[Federal Register Volume 75, Number 230 (Wednesday, December 1, 2010)]
[Rules and Regulations]
[Pages 74936-75058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29226]



[[Page 74935]]

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Part IV





Department of Labor





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Office of Labor-Management Standards



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29 CFR Part 403



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 Register / Vol. 75 , No. 230 / Wednesday, December 1, 2010 / 
Rules and Regulations

[[Page 74936]]


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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.

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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

[[Page 74937]]

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 v. 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 v. 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

[[Page 74938]]

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 v. 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 
Form LM-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.\1\ 
Subsidiary organizations were defined in the Form LM-2 instructions

[[Page 74939]]

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.\2\ 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.
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    \1\ 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.
    \2\ The pre-2003 Form LM-2 Instructions can be viewed at http://www.regulations.gov.
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    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.\3\
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    \3\ One comment from a union only addressed the intermediate 
body issue, and not the Form T-1 or subsidiary reporting.
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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.\4\
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    \4\ See http://www.irs.gov/charities/article/0,,id=218938,00.html.
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    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

[[Page 74940]]

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 v. 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 v. 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 
v. 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 v. 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

[[Page 74941]]

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.\5\ 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.
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    \5\ 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.
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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.

[[Page 74942]]

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.\6\ 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.
---------------------------------------------------------------------------

    \6\ Indeed, in U.S. v. 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. v. 
Hartsel, 199 F.3d 812, 819-820 (6th Cir. 1999); see also U.S. v. 
LaBarbara, 129 F.3d 81 (2d Cir. 1987) (holding that assets of a not-
for-profit building corporation controlled by a union comprise the 
assets of a labor organization under section 501).
---------------------------------------------------------------------------

    In addition, the Department received several comments asserting 
that the inclusion of union subsidiaries on the Form LM-2 will reduce 
confusion among members who seek financial information about their 
union. The Department agrees with these comments, and concludes that 
the inclusion of subsidiaries on the Form LM-2 will alleviate potential 
misunderstandings relating to the reporting of a union's total annual 
receipts. In the NPRM, the Department explained that for purposes of 
determining whether a particular union must file a Form LM-2 (receipts 
of $250,000 or more) receipts of subsidiaries must be counted, even 
though, under the From T-1 reporting regime these receipts are to be 
reported on the Form T-1, and not on the Form LM-2. Thus, some unions 
with a subsidiary are required to file an LM-2, even though they may 
have reported receipts of less than $250,000. This anomaly can lead to 
confusion on the part of union members and the public. For these 
reasons, the Department concludes that incorporating subsidiaries on 
the Form LM-2 provides more information about the subsidiaries and a 
more accurate report of the union as a whole, reducing the potential 
for misunderstandings by union members and the public.
c. Comments Opposing the Rescission Contend That a Reporting Gap Will 
Exist Notwithstanding the Reinstatement of Subsidiary Reporting on the 
Form LM-2
    The Department received two comments that acknowledged the need for 
subsidiary organization reporting but specifically asserted that there 
also is a need for reporting on trusts that are not wholly owned, 
controlled, and financed by a single union, such as where a union may 
have a majority of a trust's board as members or contribute more than 
half of the trust's funds. One of these comments contended that relying 
upon ``complete ownership'' as the trigger for reporting rather than 
union control or financial dominance, creates a reporting gap by 
removing from the trust reporting requirement approximately two thirds 
of the trusts that the Department estimated would file the Form T-1. In 
support of its position, that a significant reporting gap will exist, 
the comment cited the four examples that have been utilized throughout 
the Form T-1 rulemaking history: A joint training fund; a statewide 
strike fund; a building fund financed partly with union members' 
pension funds; and a credit union funded 97% by the funds of one local 
union, as funds not covered by the Department's proposed subsidiary 
reporting. Although specifying only these four examples, the comment 
asserts that ``countless'' examples exist.
    The Department does not agree with this commenter's contention that 
the proposed rule will lead to a significant loss of relevant 
information for union members on multiple-union owned funds, as opposed 
to subsidiaries. Initially, the commenter did not take into account the 
Department's conclusion that reporting from Taft-Hartley trusts is not 
necessary to prevent the circumvention or evasion of the Title II 
reporting requirements. In this regard, the Department considers that 
such Taft-Hartley trusts, in particular joint apprenticeship and 
training funds, constitute a large portion of the Form T-1 reports that 
the Department would have received. Indeed, one of the four examples 
from the rulemaking record cited by the comments is a joint training 
fund.
    Furthermore, none of the three examples of multiple-union 
contributed funds cited by the comments are recent, and two date back 
forty or more years.\7\ No comments offered any recent examples of 
multi-union entities that illustrate methods in which unions circumvent 
or evade their reporting requirements. While it appears that rescission 
of the Form T-1 will eliminate LMRDA reporting requirements for certain 
multiple-union entities that are not Taft-Hartley funds, the Department 
is unaware of any source of data from which to estimate, much less 
identify such entities. Thus, the rulemaking record does not indicate 
that there are presently significant numbers of entities and funds that 
are evading necessary disclosure, such that a separate trust reporting 
regime is presently warranted in addition to subsidiary reporting on 
the Form LM-2. Nevertheless, as stated above, the Department retains 
authority pursuant to section 208 to establish trust-related reporting 
requirements for unions, if necessary and appropriate.
---------------------------------------------------------------------------

    \7\ These examples were presented first in 2002 NPRM proposing 
the Form T-1. 72 FR 79283. The Department also notes that federal 
credit unions are regulated by the National Credit Union 
Administration (NCUA). See http://www.ncua.gov. The NCUA provides 
financial information concerning Federal credit unions.
---------------------------------------------------------------------------

    In addition, the Department considers the proposed subsidiary 
reporting on Form LM-2 to be more expansive than some of the comments 
objecting to the proposal contend, as demonstrated in the Department's 
long-standing LMRDA Interpretive Manual. Initially, a subsidiary 
organization must be ``wholly owned'' and ``controlled by a single 
union,'' but such ownership and control can be vested in or exercised 
by a single reporting labor organization or its officers or its 
membership. The members of a union include individuals and can also 
include constituent organizations, such as local unions. Thus, where a 
District Council, for example, holds a portion of the equity ownership 
(i.e., common stock) of a corporation that owns the building that

[[Page 74943]]

is used to house the District Council, and where the balance of the 
outstanding common stock is held by local labor organizations that are 
members of the Council, the Building Corporation in question comes 
within the definition of a subsidiary organization, provided that the 
initial financing came from the Council and/or its members, and that 
the corporation is governed or controlled by the Council and/or its 
members. The ``members'' of the District Council would include its 
constituent body local unions. See LMRDA Interpretative Manual (IM) 
entry 215.200. Similarly, a development corporation is a subsidiary 
organization if it was formed to hold title to a building in which 
various locals of a Joint Council maintain their offices, and all of 
the stock in the corporation is held by the constituent locals of the 
Joint Council, the latter of which controls and finances the 
corporation. See IM entry 215.300.
    Further, 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. See the pre-2003 Form LM-2 Instructions; the 
Form LM-3 Instructions; and the Form LM-2 Instructions, as revised by 
this rule. See IM entry 215.700.
    The comments opposing the reinstatement of subsidiary reporting on 
the Form LM-2 rely upon the same four examples that appear throughout 
the Form T-1 rulemaking record as support for their position that a 
reporting gap exists for multi-union entities. The Department is not 
persuaded by these comments because no commenter has provided further 
examples, and the Department is unaware of any source of data from 
which to estimate, much less identify such entities. Given the 
advantages of greater accessibility of information to members and the 
public, as well as greater transparency with more detailed financial 
information, the Department will reinstate subsidiary organization 
reporting to the Form LM-2 as proposed.
d. Consolidating Reporting on One Form LM-2 Report or With an Attached 
Audit Report, Filed With the Union's Form LM-2 Is More Convenient and 
Less Misleading for Members
    Related to the Department's reinstatement of subsidiary reporting 
on the Form LM-2, the Department also proposed that the instructions 
for subsidiary reporting on the Form LM-2 be changed to permit LM-2 
filers only two options for reporting subsidiary information. The 
Department proposed that reporting labor organizations can either (1) 
consolidate their subsidiary's financial information on their Form LM-2 
report, or (2) they can file, with their Form LM-2 report, a regular 
annual report of the financial condition and operations of each 
subsidiary, 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 and was prepared in accordance with generally accepted 
accounting principles. While permitting labor organizations these two 
options for reporting on subsidiary organizations, the Department also 
proposed to rescind one option previously available to reporting labor 
organizations--that of filing a separate LM-2 report with only the 
subsidiary's financial information.
    In the NPRM, the Department reasoned that permitting a labor 
organization to file multiple LM-2 reports for any single fiscal year 
may create confusion for union members and the public. First, because 
there is only one version of the Form LM-2, it may be difficult to tell 
whether a filed LM-2 report is for the labor organization or for its 
subsidiary. Second, having an entity that is not a labor organization 
reporting on a form for labor organizations also may create confusion 
for the Department in processing the reports for public disclosure. The 
Department relies upon the database of Form LM-2 filers for 
informational, policy, and enforcement purposes. Third, where a union 
changes its reporting practices--one year including the subsidiary and 
filing a separate form the next--conducting a year-to-year comparison 
becomes difficult, which also affects the Department's ability to 
effectively use the Form LM-2 filer database for policy and enforcement 
decisions. Finally, in some cases, transparency may be increased when 
the union and the subsidiary share certain expenses that standing alone 
fall below the itemization threshold, but when combined in a single 
report, will then be itemized. In sum, consolidation has the virtue of 
including all financial information (that of the union and the 
subsidiary) on one report, which eliminates potential confusion among 
union members, presents the Department with a more reliable database of 
Form LM-2 filers, and increases overall transparency.
    Having received numerous union comments in support of this proposal 
and no comments in opposition to these two reporting options, the 
Department is implementing its proposal to permit a union to 
consolidate on its Form LM-2 the financial information of the union 
with the financial information of the subsidiary, as well as the option 
to file a separate financial statement certified by a public 
accountant. In addition, this rule implements the Department's proposal 
to revise the Form LM-3 subsidiary organization instructions to conform 
to the above-mentioned changes proposed for the Form LM-2.
e. Request To Modify the Department's Proposal With Respect to 
Reporting on Health Plans and Submitting Audit Reports With a Fiscal 
Year for a Subsidiary That Differs From That of the Reporting Labor 
Organization
    The Department also received one union comment that, while offering 
support for the proposed reinstatement of subsidiary reporting on the 
Form LM-2 with the two proposed options available to filers, also 
suggested two modifications of the Department's proposal. First, it 
recommended that the Department exclude health plans that participate 
in the Federal Employees Health Benefit Program under the Federal 
Employees Health Benefit Act (FEHBA), 5 U.S.C. 8901, et seq. The union 
cited the treatment of Political Action Committees (``PACs'') under 
Form LM-2 subsidiary reporting, and the Form T-1 exclusion for FEHBA 
plans. The Department concludes that exclusion is not necessary, as 
such plans established under the FEHBA are financed by employer funds 
rather than union funds and are not controlled exclusively by unions. 
Thus, these FEHBA plans generally do not constitute subsidiary 
organizations, and would not be included on a labor organization's Form 
LM-2.
    Second, this union recommended subsidiary reporting instructions 
that permitted unions to submit audit reports for trusts that do not 
match the fiscal year end of the reporting union. The Department is not 
altering its proposal in the NPRM to require that audit reports for 
subsidiaries cover the same fiscal year as the union. The Department's 
previous Form LM-2 subsidiary reporting regime required this 
synchronization of fiscal years and the Department will continue that 
regime in this final rule. A viewer cannot reconcile the Form LM-2 with 
the attached audit report if the two filings cover different fiscal 
years. The result of such a reporting scheme would run counter to the 
Department's goal of establishing meaningful transparency for all of a 
union's assets, including subsidiaries.
    Based on the Department's careful consideration of the comments

[[Page 74944]]

submitted, the Department will rescind the Form T-1 and its 
implementing regulations and will reinstate subsidiary organization 
reporting on the Form LM-2. Further, the Department will implement the 
proposed revisions to the Form LM-2 and Form LM-3 instructions for 
reporting on subsidiary organizations.

IV. Revised Interpretation Regarding Public Sector Intermediate Bodies

A. The Proposed Return to the Long-Standing Policy Regarding 
Intermediate Bodies That Contain No Subordinate Covered Labor 
Organizations

    The NPRM proposed a return to the Department's long-standing, pre-
2003 policy that the LMRDA does not cover intermediate bodies that are 
wholly composed of public sector organizations. In returning to this 
position, the Department has reconsidered the 2003 determination that 
extended LMRDA coverage over intermediate bodies that are wholly 
composed of public sector organizations when the LMRDA covered national 
or international labor organization to which the intermediate body is 
subordinate includes a private sector labor organization.
    This coverage issue is controlled by the definition of ``labor 
organization'' found in Section 3(i) and (j) of the LMRDA, 29 U.S.C. 
402(i) and (j).\8\ For the forty years before 2003, the Department's 
policy in applying these sections was to exclude intermediate bodies 
that represented no private sector employees and that contained no 
local unions that represented private sector employees. In 2003, the 
Department altered its policy regarding the exclusion of such wholly 
public sector intermediate bodies, by interpreting the ``which 
includes'' condition found in Section 3(j)(5) of the statute, 29 U.S.C. 
402(j)(5), as modifying the phrase ``national or international labor 
organization'' in that subsection, rather than the statutory list of 
intermediate bodies.\9\ This interpretation resulted in capturing 
within the definition previously excluded ``intermediate'' labor 
organizations, i.e., those that had no constituent members representing 
employees in the private sector. Previously, the Department's policy 
extended coverage over only those intermediate bodies that are 
subordinate to an LMRDA-covered national or international labor 
organization and that themselves include one or more private sector 
local labor organizations.
---------------------------------------------------------------------------

    \8\ Section 3(i) of the LMRDA, 29 U.S.C. 402(i), defines a 
``labor organization'' as (1) any organization ``engaged in an 
industry affecting commerce * * * in which employees participate and 
which exists for the purpose, in whole or in part, of dealing with 
employers concerning grievances, labor disputes, wages, rates of 
pay, hours, or other terms or conditions of employment,'' or (2) 
``any conference, general committee, joint or system board, or joint 
council so engaged which is subordinate to a national or 
international labor organization other than a State or local central 
body.'' The first clause of Section 3(i) applies to entities that 
exist, at least in part, to deal with employers concerning terms and 
conditions of employment. Although ``employer'' is defined broadly 
in the Act, the United States, States and local governments are 
expressly excluded from this definition. 29 U.S.C. 402(e). Thus, an 
organization is not covered under the first clause of Section 3(i), 
which requires that the organization deal with a statutory 
``employer,'' if it deals only with federal, state or local 
governments. The second clause of the definition applies to 
conferences, general committees, joint or system boards or joint 
councils--entities that are known as ``intermediate'' labor 
organizations. See 29 CFR 451.4(f).
    \9\ Section 3(j)(5) of the LMRDA, 29 U.S.C. 402(j)(5) states 
that, ``A labor organization shall be deemed to be engaged in an 
industry affecting commerce if it * * * is a conference, general 
committee, joint or system board, or joint council, subordinate to a 
national or international labor organization, which includes a labor 
organization engaged in an industry affecting commerce within the 
meaning of any of the preceding paragraphs of this subsection, other 
than a State or local central body.''
---------------------------------------------------------------------------

    Court decisions that followed the 2003 interpretation concluded 
that because of the lack of clarity regarding the effect of the ``which 
includes'' condition, the statute's definition of ``labor 
organization'' is ambiguous and susceptible to two legally permissible 
interpretations.\10\ Accordingly, the Department possesses the 
administrative discretion to implement a policy alternative based on 
the statute so long as the selected alternative is reasoned. See F.C.C. 
v. Fox Television Stations, Inc., 129 S.Ct. 1800, 1811 (2009). Relying 
on this discretion, the Department proposed in the NPRM a return to its 
pre-2003 policy, which views the statute as excluding from coverage, 
rather than including, intermediate labor organizations that contain no 
local labor organization members representing employees in the private 
sector.
---------------------------------------------------------------------------

    \10\ See Alabama Education Ass'n v. Chao, 2005 WL 736535 (D.D.C. 
Mar. 31, 2005) (holding new interpretation invalid); 455 F.3d 386 
(2006) (reversing lower court and remanding to Department for 
further explanation of policy justifications for new 
interpretation); 539 F.Supp 2d 378 (D.D.C. 2008) (upholding 
Department's policy justification for interpretive change), 595 
F.Supp. 2d (D.D.C. 2009) (denial of reconsideration).
---------------------------------------------------------------------------

    The Department's NPRM provided a rationale that both affirmatively 
supported the long-standing approach, and also suggested that the 
policy justifications made in support of the 2003 revision were, upon 
reconsideration, less persuasive than those favoring the forty-year 
view. First, the NPRM noted that support for the long-standing, pre-
2003 policy stems in large part from the overall thrust of the LMRDA, 
and judicial decisions interpreting it, which underscore the statute's 
primary purpose to promote democracy, transparency and accountability 
in labor organizations that act on behalf of employees employed in the 
private sector, not the public sector. 29 U.S.C. 401(b), (c). See 
Alabama Education, 455 F.3d at 394-95; see also Thompson v. 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.

[[Page 74945]]

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.\11\ 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.
---------------------------------------------------------------------------

    \11\ 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

[[Page 74946]]

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.\12\ 
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.
---------------------------------------------------------------------------

    \12\ 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 
v. 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 v. 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.\13\
---------------------------------------------------------------------------

    \13\ 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 v. 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

[[Page 74947]]

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:
    <bullet> Schedule 5--Investments Other Than U.S. Treasury 
Securities, Item 6
    <bullet> Instructions for Schedules 2--Loans Receivable,
    <bullet> Instructions for Schedule 5--Investments Other Than U.S. 
Treasury Securities,
    <bullet> Instructions for Schedule 7--Other Assets
    <bullet> 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

[[Page 74948]]

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

[[Page 74949]]

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; see also 
44 U.S.C. 3506(c).
A. Summary of the Rule: Need and Economic Impact
    The following is a summary of the need for and objectives of the 
rule. A more complete discussion of various aspects of the rule is 
found in the preamble.
    This rule rescinds the Form T-1 Trust Annual Report established by 
final rule on October 2, 2008, and amends the Form LM-2 Labor 
Organization Annual Report to require unions to include on that report 
information concerning its wholly, owned, controlled, and financed 
subsidiary organizations. (Under the Form T-1 reporting regime, these 
subsidiaries would have been included on a Form T-1 report, rather than 
on the union's annual report.). This rule also amends the Form LM-3 
Labor Organization Annual Report to conform its subsidiary organization 
reporting to those established for the Form LM-2 in this rule. Finally, 
the rule also returns the Department to a prior interpretation of the 
Labor-Management Reporting and Disclosure Act (LMRDA), which excludes 
wholly public sector intermediate bodies from coverage under the Act. 
See section 3(j)(5), 29 U.S.C. 402(j)(5).
    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, 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, 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.
    On October 2, 2008, the Department issued a final rule establishing 
the Form T-1 Trust Annual Report, which prescribed 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.'' 73 FR 57412. Prior to the implementation of the Form T-1 
rule, the Department's LMRDA reporting program had not provided for 
separate trust reporting by unions. The objective of this 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. This rule also 
reinstates a longstanding requirement, eliminated under the 2003 rule, 
that unions report financial information about their subsidiary 
organizations on Form LM-2.
    The Department has defined the term ``subsidiaries of labor 
organizations'' 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 Form LM-2 
Instructions, Part II: What Form to File, 68 FR 58473 (modifying pre-
2003 Form LM-2); Form LM-3 Instructions, Part X, Labor Organizations 
With Subsidiary Organizations (reproduced at http://www.dol.gov/olms/regs/compliance/LM3_instructions_2008.pdf). See also 68 FR at 58413 
(preamble to 2003 rule). The Department continues to hold the view that 
reporting all subsidiaries is necessary for members and the public to 
have an accurate understanding of a particular labor organization's 
financial condition. Without the inclusion of the financial information 
for all subsidiaries, the financial disclosures on the Form LM-2 will 
be incomplete. The subsidiary's assets are the labor organization's 
assets. Unless reported along with the union's other assets, it is not 
possible to accurately understand the union's finances.
    Prior to the Department's development of the concept of the trust 
annual report, the Department's regulations required unions to report 
information on subsidiaries on their Form LM-2 reports. This 
requirement was revoked by revisions to the Form LM-2 in 2003. Labor 
Organization Annual Financial Reports, 68 FR 58374 (Oct. 9, 2003). The 
return of subsidiary organizations to the Form LM-2 reporting 
requirements improves the amount of financial disclosure of such 
entities, as compared to the disclosure provided on the Form T-1, as 
the Form T-1 had no equivalent to the Form LM-2 assets and liabilities 
Schedules 1-10, and the itemization threshold for receipts and 
disbursements on the Form LM-2 is $5,000 while that on the Form T-1 was 
$10,000. Under this rule, and as the pre-2003 Form LM-2 had long 
required, a union must disclose the financial information of its 
subsidiary to the same level of detail as other funds of the union, 
including details regarding assets and liabilities that were not 
required to be reported on the Form T-1.
    The Department makes available to Form LM-2 filers two options 
regarding the reporting of their subsidiaries, rather than the three 
options formerly permitted in the pre-2003 Form LM-2 Instructions. 
First, the Department permits a labor union to consolidate its 
subsidiaries' financial information with the union's financial 
information on its Form LM-2 report. Alternatively, the Department will 
permit a labor union to file, with its Form LM-2 report, a

[[Page 74950]]

regular annual report of the financial condition and operations of each 
subsidiary organization, accompanied by a statement signed by an 
independent public accountant certifying 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. When choosing to file a separate 
accountant's report, the union is required also to include information 
regarding loans payable and payments to union officers and employees in 
the same detail required by the Form LM-2 instructions on the related 
schedules (Schedules 1, 11, and 12).
    The Department is not reinstating a third option previously 
available on Form LM-2: that of filing a separate Form LM-2 report on 
each subsidiary organization. In the Department's experience, the 
filing of a separate Form LM-2 in addition to the union's primary 
report creates confusion for union members and others viewing the 
reports in that the form is designed for unions, not segregated funds 
and assets. Moreover, a union must file one Form LM-2 report per fiscal 
year, and the filing of multiple forms by a union for its subsidiaries 
creates confusion as to which one is the primary form. While 
consolidation contains some risk of confusion, the Department's 
experience is that combined reports are easier to follow than separate 
reports. This is a particularly appropriate and desirable option for 
some unions with subsidiaries that perform traditional union 
operations, such as strike funds and other special union funds. Thus, 
the Department preserves this option for Form LM-2 filers.
    To remain consistent with the reporting options available for Form 
LM-2 filers, the Department also revises the Form LM-3 instructions 
regarding the reporting of subsidiary organizations. Form LM-3 filers 
will have the same two options to report required information about 
subsidiaries as the Form LM-2 filers, and the reporting unions' option 
to file a separate Form LM-3 report on a subsidiary organization will 
likewise be eliminated. Again, this would avoid potential confusion for 
the public and would align the Form LM-3 subsidiary reporting regime 
with that available for Form LM-2 filers.
    The obligation to report on the Form T-1 caused an increase in 
reporting burdens for those labor organizations with reportable trusts. 
Given that increase, and as stated more fully below, this rule 
represents a net reduction in the total filing burden for Form LM-2 
filers, as the rescission of the Form T-1 removes the information 
collection burden associated with that form and replaces it with the 
reinstatement of subsidiary organization reporting, which presents only 
a small increase in the total Form LM-2 reporting burden. As 
demonstrated in the 2008 Form T-1 rule, the Form T-1 represented a 
total burden, for the estimated 2,292 Form LM-2 filers affected by the 
rule, of approximately 423,900 hours in the first year and 306,700 in 
the subsequent years. Additionally, the projected total cost on filers 
in the first year was approximately $15.2 million in the first year and 
approximately $8.2 million in subsequent years. 73 FR at 57441 and 
57445. This rule eliminates these burdens and costs from OMB 1215-0188, 
although, as discussed below, the reinstatement of subsidiary reporting 
offsets a small portion of this burden and transfers it to the Form LM-
2.
    This rule does not add any burden associated with the electronic 
submission of reports. The Department has in place an electronic 
reporting system for use by labor organizations, e.LORS. The objectives 
of the e.LORS system include the electronic filing of current Forms LM-
2, LM-3, and LM-4, as well as other LMRDA disclosure documents; 
disclosure of reports via a searchable Internet database; improving the 
accuracy, completeness and timeliness of reports; and creating 
efficiency gains in the reporting system. Effective use of the system 
reduces the burden on reporting organizations, provides increased 
information to members of labor organizations, and enhances LMRDA 
enforcement by OLMS. The OLMS Online Public Disclosure site is 
available for public use at http://www.unionreports.gov. The site 
contains a copy of each labor organization's annual financial report 
for reporting year 2000 and thereafter as well as an indexed computer 
database of the information in each report.
    Filing labor organizations have several advantages with the current 
electronic filing system. With e.LORS, data from the reporting unions' 
electronic records can be directly imported into Form LM-2. Not only is 
entry of the information eased, the software makes mathematical 
calculations and checks for errors or discrepancies. Additionally, any 
attachments to Form LM-2, such as would be required for unions choosing 
to submit a separate independent audit report for their subsidiary 
organizations, could be submitted electronically with the Form LM-2 
reports.
    As discussed in more detail below, there is negligible, if any, new 
information collection burden associated with the minor change for the 
Form LM-3 reporting requirements regarding subsidiary organizations, 
nor is there any information collection associated with the proposal to 
change the Department's interpretation regarding wholly public sector 
intermediate bodies.
B. Overview of Subsidiary Reporting on Form LM-2 and 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 file an 
annual financial report using the 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 Form LM-2 is also used by labor 
organizations with total annual receipts of $250,000 or more to file a 
terminal report upon losing their identity by merger, consolidation, or 
other reason. Prior to 2003, unions required to file a Form LM-2 had to 
report information relating to their subsidiary organizations on the 
Form LM-2. (See preamble to Form LM-2.) The 2003 rule eliminated this 
requirement and, at the same time, established the Form T-1, which was 
designed to capture information about subsidiary organizations and 
other trusts and funds in which a reporting union held an interest. 
However, this portion of the 2003 rule was vacated. Under the 2008 
rule, the pertinent Form T-1 requirements were reinstated. Neither the 
2003 nor 2008 rules changed the longstanding requirement that Form LM-3 
filers must include the assets, liabilities, receipts, and 
disbursements of their subsidiaries within the Form LM-3 report.
    As a result of the 2003 changes to the Form LM-2, unions were 
required to identify subsidiaries on the Form LM-2 in Item 10, Trusts 
or Funds (albeit without distinguishing them from other reported trusts 
or funds), and they were required to calculate the total receipts of 
the subsidiary for purposes of the Form LM-2 filing threshold of 
$250,000. However, there were no further Form LM-2 reporting 
obligations concerning such subsidiaries. Rather, filers were required 
to report information on such subsidiaries on the Form T-1. As 
discussed in the preamble and in this burden analysis, this rule 
returns to the pre-2003 requirement that Form LM-2 filers also have to 
include on their form

[[Page 74951]]

such information regarding their subsidiaries.
    The 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); \14\ whether the labor 
organization has a political action committee (PAC) or a subsidiary 
organization (Items 11(a) and 11(b)); \15\ 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 amount for 13 categories of receipts such as 
dues and interest (Items 36-48); and the dollar amount for 16 
categories of disbursements such as payments to officers and repayment 
of loans obtained (Items 50-65).
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    \14\ Before this rule, Item 10 also included subsidiary 
organizations.
    \15\ Before this rule, Item 11 only asked whether the labor 
organization had a PAC. This rule breaks Item 11 into two parts, 
11(a) and 11(b), with 11(b) asking if the labor organization has a 
subsidiary.
---------------------------------------------------------------------------

    Schedules 1-10 requires 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 provided 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 required 
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 was required to 
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 had a higher reporting threshold for receipts 
and disbursements ($10,000) than does the Form LM-2 ($5,000), both 
forms require filers to provide nearly identical information regarding 
receipts and disbursements. For example, unions would have itemized 
receipts of trusts with virtually identical detail on Form T-1, 
Schedule 1, as does the Form LM-2 on its 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 did 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. Significantly, the detailed information 
regarding assets and liabilities required by Form LM-2, Schedules 1-10 
is not captured by the Form T-1. Thus, consolidation of subsidiaries on 
the Form LM-2 provides greater transparency for such entities than did 
the 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 eliminates that form and its separate reporting regime. 
This rule also amends the reporting requirements for the Form LM-2 to 
bring subsidiary reporting back into its reporting regime, but it does 
not establish a new 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 rule.
    Finally, for the purposes of the analysis below, the following is a 
brief discussion of the similarities and differences between subsidiary 
organizations and other entities included within the Form T-1 reporting 
regime, which demonstrates that data used for evaluating the burden of 
the Form T-1 may also be used in evaluating the burden of reporting on 
subsidiary organizations on the Form LM-2. As stated in the preamble, 
subsidiary organizations are entities wholly owned, controlled, and 
financed by a union, and the Department estimates that they constitute 
at least one third of the expected Form T-1 reports. These subsidiaries 
include entities such as strike funds and building corporations, and 
they also include other entities unrelated to typical union functions. 
Other entities included within the Form T-1 include Taft-Hartley funds, 
which are funded by an employer pursuant to a collective bargaining 
agreement and established and managed jointly between union(s) and 
employer(s). The latter includes apprenticeship and training funds. 
Although the entities within the reporting regime of the Form T-1 often 
differ widely in terms of their structure (including within the 
subsidiary category itself), subsidiaries and Taft-Hartley funds share 
many characteristics in this area, such as size, number of officers and 
employees, assets, liabilities, receipts, and disbursements. As such, 
although subsidiaries often differ from Taft-Hartley funds in terms of 
function and certainly in management, they also often have 
commonalities in areas such as structure and typical reporting and 
disclosure categories.

[[Page 74952]]

C. Comments on the PRA Analysis Presented in the NPRM Regarding 
Subsidiary Reporting on the Form LM-2
    As noted in the preamble, the Department received several comments 
from unions addressing the burden associated with compliance with the 
2008 rule. A federation of unions noted the substantial differences 
between the estimated burdens from complying with the Form T-1 and the 
proposed rule ($15 million vs. $3 million total first year costs), 
offering its view that the reporting requirements in the 2008 rule are 
not justified in light of the burden they impose. Several other unions 
concurred with the federation's general conclusion. An international 
union asserted that the 2008 rule imposed an extreme burden on unions 
and section 3(l) trusts, characterizing the estimated burden associated 
with that rule as ``ridiculously low.'' It emphasized the unrealistic 
burden that would be imposed on a union that participated only 
nominally in a section 3(l) trust. A national union asserted that in 
the 2008 rule the Department underestimated the number of Form T-1 
reports that unions would be required to file and the costs associated 
with such reports. A public interest group stated that some of the Form 
T-1 reporting requirements would have been unduly burdensome for unions 
and of little value to members while others were of great value to 
members. This group did not identify what aspects of the rule were 
unnecessarily burdensome or offer specific changes to the proposed 
rule, but stated that the Department should not limit reporting to 
subsidiary organizations as the Department had proposed.
    The comments to the NPRM did not challenge the burden analysis in 
this rule, nor did they provide the Department with any information or 
data that affects the analytical framework or assumptions underlying 
the analyses contained in the proposed rule. Indeed, the Department 
received several comments in support of certain aspects of the 
analysis. Although there were comments relating to the burden estimates 
in the 2008 rule, the focus now is appropriately on the burden 
associated with this final rule. Regardless of whether the 2008 rule 
reasonably forecast the burden associated with the Form T-1 or not, it 
is evident that this rule reflects a very substantial reduction in 
reporting burden.
D. Methodology for the Burden Estimates \16\
---------------------------------------------------------------------------

    \16\ Some of the burden numbers included in both this PRA 
analysis and the regulatory flexibility analysis will not add 
perfectly due to rounding.
---------------------------------------------------------------------------

    Initially, as stated above, this rule produces an overall reduction 
of burden hours for Form LM-2 filers. The Department rescinds the Form 
T-1, which results in a reduction of 423,913.74 burden hours in the 
first year and 306,736.92 in the subsequent years that an estimated 
2,292 Form LM-2 filers would incur. Additionally, in the 2008 Form T-1 
rule, the total cost to filers was projected to be $15,186,874.46 in 
the first year and $8,168,474.74 in subsequent years. 73 FR at 57441 
and 57445. The burden reduction resulting from rescission of Form T-1 
will be partly offset by the burden of reporting subsidiary 
organizations on Form LM-2, but the net burden, both in the aggregate 
and individually, is reduced substantially. To assess the burden 
savings, the Department has taken into account as appropriate the data, 
methodology and assumptions used to calculate the burden for Form T-1. 
Those places in which the analysis from the 2008 Form T-1 rule is 
modified or not used are noted.
    The Department's analysis focuses on Form LM-2 filers. The changes 
to the Form LM-3 reporting requirements do not result in any 
significant increase or decrease to the burden for those filers. As 
stated above, Form LM-3 filers, prior to this rule, had three options 
in which to report on their subsidiaries: (1) Consolidate all financial 
transactions on one Form LM-3; (2) file a separate Form LM-3 for each 
subsidiary organization; or (3) attach an audit to the Form LM-3, 
prepared in accordance with the Form LM-3 Instructions for each 
subsidiary. In the Department's experience, a substantial majority of 
Form LM-3 filers with subsidiary organizations elect to file a 
consolidated Form LM-3, with few choosing either of the other options. 
Additionally, the burden for filing a separate LM-3 is virtually 
identical to consolidating the information on one report. The 
Department, therefore, does not consider that the removal of the option 
to file separate Form LM-3s for each subsidiary organization will 
result in a change to the filing burden for Form LM-3 filers.
    In reaching its estimates regarding the burden on Form LM-2 filers 
to consolidate information regarding their subsidiary organizations, 
the Department considered the recurring costs associated with the rule. 
However, as explained below, the Department determined that non-
recurring costs are nominal and therefore are only briefly addressed 
herein. Additionally, the Department used the Form T-1 cost and burden 
estimates as the basis for the estimates for consolidating subsidiary 
organization information on the Form LM-2 (73 FR 57436-57445). As 
stated above, although subsidiary organizations represent only a 
portion of the Form T-1 universe, and they differ from Taft-Hartley 
funds and other trusts in their function and management, the Department 
considers the similarity in the make-up of the organizations and the 
similar level of reporting of receipts and disbursements required by 
the Form T-1 and Form LM-2, as justifying the use of Form T-1 
estimates. However, there are differences between Form T-1 reporting 
and consolidating subsidiary organization financial information on the 
Form LM-2, and the analysis below will address these issues.
    Additionally, the Department's labor cost estimates reflect the 
Department's assumption that the labor organizations will rely upon the 
services of some or all of the following positions (either internal or 
external staff): The labor organization's president, secretary-
treasurer, accountant, and bookkeeper. In the 2008 Form T-1 rule, the 
salaries for these positions are measured by wage rates published by 
the Bureau of Labor Statistics or derived from data reported in e.LORS.
1. Number of Subsidiary Organizations
    The Department estimates that Form LM-2 filers have approximately 
1,187 subsidiary organizations. This number is based on a review of 
Form LM-2 reports filed in 2004, the final year in which filers were 
required to identify on Item 10 whether they had a subsidiary 
organization. A review of these reports indicated that 1,087 Form LM-2 
filers indicated that they had at least one subsidiary organization. In 
addition to this base figure, the Department took into account its 
experience that generally about one-half of the 100 largest labor 
organizations have multiple subsidiary organizations, with the 
remainder of such filers have only one subsidiary organization. In the 
Department's experience, these labor organizations have on average two 
additional subsidiary organizations. Therefore, the Department added 
100 (2 subsidiaries x 50 labor organizations) to the 1,087 filers 
indicating that they had at least one subsidiary organization, for a 
total estimate of 1,187 subsidiaries.\17\
---------------------------------------------------------------------------

    \17\ These figures differ from the Department's estimates in the 
Form T-1 analysis. See 73 FR 57441. In the Form T-1 analysis, the 
Department estimated 2,292 Form LM-2 filers would submit a Form T-1 
based upon an analysis of those filers who indicated on their 2006 
report that they had at least one LMRDA section 3(l) trust. In this 
rule, the Department derives its estimate of the number of Form LM-2 
filers with subsidiaries directly from the number of Form LM-2 
filers who indicated on their 2004 Form LM-2 reports that they had a 
subsidiary organization. The number of Form LM-2 filers with 
subsidiaries is smaller than the number of LM-2 filers with section 
3(l) trusts because the definition of section 3(l) trusts includes 
more entities than the definition of subsidiaries.

---------------------------------------------------------------------------

[[Page 74953]]

2. Hours To Complete and File a Consolidated Form LM-2: Reporting and 
Recordkeeping
    Initially, the Department considered the issue of non-recurring 
burden hours associated with Form LM-2 subsidiary reporting, but it 
does not view the burdens such as those associated with reviewing the 
Form LM-2 instructions, training staff, acquiring the necessary 
software to complete and submit the form, and similar up-front burdens, 
as existing separately with subsidiary organization reporting. 
Therefore, unlike with the Form T-1, there are no non-recurring burdens 
associated with subsidiary organization reporting; only recurring ones. 
These burdens are already included in the Form LM-2 burden estimate, 
and the similar burdens related to the Form T-1 are rescinded by this 
proposed rule (See Form T-1 final rule, Table 5, 73 FR 57444). Many 
recurring burdens and tasks, such as those analyzed in the Form T-1 
analysis, are also not included in this analysis because they did not 
relate to the Form LM-2 requirements or are already accounted for in 
the Form LM-2 burden analysis. For example, the basic labor 
organization identifying information, the schedules and detailed 
information provided in Items 1-68, and the summary statements are 
accounted for in the existing Form LM-2 burden analysis. Therefore, 
this analysis focuses on additional costs necessary to consolidate 
subsidiary organization information on the filer's existing Form LM-2.
    Additionally, the estimated reporting and recordkeeping burden 
hours for those filers who choose to undertake an audit are 
substantially the same as those who consolidate the data on their Form 
LM-2, as the detail required for the audit is congruent with the 
information required of those filers who consolidate subsidiary 
information on the Form LM-2. Accordingly, the Department has analyzed 
below the costs associated with consolidated reporting, and assumes as 
part of its conclusion that the costs of the audit option are no 
greater than those costs associated with consolidated reporting. The 
Department utilized the same approach in the 2003 and 2008 rules.
a. Recordkeeping Burden Hours To Complete Schedules for Assets, 
Liabilities, Receipts, Disbursements, and Officers and Employees 
Schedules
    In promulgating the 2008 rule, the Department estimated the 
recordkeeping burden associated with the number of disbursements, 
receipts, officers, and employees of trusts. 73 FR 57440-45. The 
recordkeeping tasks associated with gathering information required for 
the Form T-1 are substantially the same as the tasks required by this 
rule. For instance, as explained above, although the Form T-1 uses a 
different format and requires reporting at a higher threshold than the 
Form LM-2, the Form T-1 receipts schedule, Schedule 1, corresponds to 
Form LM-2 Schedule 14; the Form T-1 general disbursements Schedule 2 
corresponds to Form LM-2 Schedules 15-20; and the Form T-1 officer and 
employee disbursements Schedule 3 corresponds to Form LM-2 Schedules 
11-12. In other words, the union will have to gather records on other 
receipts, on disbursements and officer and employee payments whether 
the Form LM-2 or T-1 is used. Therefore, the Department has used here 
the same burden hours for this purpose as used in the Form T-1 rule. 
For the categories of assets and liabilities, the Form T-1 has no 
schedules, while the Form LM-2 does provide for reporting these 
categories in its Schedules 1-10. No additional recordkeeping burden is 
required to complete these schedules because unions already maintain 
this information in the accounting systems used to electronically 
complete the existing schedules for assets and liabilities. See 68 FR 
at 58439 (no recurring burden for assets and liabilities in revised 
Form LM-2 where schedule and software unchanged). Accordingly, the 
Department concludes that a Form LM-2 filer keeping records necessary 
to report a subsidiary organization will spend 5.49 additional hours 
compiling information regarding receipts, 54.15 hours compiling 
information on general disbursements, and 10.07 hours compiling 
information to report on disbursements to officers and employees. See 
73 FR at 57442 (specifically analyzing those recordkeeping tasks for 
the Form T-1). The total number of hours for recordkeeping tasks is 
reflected below in Table 1; see also 73 FR 57443.
    The Form T-1 analysis was based in part on a randomly selected 
subset of the 2,292 Form LM-2 filers in 2006 whose Form LM-2 report for 
that year indicated an interest in at least one trust. That analysis 
has been adapted here for use in analyzing reporting on subsidiaries as 
opposed to trusts, and includes calculations estimating the 
recordkeeping burden for receipts (corresponding to Form T-1 Schedule 
1; Form LM-2 Schedule 14), general disbursements (corresponding to Form 
T-1 Schedule 2; Form LM-2 Schedules 15-20), and disbursements to 
officers and employees (corresponding to Form T-1 Schedule 3; Form LM-2 
Schedules 11-12). Based on that analysis, the Department has derived 
the information-compilation hours noted above (5.49 hours for receipts, 
54.15 hours for general disbursements, and 10.07 hours for officer and 
employee disbursements) in a similar manner, as follows:

    The Department estimates that, on average, consolidated Form LM-
2 filers will expend 5.49 hours a year on recordkeeping to document 
the information necessary to complete the Form LM-2 receipts 
schedule 14. Based on the random sample of labor organizations with 
an interest in at least one trust outlined above, Form LM-2 filers 
on average itemize 11 receipts on Schedule 14 (other receipts). The 
remaining receipts are reported as aggregates in 12 separate 
categories on Statement B (cash receipts): Dues, per capita tax, 
fees, sales of supplies, interest, dividends, rents, sales of 
investment and fixed assets, loans, repayment of loans, receipts 
held on behalf of affiliates for transmission to them, and receipts 
from members for disbursement on their behalf. The Department does 
not believe subsidiaries will have receipts from per capita taxes or 
that they will they hold money for members and affiliates. For the 
Form T-1, the Department stated that, on average, trusts will 
itemize 109.86 receipts each year as estimated for the Form T-1. 
Experience with the Form LM-2 indicates that a labor organization 
can input all the necessary information on an itemized receipt in 3 
minutes. The total number of itemized receipts, 109.86, was 
multiplied by 3 minutes to reach the yearly recordkeeping burden, 
5.49 hours.\18\
---------------------------------------------------------------------------

    \18\ This number differs slightly from the 5.43 hours used in 
the Form T-1 analysis (73 FR 57442) due to a rounding error in that 
analysis.
---------------------------------------------------------------------------

    For the Form LM-2 disbursement schedules (Schedules 15-20), the 
Department estimates that, on average, consolidated filers will 
expend 54.15 hours a year on recordkeeping. The average Form LM-2 
has 1,083 itemized disbursements. Like receipts, the Department 
estimates it will take 3 minutes to input all the necessary 
information on an itemized disbursement. The total number of 
itemized disbursements, 1,083, was multiplied by 3 minutes to reach 
the yearly recordkeeping burden, 54.15 hours.\19\
---------------------------------------------------------------------------

    \19\ This number differs slightly from the 54.13 hours used in 
the Form T-1 analysis (73 FR 57442) due to a rounding error in that 
analysis.

---------------------------------------------------------------------------

[[Page 74954]]

    Regarding the officer and employee schedules (Schedules 11-12), 
the Department estimates consolidated Form LM-2 filers will expend 
10.07 hours on recordkeeping to compile the information necessary to 
complete these schedules, as Form T-1 Schedule 3 is virtually 
identical to Form LM-2 Schedules 11-12. The Department based its 
estimate on the analysis used in the 2008 Form T-1 PRA analysis, as 
the rule required unions to file Form T-1 reports for subsidiaries, 
and the Department believes, as explained previously, that the 
filing burden for subsidiaries greatly resembles that of the burden 
for filing a Form T-1 for trusts. Specifically, similar to the Form 
T-1 analysis, a union will not have to increase recordkeeping for 
officers of subsidiaries, as they are already required to keep 
records on its officers and key employees (including those of the 
subsidiary) for the IRS Form 990, including name, address, current 
position, salary, fees, bonuses, severance payments, deferred 
compensation, allowances, and taxable and nontaxable fringe 
benefits. (See 73 FR 57440-42).
    Additionally, the Department, consistent with the 2008 Form T-1 
burden analysis and its Form LM-2 sample, estimated that Form LM-2 
filers have, on average, 21.57 employees. Although in practice 
subsidiaries, such as strike funds and building corporations, likely 
will have considerably fewer employees, the Department assumes, for 
purposes of estimating burden, that subsidiaries will have a 
comparable number of employees. Nevertheless, subsidiaries, as part 
of unions and thus functioning in certain purposes as employers, 
keep wage records for each of their employees. The filers will also 
have to begin keeping records on non-key employees. Id.

    Finally, for the assets and liabilities schedules (Form LM-2 
Schedules 1-10), reporting in these categories was not required for the 
Form T-1. As explained above, the Department does not think that there 
is any new recordkeeping burden for these schedules, as subsidiaries 
already maintain this information as accounts receivable, accounts 
payable, and investments.
b. Reporting Burden Hours for Data Input
    As with the recordkeeping burden above, the Department concludes 
that the number of hours required for data input for subsidiary 
reporting on the Form LM-2 is substantially the same as the number of 
hours required for data input for the Form T-1, which was assessed in 
the 2008 Form T-1 rule. 73 FR at 57442. For example, vendor specific 
information will have to be entered regardless of amount in order to 
determine whether the reporting threshold for itemized reporting is met 
(whether that threshold is set at $5,000 or $10,000). In its 2008 Form 
T-1 rule, the Department estimated that Form T-1 filers will spend 3.75 
reporting hours on each schedule inputting the data. As stated in that 
analysis, experience with the Form LM-2 in previous rulemakings 
indicates that labor organizations will spend, for each type of 
reporting (i.e. receipts; general disbursements; officer and employee 
disbursements), 15 minutes a year training new staff, 60 minutes 
preparing the download, 90 minutes preparing and testing the data file, 
and 60 minutes editing, validating and importing the data.
    In this analysis, the Department has removed the 15 minutes of 
additional training each year from its estimate because this extra 
training is already accounted for in the existing Form LM-2 burden and 
information relating to the subsidiary is entered on the Form in the 
same manner as any other asset. Because the current LM-2 form has been 
in effect since 2005, we believe most LM-2 filers have already 
conducted the necessary internal training to familiarize staff with 
reporting procedures. However, as in the Form T-1 analysis, the 
Department estimates that Form LM-2 filers will spend 3.5 hours 
inputting data for receipts (on Form LM-2, Schedule 14, which 
corresponds to Form T-1, Schedule 1); officer and employee 
disbursements (on Form LM-2, Schedules 11-12, which correspond to Form 
T-1, Schedule 3); the remaining disbursements (on Form LM-2, Schedules 
15-20, which correspond to Form T-1, Schedule 2); as well as for the 
assets and liabilities schedules (on Form LM-2, Schedules 1-10, 
although the Form T-1 has no counterpart). Additionally, as in the Form 
T-1 analysis, the Department also estimates that the president and 
treasurer of the Form LM-2 filing union will each spend two extra hours 
reviewing the form to ensure the accuracy of the consolidated 
subsidiary information before signing. See 73 FR 57444. These figures 
are shown below in Table 2.
    The Department also removed other reporting categories used in 
Table 3 of the Form T-1 burden analysis (73 FR 57443) because they did 
not relate the Form LM-2 requirements or are already included in the 
Form LM-2 reporting regime and accounted for separately. These 
categories include: fill out trust/labor organization information; 
answer questions; fill in assets, liabilities, disbursements and 
receipts; additional information; and signature.
c. Total Hours Spent on Recordkeeping and Reporting
    As discussed above, and as reflected in the following tables, the 
Department estimates that, in addition to the existing burden to 
complete the Form LM-2 as calculated in the 2003 Form LM-2 Final Rule, 
68 FR at 58436-40, Form LM-2 filers will expend, on average, 69.71 
hours per year on recordkeeping per subsidiary organization and 18.00 
hours on reporting.

   Table 1--Recordkeeping Burden in Hours per Subsidiary Organization
------------------------------------------------------------------------
                                                              Total
                                   Schedule or item       recordkeeping
           Schedule                   description          burden (in
                                                             hours)
------------------------------------------------------------------------
Schedules 1-10................  Assets and Liabilities              0.00
                                 Schedules.
Schedule 14...................  Individually itemized               5.49
                                 receipts.
Schedules 15-20...............  Individually itemized              54.15
                                 disbursements.
Schedule 11 and 12............  Disbursements to                   10.07
                                 Officers and
                                 Employees of
                                 subsidiary.
                                                       -----------------
Total Recordkeeping Burden      ......................             69.71
 Hours per Subsidiary
 Organization.
------------------------------------------------------------------------


                        Table 2--Reporting Burden in Minutes per Subsidiary Organization
----------------------------------------------------------------------------------------------------------------
                                                                                  Edit/validate/       Total
           Schedule             Schedule or item      Prepare     Preparation of    import data      reporting
                                   description       download     test/data file       file           burden
----------------------------------------------------------------------------------------------------------------
Schedules 1-10................  Assets and                    60              90              60             210
                                 Liabilities
                                 Schedules.

[[Page 74955]]

 
Schedule 14...................  Individually                  60              90              60             210
                                 itemized
                                 receipts.
Schedules 15-20...............  Individually                  60              90              60             210
                                 itemized
                                 disbursements.
Schedule 11 and 12............  Disbursements to              60              90              60             210
                                 Officers and
                                 Employees of
                                 subsidiary.
                                Management        ..............  ..............  ..............             240
                                 Review.
----------------------------------------------------------------------------------------------------------------
    Total Burden per Subsidiary Organization....             240             360             240            1080
----------------------------------------------------------------------------------------------------------------
    Total Burden Hours per Subsidiary                       4.00            6.00            4.00           18.00
     Organization.
----------------------------------------------------------------------------------------------------------------

3. Cost of Personnel To Report Subsidiary Organization Financial 
Information on the Form LM-2
    As in the Form T-1 analysis (73 FR 57443-45), the Department 
assumes that, on average, the completion by a labor organization of a 
consolidated Form LM-2 will involve an accountant/auditor, bookkeeper/
clerk, labor organization president and labor organization treasurer. 
Based on the 2008 Bureau of Labor Statistics (BLS) wage data from its 
Occupational Employment Statistics Survey, accountants earn $34.74 per 
hour and bookkeepers/clerks earn $15.88 per hour.\20\ The Department 
also increased each of these figures by 43.0% to account for fringe 
benefits.\21\ See Table 3 below.
---------------------------------------------------------------------------

    \20\ See Occupational Employment and Wages Survey. 2008, survey, 
Table 6, from the Bureau of Labor Statistics (BLS), Occupational 
Employment Statistics (OES) Program; http://www.bls.gov/news.release/pdf/ocwage.pdf. The Form T-1 analysis utilized data 
from the 2007 survey, while this proposed rule has updated the data 
with the use of the 2008 survey.
    \21\ See Employer Costs for Employee Compensation Summary, from 
the BLS, at http://www.bls.gov/news.release/ecec.nr0.htm. The 
Department updated the total hourly compensation figures from the 
Form T-1 analysis (30.2% to 43.0%), in that it uses 2008 rather than 
2007 numbers, and it increased the hourly wage rate by the 
percentage total of the average hourly compensation figure ($8.90 in 
2008) over the average hourly wage ($20.49 in 2008).
---------------------------------------------------------------------------

    As in the Form T-1 analysis, the Department estimates the average 
annual salaries of labor organization officers needed to complete tasks 
for compliance with this rule--the president and treasurer--from 
responses to salary inquiries based on a sample of 205 labor 
organizations that filed a Form LM-2 in 2006 and indicated an interest 
in at least one section 3(l) trust. Because the Department assumes 
significant commonality between those labor organizations that would 
have reported on trust interests under the Form T-1 rule and those 
labor organizations that will report on subsidiaries under Form LM-2, 
the Department has employed here the salary data for labor organization 
President and Treasurer utilized in the Form T-1. The Form T-1 study 
determined that in 2006 Form LM-2 labor organization presidents with 
section 3(l) trusts make, on average, $24.89 an hour and treasurers 
$31.58. The average annual salaries were determined by multiplying the 
average hourly wage by the number of hours in a year, based on a 
standard 40 hour work week (40 x 52 = 2080 hours). The average hourly 
wage was then multiplied by the same 43.0% to reach $35.59 per hour and 
$45.16 per hour, for presidents and treasurers, respectively. See Table 
3 below.

                                        Table 3--Compensation Cost Table
----------------------------------------------------------------------------------------------------------------
                                                                                               Total hourly
                             Title                                 Total hourly wage           compensation
----------------------------------------------------------------------------------------------------------------
Accountants/Auditors..........................................                   $34.74                   $49.68
Bookkeepers/Clerks............................................                    15.88                    22.71
President.....................................................                    24.89                    35.59
Treasurer.....................................................                    31.58                    45.16
----------------------------------------------------------------------------------------------------------------

    Once the labor costs were calculated, the Department applied those 
costs to each of the Form LM-2 tasks computed in the previous section. 
Each task was evaluated separately to determine which individual from a 
particular job category would be needed to complete the task. All tasks 
identified by the Department above as necessary for compliance with the 
requirements of this rule were analyzed to determine which personnel 
would conduct those tasks. As stated previously, the Department removed 
tasks associated with the Form T-1 burden analysis that do not 
correlate to a task needed to consolidate subsidiary information on the 
Form LM-2, or are otherwise accounted for in the pre-existing Form LM-2 
reporting regime and its burden (See Form T-1 final rule, Table 5, 73 
FR 57444). The following table presents this analysis. The Department 
notes that this rule corrects a calculation error made in the NPRM, 
Table 4, regarding the total reporting cost for an accountant to edit/
validate/import data file. In the NPRM, the Department identified the 
total cost at $298.08, while the actual cost is $198.72 (the hourly 
compensation for an accountant, $49.68, multiplied by the hours needed 
to complete the task, 4.00). Table 4 below illustrates the correct cost 
for this task, and it also reflects the updated, correct total cost for 
subsidiary consolidation on the Form LM-2 ($2,332.25, rather than 
$2,431.61 in the NPRM).

[[Page 74956]]



                                    Table 4--Cost by Task for Subsidiary Organization Consolidation on the Form LM-2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Individuals
        Burden type                   Task              participating                 Hourly cost                    Hours to complete            Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Recordkeeping..............  Input Records........  Bookkeeper...........  $22.71..........................  69.71...........................  $1,583.11
Reporting..................  Prepare Download.....  Bookkeeper...........  22.71...........................  4.00............................      90.84
Reporting..................  Preparation of Test/   Accountant...........  49.68...........................  6.00............................     298.08
                              Data File.
Reporting..................  Edit/Validate/Import   Accountant...........  49.68...........................  4.00............................     198.72
                              Data File.
Reporting..................  Management Review....  President and          35.59 and 45.16.................  4.00 (2 hours each).............     161.50
                                                     Treasurer.
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Recordkeeping and Reporting Burdens Hours and Costs..............................................  87.71...........................   2,332.25
--------------------------------------------------------------------------------------------------------------------------------------------------------

4. Calculation of Total Costs To Form LM-2 Labor Organizations With a 
Subsidiary Organization
    Based on the analysis reflected in the table above, the average 
cost per labor organization to consolidate its subsidiary's financial 
information on its Form LM-2 is $2,332.25. As noted earlier, the 
Department has employed here many of the assumptions about 
recordkeeping and reporting burdens from the cost analysis in the Form 
T-1 Final Rule because the two reporting regimes have many 
similarities. However, subsidiaries of smaller unions will not have as 
many officers, employees, receipts, or disbursements as the 
subsidiaries of larger unions. As a result, the Department views the 
burden estimate developed here as somewhat overstating what it will 
likely be.
    Additionally, based upon experience, the Department estimates that 
10% of filers will submit an audit rather than consolidate on its Form 
LM-2. For these filers, the Department estimates that the reporting and 
recordkeeping burden, as well as the total cost, will be virtually 
identical to filers who choose to consolidate, as the same information 
and level of detail is required for both options. However, the 
Department understands that the accountant who prepares a separate 
audit will not engage in the three separate reporting activities 
(prepare download, prepare data file, and edit import file). Rather, he 
or she will conduct an analysis of the records and create an audit 
report. Nevertheless, the Department believes that the reporting burden 
associated with preparing an audit report will be virtually identical 
to that of the reporting burden associated with consolidating such 
information on the Form LM-2. As a result, the Department estimates 
that the audit option will also cost Form LM-2 filers $2,332.25.
    Based upon an estimate of 1,187 total subsidiaries for Form LM-2 
filers, the Department estimates that the total cost for Form LM-2 
subsidiary reporting is $2,768,380.75. These results are reflected in 
the table below. The Department corrected the average cost per 
subsidiary from the NPRM's total, as explained above, and the total 
cost has been updated to reflect the change to the average cost per 
subsidiary.

                       Table 5--Reporting and Recordkeeping Burden Hours and Costs for Form LM-2 Subsidiary Organization Reporting
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Recordkeeping        Total         Total burden
    Number of     Reporting hours  Total reporting     hours per      recordkeeping      hours per       Total burden     Average cost      Total cost
  subsidiaries     per subsidiary       hours          subsidiary         hours          subsidiary         hours        per subsidiary
--------------------------------------------------------------------------------------------------------------------------------------------------------
          1,187            18.00           21,366            69.71        82,745.77            87.71       104,111.77        $2,332.25    $2,768,380.75
--------------------------------------------------------------------------------------------------------------------------------------------------------

5. Review of Public Comments
    In accordance with the requirements of the PRA, the Department 
solicited comments on the information collections included in the NPRM. 
The Department also submitted an information collection request (ICR) 
to OMB in accordance with 44 U.S.C. 3507(d), contemporaneously with the 
publication of the NPRM, for OMB's review. As previously discussed, the 
comments to the NPRM did not challenge the burden analysis in this 
rule, nor did they provide the Department with any information or data 
that affects the analytical framework or assumptions underlying the 
analyses contained in the proposed rule. In connection with publication 
of this final rule, the Department submitted an ICR to OMB for its 
request of a new information collection. OMB approved the ICR on 
October 21, 2010, under OMB Control Number 1245-0003, which will expire 
on October 31, 2013.
    Type of Review: Revision of a currently approved collection.
    Agency: Office of Labor-Management Standards.
    Title: Labor Organization and Auxiliary Reports.
    OMB Number: 1245-0003 (formerly 1215-0188).
    Affected Public: Private Sector: Not-for-profit institutions.
    Number of Annual Responses: 33,684.
    Frequency of Response: Annual for most forms.
    Estimated Total Annual Burden Hours: 4,411,641.
    Estimated Total Annual Burden Cost: $184,917,704.
    A copy of the ICR may be obtained by contacting the PRA addressee 
shown below or at http://www.RegInfo.gov. PRA Addressee: Andrew R. 
Davis, (202) 693-0123. This is not a toll-free number.

Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
requires agencies to consider the impact of their regulatory proposals 
on small entities, analyze effective alternatives that minimize small 
entity impacts, and make initial analyses available for public comment. 
5 U.S.C. 603, 604. If an agency determines that its rule will not have 
a significant economic impact on a substantial number of small 
entities, it must certify that conclusion to the Small Business 
Administration (SBA). 5 U.S.C. 605(b).
    As in prior rulemakings, the Department's regulatory flexibility 
analysis utilizes the Small Business Administration's (``SBA'') ``small 
business'' standard for ``Labor Unions and Similar Labor 
Organizations.'' Specifically, the Department used the $5 million 
standard established in 2000, which was updated to $6.5 million in 2005 
and in 2008 to $7 million, for purposes of its regulatory flexibility 
analyses. See 65 FR 30836 (May 15, 2000); 70 FR 72577 (Dec. 6, 2005). 
This same standard ($7 million) has been

[[Page 74957]]

used in developing the regulatory flexibility analysis for this rule.
    All numbers used in this analysis are based on 2006 data taken from 
the Office of Labor-Management Standards e.LORS database, which 
contains data from annual financial reports field by labor 
organizations with the Department pursuant to the LMRDA, and BLS 
data.\22\ Accordingly, the following analysis assesses the impact of 
these regulations on small entities as defined by the applicable SBA 
size standards.
---------------------------------------------------------------------------

    \22\ In order to estimate the number of labor organizations that 
will report subsidiaries, the Department also analyzed Form LM-2 
reports from 2004, which was the final year in which filers were 
required to identify whether they had a subsidiary organization.
---------------------------------------------------------------------------

    As stated, the below RFA analysis is exactly as presented in the 
NPRM. The Department did not receive any comments regarding the 
analysis.
1. Statement of the Need for, and Objectives of, the Rule
    The following is a summary of the need for and objectives of the 
rule. A more complete discussion is found earlier in this preamble.
    The objective of this rule is to reinstate subsidiary organization 
reporting on Form LM-2. Subsidiary reporting on the Form LM-2 was 
eliminated with revisions to the form in 2003 in anticipation of the 
implementation of the Form T-1. Until 2003, a union's annual Form LM-2 
report would not be complete without inclusion of subsidiaries' 
financial information. This requirement was superseded by the 
introduction of the Form T-1. With the rescission of the Form T-1, 
reporting on subsidiary organizations is reinstated within the Form LM-
2 reporting requirements. Thus, the rule requires that labor 
organizations include within their Form LM-2 filing financial 
information concerning their subsidiary organizations, 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.'' See proposed Form LM-2 Instructions, 
Section X.
    As noted earlier in the preamble, the return of subsidiary 
organizations to the Form LM-2 reporting requirements improves the 
amount of financial disclosure of such entities, as compared to 
disclosure under the Form T-1. Under this rule, and as the Form LM-2 
long required, a union must disclose the financial information of its 
subsidiary to the same level of detail as other assets of the union, 
even if the union chose to file a separate Form LM-2 report for the 
subsidiary or to file an audit for the entity. See pre-2003 Form LM-2 
Instructions, Section X. In contrast, the Form T-1, while it required 
similar detail in reporting of receipts and disbursements, required 
less detailed reporting of assets and liabilities. See Form T-1, Items 
16-24, and Form LM-2, Schedules 1-10.
    The Department in this rule provides Form LM-2 filers two options 
regarding the reporting of their subsidiaries, rather than the three 
options provided in the pre-2003 Form LM-2 Instructions. Form LM-2 
filers can either consolidate their subsidiaries' financial information 
on their Form LM-2 report, or they can file, with their Form LM-2 
report, 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 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. Specific information 
concerning loans payable and payments to officers and employees, in the 
same detail required under the related schedules on Form LM-2, also 
would have to be reported.
    The Department in this rule did not reinstate a previous third 
option for filers: That of filing a separate Form LM-2 report that 
includes only the subsidiary's financial information. In the 
Department's experience, the filing of a separate Form LM-2 in addition 
to the union's primary report creates confusion for union members and 
others viewing the reports in that the form is designed for unions, not 
segregated funds and assets. Moreover, a union must file one Form LM-2 
report per fiscal year, and the filing of multiple forms by a union for 
its subsidiaries creates confusion as to which one is the primary form. 
While consolidation contains some risk of confusion, the Department's 
experience is that combined reports are easier to follow than separate 
reports. Moreover, consolidation is entirely appropriate for 
subsidiaries that are wholly owned, wholly financed, and wholly 
controlled by the reporting labor union. This reporting method is a 
particularly appropriate and desirable option for some unions with 
subsidiaries that perform traditional union operations, such as strike 
funds and other special union funds. Thus, the Department preserves 
this option for Form LM-2 filers.
    Additionally, to preserve consistency, this rule alters the Form 
LM-3 instructions regarding the reporting of subsidiary organizations 
by aligning them with the revised Form LM-2 instructions pertaining to 
the two options for reporting on subsidiaries. This establishes 
uniformity with the subsidiary reporting requirements of the two forms.
2. Legal Basis for Rule
    The legal authority for this final rule is section 208 of the 
LMRDA. 29 U.S.C. 438. Section 208 provides that the Secretary of Labor 
shall have authority to issue, amend, and rescind rules and regulations 
prescribing the form and publication of reports required to be filed 
under title II of the Act, including rules prescribing reports 
concerning trusts in which a labor organization is interested, and such 
other reasonable rules and regulations as she may find necessary to 
prevent the circumvention or evasion of the reporting requirements. 29 
U.S.C. 438.
3. Number of Small Entities Covered Under the Rule
    As stated in the preamble and in the PRA analysis, 1,087 filers 
indicated that they had at least one subsidiary organization on their 
2004 Form LM-2 reports, the final year in which filers were required to 
identify on Item 10 whether they had a subsidiary organization. The 
Department assumes that of those 1,087 filers, 100 labor organizations 
have receipts valued above SBA's $7 million threshold used to 
differentiate between small and large entities. Therefore, the 
Department concludes that there are 987 small labor organizations with 
receipts below the $7 million threshold that may be affected by this 
rule. Further, in its experience, those smaller unions with under $7 
million in annual receipts will each only have one subsidiary. See PRA 
analysis, supra.
4. Relevant Federal Requirements Duplicating, Overlapping or 
Conflicting With the Rule
    To the extent that there are Federal rules that duplicate, overlap, 
or conflict with this rule, this is the result of the requirements of 
the LMRDA and other Federal statutes, such as the Employee Retirement 
Income Security Act (ERISA) and the Internal Revenue Code. Section 
201(b) of the LMRDA requires reporting of all assets, liabilities, 
receipts, and disbursements of labor organizations, and this includes 
their subsidiary organizations. 29 U.S.C. 431(b).

[[Page 74958]]

However, to limit burden and any potential duplication, the Department 
allows filers to attach an audit rather than consolidate information on 
their subsidiaries.
5. Differing Compliance or Reporting Requirements for Small Entities
    Labor organizations that have total annual receipts of $250,000 or 
more must file the revised Form LM-2. Under this rule, the reporting, 
recordkeeping, and other compliance requirements apply equally to all 
labor organizations that are required to file a Form LM-2 under the 
LMRDA.
6. Clarification, Consolidation and Simplification of Compliance and 
Reporting Requirements for Small Entities
    Form LM-2 filers are directed to use an electronic reporting 
format. OLMS will provide compliance assistance for any questions or 
difficulties that may arise from using the Form LM-2 reporting 
software. A toll-free help desk is staffed during normal business hours 
and can be reached by telephone at 1-866-401-1109.
    Additionally, the use of electronic forms makes it possible to 
download information from previously filed reports directly into the 
form; enables most schedule information to be imported onto the form; 
makes it easier to enter information; and automatically performs 
calculations and checks for typographical and mathematical errors and 
other discrepancies, which assists reporting compliance and reduces the 
likelihood that a union will have to file an amended report. The error 
summaries provided by the software, combined with the speed and ease of 
electronic filing, also make it easier for both the reporting labor 
organization and OLMS to identify errors in both current and previously 
filed reports and to file amended reports to correct them.
7. Steps Taken To Reduce Burden
    This rule substantially reduces the burden on labor organizations 
that file the Form LM-2, including many small labor organizations. By 
rescinding Form T-1, which was estimated to affect 2,292 Form LM-2 
filers, this rule will eliminate a projected average cost per filer of 
$4,851.20 in the first year and $2,609.29 in subsequent year. 
Subsidiary organization reporting, in contrast, impacts fewer unions 
(only 1,087 unions are estimated to have such entities), and the cost 
to consolidate their financial information is only $2,332.25. The 
Department has further reduced the burden by permitting those unions 
who already have audit reports for such subsidiaries to attach them to 
their Form LM-2. See PRA analysis, supra.
8. Reporting, Recording and Other Compliance Requirements of the Rule
    This analysis only considers labor organizations with annual 
receipts between $250,000 and $7 million. Labor organizations with less 
than $250,000 in annual receipts are not required to file the Form LM-2 
and those with annual receipts greater than $7 million are outside of 
the coverage of the RFA. The rule is not expected to have a significant 
economic impact on a substantial number of small entities. The LMRDA is 
primarily a reporting and disclosure statute. Accordingly, the primary 
economic impact will be the cost of obtaining and reporting required 
information.
    As stated above, the Department estimates that there are 987 labor 
unions with under $7 million in total annual receipts, which are 
affected by this rule. Additionally, these unions will have a burden of 
only $2,332.25,\23\ which comes out to merely 0.93% of the total annual 
receipts of the smallest Form LM-2 filers ($250,000 in total annual 
receipts) and about 0.07% of the median of unions between $250,000 and 
$7 million in total annual receipts (i.e. $3,375,000 in total annual 
receipts). The Department has further reduced the burden by permitting 
those unions who already have audit reports for such subsidiaries to 
attach them to their Form LM-2. See PRA analysis, supra. Moreover, the 
Department estimates that the burden will not be as great on smaller 
unions as those with greater than $7 million in total annual receipts, 
as the smaller unions' subsidiaries will not be as complicated and as 
large, in areas such as total officers, employees, receipts and 
disbursements.
---------------------------------------------------------------------------

    \23\ As noted in the PRA section, the cost per subsidiary has 
been updated from the NPRM, based upon the correction of a 
calculation error.
---------------------------------------------------------------------------

9. Conclusion
    The RFA does not define either ``significant economic impact'' or 
``substantial'' as it relates to the number of regulated entities. 5 
U.S.C. 601. In the absence of specific definitions, ``what is 
`significant' or `substantial' will vary depending on the problem that 
needs to be addressed, the rule's requirements, and the preliminary 
assessment of the rule's impact.'' A Guide for Government Agencies, 
supra, at 17. As to economic impact, one important indicator is the 
cost of compliance in relation to revenue of the entity. Id.
    As noted above, the Department estimates that there are 987 labor 
unions with under $7 million in total annual receipts that will be 
affected by this rule, and each of these has an estimated one 
subsidiary about which it will be required to report. As noted in the 
PRA analysis, supra, the Department estimated above that a labor 
organization's cost for filing a report for one subsidiary is 
$2,332.25. This cost represents less that one percent (0.93%) of the 
total annual receipts of the smallest Form LM-2 filers ($250,000 in 
total annual receipts). Further, this cost represents less than one-
tenth of one percent (0.07%) of the median of unions between $250,000 
and $7 million in total annual receipts (i.e. $3,375,000 in total 
annual receipts).
    The Department concludes that this economic impact is not 
significant, as that term is employed for the purpose of this analysis. 
As to the number of labor organizations affected by this rule, the 
Department has determined, by examining e.LORS data, that there are 987 
smaller unions (each with one subsidiary) affected by this rule. This 
total represents only 23.34% of the recent total of 4,228 Form LM-2s 
from labor organizations with receipts between $250,000 and $7,000,000 
(which constitute just 17.6% of the 24,065 labor organizations that 
must file any of the annual financial reports required under the LMRDA 
(Forms LM-2, LM-3, or LM-4)). The Department concludes that the rule 
does not impact a substantial number of small entities. Therefore, 
under 5 U.S.C. 605, the Department concludes that the rule will not 
have a significant economic impact on a substantial number of small 
entities.

Electronic Filing of Forms and Availability of Collected Data

    Appropriate information technology is used to reduce burden and 
improve efficiency and responsiveness. The Form LM-2 now in use can be 
downloaded from the OLMS Web site. OLMS also has implemented a system 
to require Form LM-2 filers and permit Form LM-3 and Form LM-4 filers 
to submit forms electronically with digital signatures. Labor 
organizations are currently required to pay a fee to obtain electronic 
signature capability for the two officers who sign the form. Digital 
signatures ensure the authenticity of the reports.
    The OLMS Internet Disclosure site at http://www.unionreports.gov is 
available for public use. The site contains a copy of each labor 
organization's annual financial report for reporting years 2000 and 
thereafter,

[[Page 74959]]

as well as an indexed computer database of the information in each 
report that is searchable through the Internet.
    Information about this system can be obtained on the OLMS Web site 
at http://www.olms.dol.gov.

List of Subjects in 29 CFR Part 403

    Labor unions, Trusts, Reporting and recordkeeping requirements.

Text of Rule

0
Accordingly, the Department amends part 403 of 29 CFR chapter IV as set 
forth below:

PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS

0
1. The authority citation for part 403 is revised to read as follows:

    Authority:  Labor-Management Reporting and Disclosure Act Secs. 
202, 207, 208, 73 Stat. 525, 529 (29 U.S.C. 432, 437, 438); 
Secretary's Order No. 4-2007, May 2, 2007, 72 FR 26159.


Sec.  403.2  [Amended]

0
2. In Sec.  403.2, remove paragraph (d).


Sec.  403.5  [Amended]

0
3. In Sec.  403.5, remove paragraph (d).


Sec.  403.8  [Amended]

0
4. In Sec.  403.8, remove paragraph (c) and redesignate paragraph (d) 
as paragraph (c).

    Editor's note: The following will not appear in the Code of 
Federal Regulations.

Appendix A: Specific Changes to the Form LM-2 Instructions

    A. General Instructions:

Section II. What Form To File

    Current instructions read:
    Every labor organization subject to the LMRDA, CSRA, or FSA with 
total annual receipts of $250,000 or more must file Form LM-2. The 
term ``total annual receipts'' means all financial receipts of the 
labor organization during its fiscal year, regardless of the source, 
including receipts of any special funds as described in Section VIII 
(Funds To Be Reported) of these instructions. Receipts of a trust in 
which the labor organization is interested should not be included in 
the total annual receipts of the labor organization when determining 
which form to file unless the trust is wholly owned, wholly 
controlled, and wholly financed by the labor organization.
    Labor organizations with total annual reports of less than 
$250,000 may file the simplified annual report Form LM-3, if not in 
trusteeship as defined in Section IX (Labor Organizations In 
Trusteeship) of these instructions. Labor organizations with total 
annual receipts of less than $10,000 may file the abbreviated annual 
report Form LM-4, if not in trusteeship.
    The Department revises the above language to read:
    Every labor organization subject to the LMRDA, CSRA, or FSA with 
total annual receipts of $250,000 or more must file Form LM-2.
    Labor organizations with total annual receipts of less than 
$250,000 may file the simplified Form LM-3, if not in trusteeship as 
defined in Section IX (Labor Organization In Trusteeship) of these 
instructions. Labor organizations with total annual receipts of less 
than $10,000 may file the abbreviated annual report Form LM-4, if 
not in trusteeship.
    The term ``total annual receipts'' means all financial receipts 
of the labor organization during its fiscal year, regardless of the 
source, including receipts of any special funds as described in 
Section VIII (Funds To Be Reported) or as described in Section X 
(Labor Organizations With Subsidiary Organizations). 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.

Section VIII. Funds To Be Reported

    Current instructions read:
    The labor organization must report financial information on Form 
LM-2 for all funds of the labor organization. Include any special 
purpose funds or accounts, such as strike funds, vacation funds, and 
scholarship funds even if they are not part of the labor 
organization's general treasury. The labor organization is required 
to report information about any trust in which it is interested on 
the Form T-1. See Section X (Trusts In Which A Labor Organization Is 
Interested).
    The Department revises the above language to read:
    The labor organization must report financial information on Form 
LM-2 for all funds of the labor organization. Include any special 
purpose funds or accounts, such as strike funds, vacation funds, and 
scholarship funds even if they are not part of the labor 
organization's general treasury.
    All labor organization political action committee (PAC) funds 
are considered to be labor organization funds. However, to avoid 
duplicate reporting, PAC funds that are kept separate from your 
labor organization's treasury are not required to be included in 
your organization's Form LM-2 if publicly available reports on the 
PAC funds are filed with a Federal or state agency.
    Your organization is required to report financial information 
about any ``subsidiary organizations.'' Financial information about 
your organization and its subsidiary organizations may be combined 
on a single Form LM-2 or you may attach to your Form LM-2 report the 
regular annual report of the financial condition and operations of 
the subsidiary organization with a signed certification by an 
independent public accountant, as described in Section X (Labor 
Organizations With Subsidiary Organizations).
    If combining the information concerning subsidiary 
organizations, be sure to include the requested information and 
amounts for the subsidiary organizations as well as for all other 
assets of your union in all items.

Special Instructions for Certain Organizations

Section X. Labor Organizations With Subsidiary Organizations

    Current instructions read:
    A trust in which a labor organization is interested is defined 
in Section 3(l) of the LMRDA (29 U.S.C. 402(l)) 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.
    The definition of a trust in which a labor organization is 
interested may include, but is not limited to, joint funds 
administered by a union and an employer pursuant to a collective 
bargaining agreement, educational or training institutions, credit 
unions created for the benefit of union members, and redevelopment 
or investment groups established by the unions for the benefit of 
its members. The determination whether a particular entity is a 
trust in which a labor organization is interested must be based on 
the facts in each case.
    A labor organization is required to report in Form LM-2 
information concerning each LMRDA Section 3(l) trust in accordance 
with the instructions in Item 10 of Form LM-2.
    A labor organization must, in addition, file a separate Form T-1 
report disclosing assets, liabilities, receipts, and disbursements 
of a trust in which the labor organization is interested if the 
labor organization, alone or in combination with other labor 
organizations, either (1) appoints or selects a majority of the 
members of the trust's governing board or (2) contributes to the 
trust greater than 50% of the trust's receipts during the one year 
reporting period. Any contributions made pursuant to a collective 
bargaining agreement shall be considered the labor organization's 
contribution.
    No Form T-1 should be filed for any labor organization that 
already files a Form LM-2, LM-3, or LM-4, nor should a report be 
filed for any entity that is expressly exempted from reporting in 
the Act, such as organizations composed entirely of state or local 
government employees or state or local central bodies.
    No Form T-1 need be filed for
    <bullet> A Political Action Committee (PAC) if timely, complete, 
and publicly available reports on the PAC funds are filed with a 
Federal or state agency
    <bullet> A political organization under 26 U.S.C. 527, if 
timely, complete, and publicly available reports are filed with the 
Internal Revenue Service
    <bullet> A federal employee health benefit plan subject to the 
provisions of the Federal Employees Health Benefits Act (FEHBA)
    <bullet> A for-profit commercial bank established or operating 
pursuant to the Bank Holding Act of 1956, 12 U.S.C. 1843

[[Page 74960]]

    <bullet> An employee benefit plan required to file a Form 5500 
for a plan year ending during the reporting period of the union.
    For purposes of these instructions, only, a trust is ``required 
to file a Form 5500'' if a plan administrator is required to file an 
annual report on behalf of the trust under 29 U.S.C. sections 1021 
and/or 1024.\24\ However, if the plan administrator of the trust is 
eligible for an exemption from filing a Form 5500 or Form 5500-SF, 
then a Form T-1 must be filed for that section 3(l) trust regardless 
of whether a Form 5500 or Form 5500-SF is filed on its behalf. For a 
definition of plans ``required to file a Form 5500'' for purposes of 
filing the Form T-1, see 29 CFR 403.2(d)(3)(vi).
---------------------------------------------------------------------------

    \24\ The following sections of title 29 of the Code of Federal 
Regulations identify for purposes of these instructions, the types 
of ERISA plans that are not required to file a Form 5500: section 
2520.104-20 (small unfunded, insured, or combination welfare plans), 
section 2520.104-22 (apprenticeship and training plans), section 
2520.104-23 (unfunded or insured management and highly compensated 
employee pension plans), section 2520.104-24 (unfunded or insured 
management and highly compensated employee welfare plans), section 
2520.104-25 (day care center plans), section 2520.104-26 (unfunded 
dues financed welfare plans maintained by employee organizations), 
section 2520.104-27 (unfunded dues financed pension plans maintained 
by employee organizations), section 2520.104-43 (certain small 
welfare plans participating in group insurance arrangements), and 
section 2520.104-44 (large unfunded, insured, or combination welfare 
plans; certain fully insured pension plans). Labor organizations 
must file a Form T-1 for these types of plans.
---------------------------------------------------------------------------

    An abbreviated Form T-1 report may be filed where a qualifying 
independent audit also is submitted, in accordance with requirements 
specified in the Form T-1 instructions.
    A Form T-1 report must be filed within 90 days after the end of 
the union's fiscal year. The Form T-1 covers the most recently 
concluded fiscal year of the trust.
    See Instructions for Form T-1, Trust Annual Report.
    Questions regarding these reporting requirements should be 
directed to the OLMS Division of Interpretations and Standards, 
which can be reached by e-mail at <a href="/cdn-cgi/l/email-protection#fab5b6b7a9d7aa8f98969399ba9e9596d49d958c"><span class="__cf_email__" data-cfemail="27686b6a740a7752454b4e446743484b09404851">[email protected]</span></a>, by phone at 
202-693-0123, by fax at 202-693-1340, or at the following address: 
U.S. Department of Labor, Employment Standards Administration, 
Office of Labor-Management Standards, 200 Constitution Avenue, NW., 
Room N-5609, Washington, DC 20210.
    Examples of a trust in which a labor organization is interested 
may include, but are not limited to, the following entities:
    Example A: The Building Corporation--A labor organization 
creates a corporation which owns the building where the union has 
its offices. The building corporation must be reported as a trust in 
which the labor organization is interested.
    Example B: The Redevelopment Corporation--A labor organization 
creates an entity named the Redevelopment Corporation, or appoints 
one or more of the members of the governing board of the 
Corporation, which is established primarily to enable members of the 
labor organization to obtain low cost housing constructed with 
Federal Housing and Urban Development (HUD) grants. The 
Redevelopment Corporation must be reported as a trust in which it is 
interested. A labor organization that neither participated in the 
creation of the Corporation, nor appointed members of its governing 
board, but loaned money to the Corporation to use as matching money 
for HUD grants need not report the Corporation as a trust in which 
it is interested.
    Example C: The Educational Institute--Five reporting labor 
organizations form the Educational Institute to provide educational 
services primarily for the benefit of their members. Similar 
services are also provided to the general public. Each labor 
organization contributes funds to start the Educational Institute, 
which will then offer various educational programs that will 
generate revenue. Each labor organization that participated in 
forming the Institute, or that appoints a member to its governing 
body, must report the Educational Institute as a trust in which it 
is interested.
    Example D: Joint Funds--A reporting labor organization that 
forms a ``joint fund'' with a large national manufacturer to offer a 
variety of training and jobs skills programs for members of the 
labor organization, or appoints a member to the governing body of 
such a fund, must report the joint fund as a trust in which the 
labor organization has an interest.
    Example E: Job Targeting Fund--A reporting labor organization 
creates an entity for the purpose of making targeted disbursements 
to increase employment opportunities for its members. The fund must 
be reported as a trust in which the labor organization is 
interested.
    The Department revises the above language to read:
    The labor organization must disclose assets, liabilities, 
receipts, and disbursements of a subsidiary 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. An example of a subsidiary 
organization is a building corporation which holds title to a 
building; the labor organization owns the building corporation, 
selects the officers, and finances the operation of the building 
corporation.
    A labor organization is required to report financial information 
for each of its subsidiary organizations using one of the following 
methods:
    Method (1)--Consolidate the financial information for the 
subsidiary organization and the labor organization on a single Form 
LM-2.
    Method (2)--File, with the labor organization's Form LM-2, the 
regular annual report of the financial condition and operations of 
the subsidiary organization, accompanied by a statement signed by an 
independent public accountant certifying 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.
    Financial information reported separately for subsidiary 
organizations under method (2) must include the name of the 
subsidiary organization and the name and file number of the labor 
organization as shown on its Form LM-2. The financial report of the 
subsidiary organization must cover the same reporting period as that 
used by the reporting labor organization.
    When method (2) is used and the subsidiary organization is an 
investment, the financial interest of the reporting labor 
organization in the subsidiary organization must be reported in Item 
26 (Investments) and in Schedule 5 (Investments) of the labor 
organization's Form LM-2. When method (2) is used and the subsidiary 
organization is of a non-investment nature, the financial interest 
of the reporting labor organization in the subsidiary organization 
must be reported in Item 28 (Other Assets) and in Schedule 7 (Other 
Assets) of the labor organization's Form LM-2.
    The same type of information required on Form LM-2 regarding 
disbursements to officers and employees and loans made by labor 
organizations must also be reported with respect to the subsidiary 
organization. In method (1) the information relating to the 
subsidiary organization must be combined with that of the labor 
organization and reported on the labor organization's Form LM-2 on 
Schedule 11 (All Officers and Disbursements to Officers) and 
Schedule 12 (Disbursements to Employees) and Statement A, Item 24 
(Loans Receivable) and Schedule 2 (Loans Receivable) in the detail 
required by the instructions. If method (2) is used, an attachment 
must be submitted containing the information required by the 
instructions for Schedules 2, 11, and 12.
    The information regarding loans made by the subsidiary 
organization must include in Schedule 2 (Loans Receivable) a listing 
of the names of each officer, employee, or member of the labor 
organization and each officer or employee of the subsidiary 
organization whose total loan indebtedness to the subsidiary 
organization, to the labor organization, or to both at any time 
during the reporting period exceeded $250. However, if method (2) is 
used, the amount reported by the subsidiary organization should be 
only the amount owed to the subsidiary organization.
    The annual financial report must also include on Schedule 11 
(All Officers and Disbursements to Officers) all disbursements made 
by the subsidiary organization to or on behalf of its officers and 
officers of the labor organization. The report must also list on 
Schedule 12 (Disbursements to Employees) the name and position of 
the subsidiary organization's employees whose total gross salaries, 
allowances, and other disbursements from the subsidiary 
organization, the reporting labor organization, and any

[[Page 74961]]

affiliates were more than $10,000. However, if method (2) is used, 
only the disbursements of the subsidiary organization for its 
employees should be reported.

XI Completing Form LM-2

    Item 10 currently reads:
    10. TRUSTS OR FUNDS--Answer ``Yes'' to Item 10, if the labor 
organization has an interest in a trust as defined in 29 U.S.C. 
402(l) (see Section X of these Instructions). Provide in Item 69 
(Additional Information) the full name, address, and purpose of each 
trust. Also include in Item 69 the fiscal year ending date for any 
trust for which a Form T-1 is filed if the trust's fiscal year is 
different from that of the labor organization. If no Form T-1 is 
required to be filed on the trust because (1) the trust had annual 
receipts of less than $250,000 during the trust's most recent fiscal 
year or (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 less than $10,000, the labor 
organization should also report the amount of the contribution in 
Item 69 and, if the contribution was made by the labor organization 
itself, in the appropriate disbursement item in Statement B. 
Additionally, if no Form T-1 is filed because financial information 
is already available as a result of the disclosure requirements of 
another Federal statute, list the name of any government agency, 
such as the Employee Benefits Security Administration (EBSA) of the 
Department of Labor, with which the trust files a publicly available 
report, and the relevant file number of the trust, or otherwise 
indicate where the relevant report may be viewed. See Instructions 
for Form T-1, Trust Annual Report, for guidance on reporting the 
assets, liabilities, receipts, disbursements, and other information 
about these entities.
    The Department revises the above language to read:
    10. TRUSTS OR FUNDS--Answer ``Yes'' to Item 10, if the labor 
organization has an interest in a trust or other fund as defined in 
29 U.S.C. 402(l). Provide in Item 69 (Additional Information) the 
full name, address, and purpose of each trust or other fund. If a 
report has been filed for the trust or other fund under the Employee 
Retirement Income Security Act of 1974 (ERISA), report in Item 69 
(Additional Information) the ERISA file number (Employer 
Identification Number--EIN) and plan number, if any.
    A trust in which a labor organization is interested is defined 
in Section 3(l) of the LMRDA (29 U.S.C. 402(l)) 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.
    The determination whether a particular entity is a trust in 
which a labor organization is interested will be based on the facts 
in each case.
    The Department revises the Form LM-2 to break current Item 11 on 
the form into two questions to read as follows:
    Item 11(a). During the reporting period did the labor 
organization have a political action committee fund (PAC)?
    Item 11(b). During the reporting period did the labor 
organization have a subsidiary organization as defined in Section X 
of these Instructions?
    Current instructions read:
    If the labor organization answered ``Yes'' to Item 11, provide 
in Item 69 (Additional Information) the full name of each separate 
political action committee (PAC) and list the name of any government 
agency, such as the Federal Election Commission or a state agency, 
with which the PAC has filed a publicly available report, and the 
relevant file number of the PAC. (PAC funds kept separate from the 
labor organization's treasury need not be included in the labor 
organization's Form LM-2 if publicly available reports on the PAC 
funds are filed with a Federal or state agency.)
    The Department revises the above language to read:
    If the labor organization answered ``Yes'' to Item 11(a), in 
reference to a political action committee, provide in Item 69 
(Additional Information) the full name of each separate political 
action committee (PAC) and list the name of any government agency, 
such as the Federal Election Commission or a state agency, with 
which the PAC has filed a publicly available report, and the 
relevant file number of the PAC. (PAC funds kept separate from the 
labor organization's treasury need not be included in the labor 
organization's Form LM-2 if publicly available reports on the PAC 
funds are filed with a Federal or state agency.)
    If the labor organization answered ``Yes'' to Item 11(b), in 
reference to a subsidiary organization, provide in Item 69 
(Additional Information) the name, address, and purpose of each 
subsidiary organization. Indicate whether the information concerning 
its financial condition and operations is included in this Form LM-2 
or in a separate report. See Section X of these instructions for 
information on reporting subsidiary organizations.

Schedule 2--Loans Receivable

    The instructions regarding Column (A) currently read:
    Column (A): Enter the following information on Lines 1 through 3 
(and on continuation pages if necessary):
    <bullet> The name of each officer, employee, or member whose 
total loan indebtedness to the labor organization at any time during 
the reporting period exceeded $250, and the name of each business 
enterprise which had any loan indebtedness, regardless of amount, at 
any time during the reporting period;
    The Department revises the above language to read:
    Column (A): Enter the following information on Lines 1 through 3 
(and on continuation pages if necessary):
    <bullet> The name of each officer, employee, or member whose 
total loan indebtedness to the labor organization, including any 
subsidiary organization, at any time during the reporting period 
exceeded $250, and the name of each business enterprise which had 
any loan indebtedness, regardless of amount, at any time during the 
reporting period;
    Schedule 5--Investments Other Than U.S. Treasury Securities
    Schedule 5, Item 6 currently reads:
    List each other investment which has a book value over $5,000 
and exceeds 5% of Line 5. Also, list each Trust which is an 
investment.
    The Department revises Schedule 5, Item 6 to read:
    List each other investment which has a book value over $5,000 
and exceeds 5% of Line 5. Also, list each subsidiary for which 
separate reports are attached.
    The Instructions for Schedule 5 currently read:
    Report details of all the labor organization's investments at 
the end of the reporting period, other than U.S. Treasury 
securities. Include mortgages purchased on a block basis and any 
investments in a trust as defined in Section X (Trusts in Which a 
Labor Organization is Interested) of these instructions. Do not 
include savings accounts, certificates of deposit, or money market 
accounts, which must be reported in Item 22 (Cash) of Statement A.
    The Department revises the Instructions for Schedule 5 to read:
    Report details of all the labor organization's investments at 
the end of the reporting period, other than U.S. Treasury 
securities. Include mortgages purchased on a block basis and 
investments in any subsidiary organization not reported on a 
consolidated basis in accordance with method (1) explained in 
Section X of these instructions. Do not include savings accounts, 
certificates of deposit, or money market accounts, which must be 
reported in Item 22 (Cash) of Statement A.
    The Instructions for the Schedule 5, Note currently read:

    Note: All trusts in which the labor organization is interested 
which are investments of the labor organization (such as real estate 
trusts, building corporations, etc.) must be reported in Schedule 5. 
On Lines 6(a) through (d) enter the name of each trust in Column (A) 
and the labor organization's share of its book value in Column (B).

    The Department revises the Instructions for Schedule 5, Note to 
read:

    Note:  If your organization has a subsidiary organization for 
which a separate report is being submitted in accordance with 
Section X of these instructions, the subsidiary organization must be 
reported in Schedule 5 if it is an investment. Enter in Line F the 
name of each subsidiary organization in Column (A) and its book 
value in Column (B).

    The Instructions for Schedule 7--Other Assets, Note currently 
read:

    Note: If the labor organization has an ownership interest of a 
non-investment nature in a trust in which it is interested (such as 
a training fund) the value of the labor organization's ownership 
interest in the entity as shown on the labor organization's books 
must be reported in Schedule 7 (Other

[[Page 74962]]

Assets). Enter in Column (A) the name of any such entity. Enter in 
Column (B) the value as shown on the labor organization's books of 
its share of the net assets of any such entity.

    The Department revises the Instructions for Schedule 7, Note to 
read:

    Note: If your organization has a subsidiary organization for 
which a separate report is being submitted in accordance with 
Section X of these instructions, the value of the subsidiary 
organization as shown on your organization's books must be reported 
in Schedule 7 if it is of a non-investment nature. Enter in Column 
(A) the name of any such subsidiary organization. Enter in Column 
(B) the value as shown on your organization's books of the net 
assets of any such subsidiary organization.

    The Instructions for Schedule 12--Disbursements to Employees, 
Columns (A), (B), and (C) currently read:
    Column (A): Enter the last name, first name, and middle initial 
of each employee who during the reporting period received $10,000 or 
more in gross salaries, allowances, and other direct and indirect 
disbursements from the labor organization or from the labor 
organization and any affiliates and/or trusts of the labor 
organization. (``Affiliates'' means labor organizations chartered by 
the same parent body, governed by the same constitution and bylaws, 
or having the relation of parent and subordinate.) The labor 
organization's report, however, should not include disbursements 
made by affiliates or trusts but should include only the 
disbursements made by the labor organization.
    Column (B): Enter the position each listed employee held in the 
labor organization.
    Column (C): Enter the name of any affiliate or trust that paid 
any salaries, allowances, or expenses on behalf of a listed 
employee.
    The Department revises the Instructions for Schedule 12, Columns 
(A), (B), and (C) to read:
    Column (A): Enter the last name, first name, and middle initial 
of each employee who during the reporting period received $10,000 or 
more in gross salaries, allowances, and other direct and indirect 
disbursements from the labor organization (including any subsidiary 
organizations) or from any affiliates of the labor organization. 
(``Affiliates'' means labor organizations chartered by the same 
parent body, governed by the same constitution and bylaws, or having 
the relation of parent and subordinate.) The labor organization's 
report, however, should not include disbursements made by affiliates 
but should include only the disbursements made by the labor 
organization.
    Column (B): Enter the position each listed employee held in the 
labor organization (including any subsidiary organizations).
    Column (C): Enter the name of any affiliate that paid any 
salaries, allowances, or expenses on behalf of a listed employee. If 
a subsidiary of the labor organization paid any salaries, 
allowances, or expenses on behalf of a listed employee, see Section 
X of these Instructions for information about reporting these 
disbursements.
    The Department seeks comments on its proposed changes to the 
Form LM-2 and instructions.

Appendix B: Specific Proposed Changes to the Form LM-3 and Form LM-4 
Instructions

    The text of the Form LM-3 and Form LM-4 Instructions will be 
changed to address the reporting of subsidiary organizations. With 
respect to the Form, the Department proposes to remove Item 3(c), 
which currently requires that a labor organization identify if the 
report is exclusively filed for a subsidiary organization, as the 
Department proposes to remove this option, as described above. The 
proposed revised Form LM-3 Instructions include changes to sections 
I, VIII and X.
    Section VIII currently reads:

VIII. FUNDS TO BE REPORTED

    Your labor organization's Form LM-3 must report financial 
information for all funds of your organization. Include any special 
purpose funds or accounts, such as strike funds, vacation funds, and 
scholarship funds even it they are not part of your organization's 
general treasury. All labor organization political action committee 
(PAC) funds are considered to be labor organization funds. However, 
to avoid duplicate reporting, PAC funds which are kept separate from 
your labor organization's treasury are not required to be included 
in your organization's Form LM-3 if publicly available reports on 
the PAC funds are filed with a Federal or state agency.
    Your organization is required to report financial information 
about any ``subsidiary organization(s).'' Financial information 
about your organization and its subsidiary organizations may be 
combined on a single Form LM-3 or a separate report may be filed for 
any subsidiary organization. See Section X of these instructions for 
information on reporting financial information for subsidiary 
organizations.
    In combining the information concerning special funds and/or any 
subsidiary organizations, be sure to include the requested 
information and amounts for the ``special funds'' and subsidiary 
organizations as well as for your organization in all items.
    The Department revises Section VIII to read:

VIII. FUNDS TO BE REPORTED

    Your labor organization's Form LM-3 must report financial 
information for all funds of your organization. Include any special 
purpose funds or accounts, such as strike funds, vacation funds, and 
scholarship funds even it they are not part of your organization's 
general treasury. All labor organization political action committee 
(PAC) funds are considered to be labor organization funds. However, 
to avoid duplicate reporting, PAC funds which are kept separate from 
your labor organization's treasury are not required to be included 
in your organization's Form LM-3 if publicly available reports on 
the PAC funds are filed with a Federal or state agency.
    Your organization is required to report financial information 
about any ``subsidiary organizations.'' Financial information about 
your organization and its subsidiary organizations may be combined 
on a single Form LM-3 or you may attach to your Form LM-3 report the 
regular annual report of the financial condition and operations of 
the subsidiary organization with a signed certification by an 
independent public accountant. See Section X of these instructions 
for information on reporting financial information for subsidiary 
organizations.
    If combining the information concerning subsidiary 
organizations, be sure to include the requested information and 
amounts for the subsidiary organizations as well as for all other 
assets of your union in all items.
    Current Section X reads:

X. LABOR ORGANIZATIONS WITH SUBSIDIARY ORGANIZATIONS

    A subsidiary organization, within the meaning of these 
instructions, is 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. An example of a subsidiary organization is a building 
corporation which holds title to a building; the labor organization 
owns the building corporation, selects the officers, and finances 
the operation of the building corporation.
    If your organization has no subsidiary organization as defined 
above, skip to Section Xl of these instructions.
    A labor organization is required to report financial information 
for each of its subsidiary organizations using one of the following 
methods:
    Method (1)--Consolidate the financial information for the 
subsidiary organization(s) and the labor organization on a single 
Form LM-3.
    Method (2)--Complete a separate Form LM-3 for the subsidiary 
organization and file it with the labor organization's Form LM-3. 
The LM-3 report for the subsidiary organization must be identified 
by selecting Item 3(c).
    Method (3)--File, with the labor organization's Form LM-3, the 
regular annual report of the financial condition and operations of 
the subsidiary organization, accompanied by a statement signed by an 
independent public accountant certifying 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. Financial information 
reported separately for subsidiary organizations under methods (2) 
and (3) above must include the name of the subsidiary organization 
and the name and file number of the labor organization as shown on 
its Form LM-3. The financial report of the subsidiary organization 
must cover the same reporting period as that used by the reporting 
labor organization.

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    When method (2) or (3) is used and the subsidiary organization 
is an investment, the financial interest of the reporting labor 
organization in the subsidiary organization must be reported in Item 
28 (Investments) of the labor organization's Form LM-3.
    When method (2) or (3) is used and the subsidiary organization 
is of a non-investment nature, the financial interest of the 
reporting labor organization in the subsidiary organization must be 
reported in Item 30 (Other Assets) of the labor organization's Form 
LM-3.
    The same type of information required on Form LM-3 regarding 
disbursements to officers and employees and loans made by labor 
organizations must also be reported with respect to the subsidiary 
organization. In method (1) the information relating to the 
subsidiary organization must be combined with that of the labor 
organization and reported on the labor organization's Form LM-3 in 
Item 24 and in Item 56 in the detail required by the instructions 
for Items 17 and 18. In method (2) this information must be reported 
on the separate Form LM-3 of the subsidiary organization in Item 24 
and in Item 56 in the detail required by the instructions for Items 
17 and 18. If method (3) is used, an attachment must be submitted 
containing the information required by the instructions for Items 
17, 18, and 24.
    The information regarding loans made by the subsidiary 
organization must include a listing of the names of each officer, 
employee, or member of the labor organization and each officer or 
employee of the subsidiary organization whose total loan 
indebtedness to the subsidiary organization, to the labor 
organization, or to both at any time during the reporting period 
exceeded $250. However, if method (2) or (3) is used, the amount 
reported by the subsidiary organization should be only the amount 
owed to the subsidiary organization.
    The annual financial report must also include all disbursements 
made by the subsidiary organization to or on behalf of its officers 
and officers of the labor organization. The report must also list 
the name and position of the subsidiary organization's employees 
whose total gross salaries, allowances, and other disbursements from 
the subsidiary organization, the reporting labor organization, and 
any affiliates were more than $10,000. However, if method (2) or (3) 
is used, only the disbursements of the subsidiary organization for 
its employees should be reported.
    The Department revises Section X to read:

X. LABOR ORGANIZATIONS WITH SUBSIDIARY ORGANIZATIONS

    A subsidiary organization, within the meaning of these 
instructions, is 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. An example of a subsidiary organization is a building 
corporation which holds title to a building; the labor organization 
owns the building corporation, selects the officers, and finances 
the operation of the building corporation.
    If your organization has no subsidiary organization as defined 
above, skip to Section Xl of these instructions.
    A labor organization is required to report financial information 
for each of its subsidiary organizations using one of the following 
methods:
    Method (1)--Consolidate the financial information for the 
subsidiary organization(s) and the labor organization on a single 
Form LM-3.
    Method (2)--File, with the labor organization's Form LM-3, the 
regular annual report of the financial condition and operations of 
the subsidiary organization, accompanied by a statement signed by an 
independent public accountant certifying 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. Financial information 
reported separately for subsidiary organizations under this method 
must include the name of the subsidiary organization and the name 
and file number of the labor organization as shown on its Form LM-3. 
The financial report of the subsidiary organization must cover the 
same reporting period as that used by the reporting labor 
organization.
    When method (2) is used and the subsidiary organization is an 
investment, the financial interest of the reporting labor 
organization in the subsidiary organization must be reported in Item 
28 (Investments) of the labor organization's Form LM-3.
    When method (2) is used and the subsidiary organization is of a 
non-investment nature, the financial interest of the reporting labor 
organization in the subsidiary organization must be reported in Item 
30 (Other Assets) of the labor organization's Form LM-3.
    The same type of information required on Form LM-3 regarding 
disbursements to officers and employees and loans made by labor 
organizations must also be reported with respect to the subsidiary 
organization. In method (1) the information relating to the 
subsidiary organization must be combined with that of the labor 
organization and reported on the labor organization's Form LM-3 in 
Item 24 (All Officers and Disbursements to Officers) and in Item 56 
(Additional Information) for Items 17 (Employees) and 18 (Loans), in 
the detail required by the instructions. If method (2) is used, an 
attachment must be submitted containing the information required by 
the instructions for Items 17, 18, and 24.
    The information regarding loans made by the subsidiary 
organization must include a listing of the names of each officer, 
employee, or member of the labor organization and each officer or 
employee of the subsidiary organization whose total loan 
indebtedness to the subsidiary organization, to the labor 
organization, or to both at any time during the reporting period 
exceeded $250. However, if method (2) is used, the amount reported 
by the subsidiary organization should be only the amount owed to the 
subsidiary organization.
    The annual financial report must also include all disbursements 
made by the subsidiary organization to or on behalf of its officers 
and officers of the labor organization. The report must also list 
the name and position of the subsidiary organization's employees 
whose total gross salaries, allowances, and other disbursements from 
the subsidiary organization, the reporting labor organization, and 
any affiliates were more than $10,000. However, if method (2) is 
used, only the disbursements of the subsidiary organization for its 
employees should be reported.

Appendix C: Revised Form LM-2 (Form and Instructions); Revised Form LM-
3 (Form and Instructions); and Revised Form LM-4 (Instructions Only)

BILLING CODE P

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    Signed in Washington, DC, this 9th day of November 2010.
John Lund,
Director, Office of Labor-Management Standards.
[FR Doc. 2010-29226 Filed 11-30-10; 8:45 am]
BILLING CODE C


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