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

Federal RegisterDec 1, 2010

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 403

RIN 1215-AB75; 1245-AA02

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

AGENCY:

Office of Labor-Management Standards, Department of Labor.

ACTION:

Final rule.

SUMMARY:

This rule rescinds the Form T-1, Trust Annual Report, and rescinds its implementing regulations by removing them from the CFR. This form was promulgated by the final rule published in the

Federal Register

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

DATES:

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

FOR FURTHER INFORMATION CONTACT:

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

SUPPLEMENTARY INFORMATION:

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

I. Authority

A. Legal Authority

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

B. Departmental Authorization

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

See

74 FR 58835 (Nov. 13, 2009).

II. Background

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

See

29 U.S.C. 431-36, 441.

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

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

Historically, the Department's LMRDA reporting program had not provided for separate trust reporting by unions. However, there is a long history

of reporting on “subsidiary organization[s].” Part VIII of the 1962 Instructions for Form LM-2 provided for reporting concerning these entities, which were defined in the Form LM-2 instructions as “any separate organization in which the ownership is wholly vested in the labor organization or its officers or its membership, which is governed or controlled by the officers, employees or members of the labor organization, and which is wholly financed by the labor organization.”

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

A. History of the Form T-1

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

Id.

at 58524.

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

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

Id.

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

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

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

Id.

at 58478.

The portions of the 2003 rule relating to the Form T-1 were vacated by the U.S. Court of Appeals for the District of Columbia Circuit in

AFL-CIO

Chao,

409 F.3d 377, 389-391 (DC Cir. 2005). The court held that the form “reaches information unrelated to union reporting requirements and mandates reporting on trusts even where there is no appearance that the union's contribution of funds to an independent organization could circumvent or evade reporting requirements by, for example, permitting a union to maintain control of funds.”

Id.

at 389. The court also vacated the Form T-1 portions of the 2003 rule because its test failed to establish reporting based on domination or managerial control of assets subject to LMRDA Title II jurisdiction. The court reasoned that the Department failed to explain how the test promulgated—selection of one member of a board and a $10,000 contribution to a trust with $250,000 in receipts—could result in union domination and control sufficient to give rise to circumvention or evasion of Title II reporting requirements.

Id.

at 390. In so holding, the court emphasized that Section 208 authority is the only basis for LMRDA trust reporting, that this authority is limited to preventing circumvention or evasion of Title II reporting, and that “the statute doesn't provide general authority to require trusts to demonstrate that they operate in a manner beneficial to union members.”

Id.

at 390.

Following the 2003 vacatur of the provision of the final rule relating to the Form T-1, the Department issued a revised Form T-1 final rule on September 9, 2006. 71 FR 57716 (Sept. 9, 2006) (2006 Form T-1 rule). The U.S. District Court for the District of Columbia vacated this rule due to a failure to provide a new notice and comment period.

AFL-CIO

Chao,

496 F.Supp. 76 (DC 2007). The district court did not engage in a substantive review of the 2006 rule, but the court noted that the AFL-CIO demonstrated that “the absence of a fresh comment period constituted prejudicial error” and that the AFL-CIO objected with “reasonable specificity” to warrant relief vacating the rule.

Id.

at 90-92.

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

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

Additionally, the 2008 Form T-1 rule provides exceptions to the Form T-1 filing requirements. No Form T-1 is required for a trust: Established as a political action committee (PAC) fund if publicly available reports on the PAC fund are filed with Federal or state agencies; established as a political organization for which reports are filed with the IRS under section 527 of the IRS code; required to file a Form 5500 under the Employee Retirement Income Security Act of 1974 (ERISA); or constituting a federal employee health benefit plan that is subject to the provisions of the Federal Employees Health Benefits Act (FEHBA). Similarly, the rule clarifies that no Form T-1 is required for any trust that meets the

statutory definition of a labor organization and files a Form LM-2, Form LM-3, or Form LM-4 or trust that the LMRDA exempts from reporting, such as an organization composed entirely of state or local government employees or a state or local central body.

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

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

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

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

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

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

See AFL-CIO

Chao,

409 F.3d 377, 386-87 (DC Cir. 2005) (discussion of two-part test).

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

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

See

29 U.S.C. 186(a) and (c)(5).

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

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

Id.

). Significantly, each listed reportable financial transactions to be reported is one that reflects upon the union's financial condition and operations, not the financial condition and operations of another entity.

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

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

Prior to the 2003 Form LM-2 changes that first required separate Form T-1 trust reporting, labor organizations were required to report concerning their subsidiary organizations on the Form LM-2.

Subsidiary organizations were defined in the Form LM-2 instructions

as “any separate organization of which the ownership is wholly vested in the reporting labor organization or its officers or its membership, which is governed or controlled by the officers, employees, or members of the reporting labor organization, and which is wholly financed by the reporting labor organization.”

See

pre-2003 Form LM-2 Instructions, Section X.

This requirement was dropped in the October 2003 modifications to the Form LM-2.

See

68 FR at 58414. While not made explicit in the final regulation, the Department's assumption at that time was that the prior subsidiary organization reporting would be captured by the new requirement for trust reporting on the Form T-1, which was also introduced in that final rule. This result is implied by the Department's comment in the 2008 Form T-1 rule that “the Form T-1 closes a reporting gap under the Department's former rule whereby labor organizations were required to report on `subsidiary organizations,' ” and not more broadly on any other trusts in which they have an interest. 73 FR at 57412.

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

The pre-2003 Form LM-2 Instructions can be viewed at

http://www.regulations.gov.

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

See

Paperwork Reduction Act Analysis.

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

See

pre-2003 Form LM-2 Instructions, Section X.

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

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

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

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

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

1. Proposal To Rescind the Form T-1

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

Numerous union comments that supported the proposed rescission asserted that the separate trust reporting requirements in the 2008 Form T-1 are not justified in light of the burden they impose. Specifically, two unions asserted that separate reporting on the Form T-1 is particularly burdensome because it establishes the reporting threshold for an individual union based on the contributions or appointments of all unions to a particular trust in the aggregate, without any consideration of a

de minimis

threshold to reduce the reporting burden on unions with only nominal involvement in a trust. For example, one union comment argued that the “[Form T-1] aggregation threshold mandates that by virtue of giving even $1 to a trust, an individual LM-2 filer could be required to file its own T-1 report on the trust if at the end of its fiscal year the trust realizes that more than half of its funds were provided by labor organizations in the aggregate.” Further, one union comment stated that by aggregating all union appointments or contributions to a particular fund, the Department assumes affiliations between these unions where none may exist. Moreover, one union comment contended that the burden placed upon unions to complete Form T-1 reports must be considered in light of the fact that many of the trustees of these independent trusts require regular audits, and the trusts likely file a publicly available Form 990 with the Internal Revenue Service (IRS), which the IRS redesigned in 2008 to include much greater detailed reporting on a non-profit trust's key financial, compensation, governance, and operational information.

See http://www.irs.gov/charities/article/0,,id=218938,00.html.

Related to the burden imposed upon unions required to file Form T-1 reports, several union comments supported the Department's proposal to rescind the Form T-1 by explaining that the Form T-1 reporting regime is both unworkable and fundamentally unfair because “the trusts for which unions must file reports are separate and independent legal entities.” One union expressed concern that under the 2008 Form T-1 rule, trusts have no legal obligation to provide unions with the financial information necessary to properly file a Form T-1 report. This

union comment further explained, that in fact, “trustees may believe or be advised by legal counsel that providing the necessary information is a breach of the trust's fiduciary duties owed to participants and beneficiaries [as well as a violation of] individual privacy rights and other legal obligations.” Finally, this union comment concluded that “trustees also may believe they have a duty not to incur costs to maintain records unique to the Form T-1 reporting requirements.” Several union comments supported the Department's proposal to rescind the Form T-1 because they were concerned that if a trust should refuse to timely provide the necessary information, then the union may incur liability under the LMRDA, while the uncooperative trust avoids any liability. Union comments asserted that, as drafted, the 2008 Form T-1 rule has no “safe harbor” provision for unions that document a good faith effort to obtain and fully and accurately report all necessary information so as to avoid liability for failure to file a report.

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

The Department agrees with comments that support the rescission by asserting that multiple T-1 filings would be required on a single trust entity and there is no

de minimis

threshold for reporting. Further, while the 2008 Form T-1 Final Rule explained the Department's view that it would not violate the fiduciary duties of a trust for it to cooperate with a labor organization by providing information necessary for the preparation of the Form T-1, 72 FR 57424, this would not eliminate the logistical and practical burdens identified by the unions concerning this information gathering requirement. Accordingly, the Department concludes that the Form T-1 should be rescinded given the burden imposed by separate trust reporting.

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

Of the comments offered in support of the Department's proposal to rescind the Form T-1, many comments asserted that the Form T-1 is overbroad in the inclusion of Taft-Hartley funds, requiring burdensome reporting on trusts over which a union neither has managerial control nor financial dominance. A federation of labor organizations stated that the Form T-1 is not in compliance with

AFL-CIO

Chao,

as it treats payments made by employers pursuant to a collective bargaining agreement as establishing “financial domination” by a labor organization, without any “empirical evidence” of such domination, as the comment asserts the

AFL-CIO

Chao

decision required. Further, in countering the premise that unions dominate Taft-Hartley trusts by controlling the allocation of labor costs between wages and benefits, the commenter concurred with the Department's statement in the NPRM that there was no indication of any relationship between employer-financed trusts and the Title II reporting requirements, much less circumvention or evasion. Several other comments submitted by unions similarly rejected the use of employer contributions to infer union dominance.

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

As explained above, under section 208 of the Act, the Secretary may require trust reporting only when she concludes it is necessary to prevent the circumvention or evasion of a labor organization's Title II reporting requirements.

See

29 U.S.C. 208. The Title II reporting requirements for a labor organization require it “to disclose

its

financial condition and operations.” 29 U.S.C. 201(b) (emphasis added). Consequently, trust reporting is permissible to prevent a labor organization from using a trust to circumvent reporting of the

labor union's

finances. The 2008 Form T-1 NPRM asserted that money paid into Taft-Hartley trusts “reflects payments that otherwise could be made directly to employees as wages, benefits, or both, but for their assignment to the trusts.” 73 FR 11761 (NPRM); 73 FR 57417 (final rule). Nevertheless, as many union comments contend and as the Department stated in its NPRM, these underlying wages and benefits would not have been reported on a Form LM-2. Therefore, it is not apparent that these payments to a Taft-Hartley trust give rise to circumvention or evasion of Title II reporting. Moreover, although the Department has recognized that it is possible for a union to contribute its funds to a Taft-Hartley trust in order to circumvent Title II reporting requirements, no evidence has been presented to demonstrate that this is in fact occurring.

The Department now concludes that the scope of the 2008 Form T-1 rule was overbroad because it covered many trusts, such as those funded by employer contributions, without an adequate showing that reporting for such trusts is necessary to prevent the circumvention or evasion of the Title II reporting requirements. In this regard, the Department agrees with multiple union comments asserting that money contributed by the employer to a Taft-Hartley fund is not generally the property of the union, and thus its disclosure by a union would not “disclose

its

financial condition and operations.” 29 U.S.C. 201(b) (emphasis added). Conversely, the Department concludes that a union's nondisclosure of such funds would not be an evasion of the union's reporting requirement.

In reaching this conclusion, the Department notes that in

AFL-CIO

Chao,

the Court of Appeals for the DC Circuit held that the first “Form T-1 reaches information unrelated to union reporting requirements and mandates reporting on trusts even where there is no appearance that the union's contribution of funds to an independent organization could circumvent or evade union reporting requirements.”

AFL-CIO

Chao,

409 F.3d at 389. In agreement with numerous union comments, the Department finds that the 2008 Form T-1 rule may be overly broad in the same manner because of its inclusion of certain Taft-Hartley plans. Consequently, the Department agrees with numerous comments received from unions and concludes that the 2008 Form T-1 rule is overly broad, requiring reporting in instances where the failure to report the funds at issue would not

circumvent or evade a union's reporting requirement. Further, none of the comments presented any evidence of unions contributing funds to Taft-Hartley funds, nor did any comments provide any other arguments that counter the Department's proposal that the Form T-1 is overbroad in respect to its inclusion of Taft-Hartley funds.

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

labor organization finances

and effectuates the goals of the LMRDA.” (emphasis added) 73 FR 57414.

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

The Department acknowledges the benefits of labor-management transparency, and it continues to support effective, meaningful, and appropriate reporting and disclosure requirements for unions and their officials, employers, and labor relations consultants. While the Department acknowledges its authority to establish trust reporting under section 208, when determined necessary to prevent the circumvention or evasion of the Title II reporting requirements, the Form T-1 rulemaking record is insufficient to justify the scope of the separate trust reporting requirements in the 2008 Form T-1 rule, especially in light of the Department's proposal to reinstate subsidiary reporting for many funds that would have filed the Form T-1, discussed below, and the burden imposed by the Form T-1 reporting requirements. Indeed, the comments in opposition did not provide any new examples of union contributed plans or entities that would evade reporting and disclosure requirements.

Nor did they provide other evidence or arguments to alter the rulemaking record in favor of retaining the Form T-1, although they did reference potential entities that are not wholly owned, controlled, and financed by a single union, which are dealt with later in the section addressing the return of subsidiary reporting to the Form LM-2. After careful consideration, the Department does not find the comments in opposition to the NPRM to be persuasive, and will rescind the Form T-1 and its implementing regulations.

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

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

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

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

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

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

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

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

The Department concludes that union reporting on subsidiary organizations is more appropriate on the Form LM-2 than on the Form T-1 because subsidiaries are wholly owned properties of labor organizations, similar to any other account, fund, or asset.

As a result, for a union's Form LM-2 to be complete, the Department concludes that the report should include its subsidiaries, as this will result in a reporting scheme that treats all assets of the union uniformly,

i.e.,

with the same reporting threshold and level of itemization. By including subsidiaries on the Form LM-2 and treating all union assets uniformly, the Form LM-2 will produce a more comprehensive and accurate report of a union's financial condition.

Indeed, in

U.S.

Hartsel,

the Sixth Circuit held that a charitable organization with a separate not-for-profit tax status constituted a fund of a labor organization for purposes of section 501(c) of the Act, as the union in question created the fund, financed it by soliciting contributions from the members, and managed and controlled it by appointing its officers.

U.S.

Hartsel,

199 F.3d 812, 819-820 (6th Cir. 1999);

see also Thompson

McCombe,

99 F.3d 352, 353 (9th Cir. 1996) (“A labor organization composed entirely of public sector employees is not a labor organization for purposes of the LMRDA.”). Thus, excluding from coverage unions representing exclusively public sector employees is fundamental to the framework of the statute.

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

Second, the NPRM reconsidered a justification in support of its 2003 policy shift, 72 FR 3735, 3738 (January 26, 2007), which argued that labor organizations' structural and financial complexity had increased in recent decades, and this complexity supported the expansion of coverage. The district court reviewing the Department's policy rationales described this explanation as “entirely a make-weight.” 539 F.Supp.

2d at 384. Indeed, upon reexamination, the NPRM concluded that the Department's theory that a local union member not only needs to, but wants to, “ascertain[ ] the endpoint of his or her dues cast into the stream of affiliate expenditures” in order to assure financial regularity,

id.,

overstates the ends to which one must go to sustain labor organization transparency and accountability. As the NPRM stated, there has been no clear indication that such meticulous tracing of individual membership dues “in the stream of expenditures” is required to understand a labor organization's financial state.

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

See

72 FR at 3737.

The NPRM concluded that the analysis in support of the 2003 interpretation utilized data from only two national unions, with one depicting only a remote and tenuous link between the union's private sector funds and the financial operations of its public sector intermediate bodies based on one example of a

de minimis

transfer, and the other union example being obsolete, as that union now segregates all private sector dues money, preventing it from reaching such state affiliates.

Thus, the NPRM concluded that any purported link established was insufficient to justify the application of statutory coverage to wholly public sector intermediate bodies. Indeed, contrary to the rationale supporting the 2003 interpretation, the Department no longer considers that intermediate bodies that do not themselves include one or more private sector local labor organizations lose their wholly public sector status as a result of such relatively inconsequential transactions. Further, as concluded in the NPRM, the 2003 interpretation was overbroad in its reach, because it would have imposed coverage on many wholly public sector intermediate bodies that in fact receive no financial support from their national or international affiliates derived from dues paid at the local level by employees working in the private sector. Based on these considerations, the Department proposed in the NPRM to return to its pre-2003 view of the statute, which establishes coverage over only those intermediate bodies that are subordinate to a national or international labor organization and that themselves include one or more private sector local labor organizations.

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

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

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

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

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

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

Regarding the support in one comment for the empirical analysis that bolstered the 2003 interpretation, the

Department concurs with the NPRM's conclusion that, upon closer scrutiny, that analysis was not sufficient to justify the changed policy, as one of the examples provided is plainly trivial and the other is obsolete. The Department received no specific comments that evidenced reasons to reconsider its current view of that analysis.

Neither the analysis nor the rulemaking record sufficiently demonstrates that significant sums of money from employees working in the private-sector are flowing to wholly public sector intermediate bodies.

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

Of course, the Department's change in interpretation has no impact on the federal appellate decision that held that section 3(j)(5) is subject to two permissible interpretations.

See Alabama Education Ass'n

Chao,

455 F.3d 386 (2006). This rule simply adopts the better policy, and one that comports with the statute's framework that excludes wholly public sector unions. In any event, both the regulated community and the courts expressed concern about the insufficient policy justification provided for the 2003 revisions. Indeed, as noted in the NPRM, the district court concluded that the state affiliates' challenges to the Department's policy justifications raised “serious issues” that “might convince the Court, were it the [policy] decisionmaker” and not limited by a narrow standard of review, to reject the Department's rationales for the new interpretation.

Alabama Education Ass'n

Chao,

539 F.Supp 2d 378, 379 (D.D.C. 2008). The limited nature of the court's review also caused the district court to overlook the “multitude of practical objections” to the new policy.

Id.

at 380 n. 2.

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

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

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

One comment in particular invites the Department to conclude in this rulemaking that the pre-2003 interpretation is the only proper construction of the statute, and that court review following the 2003 revision failed to give proper weight to important parts of the statute's history that appear to foreclose the latter interpretation. As the DC Circuit held, the Department's 2003 interpretation was plausible based on both an examination of the statute's text and history, and thus, the Department declines to reconsider this issue.

See Alabama Education Ass'n

Chao,

455 F.3d 386, 394-395 (2006).

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

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

only a return to the pre-2003 policy will accomplish that goal. As a result, the Department's policy is to cover only those intermediate bodies that are subordinate to a national or international labor organization covered under the LMRDA and that themselves include one or more private sector local labor organizations.

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

V. Revisions to the Form LM-2 and Instructions

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

Section I. Who Must File:

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

Section II. What Form to File:

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

Section VIII—Funds To Be Reported:

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

Section X—Labor Organizations With Subsidiary Organizations:

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

Section XI—Completing Form LM-2:

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

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

Schedules and Instructions for Schedules:

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

• Schedule 5—Investments Other Than U.S. Treasury Securities, Item 6

• Instructions for Schedules 2—Loans Receivable,

• Instructions for Schedule 5—Investments Other Than U.S. Treasury Securities,

• Instructions for Schedule 7—Other Assets

• Instructions for Schedule 12—Disbursements to Employees.

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

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

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

Regarding Section VIII, the only change is the clarification that filers have only two options for reporting subsidiaries, rather than the current

three: Either a consolidated Form LM-3 report or separate report, that of an audit by a certified public accountant. Filers can no longer attach a separate Form LM-3 for the subsidiary. Section VIII also now references Section X of the Form LM-3 instructions for more information on subsidiaries and subsidiary reporting.

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

VII. Regulatory Procedures

Executive Order 12866

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

Unfunded Mandates Reform

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

Small Business Regulatory Enforcement Fairness Act of 1996

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

Executive Order 13132 (Federalism)

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

Analysis of Costs for Paperwork Reduction Act and Regulatory Flexibility Act

In order to meet the requirements of the Regulatory Flexibility Act (RFA), 5 U.S.C. 601

et seq.,

Executive Order 13272, and the Paperwork Reduction Act (PRA), 44 U.S.C. 3501

et seq.,

and the PRA's implementing regulations, 5 CFR part 1320, the Department, in proposing this rule, undertook an analysis of the financial burdens to covered labor organizations associated with complying with the requirements contained in this rule.

See

75 FR at 5464-74. In light of the comments received on the merits of the proposal and the burdens associated with the Form T-1 rule that is being rescinded, as well as the lack of opposition to the proposed burden analyses for this rule, the Department has reviewed its earlier analyses and determined that they are sound. Thus, the Department restates below these analyses without any material changes. (However, as noted in more detail below, the Department did correct a calculation error included in the NPRM regarding the cost to Form LM-2 filers per subsidiary organization.) The Department also discusses below the general comments received in support of the PRA analysis, and the general comments associated with the 2008 rule. The focus of the RFA and Executive Order 13272 is to ensure that agencies “review rules to assess and take appropriate account of the potential impact on small businesses, small governmental jurisdictions, and small organizations, as provided by the [RFA].” Executive Order 13272, Sec. 1. The more specific focus of the PRA is “to reduce, minimize and control burdens and maximize the practical utility and public benefit of the information created, collected, disclosed, maintained, used, shared and disseminated by or for the Federal government.” 5 CFR 1320.1.

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

Paperwork Reduction Act

This statement has been prepared in accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3501. As discussed in the preamble, this rule would implement an information collection that meets the requirements of the PRA in that: (1) The information collection has practical utility to labor organizations, their members, other members of the public, and the Department; (2) the rule does not require the collection of information that is duplicative of other reasonably accessible information; (3) the provisions reduce to the extent practicable and appropriate the burden on labor organizations that must provide the information, including small labor organizations; (4) the form, instructions, and explanatory information in the preamble are written in plain language that will be understandable by reporting labor organizations; (5) the disclosure

requirements are implemented in ways consistent and compatible, to the maximum extent practicable, with the existing reporting and recordkeeping practices of labor organizations that must comply with them; (6) this preamble informs labor organizations of the reasons that the information will be collected, the way in which it will be used, the Department's estimate of the average burden of compliance, the fact that reporting is mandatory, the fact that all information collected will be made public, and the fact that they need not respond unless the form displays a currently valid OMB control number; (7) the Department has explained its plans for the efficient and effective management and use of the information to be collected, to enhance its utility to the Department and the public; (8) the Department has explained why the method of collecting information is “appropriate to the purpose for which the information is to be collected”; and (9) the changes implemented by this rule make extensive, appropriate use of information technology “to reduce burden and improve data quality, agency efficiency and responsiveness to the public.” 5 CFR 1320.9;