclosures under section 201 of the the reporting labor organization and
the reporting requirements. Section 3(l) LMRDA. OLMS to identify errors in both current
of the Act, 29 U.S.C. 402(l), defines a and previously filed reports and to file
5. Differing Compliance or Reporting
‘‘trust in which a labor organization is amended reports to correct them.
Requirements for Small Entities
interested.’’
Under the proposal, the reporting, 7. The Use of Performance Rather Than
3. Number of Small Entities Covered recordkeeping, and other compliance Design Standards
Under the Rule requirements apply equally to all labor The Department considered a number
The Department estimates that of the organizations that are required to file a of alternatives to the proposed rule that
4,452 labor organizations subject to this Form T–1 under the LMRDA. Only the could minimize the impact on small
proposed rule, 4,228 of these, or 94.97 entities. One alternative would be not to
percent of the total will have receipts 9 As discussed in greater detail in the PRA create a Form T–1. As stated above, this
less than $6.5 million, the SBA small analysis, the primary impact of this proposed rule alternative was rejected because OLMS
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will be on the largest labor organizations, defined


business size standard for ‘‘Labor as those that have $250,000 or more in annual
case files and experience demonstrate
Unions and Similar Labor receipts. Based on information in its electronic that the goals of the Act are not being
Organizations.’’ These labor labor organization reporting system (‘‘e.LORS’’), the met insofar as the finances of labor
organizations have annual average Department estimates [10] that there are organizations are held in section 3(l)
approximately 4,452 labor organizations of this size
receipts of $1.3 million. The Department that have $250,000 or more in annual receipts (just
trusts. As explained further in the
estimates that only some of these 4,228 18.5 percent of the 24,065 labor organizations preamble, labor organization members
labor organizations will have to file covered by the LMRDA). have no information on their labor

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11771

organization’s 3(l) trusts. Labor recordkeeping and reporting systems. trusts listed on their LM–2 to determine
organization members need this OLMS also plans to provide compliance whether a Form T–1 is required. This
information to make informed decisions assistance to any labor organization or will cost each Tier II labor organization
on labor organization governance. section 3(l) trust that requests it. The on average $52.79 a year or .003 percent
Another alternative would be to limit Department believes it has minimized of annual receipts. Of those trusts
the proposed reporting requirements to the economic impact of the form on contacted, only some will meet the
national and international parent labor small labor organizations to the extent Form T–1 filing requirements. For those
organizations. However, the Department possible while recognizing workers’ and that meet the filing requirements, the
has concluded that such a limitation the Department’s need for information labor organizations will incur the
would eliminate the availability of to protect the rights of labor recordkeeping and reporting burden
meaningful information from local and organization members under the associated with the Form T–1.
intermediate labor organizations, which LMRDA. The first year cost of the proposed
may have a far greater impact on and 8. Reporting, Recording and Other Form T–1 (including first year non-
relevance to labor organization Compliance Requirements of the Rule 10 recurring implementation costs) for the
members, particularly since such lower estimated 1,347 labor organizations with
This analysis only considers unions
levels of labor organizations generally annual receipts between $250,000 and
within Tier I and a portion of the unions
set and collect dues and provide $499,999 who actually file a T–1 is
within Tier II. There is no analysis of
representational and other services for $1,139.31, or 0.32 percent of average
Tier III unions because all unions
their members. Such a limitation would annual receipts (see Table 1).12 The first
within Tier III are outside the coverage
reduce the utility of the information to year cost of the proposed Form T–1
of the Regulatory Flexibility Act. This
a significant number of labor (including first year non-recurring
proposed rule is not expected to have a
organization members. Of the estimated significant economic impact on a implementation costs) for the estimated
4,452 labor organizations subject to substantial number of small entities. 2,881 labor organizations with annual
Form T–1 filing requirements under the The LMRDA is primarily a reporting receipts between $500,000 and
proposal, just 101 are national and and disclosure statute. Accordingly, the $6,500,000 who actually file a Form T–
international labor organizations. primary economic impact of the 1 is $2,523.12, or 0.15 percent of total
Requiring only national and proposed rule will be the cost of annual receipts (see Table 1). Further,
international organizations to file Form obtaining and reporting required under the Department’s analysis, the
T–1 would not effectively increase labor information. costs fall during the second and third
organization transparency nor provide The Department assumes that each year as the reporting infrastructure is
any deterrent to fraud and Tier I labor organization (those with completed and filers become more
embezzlement by local and regional between $250,000 and $499,999 in familiar with the form. The Department
officials. annual receipts) will spend, on average, estimates a 52.72 percent reduction in
Another alternative would be to about .75 hours contacting all the the second year and another 10.32
propose a phase-in of the effective date section 3(l) trusts listed on their Form percent reduction in the third year.
of the Form T–1, which would provide LM–2s to determine whether a Form T– Filing costs in the third year for labor
some labor organizations additional 1 is required.11 The Department organizations with between $250,000
time to modify their recordkeeping estimates that this will cost each Tier I and $499,999 in annual receipts are
systems in order to comply with the labor organization, on average, $11.92 a estimated to be $483.06 or 0.13 percent
new reporting requirement. The year or .003 percent of annual receipts. of their average annual receipts. Filing
Department has concluded, however, Each Tier II labor organization that is a costs in the third year for labor
that the proposed rule allows all Form ‘‘small entity’’ (those with between organizations with between $500,000
T–1 filers sufficient time to adapt to the $500,000 and $6.5 million in annual and $6,500,000 in annual receipts are
proposed disclosure requirements and receipts) will spend approximately 1.5 estimated to be $1,069.78 or .06 percent
make any necessary adjustments to their hours contacting all the section 3(l) of their average annual receipts.

TABLE 1.—SUMMARY OF T–1 REGULATORY FLEXIBILITY ANALYSIS


Total Total
burden hours
For labor organizations that meet the SBA small entities standard cost per
per respond- respondent
ent

First Year Cost of Proposed Form T–1 for Labor organizations with $250,000 to $499,999 in Annual Receipts 71.7 $1,139.31
Percent of Average Annual Receipts ............................................................................................................... n.a. 0.32%
Second Year Cost of Proposed Form T–1 for Labor organizations with $250,000 to $499,999 in Annual Re-
ceipts .................................................................................................................................................................... 33.9 $538.67
Percent of Average Annual Receipts ............................................................................................................... n.a. 0.15%
Percentage Reduction in Cost From Previous Year ........................................................................................ n.a. 52.72%
Third Year Cost of Proposed Form T–1 for Labor organizations with $250,000 to $499,999 in Annual Receipts 30.4 $483.06
Percent of Average Annual Receipts ............................................................................................................... n.a. 0.13%
Percentage Reduction in Cost From Previous Year ........................................................................................ n.a. 10.32%
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10 The estimated burden on labor organizations is will not need additional information to determine wage rates for labor organizations. See Table 4.
discussed in detail in the section concerning the a particular trust’s coverage under the proposed Comments are invited on the methodology and
Paperwork Reduction Act. The figures discussed in rule; the number of inquiries will be proportional assumptions underlying this assumption and other
the text are derived from the figures explained in to the estimated number of trusts for the three tiers assumptions and estimates utilized in the
that section. of labor organizations based on the amount of their
Department’s burden analysis.
11 This assumption is premised on the following: annual receipts; and typically only a telephone call
12 The burden hours and costs are identified in
Only some labor organizations will have any or email will be needed to make the coverage
section 3(l) trusts; some of those labor organizations inquiry with the trust. The costs are based on the the Paperwork Reduction Act section that follows.

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11772 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

TABLE 1.—SUMMARY OF T–1 REGULATORY FLEXIBILITY ANALYSIS—Continued


Total Total
burden hours
For labor organizations that meet the SBA small entities standard cost per
per respond- respondent
ent

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

As noted in section 3 above, the that is duplicative of other reasonably and continuing collections of
proposed rule will apply to 4,228 labor accessible information; (3) the information in accordance with the
organizations that meet the SBA provisions reduce to the extent PRA. This helps to ensure that the
standard for small entities, or just 17.6 practicable and appropriate the burden public understands the Department’s
percent of the 24,065 labor on labor organizations that must provide collection instructions, respondents can
organizations that must file an annual the information, including small labor provide the requested data in the
financial report under the LMRDA. The organizations; (4) the form, instructions, desired format, the reporting burden
proposed rule is not expected to have a and explanatory information in the (time and financial resources) is
significant economic impact on these preamble are written in plain language minimized, and the Department can
entities. For the estimated 1,347 labor that will be understandable by reporting properly assess the impact of collection
organizations with annual receipts labor organizations; (5) the disclosure requirements on respondents.
between $250,000 and $499,999 that requirements are implemented in ways In this proposed rulemaking, the
actually file a Form T–1 under the consistent and compatible, to the Department has sought to improve the
proposed rule, the first year costs maximum extent practicable, with the usefulness and accessibility of
(including first year non-recurring existing reporting and recordkeeping information to members of labor
implementation costs) are $1,139.31, or practices of labor organizations that organizations subject to the LMRDA.
0.32 percent of average annual receipts must comply with them; (6) this The LMRDA reporting provisions were
(see Table 1).13 For the estimated 2,881 preamble informs labor organizations of devised to protect the basic rights of
labor organizations with annual receipts the reasons that the information will be members of labor organizations and to
between $500,000 and $6,500,000 that collected, the way in which it will be guarantee the democratic procedures
actually file a Form T–1 under the used, the Department’s estimate of the and financial integrity of labor
proposed rule, the first year costs average burden of compliance, which is organizations. The 1959 Senate report
(including first year non-recurring mandatory, the fact that all information on the version of the bill later enacted
implementation costs) are $2,523.12, or collected will be made public, and the as the LMRDA stated clearly that ‘‘the
0.15 percent of total annual receipts (see fact that they need not respond unless members who are the real owners of the
Table 1). Therefore, the Department has the form displays a currently valid OMB money and property of the organization
decided that the proposed rule will not control number; (7) the Department has are entitled to a full accounting of all
have a significant economic impact on explained its plans for the efficient and transactions involving their property.’’
a substantial number of small entities. effective management and use of the A full accounting was described as ‘‘full
information to be collected, to enhance reporting and public disclosure of union
Paperwork Reduction Act its utility to the Department and the internal processes and financial
This statement is prepared in public; (8) the Department has operations.’’
accordance with the Paperwork explained why the method of collecting As labor organizations have become
Reduction Act of 1995, 44 U.S.C. 3501 information is ‘‘appropriate to the more multifaceted and have created
(‘‘PRA’’). See 5 CFR 1320.9. As purpose for which the information is to hybrid structures for their various
discussed in the preamble to this be collected’’; and (9) the changes activities, the form used to report
proposed rule, the analysis under the implemented by this rule make financial information with respect to
Regulatory Flexibility Act, and the extensive, appropriate use of these activities had until recently
analysis that follows, the rule information technology ‘‘to reduce remained relatively unchanged and had
implements an information collection burden and improve data quality, become a barrier to the complete and
that meets the requirements of the PRA agency efficiency and responsiveness to transparent reporting of labor
in that: (1) The information collection the public.’’ See 5 CFR 1320.9; 44 U.S.C. organizations’ financial information
has practical utility to labor 3506(c). intended by the LMRDA. Moreover, just
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organizations, their members, other As part of its continuing effort to as in the corporate sector, there have
members of the public, and the reduce paperwork and respondent been a number of financial failures and
Department; (2) the rule does not burden, the Department of Labor irregularities involving pension funds
require the collection of information conducts a preclearance consultation and other member accounts maintained
program to provide the general public by labor organizations. These failures
13 The burden hours and costs are identified in and Federal agencies with an and irregularities result in direct
the Paperwork Reduction Act section that follows. opportunity to comment on proposed financial harm to members of labor

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11773

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

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receipts of $250,000 or more.14 The TABLE 2 as measured by wage rates and


Department estimates that for these employer costs published by the Bureau
4,452 labor organizations, 2,476 Form Tier System Based on FY 2005 Figures and of Labor Statistics or derived from data
T–1s will be filed. This cohort Assumptions in 2006 Rule in the Department’s Electronic Labor
represents 18.5 percent of all labor Total Labor Organizations with 250,000 or Organization Reporting System database
organizations covered by the LMRDA. more in receipts: 4,452. (‘‘e.LORS’’), which stores and
See Table 2. These figures differ from Tier I ($250,000–499,999 receipts): 1,317 × automatically culls certain information,
10 percent = (# filers) × 1 (# reports) = 132. such as labor organization officer and
the Department’s 2003 estimates where Tier II ($500,000–49.9 mil receipts): 3,083 ×
it was assumed that 2,769 Form T–1s employee salaries, from annual reports
25 percent = (# filers) × 2 (# reports) = submitted by labor organizations. The
would be filed annually. 68 FR 58435. 1,542.
Tier III ($50 mil and higher receipts): 52 ×
Department also made assumptions
The differences between today’s
100 percent = (# filers) × 4 (# reports) = 208. relating to the time that particular tasks
estimates and those used in the 2003 or activities would take. The activities
rule reflect the narrower reach of this Estimated Annual Form T–1 Filings 1,882.
Tier System Based on FY 2005 Figures generally involve only one of the three
rule. distinct ‘‘operational’’ phases of the
and Assumptions Based on Changes in
Today’s estimates, like the 2002 This Proposal rule: first, tasks associated with
NPRM and the 2003 and 2006 rules, are Total Labor Organizations with $250,000 or
modifying bookkeeping and accounting
based on a three-tier analysis of labor more in receipts: 4,452. practices, including the modification or
organizations organized by receipt size. Tier I ($250,000–499,999 receipts): 1,317 × purchase of software, to capture data
The Department first assumed that 10 13 percent = (# filers) × 1 (# reports) = 171. needed to prepare the required reports;
percent of the 1,317 labor organizations Tier II ($500,000–49.9 mil receipts): 3,083 × second, tasks associated with
with annual receipts of $250,000 to 33 percent = (# filers) × 2 (# reports) = recordkeeping; and third, tasks
2,035. associated with completing the report
$499,999.99 (Tier I) would file one Form Tier III ($50 mil and higher receipts): 52 ×
T–1. Second, it was assumed that 25 and all appropriate levels of review and
100 percent = (# filers) × 5.2 (# reports) = signature. Where an estimate depends
percent of the 3,083 labor organizations 270.
upon the number of labor organizations
with annual receipts of $500,000 to Estimated Annual Form T–1 Filings 2,476.
subject to the LMRDA or included in
$49.9 million (Tier II) would file on one of the tier groups, the Department
average two Form T–1s. Third, it was These numbers are higher than the
estimates in the 2003 and 2006 has relied upon data in the e.LORS
assumed that 100 percent of the 52 labor system (for the years stated for each
organizations with annual receipts of rulemaking. In the current paperwork
clearance (OMB # 1215–0188), the example in the text or tables).
$50 million or more (Tier III) would file The relative burden associated with
an average of four Form T–1 reports Department estimated 1,664 Form T–1s
the rule will correspond to the following
each. The implementation of a tier would be filed under the requirements
predictable stages: determining whether
published in 2006. Under the proposed
system is based on the underlying a section 3(l) trust meets the filing
requirements, the Department estimates
assumption that the size of a labor requirements; review of the instructions
that 2,476 reports will have to be filed.16
organization, as measured by the and forms; adjustments to or acquisition
This estimate was obtained by taking
amount of its annual receipts, will affect of accounting software and computer
the assumptions from the 2006 final
its recordkeeping and reporting burden hardware; changing accounting
rule, adjusting these assumptions by the structures and developing, testing,
for Form T–1. Larger labor organizations number of current Form LM–2 filers and
have more trusts for which to account: reviewing, and documenting accounting
then increasing by 30 percent per tier software queries as well as designing
the three tiers are constructed to the anticipated number of Form T–1s
differentiate these relative burdens query reports; training officers and
that would be filed. This increase is due employees involved in bookkeeping and
among those labor organizations with to the elimination of the receipts accounting functions; the actual
$250,000 or more in receipts (68 FR thresholds for filing and the filing recordkeeping of data; and additional
58433).15 exemption for the ERISA Form 5500 review by trust officials and the
that was found in the previous reporting labor organization’s president
14 These estimates for the total number of labor rulemakings. These changes are and secretary-treasurer. As those labor
organizations and the number of labor organizations reflected in the estimated percentage of organizations that will be required to
by tier are somewhat higher than the numbers filers, which are higher in the second
reflected in the 2006 analysis. The difference is due file Form T–1 already are required to
data set in Table 2. file Form LM–2, which requires the use
to natural variations in the universe of filers. As
economic conditions change the number of labor
The Department’s cost estimates of digital signatures, Form T–1 filers
organizations as a whole and the number of labor include costs for both labor and will not incur an additional cost or
organizations within each tier varies. equipment that will be incurred by burden associated with the need to affix
15 Comments are invited on the methodology and filers. The labor costs reflect the a digital signature to the Form T–1.
assumptions underlying the Department’s burden Department’s assumption that labor Burden can be categorized as
analysis. Because labor organizations have not organizations and trusts will rely upon recurring or non-recurring, with the
previously been required to report on most section the services of some or all of the
3(l) trusts, the Department particularly invites
latter primarily associated with the
following positions (president, initial implementation stages.
comment on the number of section 3(l) trusts for
which a particular labor organization will have to
secretary-treasurer, accountant, Recordkeeping burden, as distinct from
file a Form T–1 under the proposal and whether bookkeeper, computer programmer, reporting burden, will predominate
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that number is likely to be consistent for labor lawyer, consultant) and the during the first months of
organizations within the same tier as the compensation costs for these positions, implementation. Burden can be
commenting labor organization. Additionally,
reasonably estimated to vary over time
comments are requested on the assumption, 16 The difference between the 2003 and 2006
discussed in the next paragraph of the text, relating
with the greatest burden in the initial
estimates was due to the narrower reach of the 2006
to the burden that some labor organizations may rule, i.e., its adoption of the majority control rule
year, decreasing in later years as filers
face in obtaining information about the need to file embodied in the 2006 rule and continued in this gain experience. Estimates for each of
a Form T–1 for some section 3(l) trusts. proposal. the first three years and a three-year

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Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules 11775

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

TABLE 3.—SUMMARY OF AVERAGE FIRST YEAR BURDEN FOR FORM T–1


Nonrecurring bur- Reporting burden Recordkeeping
Reporting or recordkeeping requirement den hours hours burden hours

Information on Form T–1 Provided to Trust .............................................................. 0.0 2.4 0.0


Review Form T–1 and Instructions ........................................................................... 0.0 4.3 0.0
Install, Test, and Review Software ............................................................................ 8.0 0.0 0.0
Pages 1 and 2 ........................................................................................................... 0.0 6.1 1.6
Individually Identified Receipts .................................................................................. 9.8 1.2 8.3
Individually Identified Disbursements ........................................................................ 9.8 1.4 8.3
Disbursements to Officers and Employees ............................................................... 2.8 0.8 0.0
Review by Trust ......................................................................................................... 0.0 2.0 0.0
Form/Information Sent to Labor Organization ........................................................... 0.0 1.0 0.0
President Review and Sign Off ................................................................................. 0.0 2.0 0.0
Treasurer Review and Sign Off ................................................................................. 0.0 2.0 0.0
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Total First Year Burden for Form T–1 ....................................................................... 30.4 23.2 18.1

Note: The burden for labor organization to in the text preceding this table. This table Note also: Some numbers may not add due
determine whether a Form T–1 is required to displays the average burden associated with to rounding.
be filed for its section 3(l) trusts is explained each Form T–1 that is actually filed.

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11776 Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / Proposed Rules

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

TABLE 4.—LABOR ORGANIZATION WAGE RATES


Position Tier I Tier II Tier III

President .............................................................................................................................................................. $15.52 $73.06 $110.98


Secretary/Treasurer ............................................................................................................................................. 15.36 58.83 94.29
Outside Accountant ............................................................................................................................................. 27.22 27.22 27.22
Bookkeeper/Clerk ................................................................................................................................................ 17.96 21.17 26.88
Weighted Average ............................................................................................................................................... 15.89 35.19 36.74

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

TABLE 5.—REPORTING AND RECORDKEEPING BURDEN HOURS AND COSTS FOR FORM T–1
Record-keeping Total burden
Number of Reporting hours Total reporting Total record- Total burden
Form hours per hours per
responses per respondent hours keeping hours hours
respondent espondent

Form T–1/First
Year .............. 2,476 23.2 57,443 48.5 120,086 71.7 177,529
Second Year ..... 2,476 15.8 39,121 18.1 44,816 33.9 83,936
Third Year ......... 2,476 12.3 30,455 18.1 44,816 30.4 75,270
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Three-Year Av-
erage ............. 2,476 17.1 42,340 28.2 69,823 45.3 112,163

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

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Note: The burden for labor organization to assistance training on recordkeeping Estimated Total Annual Burden
determine whether a Form T–1 is required to and reporting requirements. Hours: 3,568,180.
be filed for its section 3(l) trusts is explained Currently, the Department is soliciting Estimated Total Annual Burden Cost:
in the text preceding Table 3. Each table $70,491,590.
comments concerning the information
displays the reporting and burden associated Potential respondents are hereby duly
with each Form T–1 that is actually filed. collection request (‘‘ICR’’) for the
information collection requirements notified that such persons are not
Note also: Some numbers may not add due included in this proposed regulation at required to respond to a collection of
to rounding. § 403.2, Annual financial report which, information or revision thereof unless
Source: U.S. Department of Labor, when implemented will revise the approved by OMB under the PRA and
Employment Standards Administration, existing OMB control number 1215– it displays a currently valid OMB
Office of Labor-Management Standards 0188. A copy of this ICR, with control number. See 35 U.S.C.
applicable supporting documentation; 3506(c)(1)(B)(iii)(V). In accordance with
Appropriate information technology including among other things a 5 CFR 1320.11(k), the Department will
is used to reduce burden and improve description of the likely respondents, publish a notice in the Federal Register
efficiency and responsiveness. The proposed frequency of response, and informing the public of OMB’s decision
current forms can be downloaded from estimated total burden may be obtained with respect to the ICR submitted
the OLMS Web site. OLMS has also from the RegInfo.gov Web site at http:// thereto under the PRA.
implemented a system to require Form www.reginfo.gov/public/do/PRAMain or
LM–2 and Form T–1 filers and permit Executive Order 13045 (Protection of
by contacting Darrin King on 202–693– Children from Environmental Health
Form LM–3 and Form LM–4 filers to 4129 (this is not a toll-free number)/e-
submit forms electronically with digital Risks and Safety Risks)
mail: king.darrin@dol.gov. Please note
signatures. that comments submitted in response to In accordance with Executive Order
Labor organizations are currently this notice will be made a matter of 13045, the Department has evaluated
required to pay a minimal fee to obtain public record. the environmental safety and health
electronic signature capability for the The Department hereby announces effects of the proposed rule on children.
two officers who sign the form. that it has submitted a copy of the The Department has determined that the
The OLMS Internet Disclosure site is proposed regulation to the Office of proposed rule will have no effect on
available for public use. The site Management and Budget (‘‘OMB’’) in children.
contains a copy of each labor accordance with 44 U.S.C. 3507(d) for Executive Order 13175 (Consultation
organization’s annual financial report review of its information collections. and Coordination with Indian Tribal
for reporting year 2000 and thereafter as The Department and OMB are Governments)
well as an indexed computer database particularly interested in comments
on the information in each report that is The Department has reviewed this
that:
searchable through the Internet. Form proposed rule in accordance with
• Evaluate whether the proposed
T–1 filings will be available on the Web Executive Order 13175, and has
collection of information is necessary
site. determined that it does not have ‘‘tribal
for the proper performance of the
OLMS includes e.LORS information implications.’’ The proposed rule does
functions of the agency, including
in its outreach program, including not ‘‘have substantial direct effects on
whether the information will have
compliance assistance information on one or more Indian tribes, on the
practical utility;
relationship between the Federal
the OLMS Web site, individual • Evaluate the accuracy of the government and Indian tribes, or on the
guidance provided through responses to agency’s estimate of the burden of the
e-mail, written, or telephone inquiries, distribution of power and
collection of information, including the responsibilities between the Federal
and formal group sessions conducted for validity of the methodology and
labor organization officials regarding government and Indian tribes.’’
assumptions used;
compliance. • Enhance the quality, utility, and Executive Order 12630 (Governmental
Information about this system can be clarity of the information to be Actions and Interference with
obtained on the OLMS Web site at collected; and Constitutionally Protected Property
http:// www.olms.dol.gov. Digital • Minimize the burden of the Rights)
signatures ensure the authenticity of the collection of information on those who This proposed rule is not subject to
reports. are to respond, including through the Executive Order 12630, Governmental
C. Federal Costs Associated With use of appropriate automated, Actions and Interference with
Proposed Rule electronic, mechanical, or other Constitutionally Protected Property
The estimated annualized Federal technological collection techniques or Rights, because it does not involve
cost of the proposed Form T–1 is other forms of information technology, implementation of a policy with takings
$228,682.28. This represents estimated e.g., by permitting electronic submission implications.
operational expenses such as of responses.
equipment, overhead, and printing as Type of Review: Revision of a Executive Order 12988 (Civil Justice
well as salaries and benefits for the currently approved collection. Reform)
OLMS staff in the National Office and Agency: Employee Standards This proposed rule has been drafted
field offices that are involved with Administration. and reviewed in accordance with
reporting and disclosure activities. Title: Labor Organization and Executive Order 12988, Civil Justice
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These estimates include time devoted Auxiliary Reports. Reform, and will not unduly burden the
to: (a) Receipt and processing of reports; OMB Number: 1215–0188. federal court system. The proposed rule
(b) disclosing reports to the public; (c) Affected Public: Private Sector: Not- has been written so as to minimize
obtaining delinquent reports; (d) for-profit institutions. litigation and provide a clear legal
obtaining amended reports if reports are Number of Annual Responses: 33,333. standard for affected conduct, and has
determined to be deficient; (e) auditing Frequency of Response: Annual for been reviewed carefully to eliminate
reports; and (f) providing compliance most forms. drafting errors and ambiguities.

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Environmental Impact Assessment (A) Appoints or selects a majority of corresponding principal officers of the
The Department has reviewed the the members of the trust’s governing labor organization. For purposes of the
proposed rule in accordance with the board; or report required by this paragraph, the
requirements of the National (B) Contributes revenues to the trust period covered thereby shall be the
Environmental Policy Act (‘‘NEPA’’) of that exceed 50 percent of the trust’s portion of the trust’s fiscal year ending
1969 (42 U.S.C. 4321 et seq.), the revenue during the trust’s fiscal year; on the effective date of the loss of its
regulations of the Council on and reporting identity.
Environmental Quality (40 U.S.C. part (ii) None of the exceptions discussed 4. In § 403.8, redesignate paragraphs
1500), and the Department’s NEPA in paragraph (d)(2) of this section apply. (c) and (d) as paragraphs (d) and (e), and
procedures (29 CFR part 11). The (iii) For purposes of paragraph add a new paragraph (c) to read as
proposed rule will not have a significant (d)(1)(i)(B), contributions made on follows:
impact on the quality of the human behalf of the labor organization or its
environment, and, thus, the Department members shall be considered § 403.8 Dissemination and verification of
contributions by the labor organization. reports.
has not conducted an environmental
assessment or an environmental impact (2) A separate report shall be filed on * * * * *
statement. Form T–1 for each such trust within 90 (c)(1) If a labor organization is
days after the end of the labor required to file a report under this part
Executive Order 13211 (Actions organization’s fiscal year in the detail using the Form T–1 and indicates that
Concerning Regulations that required by the instructions it has failed or refused to disclose
Significantly Affect Energy Supply, accompanying the form and constituting information required by the Form T–1
Distribution, or Use) a part thereof, and shall be signed by the concerning any disbursement or receipt
This proposed rule is not subject to president and treasurer, or to an individual or entity in the amount
Executive Order 13211, because it will corresponding principal officers, of the of $10,000 or more, or any two or more
not have a significant adverse effect on labor organization. No Form T–1 should disbursements or receipts that, in the
the supply, distribution, or use of be filed for any trust that meets the aggregate, amount to $10,000 or more,
energy. statutory definition of a labor because disclosure of such information
organization and already files a Form may be adverse to the organization’s
List of Subjects in 29 CFR Part 403
LM–2, Form LM–3, or Form LM–4, nor legitimate interests, then the failure or
Labor unions, Reporting and should a report be filed for any entity refusal to disclose the information shall
recordkeeping requirements. that the LMRDA exempts from be deemed ‘‘just cause’’ for purposes of
Text of Proposed Rule reporting. No report need be filed for a paragraph (a) of this section.
trust established as a Political Action
Accordingly, the Department (2) Disclosure may be adverse to a
Committee (‘‘PAC’’) if timely, complete
proposes to amend part 403 of 29 CFR labor organization’s legitimate interests
and publicly available reports on the
Chapter IV as set forth below: under this paragraph if disclosure
PAC are filed with a Federal or state
would reveal confidential information
PART 403—LABOR ORGANIZATION agency, or for a trust established as a
concerning the organization’s organizing
ANNUAL FINANCIAL REPORTS political organization under 26 U.S.C.
or negotiating strategy or individuals
527 if timely, complete, and publicly
1. The authority citation for Part 403 paid by the trust to work in a non-union
available reports are filed with the
is revised to read as follows: facility in order to assist the labor
Internal Revenue Service. An audit that
organization in organizing employees,
Authority: Secs. 202, 207, 208, 73 Stat. meets the criteria specified in the
provided that such individuals are not
525, 529 (29 U.S.C. 432, 437, 438); instructions for Form T–1 may be
employees of the trust who receive more
Secretary’s Order No. 4–2007, May 2, 2007, substituted for all but page 1 of the
72 FR 26159. than $10,000 in the aggregate in the
Form T–1. If such labor organization is
reporting year from the trust.
2. In § 403.2, paragraph (d) is revised in trusteeship on the date for filing the
to read as follows: annual financial report, the labor (3) This provision does not apply to
organization that has assumed disclosure that is otherwise prohibited
§ 403.2 Annual financial report. trusteeship over such subordinate labor by law or that would endanger the
* * * * * organization shall file such report as health or safety of an individual.
(d)(1) Every labor organization with provided in § 408.5 of this chapter. * * * * *
annual receipts of $250,000 or more 3. Amend § 403.5 by revising Signed in Washington, DC, this 26th day of
shall file a report on Form T–1 for each paragraph (d) to read as follows: February 2008.
trust that meets the following Victoria A. Lipnic,
conditions: § 403.5. Terminal financial report.
(i) The trust is of the type defined by Assistant Secretary for Employment
* * * * *
Standards.
section 3(l) of the LMRDA, i.e., the trust (d) If a labor organization filed or was
was created or established by a labor required to file a report on a trust Don Todd,
organization or a labor organization pursuant to § 403.2(d) and that trust Deputy Assistant Secretary for Labor-
appoints or selects a member of the loses its identity during its subsequent Management Programs.
trust’s governing board; and the trust fiscal year through merger, Appendix
has as a primary purpose to provide consolidation, or otherwise, the labor
Note: This appendix, which will not
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benefits to the members of the labor organization shall, within 30 days after
organization or their beneficiaries (29 such loss, file a terminal report on Form appear in the Code of Federal Regulations,
U.S.C. 402(1)); and the labor T–1, with the Office of Labor- contains the proposed Form T–1 and
organization, alone or with other labor Management Standards, signed by the instructions and related charts.
organizations, either: president and treasurer or BILLING CODE 4510–86–P

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


BILLING CODE 4510–86–C
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