Rescission of Labor Organization Annual Financial Report for Trusts In Which A Labor Organization Is Interested, Form T-1
| Citation | 86 FR 74356 |
| Record Number | 2021-28266 |
| Published date | 30 December 2021 |
| Section | Rules and Regulations |
| Court | Labor-management Standards Office |
Federal Register, Volume 86 Issue 248 (Thursday, December 30, 2021)
[Federal Register Volume 86, Number 248 (Thursday, December 30, 2021)]
[Rules and Regulations]
[Pages 74356-74371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28266]
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DEPARTMENT OF LABOR
Office of Labor-Management Standards
29 CFR Parts 403 and 408
RIN 1245-AA12
Rescission of Labor Organization Annual Financial Report for
Trusts In Which A Labor Organization Is Interested, Form T-1
AGENCY: Office of Labor-Management Standards, Department of Labor.
ACTION: Final rule.
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SUMMARY: This rule rescinds the final rule published in the Federal
Register on March 6, 2020, (2020 Form T-1 rule), which established the
Form T-1, Trust Annual Report, required to be filed by labor
organizations about certain trusts in which they are interested
pursuant to the Labor-Management Reporting and Disclosure Act (LMRDA).
Upon further review of the 2020 Form T-1 rule, including the pertinent
facts and legally relevant policy considerations surrounding that
rulemaking, the Department of Labor (Department) withdraws the rule
implementing the Form T-1, because it has determined that the 2020
rulemaking record, particularly its analysis of the burden and the
benefit of the rule, was insufficient as a matter of policy to justify
the trust reporting requirements set forth in the 2020 Form T-1 rule.
Further, by requiring reporting on entities not controlled or dominated
by
[[Page 74357]]
labor unions, the Department has determined that the trust reporting
required under the rule is overly inclusive and is not necessary to
prevent the circumvention and evasion of the Title II reporting
requirements.
DATES: This rule is effective on January 31, 2022.
FOR FURTHER INFORMATION CONTACT: Karen Torre, Chief of the Division of
Interpretations and Regulations, Office of Labor-Management Standards,
U.S. Department of Labor, 200 Constitution Avenue NW, Room N-5609,
Washington, DC 20210, (202) 693-0123 (this is not a toll-free number),
(800) 877-8339 (TTY/TDD), [email protected].
SUPPLEMENTARY INFORMATION:
I. Statutory Authority
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
``[t]he 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 this title and such other reasonable
rules and regulations (including rules prescribing reports concerning
trusts in which a labor organization is interested) 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 (OLMS) and
permitted re-delegation of such authority. See Secretary's Order 03-
2012 (Oct. 19, 2012), published at 77 FR 69375 (Nov. 16, 2012).
II. Background
A. Introduction
In enacting the LMRDA in 1959, Congress sought to protect the
rights and interests of employees, labor organizations and the public
generally as they relate to the activities of labor organizations,
employers and their labor relations consultants, and the officers,
employees, and representatives of these entities. The LMRDA's various
reporting provisions for labor organizations, their officers, and their
employees are 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. Labor organization members are better able to
monitor their labor organization's financial affairs and to make
informed choices about the leadership of their labor organization and
its direction when labor organizations disclose financial information
as required by the LMRDA.
By reviewing a labor organization's financial reports, a member may
ascertain the labor organization's priorities and whether they are in
accord with the member's own priorities and those of fellow members. At
the same time, this transparency promotes both the labor organization's
own interests as a democratic institution and the interests of the
public and the government. Furthermore, the LMRDA's reporting and
disclosure provisions, together with the fiduciary duty provision, 29
U.S.C. 501, which directly regulates the primary conduct of labor
organization officials, operate to safeguard a labor organization's
funds from depletion by improper or illegal means. While the vast
majority of union officers and employees do their work diligently and
without incident, unfortunately civil and criminal violations sometimes
occur and, when they do, the union is the victim. Timely and complete
reporting helps detect instances of labor organization officers,
employees, or others embezzling or otherwise making improper use of
such funds and obtain relief for the benefit of the labor organization
and its members when such improper use occurs.
B. The LMRDA's Reporting and Other Requirements
The LMRDA was the direct outgrowth of a Congressional investigation
conducted by the Select Committee on Improper Activities in the Labor
or Management Field, commonly known as the McClellan Committee, chaired
by Senator John McClellan of Arkansas. In 1957, the committee began a
highly publicized investigation of labor organization racketeering and
corruption; and its findings of financial abuse, mismanagement of labor
organization funds, and unethical conduct provided much of the impetus
for enactment of the LMRDA's remedial provisions. See generally
Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of
1959, 73 HARV. L. REV. 851, 851-55 (1960). During the investigation,
the committee uncovered a host of improper financial arrangements
between officials of several international and local labor
organizations and employers (and labor consultants aligned with the
employers) whose employees were represented by the labor organizations
in question or might be organized by them. Similar arrangements were
also found to exist between labor organization officials and the
companies that handled matters relating to the administration of labor
organization benefit funds. See generally Interim Report of the Select
Committee on Improper Activities in the Labor or Management Field, S.
Report No. 85-1417 (1957); see also William J. Isaacson, Employee
Welfare and Benefit Plans: Regulation and Protection of Employee
Rights, 59 COLUM. L. REV. 96 (1959).
Financial reporting and disclosure from labor organizations were
conceived as partial remedies for these improper practices. As noted in
a key Senate Report on the legislation, disclosure would discourage
questionable practices (``The searchlight of publicity is a strong
deterrent.''), aid labor organization governance (labor organizations
will be able ``to better regulate their own affairs'' because ``members
may vote out of office any individual whose personal financial
interests conflict with his duties to members''), facilitate legal
action by members against ``officers who violate their duty of loyalty
to the members'', and create a record (``the reports will furnish a
sound factual basis for further action in the event that other
legislation is required''). S. Rep. No. 187 (1959) 16 reprinted in 1
NLRB LEGISLATIVE HISTORY OF THE LABOR-MANAGEMENT REPORTING AND
DISCLOSURE ACT OF 1959, 412.
The Department has developed several forms for implementing the
LMRDA's financial reporting requirements. The annual reports required
by section 201(b) of the Act, 29 U.S.C. 431(b) (Form LM-2, Form LM-3,
and Form LM-4), contain information about a labor organization's
assets; liabilities; receipts; disbursements; loans to officers,
employees, and business enterprises; payments to each officer; and
payments to each employee of the labor organization paid more than
$10,000 during the fiscal year. The reporting detail required of labor
organizations, as the Secretary has established by rule, varies
depending on the amount of the labor organization's annual receipts. 29
CFR 403.4.
The labor organization's president and treasurer (or its
corresponding officers) are personally responsible for filing the
reports and for any statement in the reports known by them to be false.
29 CFR 403.6. These officers are also responsible for maintaining
records in sufficient detail to verify, explain, or clarify the
accuracy and completeness of the reports for not less than five years
after the filing of the forms. 29 CFR 403.7. A labor organization
``shall make available to all its members the information required to
be contained in such reports'' and ``shall . . . permit such member[s]
for just cause to
[[Page 74358]]
examine any books, records, and accounts necessary to verify such
report[s].'' 29 CFR 403.8(a).
The reports are public information. 29 U.S.C. 435(a). The Secretary
is charged with providing for the inspection and examination of the
financial reports, 29 U.S.C. 435(b). For this purpose, OLMS maintains:
(1) A public disclosure room where copies of such reports filed with
OLMS may be reviewed and; (2) an online public disclosure site, where
copies of such reports filed since the year 2000 are available for the
public's review.
In addition to prescribing the form and publication of the LMRDA
reports, the Secretary is authorized to issue regulations that prevent
labor unions and others from avoiding their reporting responsibilities.
Section 208 authorizes the Secretary of Labor to issue, amend, and
rescind rules and regulations to implement the LMRDA's reporting
provisions, including ``prescribing reports concerning trusts in which
a labor organization is interested'' as the Secretary may ``find
necessary to prevent the circumvention or evasion of [the LMRDA's]
reporting requirements.'' 29 U.S.C. 438. In other words, the Secretary
may require separate trust reporting only if: (1) The union has an
interest in a trust and (2) reporting is determined to be necessary to
prevent the circumvention or evasion of LMRDA reporting requirements.
29 U.S.C. 438.
The phrase ``trust in which a labor organization is interested'' is
defined the LMRDA. It ``means a trust or other fund or organization (1)
which was created or established by a labor organization, or one or
more of the trustees or one or more members of the governing body of
which is selected or appointed by a labor organization, and (2) a
primary purpose of which is to provide benefits for the members of such
labor organization or their beneficiaries.'' 29 U.S.C. 402(l)
III. Rescission of the March 6, 2020 Final Rule Establishing the Form
T-1
A. History of the Form T-1
The Form T-1 report was first proposed on December 27, 2002, as one
part of a proposal to extensively change the Form LM-2. 67 FR 79280
(Dec. 27, 2002). The rule was proposed under the authority of Section
208, which permits the Secretary to issue such rules ``prescribing
reports concerning trusts in which a labor organization is interested''
as he may ``find necessary to prevent the circumvention or evasion of
[the LMRDA's] reporting requirements.'' 29 U.S.C. 438. Following
consideration of public comments, on October 9, 2003, the Department
published a final rule enacting extensive changes to the Form LM-2 and
establishing a Form T-1. 68 FR 58374 (Oct. 9, 2003) (2003 Form T-1
rule). The 2003 Form T-1 rule eliminated the requirement that unions
report on subsidiary organizations on the Form LM-2,\1\ but it mandated
that each labor organization filing a Form LM-2 report also file a
separate report to ``disclose assets, liabilities, receipts, and
disbursements of a significant trust in which the labor organization is
interested,'' increasing labor organizations'' reporting requirements
generally and expanding the types of trusts for which reporting would
be required. 68 FR at 58477. The reporting labor organization would
make this disclosure by filing a separate Form T-1 for each significant
trust in which it was interested. Id. at 58524.
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\1\ The Form LM-2 Instructions define a ``subsidiary'' of a
labor organization: Within the meaning of these instructions, a
subsidiary organization is defined as any separate organization of
which the ownership is wholly vested in the reporting labor
organization or its officers or its membership, which is governed or
controlled by the officers, employees, or members of the reporting
labor organization, and which is wholly financed by the reporting
labor organization. A subsidiary organization is considered to be
wholly financed if the initial financing was provided by the
reporting labor organization even if the subsidiary organization is
currently wholly or partially self-sustaining. https://www.dol.gov/sites/dolgov/files/olms/regs/compliance/GPEA_Forms/2020/efile/LM-2_instructionsRevised2020.pdf.
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To address the statutory requirement that trust reporting be
``necessary to prevent the circumvention or evasion of [the LMRDA's]
reporting requirements,'' the 2003 Form T-1 rule developed the
``significant trust in which the labor organization is interested''
test. It used the section 3(l) statutory definition of ``a trust in
which a labor organization is interested'' coupled with an
administrative determination of when a trust is deemed ``significant.''
68 FR at 58477-78. A labor organization would be required to report on
an entity only if both sets of criteria were met.
The 2003 Form T-1 rule set forth an administrative determination
that stated that a ``trust will be considered significant'' and
therefore subject to the Form T-1 reporting requirement under the
following conditions:
The labor organization had annual receipts of $250,000 or more
during its most recent fiscal year, and (2) the labor organization's
financial contribution to the trust or the contribution made on the
labor organization's behalf, or as a result of a negotiated
agreement to which the labor organization is a party, is $10,000 or
more annually.
Id. at 58478.
The portions of the 2003 rule relating to the Form T-1 were vacated
by the D.C. Circuit in AFL-CIO v. Chao, 409 F.3d 377, 389-391 (D.C.
Cir. 2005). The court held that the form ``reaches information
unrelated to union reporting requirements and mandates reporting on
trusts even where there is no appearance that the union's contribution
of funds to an independent organization could circumvent or evade union
reporting requirements by, for example, permitting the union to
maintain control of the funds.'' Id. at 389. The court also vacated the
Form T-1 portions of the 2003 rule because its significance test (the
second set of criteria for trust status, set forth above) failed to
establish reporting based on domination or managerial control of assets
subject to LMRDA Title II jurisdiction.
The court reasoned that the Department failed to explain how the
test--i.e., selection of one member of a board and a $10,000
contribution to a trust with $250,000 in receipts--could give rise to
circumvention or evasion of Title II reporting requirements. Id. at
390. In so holding, the court emphasized that Section 208 authority is
the only basis for LMRDA trust reporting, that this authority is
limited to preventing circumvention or evasion of Title II reporting,
and that ``the statute doesn't provide general authority to require
trusts to demonstrate that they operate in a manner beneficial to union
members.'' Id. at 390.
However, the court recognized that reports on trusts that reflect a
labor organization's financial condition and operations are within the
Department's rulemaking authority, including trusts ``established by
one or more unions or through collective bargaining agreements calling
for employer contributions, [where] the union has retained a
controlling management role in the organization,'' and also those
``established by one or more unions with union members'' funds because
such establishment is a reasonable indicium of union control of that
trust.'' Id. The court acknowledged that the Department's findings in
support of its rule were based on particular situations where reporting
about trusts would be necessary to prevent evasion of the related labor
organizations'' own reporting obligations. Id. at 387-88. One example
included a situation where ``trusts [are] funded by union members'
funds from one or more unions and employers, and although the unions
retain a controlling management role, no individual union wholly owns
or dominates the trust, and therefore the use of the funds is not
reported by the related union.'' Id. at 389 (emphasis added). In citing
these examples, the
[[Page 74359]]
court explained that ``absent circumstances involving dominant control
over the trust's use of union members' funds or union members' funds
constituting the trust's predominant revenues, a report on the trust's
financial condition and operations would not reflect on the related
union's financial condition and operations.'' Id. at 390. For this
reason, while acknowledging that there are circumstances under which
the Secretary may require a report, the court disapproved of a broader
application of the rule to require reports by any labor organization
simply because the labor organization satisfied a reporting threshold
(a labor organization with annual receipts of at least $250,000 that
contributes at least $10,000 to a section 3(l) trust with annual
receipts of at least $250,000). Id.
In light of the decision by the D.C. Circuit, the Department issued
a revised Form T-1 final rule on September 29, 2006. 71 FR 57716 (Sept.
29, 2006) (2006 Form T-1 rule). Following an ensuing lawsuit, the U.S.
District Court for the District of Columbia vacated this rule due to a
failure to provide a new notice and comment period. AFL-CIO v. Chao,
496 F. Supp. 2d 76 (D.D.C. 2007). The district court did not engage in
a substantive review of the 2006 rule, but the court noted that the
AFL-CIO demonstrated that ``the absence of a fresh comment period . . .
constituted prejudicial error'' and that the AFL-CIO objected with
``reasonable specificity'' to warrant relief vacating the rule. Id. at
90-92.
The Department issued a proposed rule for a revised Form T-1 on
March 4, 2008. 73 FR 11754 (Mar. 4, 2008). After notice and comment,
the 2008 Form T-1 final rule was issued on October 2, 2008. 73 FR
57412. The 2008 Form T-1 rule took effect on January 1, 2009. Under
that rule, Form T-1 reports would have been filed no earlier than March
31, 2010, for fiscal years that began no earlier than January 1, 2009.
Following dicta in AFL-CIO v. Chao, the 2008 Form T-1 rule stated
that labor organizations with total annual receipts of $250,000 or more
must file a Form T-1 for those section 3(l) trusts in which the labor
organization, either alone or in combination with other labor
organizations, had management control or financial dominance. 73 FR at
57412. For purposes of the rule, a labor organization had management
control if the labor organization alone, or in combination with other
labor organizations, selected or appointed the majority of the members
of the trust's governing board. Further, for purposes of the rule, a
labor organization had financial dominance if the labor organization
alone, or in combination with other labor organizations, contributed
more than 50 percent of the trust's receipts during the annual
reporting period. Significantly, the rule treated contributions made to
a trust by an employer pursuant to CBA as constituting contributions by
the labor organization that was party to the agreement.
Additionally, the 2008 Form T-1 rule provided exemptions to the
Form T-1 filing requirements. No Form T-1 was required for a trust: (1)
Established as a political action committee (PAC) fund if publicly
available reports on the PAC fund were filed with Federal or state
agencies; (2) established as a political organization for which reports
were filed with the IRS under section 527 of the IRS code; (3) required
to file a Form 5500 under the Employee Retirement Income Security Act
of 1974 (ERISA); or (4) constituting a federal employee health benefit
plan that was subject to the provisions of the Federal Employees Health
Benefits Act (FEHBA), 5 U.S.C. 8901 et seq. Similarly, the rule
clarified that no Form T-1 was required for any trust that met the
statutory definition of a labor organization, 29 U.S.C. 402(i), and
filed a Form LM-2, Form LM-3, or Form LM-4, constituted a subsidiary
organization (i.e., a separate organization that is wholly owned,
controlled, and financed by a single labor organization), or was an
entity that the LMRDA exempts from reporting. Id.
In the Spring 2009 and Fall 2009 Regulatory Agendas, the Department
notified the public of its intent to initiate rulemaking proposing to
rescind the Form T-1 and to require reporting of wholly owned, wholly
controlled, and wholly financed (``subsidiary'') organizations on their
Form LM-2 or LM-3 reports. See http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=200904&RIN=1215-AB75 and http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=200904&RIN=1215-AB75.
Due to the proposed rescission, on December 3, 2009, the Department
issued a notice of proposed extension of filing due date to delay for
one calendar year the filing due dates for Form T-1 reports required to
be filed during calendar year 2010. 74 FR 63335. On December 30, 2009,
following comment, the Department published a rule extending for one
year the filing due date of all Form T-1 reports required to be filed
during calendar year 2010. 74 FR 69023.
Subsequently, on February 2, 2010, the Department published a
Notice of Proposed Rulemaking (NPRM) proposing to rescind the Form T-1.
75 FR 5456. After notice and comment, the Department published the
final rule on December 1, 2010. In its rescission, the Department
stated that it considered the reporting required under the rule to be
overly broad and not necessary to prevent circumvention or evasion of
Title II reporting requirements. The Department concluded that the
scope of the 2008 Form T-1 rule was overbroad because it covered many
trusts, such as those funded by employer contributions, without an
adequate showing that reporting for such trusts is necessary to prevent
the circumvention or evasion of the Title II reporting requirements.
See 75 FR 74936.
In the Spring and Fall Regulatory Agendas for 2017 and 2018, the
Department notified the public of its intent to initiate rulemaking
reinstating the Form T-1 Trust Annual Report. See https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201704&RIN=1245-AA09,
https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201710&RIN=1245-AA09, https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201804&RIN=1245-AA09, and https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201810&RIN=1245-AA09.
On May 30, 2019 the Department proposed to establish a Form T-1 Trust
Annual Report to capture financial information pertinent to ``trusts in
which a labor organization is interested'' (``section 3(l) trusts'').
See 84 FR 25130. After notice and comment, the Department published the
2020 Form T-1 final rule on March 6, 2020. 85 FR 13414.
Under the 2020 rule, and similar to the 2008 rule, the Department
requires a labor organization with total annual receipts of $250,000 or
more (and, which therefore is obligated to file a Form LM-2 Labor
Organization Annual Report) to file a Form T-1, under certain
circumstances, for each trust of the type defined by section 3(l) of
the LMRDA, 29 U.S.C. 402(l) (defining ``trust in which a labor
organization is interested''). 85 FR 13417. Such labor organizations
must file where the labor organization during the reporting period,
either alone or in combination with other labor organizations, (1)
selects or appoints the majority of the members of the trust's
governing board or (2) contributes more than 50 percent of the trust's
receipts. Id. When applying this financial or managerial dominance
test, contributions made pursuant to a collective bargaining agreement
(CBA) shall be considered the labor organization's contributions. Id.
In its final rule, the Department stated that
[[Page 74360]]
the rule helped bring the reporting requirements for labor
organizations and section 3(l) trusts in line with contemporary
expectations for the disclosure of financial information and prevent
the circumvention or evasion of the LMRDA's reporting requirements
through funds over which labor organizations exercise domination. 85 FR
13415.
Like the 2008 rule, exemptions are provided for a trust that is a
political action committee (``PAC'') or a political organization (the
latter within the meaning of 26 U.S.C. 527). No T-1 form is required
for federal employee health benefit plans subject to the provision of
the Federal Employees Health Benefits Act (FEHBA), any for-profit
commercial bank established or operating pursuant to the Bank Holding
Act of 1956, 12 U.S.C. 1843, or credit unions. 85 FR 13418. Similar to
the 2008 rule, but unlike the 2003 or 2006 rules, the 2020 Form T-1
rule includes an exemption for section 3(l) trusts that are part of
employee benefit plans that file a Form 5500 Annual Return/Report under
ERISA. Id. Additionally, a partial exemption is provided for a trust
for which an audit was conducted in accordance with prescribed
standards and the audit is made publicly available. A labor
organization choosing to use this option must complete and file the
first page of the Form T-1 and a copy of the audit. Id.
Unlike the 2008 rule, the 2020 rule exempts unions from reporting
on the Form T-1 their subsidiary organizations, retaining the
requirement that unions must report their subsidiaries on the union's
Form LM-2 report. Id. Also unlike the 2008 rule, the 2020 rule permits
the parent union (i.e., the national/international or intermediate
union) to file the Form T-1 report for covered trusts in which both the
parent union and its affiliates meet the financial or managerial
domination test. Id. The affiliates must continue to identify the trust
in their Form LM-2 report, and also state in their Form LM-2 report
that the parent union will file a Form T-1 report for the trust. Id.
The 2020 rule also allows a single union to voluntarily file the Form
T-1 on behalf of itself and the other unions that collectively
contribute to a multiple-union trust, relieving the Form T-1 obligation
on the other unions. Id.
On May 27, 2021, the Department published an NPRM to withdraw the
March 6, 2020 final rule. 85 FR 13414. The Department stated its view
that the trust reporting required under the rule is overly broad and is
thus not necessary to prevent the circumvention and evasion of the
Title II reporting requirements. Moreover, upon further consideration,
the Department expressed concern that the 2020 rulemaking record was
insufficient to justify the separate trust reporting requirements as
set forth in the 2020 Form T-1 rule.
B. Reasons for Rescission of the March 6, 2020 Form T-1 Final Rule
In its NPRM, the Department proposed to rescind the 2020 Form T-1
rule for two reasons. First, the Department stated its view that the
trust reporting required under the rule is overly broad, as it includes
trusts that are exclusively funded by employers. Accordingly, required
reporting of such employer-funded trusts is not necessary to prevent
the circumvention and evasion of a union's Title II reporting
requirements. Second, the Department reviewed the 2020 rulemaking
record and stated its concern that, as a matter of policy, the
reporting requirements set forth in the 2020 Form T-1 rule are not
justified in light of the burden they impose.
The Department received nine comments in response to the proposal,
with six comments supporting the rescission. Out of the three
opposition comments, only one was substantive in nature. As explained
below, the Department adopts its proposal to rescind the Form T-1,
based upon the rationales provided in the NPRM. First, the Department
will explain why the reporting requirements set forth in the 2020 Form
T-1 rule, as a matter of policy, are not justified in light of the
heavy burden they impose and the negligible benefits they offer.
Second, the Department will explain why, even if the benefits could be
said to justify the burdens, the Form T-1 rule is fatally over-
inclusive, in that it requires reporting on entities that could not be
used to circumvent and evade the LMRDA reporting requirements and is
therefore outside the rulemaking authority established by the LMRDA.
Stated Benefits of 2020 Rule Do Not Support Form T-1 Rule in Light of
Burden Imposed
As a matter of policy, the Department finds that the 2020 Form T-1
final rule's stated benefits fail to justify the extensive costs
imposed. More specifically, the Form T-1 requirements capture largely
redundant information already captured by the Form 990 filed with the
Internal Revenue Service (IRS) \2\ and the existing Forms LM-2, LM-10,
and LM-30 reporting regimes under LMRDA sections 201, 202, and 203.
Accordingly, even to the extent that the 2020 Rule may have provided
some intangible benefits, as a matter of policy, the Department now
views those benefits as outweighed by the tangible and concrete costs
imposed by the 2020 Rule. Moreover, the information collected is not
necessary for preventing circumvention and evasion of the LMRDA's
reporting requirements. Finally, the burdens on the agency are
substantial and will divert necessary resources from more core
activities under the statute. The Department thus rescinds the Form T-1
with today's rule.
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\2\ See https://www.irs.gov/charities-non-profits/annual-filing-and-forms.
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As discussed in the NPRM to rescind, the 2020 rule imposed
significant, quantifiable burdens on Form LM-2 filing labor
organizations. The Department estimated that there will be at least 810
Form LM-2 organizations filing a Form T-1 report. 85 FR 13437. In the
first year of reporting, Form T-1 filers would spend approximately
121.38 hours per report, which results in a total of 251,257 burden
hours. 85 FR 13433. In subsequent years, Form T-1 filers would spend
approximately 84.12 hours per report, which would result in 174,128
additional burden hours. Id. The total expected first-year costs of the
Form T-1 are $15,009,801, and in subsequent years the total cost would
be $10,385,820.\3\ 85 FR 13437. Multiple commenters--in connection with
both the current NPRM and the 2020 NPRM--agreed with the Department's
current policy judgment, that the burden created by the 2020 Form T-1
is unacceptably high in relation to the rule's benefits. As one
commenter indicated, over $15 million in costs imposed upon plans (and
then reimbursed by the unions) in the first year would be ``depriving
[union members and fund participants] of benefits that would otherwise
be paid to or on their behalf, benefits needed especially during the
``economic uncertainty due to the COVID-19 pandemic.'' One training
fund commenter also disputed the estimates of annual burden hours. The
commenter estimated that it would take twice as long as the Department
determined to acquire and report the information, stating that the
estimates fall short especially for unions facing the significant
difficulties associated with determining whether they need to file and
who will file in multiple union situations.
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\3\ The 10-year annualized cost of the rule would be $10,285,704
at a 3 percent discount rate and $9,608,788 at a 7 percent discount
rate. 85 FR 13438.
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[[Page 74361]]
These burdens are in addition to existing Form LM-2 recordkeeping
and reporting burdens, and union members ultimately bear these costs.
In the 2020 rule, the Department declared, ``[t]he Department's
position in this Final Rule and in the NPRM is that there will be a
burden on unions created by the rule but that it will be outweighed and
thereby justified by the benefits of the rule.'' 85 FR 13414, 13433.
When attempting to articulate the benefits, the Department did not
articulate with specificity the benefits that would justify the policy
underlying the new Form T-1. The preamble discussed the need ``to curb
embezzlement'' and ``to safeguard democratic procedures'' and ``to
promote labor organization self-government'' and to ``expand the
benefits of labor organization financial transparency to the members of
all Form LM-2 filing labor organizations that utilize trusts to expend
funds for the members'' benefit.'' Id. The narrative did not, however,
adequately explain how these intangible benefits justified the burden
imposed by the Form T-1's reporting requirements, given that the Form
T-1 would provide a largely redundant reporting regime to the existing
Form 990, as well as the existing Form LM-2, LM-10, and LM-30 reporting
regimes under LMRDA sections 201, 202, and 203.
For example, as stated in the NPRM to rescind, the 2020 rule failed
to adequately demonstrate how the Form T-1 would actually provide
benefits in terms of detecting and deterring fraud. To the extent that
the 2020 rule cited examples that purportedly demonstrate how the Form
T-1 would help detect and deter fraud or prevent the circumvention and
evasion of Title II reporting obligations, the 2020 rule did not
sufficiently demonstrate how the Form T-1 would further these goals.
A general criticism by commenters was that the 2020 Form T-1 rule
suffered from a lack of supporting evidence and examples, a position
with which the Department now agrees, even concerning its primary
example, UAW-Fiat Chrysler of America (FCA). While the 2020 rule relied
heavily on UAW-FCA convictions as grounds for adopting the Form T-1,
after consideration, the Department now believes, as both a matter of
policy and a factual consideration, that the cited cases do not provide
support for the 2020 rule. That those convictions were secured without
a Form T-1 reporting regime instead demonstrates that the ability to
obtain necessary results to adequately protect against bribery and
other violations of the labor-management process already exists,
undermining the need to impose the additional costs of compliance with
the Form T-1. Thus, rather than reinforcing the rationale behind the
2020 rule, that argument substantially undercuts the purported need for
the new reporting burden.
Indeed, in recent years and as discussed in the 2020 rule, the
Department played a key role in investigating and in securing over a
dozen indictments and convictions in the UAW-FCA National Training
Center (NTC) bribery and embezzlement scheme, all without the Form T-1.
See 85 FR 13421. Working jointly with the Department of Justice and
others, the Department of Labor helped secure convictions of management
and union officials associated with the NTC, pursuant to the Taft-
Hartley Act, for unlawful employer payments to UAW officials. See 29
U.S.C. 186. The 2020 rule offered no explanation as to what additional
benefit, if any, the Form T-1 would have provided in this context.
Indeed, OLMS already has a well-established history of effectively
enforcing the LMRDA by combatting labor-management fraud without a Form
T-1. See the OLMS enforcement results for the period 2001-present:
https://www.dol.gov/agencies/olms/criminal-enforcement. As discussed
below more fully, having to invest in the collection and enforcement of
an unnecessary Form T-1 report may actually be detrimental to detecting
fraud, because it would require that the Department redirect limited
resources away from proven, effective means of uncovering and
prosecuting such instances of possible financial corruption.
While the 2020 rule acknowledged existing transparency safeguards,
it stated that the Department needed to ``add necessary safeguards
intended to deter circumvention or evasion of the LMRDA's reporting
requirements.'' See 85 FR 13420. However, upon review, existing OLMS
reporting requirements already provide sufficient information that
enables OLMS to detect financial misconduct and deter circumvention or
evasion of the existing reporting requirements. The Form T-1 added
substantial burdens but no readily discernible benefits to the agency's
responsibility to deter circumvention or evasion of the statute's
reporting requirements. Since the LMRDA Section 202 and 203 reporting
requirements would require disclosure of the FCA and similar payments,
and require the parties to file reports pursuant to the Department's
Form LM-30 Labor Organization Officer and Employee Report and Form LM-
10 Employer Report, the Department already had investigatory authority
and access to necessary financial information to effectively
investigate this FCA and will continue to have that authority to
investigate similar matters, all without a Form T-1. See 29 U.S.C. 432-
433 and 531.\4\ Further, even if the Form T-1 provided a marginal
increase in transparency, the clear, quantified burdens would far
outweigh such intangible and small benefits.
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\4\ Additionally, the general public, including members of labor
organizations, already has access to reports containing similar, if
not identical, information that would be included on the Form T-1.
For example, the NTC filed a Form 990 with the Internal Revenue
Service (IRS) that listed three of the six UAW officials who took
unlawful payments from FCA under Part VII (Compensation of Officers,
Directors, Trustees, Key Employees, Highest Compensated Individuals,
and Independent Contractors), and the trust should have reported
payments to two other UAW officials'' sham charities on Schedule I
(Grants and Other Assistance to Organizations, Governments, and
Individuals in the United States). See OLMS FY 18 Annual Report.
While the Form 990s filed by the trust did not properly report these
payments, the Department of Justice secured indictments covering
conspiring to defraud the United States by preparing and filing
false tax returns for the NTC that concealed millions of dollars in
prohibited payments directed to UAW officials.
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Moreover, in terms of the benefits of general transparency to union
members and union self-governance, the Department now believes that the
2020 rule did not provide sufficient reason to establish that the
information provided by the Form T-1 would be significantly greater
than what members currently enjoy. Consequently, the Department now
believes that the Form T-1 established a redundant reporting regime.
More precisely, the rule did not identify any significant, concrete
benefits gained through general transparency that were not already
largely available through existing, publicly-available sources. Even
without the 2020 rule, union members will continue to definitively
benefit from transparency via mechanisms outside of the Form T-1
reporting regime. Members will continue to receive detailed information
about their union's finances, including the identity and contact
information of their union's trusts, through the annual Form LM-2
report available on the OLMS website. In particular, members will see
whether the trust already files a report with another agency, such as
the Form 990 filed with the IRS, which provides reporting comparable to
the Form T-1.\5\ The IRS Form 990 requires comprehensive reporting of
financial information such as assets, liabilities,
[[Page 74362]]
officer and director payments, leases, and other financial
transactions.\6\ This form provides the type of financial information
that interested parties, such as union members, could use to monitor
the use of trust funds in order to prevent circumvention or evasion of
Title II reporting obligations and to detect and deter fraud.
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\5\ See https://www.irs.gov/charities-non-profits/annual-filing-and-forms.
\6\ See id. The Form 990 includes simplified filing options for
smaller organizations that require less disclosure of financial
information than their more detailed versions or the Form T-1. The
Form 990-N is for organizations with annual gross receipts that are
normally $50,000 or less. However, the Form T-1 does not have an
assets schedule and a very small entity or an entity with less than
$50,000 in gross receipts is unlikely to have transactions to
itemize on the Form T-1. Therefore, the Department has concluded
that the marginal potential benefit gained from additional
information about these smaller entities on a Form T-1 does not
justify the burden imposed by the Form T-1.
---------------------------------------------------------------------------
Additionally, the examples provided in the 2020 rule illustrate the
redundancies. In particular, the 2020 rule cited examples of fraud
involving apprenticeship and training plans and other ERISA-covered
entities, all of which EBSA uncovered with its existing enforcement
authority pursuant to ERISA. See 85 FR 13419-20. The 2020 rule provided
other examples and hypothetical situations as purportedly demonstrating
the need for the Form T-1 to detect and deter fraudulent activity.
However, upon additional review, these examples do not demonstrate a
need for the Form T-1. For example, the 2020 rule offered a
hypothetical example of a trust making a $15,000 payment to a printing
company owned by a union official. In such a situation, the ownership
of the printing company would not actually appear on the Form T-1, but
the 2020 rule postulated that members or the public would notice the
connection. See 85 FR 13418-19. It is just as likely, however, that
union members or the public would already recognize this financial
connection more directly via the IRS Form 990, Schedule L (Transactions
with Interested Persons).\7\ The Form 990 actually provides greater
transparency in this regard than would the Form T-1, because Schedule L
of the 990 directly relates to payments to interested parties, whereas
the Form T-1 would rely on union members to make inferences and then
conduct separate inquiries to establish union connections to the
recipients of trust payments. This greater transparency on the Form 990
undercuts this rationale as a basis for supporting a Form T-1 reporting
requirement.
---------------------------------------------------------------------------
\7\ See: https://www.irs.gov/forms-pubs/about-schedule-l-form-990.
---------------------------------------------------------------------------
The 2020 rule reviewed Form LM-2 reports from FY 17 and offered
examples purportedly justifying the rule, but after careful
consideration, the Department believes that such examples do not
adequately support the rulemaking. See 85 FR 13419. For example, the
2020 rule cited a local union that made expenditures to a credit union.
However, the 2020 rule exempted credit unions from the Form T-1
reporting requirements because existing law already provides detailed
transparency and oversight. The 2020 rule also mentioned a local union
making payments to a trust that constitutes an information technology
(IT) service corporation established by the local union to provide it
with IT services. But after further review, the local union reported on
its Form LM-2 that the trust already files the IRS Form 1065.\8\
Another example discussed payments from a union to a labor college; but
the labor college files a Form 990, which provides the necessary
transparency the Form T-1 sought. After the rescission of the Form T-1
provided for by this rule, the Department will continue to require
unions to identify their trusts on the Form LM-2 report, along with
information that would enable the public to locate the Form 990 or
other reports covering such trusts.
---------------------------------------------------------------------------
\8\ Like the Form 990 and Form 5500, the Form 1065 is an
information return used to report the income, gains, losses,
deductions, credits, and other information from the operation of a
partnership. A partnership does not pay tax on its income, but
passes through any profits or losses to its partners. Partners must
include partnership items on their tax or information returns.
https://www.irs.gov/forms-pubs/about-form-1065. The term
``partnership'' includes a limited partnership, syndicate, group,
pool, joint venture, or other unincorporated organization, through
or by which any business, financial operation, or venture is carried
on.
---------------------------------------------------------------------------
In sum, the Department does not identify any significant benefits
derived from the Form T-1, but, even if the 2020 rule provided some
benefits that might be used by union members and the Department to
prevent circumvention or evasion of Title II reporting obligations, the
concrete, quantified burdens outweigh such marginal benefits. The
following observations about the 2020 rule's burdens support that
conclusion and, thus, support rescission.
First, the 2020 rule's failure to consistently apply exemptions
increases the burdens associated with the rule without providing
commensurate benefits. In particular, the 2020 rule did not adequately
explain why the Form T-1 exempted unions from submitting Form T-1
reports covering trusts that already file the EBSA Form 5500 \9\ and
certain IRS filings, such as those filed by political organizations
under 26 U.S.C. 527, but not trusts that file the Form 990 with the
IRS.
---------------------------------------------------------------------------
\9\ See https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500.
---------------------------------------------------------------------------
The 2020 rule focused on the unique nature of union financial
reporting required under the LMRDA. The Department continues to hold
that IRS Form 990 reporting by labor organizations does not provide a
substitute for Form LM-2, LM-3, and LM-4 reporting by labor
organizations, since the LM reports provide information tailored to the
unique labor-management purposes of the LMRDA. See 68 FR 58375, 58395
(2003). However, the 2020 rule did not provide an adequate
justification as to why such Form 990 reporting is not a sufficient
substitute for Form T-1 reporting. See 85 FR 13425-26.
Commenters largely agreed with the Department's reasoning, set
forth in the NPRM, that the inclusion of a Form 5500 exemption and a
Form 990 non-exemption, was unexplained and unsupported. One commenter
confirmed that ``a majority (if not all) of the trusts that will be
reported under the rule are tax exempt entities that are required to
file an annual Form 990 with the Internal Revenue Service.'' As the
commenter explained, in the 2020 rule, the Department did not indicate
what information was needed beyond what would be contained in the Form
990, and because there was no evidence of need beyond that information,
``any burden imposed by the rule is unwarranted.''
The Department drew an arbitrary and unexplained line between Form
5500 and the Form 990. To be consistent, the Department should have
also exempted Form 990 filers; however, such an exemption would
encompass nearly the entire universe of Form T-1 filers. Thus, if it
had included a Form 990 exemption, the resulting Form T-1 would then
have failed to capture any reportable activity and the Form 990 would
have captured that activity--as it does without the rule. Such an
underlying failure supports the withdrawal of this fundamentally flawed
form.
Even when the Department used an existing form to create an
exemption from the 2020 rule, the exemption was inconsistent with other
Department policies. As one union commenter noted, the Form 5500
exemption failed to protect trusts from undue burdens, particularly
apprenticeship and training plans. ERISA gives the Department the
ability to exempt filers from the long Form 5500 when it is
``unnecessarily burdensome and costly,'' which EBSA has done by
allowing certain apprenticeship and training plans to file
[[Page 74363]]
a short notice instead. Thus, in recognizing the Form 5500 as a nearly
identical form, OLMS has through the Form T-1, the commenter argued,
indirectly required the sort of financial reporting that EBSA has
already decided is not necessary due to the burden it creates.
Second, adding to the burden on the filing unions, the information
necessary to complete the report is not in the control of the reporting
union; it is in the control of the trust. Notwithstanding that many, if
not most, of the trusts on which unions are required to report are
operated jointly and equally with employers, the unions alone are
forced to seek trust cooperation when such trusts are under no legal
obligation to cooperate. The union has no ability to compel the trust
to provide its records to the union for the sake of the union's
reporting requirement. The 2020 rule offered no factual support
suggesting that trusts, whose trustees have a fiduciary obligation to
the trust participants and beneficiaries and not to the union, would
agree to provide their records to the union. Compiling such records and
providing them to the union could constitute a significant annual
expense and a significant amount of lost time that should be devoted to
the administration of the trust. It is unclear why trustees would
approve complying with union requests, and it is equally unclear how a
union could compel a trust that refuses to provide records to provide
them.
In that regard, a number of union commenters indicated that the
Department has underestimated the costly complications that arise from
requiring labor organizations to acquire and accurately report
information from trusts that are not required to comply with the LMRDA,
making such a rule unjustified. One commenter indicated that the trust
may simply choose not to comply. As the commenter explained, the trust
is under no obligation to fulfil the union's request, and, therefore,
the union may through no fault of its own be unable to comply with the
Form T-1 reporting requirements despite a desire to do so. A trust
could reasonably refuse to provide the union with the information
requested based on its fiduciary obligation to beneficiaries if it were
to ``determine that it is not an appropriate use of resources to track
the necessary information or to turn that information over to the
union.'' \10\ Another commenter cited how the preamble for the 2020
Form T-1 justified the Form T-1 reporting using cases where the
administrators of plans on which unions would be required to report
were guilty of `` `preparing and filing false tax returns . . . and
deliberately providing misleading and incomplete testimony.' '' The
very premise of the Form T-1, the commenter reasoned, is flawed because
the information supplied by the ``assertedly corrupt plans cannot be
relied upon.''
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\10\ While the 2020 rule argued that such concerns of fiduciary
obligation would be resolved by the union fully compensating the
trust for the resources and time it spent, a trust might nonetheless
refuse to comply. Staff time and resources would nonetheless be
delayed in real time, being kept from their usual usage in
furtherance of the trust's business of providing benefit to its
members for the sake of another entity's legal obligation. A trustee
with a fiduciary obligation could reasonably decline to comply
merely so that staff and resources were not diverted from their
duties. In other words, while the union might be able to compensate
for lost time, and despite the longstanding adage to the contrary,
money is not time. Work hours will be consumed, which could result
in a trust being delayed in meeting its own financial filing
obligations, such as completing the IRS 990 or the Form 5500. The
trustee faced with the complicating factors could choose to avoid
the complications and delays entirely.
---------------------------------------------------------------------------
One commenter indicated how auditing the Form T-1 will be
practically impossible because the officers will not possess knowledge
of the accuracy and completeness of information provided by the trust
(assuming it agrees to provide information) and the union will not
possess the underlying financial records that support the information
the union was given by the trust. In such situations, the commenter
argues, it is likewise unclear how labor organization officers are thus
reasonably held ``responsible for maintaining records in sufficient
detail to verify, explain, or clarify the accuracy and completeness of
the reports,'' as the final rule required.
A union officer must sign the Form T-1 and do so under penalty of
perjury; however, as another commenter stated, officers would be forced
to certify, under oath, as to their knowledge of the accuracy and
completeness of information provided by a trust, even though they lack
a sufficient basis to vouch for its accuracy. Ignoring these concerns,
as the commenter put it, ``grossly discounts the costs of filing Form
T-1 reports on apprenticeship plans.''
Third, in the NPRM, the Department considered and still considers
the Form T-1 reporting regime as imposing substantial and unjustified
burdens from the perspective of multiple labor unions filing for a
single shared trust. The Department rejects this outcome as a matter of
policy in light of the substantial burdens labor unions will face to
submit these redundant reports, which in turn will impose significant
costs on the Department in terms of time and agency resources necessary
to review those redundant reports. And even if, instead of multiple
unions filing redundant, and thus unnecessary, forms for a single
trust, the Department determined a means by which just a single union
would file for the others, the result would be an arbitrary choice. The
Department would be forcing one union to take on all the legal
obligations associated with the completion and signing of the form,
even in situations where it would be especially arbitrary to do so,
such as when the selected union has no more a share of authority over
the trust than any of the other, non-filing unions. This outcome would
also impose costs on the Department in terms of needing to review
redundant reports, which the Department now finds that, as a matter of
policy, are not justified in light of those resource costs.
The 2020 rule acknowledged this problematic dynamic. The rule
includes a provision allowing one union to file the Form T-1 report for
the other unions. However, the Department now considers that solution
unworkable as a matter of policy. As one commentator explained,
different unions will interpret the Form T-1 reporting requirements
differently and may therefore ``refuse to cede control of the reporting
requirement to another for fear the report would be done incorrectly,''
resulting in the filing of duplicative reports despite the purported
workaround. Furthermore, the due date for the Form T-1 for different
unions may be different because the contributing unions are not on the
same fiscal year and thus unions are unlikely to ``risk noncompliance
and substantial penalties by agreeing to let another union file on its
behalf'' on a date after the first date any union related to a
particular trust would be obligated to file the Form T-1 were it solely
responsible for filing. Another commenter indicated also how the burden
on a minimally contributing union in such joint situations is patently
unfair, their officers then being as ``personally responsible for the
filing of a report and to require them to maintain data necessary to
verify the reported information for at least five years . . . [even] in
situations where the labor organization's contribution is minimal.''
Another concern is that, with many trusts that have multiple, non-
affiliated unions contributing, the individual unions would likely be
unable to determine if they together with the others effectively
``dominate'' the fund. As one commenter indicated, unions in such
arrangements ``will commonly not know the extent of another labor
[[Page 74364]]
organization's involvement or contribution to the entity.''
The Department believes that this, and the other practical
complications mentioned above, could result in a substantial number of
delinquencies, many through no fault of the unions. Such a result would
force the Department to direct substantial amounts of valuable, scarce
resources to investigate these delinquencies, even where the Department
reasonably predicts that the substantial of such cases would not
involve efforts to circumvent or evade Title II reporting requirements,
but rather, technical or procedural missteps resulting from unworkable
policy decisions. Further, the Department would need to expend
significant resources creating and maintaining an electronic Form T-1
and database; provide compliance assistance to unions and trusts on
such filing and related recordkeeping requirements; and pursue
delinquent Form T-1 reports, particularly for unions unable to obtain
timely and complete necessary information from the trust. The resources
would thus inevitably be pulled away from other, well-settled areas of
enforcement, such as officer elections, alleged financial malfeasance,
delinquent reporting on unions'' annual financial reports, among many
others. From the standpoint of promoting sound agency policy decision-
making and resource allocation, the 2020 rule falls far short. Such
unreasonable policy decisions and the ensuing unjustified costs to both
the regulated community and Department justify rescission of the 2020
Form T-1 final rule.
Consequently, for all the reasons above, the Department rescinds
the 2020 Form T-1 rule. The reporting requirements set forth in the
2020 Form T-1 rule are not justified in light of the heavy burden they
impose and the negligible benefits they offer.
The 2020 Form T-1 Rule Is Overbroad Because It Requires Reporting on
Certain Trusts That Cannot Be Used To Circumvent or Evade LMRDA
Reporting
In addition to the foregoing policy reasons which alone justify
rescission of the Form T-1, it is also appropriate to rescind the 2020
Form T-1 rule because it is overbroad and inconsistent with Title II's
mandate. The only statutory basis for requiring reporting on the
activities of entities that are not labor organizations as defined by
the LMRDA is if the Department determines that such reporting is
necessary to prevent circumvention or evasion of the statute's
reporting requirements. See 29 U.S.C. 438. The 2020 rule is deficient
because it requires reporting on certain entities, such as Taft-Hartley
funds, without the requisite showing that such reporting is necessary
to prevent circumvention or evasion of the reporting requirements. This
over-breadth requires the rule to be rescinded. It is not enough that
the Form T-1 may capture some transactions that could prevent the
circumvention or evasion of the LMRDA's reporting requirements. The
rule is defective if it necessarily captures transactions as to which
there is no statutory basis permitting the capture. American Federation
of Labor & Congress of Industrial Organizations v. Chao, 409 F.3d 377,
389 (D.C. Cir. 2005) (finding that although ``[t]here can be little
doubt that some of the trust reporting the Secretary has required on
Form T-1 is tied to a union's financial reporting requirements under
LMRDA Title II,'' and therefore lawful, the rule also ``reaches
information unrelated to union reporting requirements and mandates
reporting on trusts even where there is no appearance that the union's
contribution of funds to an independent organization could circumvent
or evade union reporting requirements,'' and thus must be vacated).
Under the Act, the Secretary's rulemaking authority is limited. The
Secretary has the authority to ``issue, amend, and rescind rules and
regulations prescribing the form and publication of reports required to
be filed under this title and such other reasonable rules and
regulations (including rules concerning trusts in which a labor
organization is interested) as he may find necessary to prevent the
circumvention or evasion of such reporting requirements.'' 29 U.S.C.
438. The Secretary's regulatory authority thus includes the reporting
mandated by the Act and discretionary authority to require reporting on
trusts falling within the statutory definition of a trust ``in which a
labor organization is interested.'' 29 U.S.C. 402(l). The Secretary's
discretion to require separate trust reporting applies to trusts if,
and only if: (1) The union has an interest in a trust as defined by 29
U.S.C. 402(l) and (2) reporting is determined to be necessary to
prevent the circumvention or evasion of Title II reporting
requirements. 29 U.S.C. 438. As both the Department and the court
recognized, this is a two-part requirement. See AFL-CIO v. Chao, 409
F.3d 377, 386-87 (D.C. Cir. 2005) (discussion of two-part test).
A key feature of the Secretary's discretionary authority to
regulate trust reporting is the requirement that the Secretary conclude
that such reporting is ``necessary'' to prevent circumvention or
evasion of a labor organization's requirement to report on its
financial condition and operations under the LMRDA. The Department now
believes that the 2020 Form T-1 rule was overly broad, requiring
financial reporting by many types of trusts, including trusts funded by
employers pursuant to collective bargaining agreements, without an
adequate showing that such a change is necessary to prevent
circumvention or evasion of the reporting requirements.
In particular, the rule provides that, for purposes of evaluating
whether payments to a trust indicate that the union is financially
dominant over the trust, payments made by employers to fund trusts
under section 302(c) of the Labor Management Relations Act (LMRA), 29
U.S.C. 186(c) (Taft-Hartley funds) should be treated as funds of the
union. Taft-Hartley funds are created and maintained through employer
contributions paid to a trust fund, pursuant to a collective bargaining
agreement, and must have equal numbers of union and management
trustees, who owe a duty of loyalty to the trust. Taft-Hartley funds
are established for the ``sole and exclusive benefit of the employees''
and are exempt from the statutory prohibition against an employer
paying money to employees, representatives, or labor organizations. See
29 U.S.C. 186(a) and (c)(5).
The Department recognizes that the section 3(l) ``trusts in which a
union is interested'' term is sufficiently broad to encompass Taft-
Hartley plans. However, as explained above, this is only the first part
of the section 208 analysis. The second part of the analysis requires
that the Secretary determine that the reporting is necessary to prevent
circumvention or evasion of the reporting of union money subject to
Title II.
As explained in the 2020 Form T-1 rule, section 201 of the LMRDA
requires that unions ``file annual, public reports with the Department,
detailing the union's cash flow during the reporting period, and
identifying its assets and liabilities, receipts, salaries and other
direct or indirect disbursements to each officer and all employees
receiving $10,000 or more in aggregate from the union, direct or
indirect loans (in excess of $250 aggregate) to any officer, employee,
or member, any loans (of any amount) to any business enterprise, and
other disbursements.'' 85 FR at 13414 (citing 29 U.S.C. 431(b)).
Further, section 201 requires that such information shall be filed ``in
such detail as may be necessary to disclose [a labor organization's]
financial condition and operations.'' 85 FR at 13414 (citing
[[Page 74365]]
Id.). Significantly, each financial transaction to be reported is one
that reflects upon the union's financial condition and operations. 29
U.S.C. 201(b). Consequently, trust reporting is only permissible to
prevent a labor union from using a trust to circumvent reporting of the
labor union's finances.
However, money contributed to a Taft-Hartley plan does not bear on
the labor union's finances and is not by law required to be reflected
on a labor union's Title II reporting; accordingly, the T-1 Form cannot
be deemed necessary to prevent circumvention or evasion of the
reporting of union money subject to Title II. The 2020 Form T-1 rule
presumes that employer contributions to Taft-Hartley plans establish
labor union financial domination of a trust. After review, the
Department has determined that money contributed by an employer to a
Taft-Hartley fund is not property of the union. Thus, its disclosure
does not ``disclose [the union's] financial condition and operations.''
29 U.S.C. 201(b). Conversely, a union's nondisclosure of such funds
would not be an evasion of the union's reporting requirement as
ordinary employer funds--even if placed into such a trust--are not
within the control of the union, and would in no instance be reported
by a union under the LMRDA reporting requirements.
One union commenter in particular agreed with the Department's
position in the NPRM that the 2020 Form T-1 is overbroad because it is
not targeted at preventing evasion or circumvention of the labor
organization's reporting requirement. It argued that the rule attempts
to ``erase the distinction between benefit plan and labor organization
reporting,'' in defiance of the will of Congress, which chose to
address the McClellan Committee concerns regarding labor organization
pension, health, and welfare fund reporting in the Welfare and Pension
Fund Act of 1958 and later superseded by ERISA.
Another union commenter argued that the 2020 Form T-1 is not
necessary to prevent circumvention or evasion of LMRDA reporting
requirements because properly structured Taft-Hartley funds are by
definition not controlled by unions. Because Taft-Hartley fund assets
are not--and could not be--assets of the union, the Form T-1 cannot be
said to be necessary to prevent circumvention of union reporting
requirements.
Commenters also supported the Department's view that counting
employer contributions towards union financial dominance is not
justifiable. As one union commenter stated, ``[e]mployers are separate
business entities that have their own assets, management, employees,
and business operations.'' Further, the commenter pointed out, even in
consideration of an employer's failure to contribute according to the
terms of a CBA with a union, the union will file a grievance under the
CBA's arbitration clause or will file a suit under LMRA section 301 for
violating the contract, demonstrating that the union does not have
control or authority over the disposition of the employer's assets.
Rather, ``the dispute is treated [under LMRA Section 301] as one
involving the employer's breach of its contractual obligation to
contribute to the fund, not as a dispute over the employer holding on
to the union's money.'' The commenter went on to explain, as did other
commenters, that the idea of employer contributions being union
controlled funds is expressly contradicted by the logic of section 302
of the LMRA; the employer willfully giving funds to the union in such a
manner would be illegal, but for the explicit exception made in part
(c) of that section, which acknowledges such contributions as still
being employer funds. However, even when employer funds reach the plan,
as one commenter reminded, under EBSA regulation and advisory opinions
the assets immediately become assets of the plan. Thus, at no point in
the lifecycle of the employer's contribution do the funds become
``union funds.'' See DOL ERISA Advisory Opinion 93-14A; Preamble to
Prohibited Transaction Exemption 76-1, 41 FR 12740 at 12741 (Mar. 26,
1976).
In addition, by definition, Taft-Hartley funds may not have union
managerial dominance because ``employees and employers are equally
represented in the administration of such fund[s], together with such
neutral persons as the representatives of the employers and the
representatives of employees may agree upon.'' See 29 U.S.C.
186(c)(5)(B). Disclosure of such funds is thus unnecessary to ensure
that unions comply with their own financial reporting requirements
under the LMRDA. One commenter argued specifically that this rationale
also applied to Labor Management Cooperation Committee funds. Another
union commenter made the observation that technically (and
nonsensically) under the 2020 Form T-1, a fund in which 100% of the
funds came from the employer and was wholly governed by an equal number
of employers and union officials would nonetheless still be counted as
proof of ``union dominance,'' a result that simply does not comport
with the facts. Finally, the 2020 Form T-1 rule's preamble failed to
establish that the Form T-1 would be ``necessary to prevent
circumvention and evasion'' of the LMRDA reporting requirements.
First, the 2020 rule states that the Form T-1 ``will make it more
difficult for a labor organization to avoid, simply by transferring
money from the labor organization to a trust, the basic reporting
obligation that applies if the funds had been retained by the labor
organization.'' 85 FR 13418. However, the rule provided no evidence
that labor organizations were transferring their own funds to Taft-
Hartley trusts, an objection cited by a number of comments. And, of
course, if a union transferred funds to a Taft-Hartley trust, the
transaction itself would be reportable on the union's LM report.
In AFL-CIO v. Chao, the Court of Appeals for the D.C. Circuit held
that the 2003 Form T-1 ``reaches information unrelated to union
reporting requirements and mandates reporting on trusts even where
there is no appearance that the union's contribution of funds to an
independent organization could circumvent or evade union reporting
requirements.'' AFL-CIO v. Chao, 409 F.3d at 389. The 2020 Form T-1
rule is overly broad in the same manner, requiring many labor
organizations to file the Form T-1 for independent Taft-Hartley trusts,
even where there is no apparent means by which the union could use the
trust as a means of circumventing or evading its Title II reporting
requirements.
Second, the Department argued in the 2020 rule that ``the money an
employer contributes to such trusts pursuant to a CBA might otherwise
have been paid directly to a labor organization's members in the form
of increased wages and benefits, the members on whose behalf the
financial transaction was negotiated have an interest in knowing what
funds were contributed, how the money was managed, and how it was
spent.'' 85 FR 13418. Assuming this is so, these underlying wages and
benefits would not have been reported on a Form LM-2. Therefore, it is
not apparent that payment of these potential wages and benefits to a
trust involves the circumvention or evasion of Title II reporting.
Thus, with respect to these funds, it is not clear from the 2020 Form
T-1 final rule how the Form T-1 would have ``close[d] a reporting gap
where labor organization finances related to LMRDA section 3(l) trusts
were not disclosed to members, the public, or the
[[Page 74366]]
Department.'' (emphasis added) 84 FR 25416.\11\
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\11\ To the extent the rule was premised simply on the
proposition that workers ought to know what employer payments were
made to Taft-Hartley funds and whether those payments could be
characterized as diversions from wages, the Department notes that
Section 104 of the Act requires that unions ``forward a copy of each
collective bargaining agreement made by such labor organization with
any employer to any employee who requests such a copy and whose
rights as such employee are directly affected by such agreement.''
Those collective bargaining agreements set out the measure of
contributions employers have agreed in bargaining to contribute to
Taft-Hartley funds.
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Further, the Department rescinded the Form T-1 in 2010 because it
lacked statutory authority, but the 2020 rule did not adequately
address this legal concern. See 75 FR 74938. Indeed, while
acknowledging that employer contributions to a trust do not constitute
the circumvention or evasion of labor organization funds, the 2020 rule
argued that Form T-1 reporting for Taft-Hartley trusts could
nonetheless prevent the circumvention of employer or labor organization
officer or employee reporting under LMRDA Sections 202 and 203. See 85
FR 13422. However, as noted in the NPRM, 86 FR 28510, the 2020 rule
provided no evidence that employer or labor organization officials
circumvented or evaded their reporting requirements through a trust.
Moreover, none of the comments opposing rescission addressed the issue
of potential circumvention or evasion of employer or labor organization
officer or employee reporting requirements.
Nor did the 2020 rule justify its imposition of the T-1 requirement
solely on labor organizations. In that regard, one commenter in support
of rescission agreed with the NPRM's conclusion that if the Department
were to require reporting on payments made from an employer to a trust
pursuant to a CBA, then such reporting requirements should be placed on
the employer, not the labor organization. Because such financial
reporting should be required of an employer and not the union, any
failure to report employer payments made to a trust pursuant to a CBA
could not constitute a union's circumvention or evasion of its LMRDA
reporting requirements. The same commenter also observed how the 2020
Form T-1 rule relied in part on the LMRDA's employer reporting
requirements, and not the union reporting requirements, such as ``when
the employer diverted unlawfully funds intended for the trust to a
union official,'' again raising the question of why the filing of the
Form T-1 reports, at least in the instance of apprenticeship plans,
fell solely on labor organizations and not employers.
Further, in addition to the Form T-1 reaching beyond the scope of
Title II because of its application to Taft-Hartley plans, its
overbreadth renders the rule unnecessary as a matter of policy, since
the transparency benefits to the public and enforcement authority for
the Department already exist concerning such plans. As stated above,
the public already has access to disclosure for such plans through the
IRS Form 990 and EBSA Form 5500. Further, the Forms LM-10 and LM-30
would capture unlawful payments from employers to unions or union
officials through Taft-Hartley plans, thus ensuring that the Department
has enforcement authority concerning such payments. In that regard, the
Department has an extensive and successful enforcement history of over
60 years without the Form T-1, as evidenced by the FCA enforcement
activities. See: https://www.dol.gov/agencies/olms/criminal-enforcement.
Moreover, the 2020 rule focused primarily on capturing non-exempt
Taft-Hartley plans, and, indeed, the rulemaking record suggested that
most Form T-1 reports filed would cover Taft-Hartley plans. However,
even if the Form T-1 would capture some non-Taft Hartley plans, as
detailed above in the discussion of the Department's policy
justifications for rescinding the Form T-1, the burden to both the
regulated community and the Department to comply with and enforce the
Form T-1 reporting regime do not justify any marginal benefit.
Consequently, from a policy perspective, the Department will
rescind the 2020 Form T-1 rule because its application to Taft-Hartley
plans was overly broad and any marginal, unquantifiable benefit is
eclipsed by the immense burden imposed. Separately, the Department will
rescind the 2020 rule because its application to Taft-Hartley plans
exceeds the Department's scope of authority under Title II. In the
Taft-Hartley context, a union's reporting (or failure to report) on the
Form T-1 could not prevent a union's use of a trust to circumvent or
evade its own reporting requirement because it is the employer's, and
not the union's, finances that are being contributed to the Taft-
Hartley plan at issue.
Other Comments Regarding the 2020 Form T-1 Final Rule
First, as one union commenter observed, the rule also set up the
prospect of creating confusion by failing to provide a de minimis
exemption for funds. A union's contribution of a single dollar could
potentially trigger the rule's stringent standards, if that
contribution, in combination with contributions from other unions,
establishes financial domination over the trust (as defined in the
rule), thus requiring reporting on trusts that may be of minimal (or
no) interest to members. Such minimal contributions may also lead to
unions filing multiple reports, again for trusts that may not be of
interest to members. Furthermore, if the contribution is less than
$10,000, there would be greater confusion than before, because members
would know that some amount of money was contributed but would not know
the exact figure, whether $1 or $9,999. The Department agrees that this
possibility would support a de minimis exemption, and the lack of one
further demonstrates that the burden of the Form T-1 outweighs its
potential benefits.
Two anonymous comments offered general arguments against
rescission. One argued for greater ``governance'' and
``accountability'' and in favor of ``total transparency,'' without any
evidence justifying why existing reporting does not provide the
necessary governance and accountability. Further, even if true, this
reasoning does not provide legal support for the Form T-1, as it does
not demonstrate how the form would prevent the ``circumvention or
evasion'' of the reporting requirements required by the statute. The
commenter did not address this point. Nor did the commenter balance
transparency with burden. The other anonymous comment inquired into
whether the Department would bring reporting requirements for ``labor
organizations and section 3(l) trusts in line with [c]ontemporary
expectations for the disclosure of financial information.'' As stated,
after further review, the Department has determined that existing
reporting requirements already provide the necessary disclosures, so
the duplicative reporting offered by the Form T-1 does not justify the
significant burdens on unions.
One commenter, a union member, commented against the rescission of
the Form. The commenter argued that rescission would serve as ``a
disadvantage in combating corruption and a hinderance [sic] to self
governance,'' and the commenter supported this argument by providing
three real examples in which the commenter asserted that the 2020 Form
T-1 would have been helpful. However, as the commenter indicated, each
entity discussed in the examples, which included two ``betterment
funds'' and a market recovery fund, filed the Form 990, a form that, as
the Department concluded, and many commenters
[[Page 74367]]
concurred, provides the necessary transparency. Moreover, it appears
that the union ``betterment fund'' constitutes a wholly-owned
subsidiary of the member's union, which the union already reports on
its annual Form LM-2 report. As for the market recovery fund mentioned
by the commenter, it appears from a review of the commenter's union's
Form LM-2 report that the fund constitutes a union fund that the union
already reports on the Form LM-2. Thus, the Form T-1 would not have
covered those funds. Further, the Form LM-2 actually provides greater
detail than the Form T-1 would have provided, and OLMS retains
authority to pursue an amended Form LM-2 report if the union did not
submit it accurately. OLMS also retains investigative authority, in the
event union officials committed fraud in maintaining the fund. The Form
T-1 would also have not covered the management-side ``betterment
fund,'' since it would not appear to meet either the Form T-1's union
managerial control or financial domination test.
The commenter also indicated that he ``attempts to keep track of
the union's financial affairs,'' and the Form T-1 would ``help rank-
and-file members to put the pieces of [the] financial puzzle
together.'' The Department appreciates the commenter's input but
respectfully disagrees. A separate trust is not, per se, part of the
union's financial affairs, unless the trust is being used to circumvent
or evade the union's reporting. The commenter did not describe how the
Form T-1 would serve such a purpose, nor how existing reporting
requirements, such as the Form 990, are inadequate to provide general
trust transparency (even assuming that the LMRDA authorizes such
transparency, which it does not). As shown, the 2020 rule's rulemaking
record does not reflect the benefits of the Form T-1 that would justify
the significant, additional burden on unions, particularly since union
trusts typically already file the Form 990, generally providing similar
if not greater detail than does the Form T-1. The Department reiterates
that greater transparency alone is not sufficient to justify LMRDA
section 208 rulemaking. Instead, there must be a showing that the
report is necessary to prevent circumvention and evasion of the
statutory reporting requirements.
Finally, the commenter, seemingly acknowledging the costs of the
Form T-1, suggested that the union could offset those costs by forgoing
purportedly wasteful expenses. Even assuming that unions could or
should curtail certain expenses, an assumption not supported by the
rulemaking record, this fact would not independently justify the cost
and burden of the Form T-1 in light of the limited benefits that the
Form would provide.
Therefore, in light of the foregoing concerns, the Department
rescinds the rule implementing the Form T-1 because, after reviewing
the 2020 rulemaking record as well as the current rulemaking record, it
no longer views the separate reporting requirements as set forth in the
2020 Form T-1 rule as justified in light of the burden they impose.
Further, as it concerns Taft-Hartley plans, the trust reporting
required under the rule is overly broad and thus not necessary to
prevent the circumvention and evasion of the Title II reporting
requirements.
IV. Specific Changes to the Form LM-2 Instructions and the LMRDA
Regulations
A. Changes to the Form LM-2
The Department received no comments upon, and therefore implements,
the following changes to the Form LM-2 Labor Organization Annual
Report, which implement the rescission of the Form T-1:
1. Section IX--Labor Organizations In Trusteeship: The Department
revises this section to remove any reference to the Form T-1.
2. Section XI--Completing Form LM-2: The Department changes the
instructions to Item 10 (Trusts or Funds). The instructions for Item 10
are changed to remove any reference to the Form T-1, although basic
information about the trust would still be required, as would a cite to
any report filed for the trust with another government agency, such as
the Department's Employee Benefits Security Administration (EBSA) or
the Internal Revenue Service (IRS).
The public can view the Form LM-2 changes in the accompanying
Information Collection Request (ICR), pursuant to the PRA. See Part V
(Regulatory Procedures), PRA section.
B. Changes to the LMRDA Regulations
As described in the below regulatory procedures section, and in
order to implement the rescission of the 2020 Form T-1 rule, the
Department also removes the references to the Form T-1 located in the
Department's LMRDA regulations at 29 CFR Part 403. Additionally, as
described in the below regulatory procedures section, and as proposed,
the Department will now require mandatory electronic filing for labor
organizations that submit simplified annual reports pursuant to 29 CFR
403.4(b). The Department's experience with Form LM-2, LM-3, and LM-4
reporting demonstrates that labor organizations can submit such reports
electronically with little difficulty and with burden reductions for
the labor organization filers and the Department. Further, the public
benefits from more timely disclosure on the OLMS website. The
Department anticipates such benefits for electronic simplified annual
reports, as well. The Department did not receive any comments on
mandatory electronic filing.
V. Regulatory Procedures
Executive Orders 12866 (Regulatory Planning and Review) and 13563
(Improving Regulation and Review)
Under Executive Order (E.O.) 12866, the Office of Management and
Budget (OMB)'s Office of Information and Regulatory Affairs (OIRA)
determines whether a regulatory action is significant and, therefore,
subject to the requirements of E.O. 12866 and OMB review.\12\ Section
3(f) of E.O. 12866 defines a ``significant regulatory action'' as an
action that is likely to result in a rule that (1) has an annual effect
on the economy of $100 million or more, or adversely affects in a
material way a sector of the economy, productivity, competition, jobs,
the environment, public health or safety, or State, local or tribal
governments or communities (also referred to as economically
significant); (2) creates serious inconsistency or otherwise interferes
with an action taken or planned by another agency; (3) materially
alters the budgetary impacts of entitlement grants, user fees, or loan
programs, or the rights and obligations of recipients thereof; or (4)
raises novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in E.O. 12866. OMB
has determined that this rule is significant under section 3(f) of E.O.
12866. Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.
), OIRA has designated this rule as not a `major rule', as defined by 5
U.S.C. 804(2).
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\12\ See 58 FR 51735 (September 30, 1993).
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E.O. 13563 directs agencies to propose or adopt a regulation only
upon a reasoned determination that its benefits justify its costs; the
regulation is tailored to impose the least burden on society,
consistent with achieving the regulatory objectives; and in choosing
among alternative regulatory approaches, the agency has selected those
approaches that maximize net benefits. E.O. 13563 recognizes that some
benefits are difficult to quantify and provides that, where appropriate
and permitted by
[[Page 74368]]
law, agencies may consider and discuss qualitatively values that are
difficult or impossible to quantify, including equity, human dignity,
fairness, and distributive impacts.
A. Costs of the Form T-1 for Labor Organizations
As described in the 2020 Form T-1 final rule, the Form T-1 is filed
by Form LM-2 filing labor organizations with trusts that meet the
dominance test, if those labor organizations are not otherwise exempted
from filing. Cost savings discussed below concern the costs incurred by
labor organizations to file the Form T-1 reports in subsequent years
(assuming that filers have already incurred many of the first year
costs discussed in the 2020 rule).\13\ As a result of the Department
rescinding the Form T-1, the affected labor organizations would save
these future costs. Using data from LM-2 filings, the Department
estimated, in the 2020 Form T-1 final rule, 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 Department estimated
in the 2020 rule that each affected labor organization would be
responsible for an average of 2.56 Form T-1 filings. Additionally, each
affected labor organization would spend approximately 84.12 hours in
each subsequent year to fill out the Form T-1.\14\ The average hourly
wage for Form T-1 filers, as with Form LM-2 filers, includes: $37.89
for an accountant, $20.25 for a bookkeeper or clerk, $25.15 for a Form
LM-2 filing union secretary-treasurer or treasurer, and $29.21 for the
Form LM-2 filing president, respectively.\15\ The weighted average
hourly wage is $36.53.\16\ To account for fringe benefits and overhead
costs, as well as any other unknown costs or increases in the wage
average, the average hourly wage has been multiplied by 1.63, so the
fully loaded hourly wage is $59.54 ($36.53 x 1.63 = $59.54).\17\
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\13\ To the extent they have not already incurred those costs,
the savings set out in text would be greater.
\14\ For more details, see the Paperwork Reduction Act section
below.
\15\ Wage rates are derived from 2018 data; more specifically,
the president and treasurer wage rates are determined from FY 19
Form LM-2 report filings, while the accountant and bookkeeper wage
rates come from 2018 Bureau of Labor Statistics (BLS) data available
at: https://www.bls.gov/oes/2018/may/oes_nat.htm.
\16\ The weighted average calculates the wage rate per hour
weighted according to the percentage of time that the Form T-1's
completion will demand of each official/employee: 90 percent of the
Form T-1 burden hours will be completed by an accountant, 5 percent
by the bookkeeper, 4 percent by the union's treasurer/secretary-
treasurer, and 1 percent by the union president.
\17\ The use of 1.63 accounts for 17 percent for overhead and 46
percent for fringe. In the case of the 46 percent for fringe, see
the following link to BLS data showing that wages and salaries
represent 68.6 percent (.686) of compensation (https://www.bls.gov/news.release/ecec.t02.htm). Dividing total compensation by the 68.6
percent represented by wages and salaries is equivalent to a 1.46
multiplier. Adding a 17 percent multiplier (.17) for overhead equals
1.63.
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Therefore, the cost for each Form T-1 filer in subsequent years
would be $12,822 (2.56 x 84.12 x $59.54 = $12,822), which would be
eliminated if the Department rescinds the Form T-1, as proposed.
B. Summary of Costs
This final rule would save 810 Form LM-2 filers a total of
$10,385,820 annually. The 10-year annualized cost is expected to be
$10,285,704 at a 3 percent discount rate and $9,608,788 at a 7 percent
discount rate.
C. Benefits
As explained more fully in the preamble to this final rule, the
Department rescinds the Form T-1, as the 2020 Form T-1 final rule was
duplicative of other existing reporting requirements, did not prevent
the circumvention or evasion of the LMRDA reporting requirements, and
provided no evidence that it detected or deterred labor-management
fraud or corruption. Rather, the Department believes that existing
reporting requirements adequately address these concerns. Further,
rescission of the 2020 Form T-1 rule provides labor organizations with
additional resources to devote to existing reporting requirements.
D. Alternatives and Comments Received
As mentioned in the NPRM concerning potential alternatives to
rescinding the Form T-1, the Department could maintain the existing
Form T-1 or propose a scaled back version. The retention of the Form T-
1 would retain the burdens discussed in the 2020 Form T-1 rule, and the
Department now considers that these burdens are not justified by the
purported benefits. Rather, the Department now believes that existing
reporting provides much if not all of the potential benefits of the
Form T-1. Further, while a scaled back Form T-1 would reduce such
burdens, the Department did not consider this approach, since the
current Form T-1 already contains multiple exemptions and burden-
reduction components.
The Department did not receive any comments that specifically
address the NPRM's regulatory impact analysis.\18\
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\18\ One comment in support of rescission contended that the
Form T-1 rule's estimates of the burden hours for the form should
have been doubled or more, and the commenter noted the logistical
difficulty of getting information from the interested trust to the
labor organization.
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Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq.,
requires agencies to prepare regulatory flexibility analyses, and to
develop alternatives wherever possible, in drafting regulations that
will have a significant impact on a substantial number of small
entities. The Department has determined that this final rule will not
have a significant economic impact on a substantial number of small
entities because the final rule contains no new collection of
information. Rather, it only relieves the additional collection burden
imposed upon labor organizations through the rescission of the
regulations published on March 6, 2020.
The 2020 Form T-1 rule's Final Regulatory Flexibility Analysis
(FRFA) considered whether it would place a significant impact on a
substantial number of small business entities. That rulemaking analysis
considered a labor organization a ``small business entity'' if they had
average annual receipts of less than $8 million.\19\ Based on previous
standards utilized in other regulatory analyses, the threshold for
significance was set at 3% of annual receipts, while a substantial
number of small entities would be 20 percent. The 2020 Form T-1 final
rule at the time would have impacted 2,009 labor organizations at least
$250,000 in size by annual receipts, with at least one trust, resulting
in approximately 2,070 Form T-1 reports. Of these organizations, 1,667
had annual receipts less than $8 million. There were only 315 LM-2
filers with at least one trust whose annual receipts were small enough
that the Form T-1 costs would amount to more than a 3 percent impact.
The largest of the 315 had annual receipts of $614,813 for a 3.01
percent impact. The smallest of the filers had $253,475 in annual
receipts for a 7.30 percent impact.
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\19\ See https://www.sba.gov/document/support--table-size-standards.
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Thus, the rule would have impacted 18.90 percent of small business
entities in the first year. In all subsequent years, the percentage of
small entities significantly impacted is 8.94 percent (149 out of 1,667
small entities). Both these figures would have been below the threshold
to constitute a ``substantial''
[[Page 74369]]
number of small entities. See 85 FR 13439. Given that this rulemaking
merely eliminates even those non-substantial costs, this rule cannot
constitute a substantial cost.
Therefore, a regulatory flexibility analysis under the Regulatory
Flexibility Act is not required. The Secretary has certified this
conclusion to the Chief Counsel for Advocacy of the Small Business
Administration.
Unfunded Mandates Reform
This final rule does not include any Federal mandate that may
result in increased expenditures by State, local, and tribal
governments, in the aggregate, of $100 million or more, or in increased
expenditures by the private sector of $100 million or more.
Paperwork Reduction Act
A. Summary of the Final Rule
The following is a summary of the need for and objectives of the
final rule. A more complete discussion of various aspects of the
proposal is found in the preamble.
The final rule rescinds the Form T-1 Trust Annual Report
established by final rule on March 6, 2020.
The LMRDA was enacted to protect the rights and interests of
employees, labor organizations and the public generally as they relate
to the activities of labor organizations, employers, labor relations
consultants, and labor organization officers, employees, and
representatives. Provisions of the LMRDA include financial reporting
and disclosure requirements for labor organizations and others as set
forth in Title II of the Act. See 29 U.S.C. 431-36, 441. Under Section
201(b) of the Act, 29 U.S.C. 431(b), labor organizations are required
to file for public disclosure annual financial reports, which are to
contain information about a labor organization's assets, liabilities,
receipts, and disbursements.
The Department has developed several forms to implement the union
annual reporting requirements of the LMRDA. The reporting detail
required of labor organizations, as the Secretary has established by
rule, varies depending on the amount of the labor organization's annual
receipts. The Form LM-2 Annual Report is the most detailed of the
annual labor organization reports, and is required to be filed by labor
organizations with $250,000 or more in annual receipts. The Form LM-2
requires certain receipts and disbursements to be reported by
functional categories, such as representational activities; political
activities and lobbying; contributions, gifts, and grants; union
administration; and benefits. Further, the form requires labor
organizations to allocate the time their officers and employees spend
according to functional categories, as well as the payments that each
of these officers and employees receive, and it requires the
itemization of certain transactions totaling $5,000 or more. It must
include reporting of loans to officers, employees and business
enterprises; existence of any trusts; payments to each officer; and
payments to each employee of the labor organization paid more than
$10,000, in addition to other information. The Secretary also has
prescribed simplified annual reports for smaller labor organizations.
Form LM-3 may be filed by unions with $10,000 or more, but less than
$250,000 in annual receipts, and Form LM-4 may be filed by unions with
less than $10,000 in annual receipts. A local union that has no assets,
liabilities, receipts, or disbursements, and which is not in
trusteeship, is not required to file an annual report if its parent
union files a simplified annual report on its behalf. In order to be
eligible for this simplified annual reporting, the local must be
governed solely by a uniform constitution and bylaws filed with OLMS by
its parent union and its members must be subject to uniform fees and
dues applicable to all members of the local unions for which the parent
union files simplified reports. The parent union must submit annually
to OLMS certain basic information about the local, including the names
of all officers, together with a certification signed by the president
and treasurer of the parent union.
On March 6, 2020, the Department issued a final rule establishing
the Form T-1 Trust Annual Report, which prescribes the form and content
of annual reporting by unions concerning entities defined in Section
3(l) of the LMRDA as ``trusts in which a labor organization is
interested.'' 85 FR 13414. The objective of this final rule is to
rescind the Form T-1 Trust Annual Report, as the Department has
determined that it is overbroad and not necessary to prevent the
circumvention and evasion of the Title II requirements.
Further, the Department has reviewed the 2020 rulemaking record and
no longer views the separate reporting requirements as set forth in the
2020 Form T-1 rule as justified in light of the burden they impose. The
rescission of the Form T-1 constitutes a decrease in reporting burdens
for those labor organizations associated with reportable trusts. As
detailed in the 2020 Form T-1 rule, the Form T-1 represented a total
burden, for the estimated 810 Form LM-2 filers affected by the rule, of
approximately 251,257 hours in the first year and 174,128 in the
subsequent years. 85 FR at 13433. Additionally, the projected total
cost on filers in the first year was approximately $15 million in the
first year and approximately $10.4 million in subsequent years. 85 FR
at 13437. This final rule eliminates these burdens and costs for future
years. This final rule would also eliminate any first-year costs that
unions have not yet incurred.
B. Overview of Trust Reporting on Form T-1
Every labor organization whose total annual receipts are $250,000
or more and those organizations that are in trusteeship must currently
file an annual financial report using the current Form LM-2, Labor
Organization Annual Report, within 90 days after the end of the labor
organization's fiscal year, to disclose their financial condition and
operations for the preceding fiscal year. The current instructions
state that receipts of an LMRDA section 3(l) trust in which the labor
organization is interested (as described in Information Item 10) should
not be included in the total annual receipts of the labor organization
when determining which form to file, unless the 3(l) trust is a
subsidiary organization of the union. See Form LM-2 Instructions, Part
II: What Form to File.
The current Form LM-2 consists of 21 questions that identify the
labor organization and provide basic information (in primarily a yes/no
format); a statement of 11 financial items on different assets and
liabilities (Statement A); a statement of receipts and disbursements
(Statement B); and 20 supporting schedules (Schedules 1-10, Assets and
Liabilities related schedules; Schedules 11-12 and 14-20, receipts and
disbursements related schedules; and Schedule 13, which details general
membership information).
The Form LM-2 requires such information as: Whether the labor
organization has any trusts (Item 10); whether the labor organization
has a political action committee (Item 11); whether the labor
organization discovered any loss or shortage of funds (Item 13); the
number of members (Item 20); rates of dues and fees (Item 21); the
dollar amount for seven asset categories, such as accounts receivable,
cash, and investments (Items 22-28); the dollar amount for four
liability categories, such as accounts payable and mortgages payable
(Items 30-33); the dollar
[[Page 74370]]
amount for 13 categories of receipts such as dues and interest (Items
36-49); and the dollar amount for 16 categories of disbursements such
as payments to officers and repayment of loans obtained (Items 50-65).
Schedules 1-10 require detailed information and itemization on
assets and liabilities, such as loans receivable and payable and the
sale and purchase of investments and fixed assets. There are also nine
supporting schedules (Schedules 11-12, 14-20) for receipts and
disbursements that provide members of labor organizations with more
detailed information by general groupings or bookkeeping categories to
identify their purpose. Labor organizations are required to track their
receipts and disbursements in order to correctly group them into the
categories on the current form.
The Form T-1 provides similar but not identical reporting and
disclosure for section 3(l) trusts, currently including subsidiaries,
of Form LM-2 filing labor organizations. The Form T-1 requires
information such as: Losses or shortages of funds or other property
(Item 16); acquisition or disposal of any goods or property in any
manner other than by purchase or sale (Item 17); whether or not the
trusts liquidated, reduced, or wrote-off any liabilities without full
payment of principal and interest (Item 18); whether the trust extended
any loan or credit during the reporting period to any officer or
employee of the reporting labor organization at terms below market
rates (Item 19); whether the trust liquidated, reduced, or wrote-off
any loans receivable due from officers or employees of the reporting
labor organization without full receipt of principal and interest (Item
20); and the aggregate totals of assets, liabilities, receipts, and
disbursements (Items 21-24). Additionally, the union must report
detailed itemization and other information regarding receipts in
Schedule 1, disbursements in Schedule 2, and disbursements to officers
and employees of the trust in Schedule 3.
Although the Form T-1 has a higher reporting threshold for receipts
and disbursements than does the Form LM-2, it provides nearly identical
information regarding receipts and disbursements as does the Form LM-2.
For example, unions must itemize receipts of trusts with virtually
identical detail on Form T-1, Schedule 1, as on the Form LM-2, Schedule
14. Further, the information required on Form T-1 Schedules 2 and 3
correspond almost directly to the information required on Form LM-2
Schedules 15-20 and 11-12, respectively, although the format does not
directly correlate. However, as discussed earlier, Form T-1 does not
provide as much detail regarding assets and liabilities of trusts as
the Form LM-2 requires. For example, although Form T-1 Items 16 and 17
correspond directly to Form LM-2 Items 13 and 15, and the information
required in Form T-1 Items 18-20 is required in a different format in
Form LM-2, Schedules 2 and 8-10, there is also significant information
required on the Form LM-2 and not on the Form T-1. Chief among the
material excluded on the Form T-1 is the detailed information regarding
assets and liabilities required by Form LM-2, Schedules 1-10. In sum,
under the 2020 rule unions would need to report such information on the
Form LM-2, while they would not need to do so under the existing Form
T-1.
Additionally, the Department provided the public with separate
burden analyses for the Form LM-2 and the Form T-1, in addition to the
other forms required to be filed with the Department under the LMRDA.
These analyses include the time for reviewing the respective set of
instructions, searching existing data sources, gathering and
maintaining data needed, creating needed accounting procedures,
purchasing software, and completing and reviewing the collection of
information. This rule eliminates the need for a Form T-1 burden
analysis, as it proposes to eliminate that form and its separate
reporting regime. Thus, many of the areas analyzed in other LMRDA
reporting and disclosure burden analyses are not relevant to this
discussion, as the existence and basic structure and procedures of the
present Form LM-2 reporting regime is not amended by this final rule.
C. Methodology for the Burden Estimates
Initially, as stated above, this document proposes a reduction of
burden hours for respondents included within ICR 1245-0003, as a result
of the rescission of the Form T-1. The rescission of the Form T-1
results in a reduction of 174,128.4 hours in future years that an
estimated 2,292 Form LM-2 filers would incur. 85 FR 13433.
Additionally, the rule would eliminate the total cost to filers of
$10,385,820 in subsequent years. See 85 FR at 13437.
The accompanying ICR discusses changes to the other LMRDA forms and
instructions included within ICR 1245-0003, which the Department will
implement as proposed. These changes include mandatory electronic
filing for the simplified annual reports and Forms LM-15, 15A, 16, 30,
and Form S-1 as well clarification concerning the OLMS use of email
addresses for the signatories of each of the forms included within the
ICR. As explained in the ICR, the Department does not believe that such
revisions will result in a change to the burden estimates, since
electronic filing does not result in greater burden than paper filing
and filers already provide email addresses as part of the electronic
filing process. The Department did not receive any comments on these
proposed changes.
D. Conclusion
As this final rule requires a revision to an existing information
collection, the Department is submitting, contemporaneous with the
publication of this document, an ICR to remove the Form T-1 and its
associated burden from OMB Control Number 1245-0003 and revise the PRA
clearance to address the clearance term. A copy of this ICR, with
applicable supporting documentation, including among other items a
description of the likely respondents, proposed frequency of response,
and estimated total burden may be obtained free of charge from the
RegInfo.gov website at https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=1245-0003 (this link will be updated
following publication of this rule) or from the Department by
contacting Andrew Davis on 202-693-0123 (this is not a toll-free
number)/email: [email protected].
Agency: DOL--Office of Labor-Management Standards (OLMS).
Type of Review: Revision of a currently approved collection.
OMB Control Number: 1245-0003.
Title of Collection: Labor Organization and Auxiliary Reports.
Affected Public: Private Sector--businesses or other for-profits
and not-for-profit institutions.
Estimated Number of Respondents: 33,021.
Estimated Number of Annual Responses: 35,297.
Frequency of Response: Varies.
Estimated Total Annual Burden Hours: 4,644,849.
Estimated Total Annual Other Burden Cost: $0.
Small Business Regulatory Enforcement Fairness Act of 1996
This rule would not constitute a major rule as defined by section
804 of the Small Business Regulatory Enforcement Fairness Act of 1996.
This rule will not result in an annual effect on the economy of
$100,000,000 or more; a major increase in costs or prices; or
significant adverse effects on competition, employment, investment,
[[Page 74371]]
productivity, innovation, or on the ability of the United States-based
companies to compete with foreign-based companies in domestic and
export markets.
List of Subjects
29 CFR Part 403
Labor unions, Reporting and recordkeeping requirements, Trusts.
29 CFR Part 408
Labor unions, Reporting and recordkeeping requirements, Trusts and
trustees.
Accordingly, the Department amends 29 CFR parts 403 and 408 as set
forth below:
PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS
0
1. The authority citation for part 403 continues to read as follows:
Authority: Secs. 201, 207, 208, 301, 73 Stat. 524, 529, 530 (29
U.S.C. 431, 437, 438, 461); Secretary's Order No. 03-2012, 77 FR
69376, November 16, 2012.
Sec. 403.2 [Amended]
0
2. Amend Sec. 403.2 by removing paragraph (d).
0
3. Amend Sec. 403.4 by revising paragraphs (b)(3) and (b)(6)
introductory text to read as follows:
Sec. 403.4 Simplified annual reports for smaller labor organizations.
* * * * *
(b) * * *
(3) The national organization with which it is affiliated assumes
responsibility for the accuracy of a statement filed electronically,
through the electronic filing system made available on the Office of
Labor-Management Standards website, covering each local labor
organization covered by this paragraph (b) and containing the following
information with respect to each local organization:
(i) The name and designation number or other identifying
information;
(ii) The file number which the Office of Labor-Management Standards
has assigned to it;
(iii) The mailing address;
(iv) The beginning and ending date of the reporting period which
must be the same as that of the report for the national organization;
(v) The names and titles of the president and treasurer or
corresponding principal officers as of the end of the reporting period;
* * * * *
(6) The national organization with which it is affiliated assumes
responsibility for the accuracy of, and submits with its simplified
annual reports filed electronically pursuant to Sec. 403.4(b)(3) for
the affiliated local labor organizations, the following certification
properly completed and signed by the president and treasurer of the
national organization:
* * * * *
Sec. 403.5 [Amended]
0
4. Amend Sec. 403.5 by removing paragraph (d).
Sec. 403.8 [Amended]
0
5. Amend Sec. 403.8 by removing paragraph (b)(3).
PART 408--LABOR ORGANIZATION TRUSTEESHIP REPORTS
0
6. The authority citation for part 408 continues to read as follows:
Authority: Secs. 202, 207, 208, 73 Stat. 525, 529 (29 U.S.C.
432, 437, 438); Secretary's Order No. 03-2012, 77 FR 69376, November
16, 2012.
0
7. Revise Sec. 408.5 to read as follows:
Sec. 408.5 Annual financial report.
During the continuance of a trusteeship, the labor organization
which has assumed trusteeship over a subordinate labor organization,
shall file with the Office of Labor-Management Standards on behalf of
the subordinate labor organization the annual financial report required
by part 403 of this chapter, signed by the president and treasurer or
corresponding principal officers of the labor organization which has
assumed such trusteeship, and the trustees of the subordinate labor
organization on Form LM-2.
Signed in Washington, DC, this 22nd day of December, 2021.
Jeffrey R. Freund,
Director, OLMS.
[FR Doc. 2021-28266 Filed 12-29-21; 8:45 am]
BILLING CODE 4510-86-P
