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DOL/OLMS RIN: 1245-AA09 Publication ID: Fall 2019 
Title: Trust Annual Reports  
Abstract:

The Department of Labor's Office of Labor-Management Standards proposed to re-establish a Form T-1 to capture financial information pertinent to trusts in which a labor organization is "interested" (section 3(l) "trusts"), as defined by section 3(l) of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA or Act), 29 U.S.C. 402(l); information that has largely gone unreported. See 84 FR 25130. The information in this regulatory plan entry derives from the proposed rule. The LMRDA’s various reporting provisions were designed to empower labor organization members by providing them the means to maintain democratic control over their labor organizations and ensure a proper accounting of labor organization funds. The proposed rule was intended to help bring the reporting requirements for labor organizations and section 3(l) trusts in line with contemporary expectations for the disclosure of financial information.

 
Agency: Department of Labor(DOL)  Priority: Other Significant 
RIN Status: Previously published in the Unified Agenda Agenda Stage of Rulemaking: Final Rule Stage 
Major: Undetermined  Unfunded Mandates: Undetermined 
EO 13771 Designation: Regulatory 
CFR Citation: Not Yet Determined     (To search for a specific CFR, visit the Code of Federal Regulations.)
Legal Authority: 29 U.S.C. 438   
Legal Deadline:  None

Statement of Need:

In the proposal, the Department sought to avoid circumvention and evasion of the LMRDA reporting requirements established to ‘‘eliminate or prevent improper practices’’ in labor organizations, protect the rights and interests of workers, and prevent labor organization corruption. 29 U.S.C. 401(b), (c), and 431(b). These LMRDA reporting provisions were intended to safeguard democratic procedures within labor organizations and protect the basic democratic rights of union members. But recent cases of corruption have highlighted the potential for circumvention and evasion of these requirements through the use of section 3(l) trusts. The Form T-1 would prevent such evasion and thereby enable labor organization members to be responsible, informed, and effective participants in the governance of their labor organizations; discourage embezzlement and financial mismanagement; and strengthen the effective and efficient enforcement of the Act by the Department.

The Form T-1 was specifically designed to close a reporting gap that exists because labor organization finances related to LMRDA section 3(l) trusts are not disclosed to members, the public, or the Department. The Form T-1 would follow labor organization funds that remain in these closely connected trusts, but which would otherwise go unreported. Such non-disclosure denies members access to important information about labor organization funds that are directed to other entities, presumably for the members’ benefit, such as joint funds administered by a labor organization and an employer pursuant to a collective bargaining agreement, educational or training institutions, credit unions, and redevelopment or investment groups. See 67 FR 79285. The Form T-1 was intended to close this gap and prevent certain trusts from being used to evade the LMRDA’s reporting requirements. If adopted, it will provide labor organization members with information about financial transactions involving a significant amount of money relative to the labor organization’s overall financial operations and other reportable transactions (68 FR 58415). For example, the Form T-1 would identify a trust’s significant vendors and service providers. A labor organization member who is aware that a labor organization official has a financial relationship with one or more of these businesses or service providers would then be able to determine whether the business and the labor organization official have submitted the required financial reporting on this relationship. The proposal was intended to serve the fundamental purpose of the LMRDA disclosure requirements to prevent financial malfeasance on the part of those handling labor organization money.

Summary of the Legal Basis:

The Department’s statutory authority is set forth in section 208 of the LMRDA, 29 U.S.C. 438. Section 208 of the LMRDA provides that the Secretary of Labor ‘‘shall have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under [the Act] and such other reasonable rules and regulations . . . as he may find necessary to prevent the circumvention or evasion of such reporting requirements.’’

The Secretary has delegated his authority under the LMRDA to the Director of the Office of Labor-Management Standards and permitted re-delegation of such authority. See Secretary’s Order 03-2012 (Oct. 19, 2012), published at 77 FR 69375 (Nov. 16, 2012).

Alternatives:

The Department is considering the following regulatory alternatives: (1) no regulatory action; (2) a similar proposal, but with a modified test for when a Form T-1 is required for a given 3(l) trust; and (3) a similar proposal, but modifying the Form T-1 in order to reduce its scope. If the Department were not to take this regulatory action, it would avoid any new burden on labor organizations and trusts and thus ensure no new significant economic impact on small entities, but it would at the same time prevent the proposed benefits of the Form T-1 gained through such increased financial transparency.

The Department is considering whether regulatory inaction would leave open the current potential for circumvention or evasion of reporting requirements that may occur when a labor organization contributes funds to a union-controlled trust and would deny members, the general public, and the Department the many benefits of increased financial transparency. The Department invited comments on this alternative, but did not propose it because the prevention of circumvention or evasion of union financial reporting is a responsibility of the Department pursuant to the LMRDA. Further, the benefits of reporting may outweigh the burden placed on reporting entities and trusts.

As proposed, a union would be required to file a report on a section 3(l) trust if it financially dominates ore has management control over the trust. In determining financial domination, funds provided by an employer under a collective bargaining agreement are considered funds of the labor union. Modifying the proposed financial or managerial domination test would reduce the burden on small labor organizations because fewer trusts would be covered. However, trusts that are not covered could serve as conduits for evading financial reporting. As to exemptions, the Department’s proposed rule included exemptions for trusts that already report sufficient financial information to another agency, e.g., exempting trusts that file the Form 5500 with the Department’s Employee Benefits Security Administration. Further, the Department proposed exempting subordinate labor organizations from filing a Form T-1 when the parent labor organization files one covering the subordinate’s trust.

Reducing the level of reporting detail or the scope of the Form T-1 could alleviate the burden on small entities by reducing the burden hours of completing each Form T-1, but the Department could be doing so at the cost of losing important information on every single Form T-1 filed. Potential alternatives to the current Form T-1 with reduced scope could include fewer schedules or further limits on the categories of disbursements that must be itemized. The Department invited comments on such alternatives, but did not propose them because the schedules and itemization requirements are already greatly reduced compared to the Form LM-2 that the covered labor organizations complete and because further modification could impede the prevention of circumvention or evasion of LMRDA reporting requirements.

Anticipated Costs and Benefits:

The Form T-1 would be filed by Form LM-2 filing labor organizations, that is, those whose annual receipts reach or exceed $250,000. The Department estimates that there are at least 810 total affected labor organizations (i.e., LM-2 filers with trusts for which they must submit at least one Form T-1). The average form LM-2 filer will spend approximately 121.38 hours on average in the first year, and 84.12 hours each subsequent year to fill out the report.

The cost for each Form T-1 filer to complete a Form T-1 is estimated to be $8,222.28. This number, however, should be multiplied by the average number of reports that each Form T-1 filer will be responsible for (2.56), for a total of $21,049. This number should have a one-time regulation familiarization cost of $13.05 per filer included as well. Doing so brings the first year costs per filer to $21,063. In subsequent years, the cost for each T-1 filer would be $14,588.

Thus, the total annual cost in the first year for all 810 T-1 filers was estimated to be $17,061,030, and the total annual cost in subsequent years was estimated to be $11,816,280.

Additionally, the one-time familiarization cost for all remaining 1,200 LM-2 filing labor organizations with trusts (2010 LM-2 filers with trusts minus the 810 T-1 filers that are already accounted for = 1,200) is estimated to be $15,660 in the first year.

In summary, the total expected first-year costs would be $17,076,690. In subsequent years, the total cost would be $11,816,280. The 10-year annualized cost is expected to be $12,414,999 at a 3 percent discount rate and $12,516,246 at a 7 percent discount rate. The annualized perpetual cost at a 7 percent discount rate is expected to be $9,110,275.

The Department proposed the rule to prevent the circumvention or evasion of the LMRDA reporting requirements, which Congress created as part of its efforts to ‘‘eliminate or prevent improper practices’’ in labor organizations, protect the rights and interests of workers, and prevent union corruption. 29 U.S.C. 401(b), (c). Specifically, to curb embezzlement and other improper financial activities of labor organizations, Congress required labor organizations to file detailed annual financial reports with the Secretary of Labor, which must also be made available to labor organization members. 29 U.S.C. 431(b). The reporting provisions of the LMRDA were devised to safeguard democratic procedures within labor organizations and protect the basic democratic rights of union members. By mandating that labor organizations disclose their financial operations to employees they represent, Congress intended to promote labor organization self-government, which would be advanced by labor organization members receiving sufficient information to permit them to take effective action in regulating internal union affairs.

This proposed rule was intended to ensure that those reporting obligations are not evaded or circumvented and thus expand the benefits of labor organization financial transparency to the members of all Form LM-2 filing labor organizations that contribute funds to trusts for the members’ benefit. Recent cases of corruption and the continued potential for corruption within those trusts may indicate that additional financial reporting is necessary to avoid the type of circumvention and evasion that Congress authorized the Secretary to prevent. As recognized in the LMRDA, private sector labor organization members and the public have an interest in knowing how labor organizations spend funds; including membership dues or employer funds contributed to a trust pursuant to the terms of a collective bargaining agreement. Extending the LMRDA’s reporting requirements to 3(l) trusts would provide members, the public, and the Department with a complete picture of the union’s financial condition. Further, the increased disclosure closes a reporting gap that exists, and by closing this gap, prevents the circumvention or evasion of the LMRDA’s reporting requirements.

Risks:

Not applicable.

Timetable:
Action Date FR Cite
NPRM  05/30/2019  84 FR 25130   
NPRM Comment Period End  07/29/2019 
Final Rule  02/00/2020 
Regulatory Flexibility Analysis Required: Undetermined  Government Levels Affected: Undetermined 
Federalism: Undetermined 
Included in the Regulatory Plan: Yes 
RIN Data Printed in the FR: No 
Agency Contact:
Andrew R. Davis
Chief, Division of Interpretations and Standards, Office of Labor-Management Standards
Department of Labor
Office of Labor-Management Standards
200 Constitution Avenue NW., FP Building, Room N-5609,
Washington, DC 20210
Phone:202 693-0123
Fax:202 693-1340
Email: olms-public@dol.gov