3678 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

1There are now more large labor organizations 

affiliated with a national or international body than 

ever before. At the close of FY 2005, 4,452 labor 

organizations, including 101 national and 

international labor organizations, reported $250,000 

or more in total annual receipts. Unless otherwise 

noted, all estimates are based on data from the 

OLMS electronic labor organization reporting 

system (‘‘e.LORS’’) for FY 2005. 

DEPARTMENT OF LABOR 

Employment Standards Administration 

29 CFR Parts 403 and 408 

RIN 1215–AB62 

Labor Organization Annual Financial 

Reports 

AGENCY: Office of Labor-Management 

Standards, Employment Standards 

Administration, Department of Labor. 

ACTION: Final Rule. 

SUMMARY: The Department of Labor’s 

Employment Standards Administration 

(‘‘ESA’’) Office of Labor-Management 

Standards (‘‘OLMS’’) publishes this 

Final Rule to make several revisions to 

the current Form LM–2 (used by the 

largest labor organizations to file their 

annual financial reports) that will 

provide additional information on 

Schedules 3, 4, 11 and 12, clarify 

reporting under certain functional 

categories and add itemization 

schedules corresponding to categories of 

receipts, and establish a procedure and 

standards by which the Secretary of 

Labor may revoke a particular labor 

organization’s privilege to file a 

simplified annual report, Form LM–3, 

where appropriate, after investigation, 

due notice, and opportunity for a 

hearing. The changes are made pursuant 

to section 208 of the Labor-Management 

Reporting and Disclosure Act 

(‘‘LMRDA’’), 29 U.S.C. 438. The final 

rule will apply prospectively. 

DATES: Effective Date: This rule shall 

take effect on February 20, 2009. 

Applicability Date: This rule will 

apply prospectively to labor 

organizations whose fiscal years begin 

on or after July 1, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Denise Boucher, Director of the Office of 

Policy, Reports and Disclosure, at: 

Denise M. Boucher, U.S. Department of 

Labor, Employment Standards 

Administration, Office of LaborManagement Standards, 200 

Constitution Avenue, NW., Room 

N–5609, Washington, DC 20210, (202) 

693–1185 (this is not a toll-free 

number). (800) 877–8339 (TTY/TDD). 

SUPPLEMENTARY INFORMATION: 

I. Statutory Authority 

This final rule is issued pursuant to 

section 208 of the LMRDA, 29 U.S.C. 

438. Section 208 authorizes the 

Secretary of Labor to issue, amend, and 

rescind rules and regulations to 

implement the LMRDA’s reporting 

provisions. Secretary’s Order 4–2007, 

issued May 2, 2007, and published in 

the Federal Register on May 8, 2007 (72 

FR 26159), contains the delegation of 

authority and assignment of 

responsibility for the Secretary’s 

functions under the LMRDA to the 

Assistant Secretary for Employment 

Standards and permits re-delegation of 

such authority. This rule implements 

section 201 of the LMRDA, which 

requires covered labor organizations to 

file annual, public reports with the 

Department, identifying the labor 

organization’s 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, loans (of any 

amount) to any business enterprise, and 

other disbursements during the 

reporting period. 29 U.S.C. 431(b). The 

statute requires that such information 

shall be filed ‘‘in such detail as may be 

necessary to disclose [a labor 

organization’s] financial conditions and 

operations.’’ Id. 

Section 208 authorizes the Secretary 

to establish ‘‘simplified reports for labor 

organizations or employers for whom 

[s]he finds that by virtue of their size a 

detailed report would be unduly 

burdensome.’’ Section 208 also 

authorizes the Secretary to revoke this 

privilege for any labor organization or 

employer if the Secretary determines, 

after such investigation as she deems 

proper and due notice and opportunity 

for a hearing, that the purposes of 

section 208 would be served by 

revocation. 

II. Background 

A. Introduction 

On May 12, 2008, the Department 

issued a notice of proposed rulemaking 

(73 FR 27346) proposing to modify and 

improve the Form LM–2 by requiring 

additional information about the receipt 

and disbursement of labor organization 

funds, and establish standards and 

procedures for revoking, where 

appropriate, the privilege afforded some 

labor organizations to file simplified 

annual reports, after investigation, due 

notice, and opportunity for hearing. As 

noted in the proposal, the revisions to 

Form LM–2 and the standards and 

procedures for revoking a labor 

organization’s simplified filing privilege 

are part of the Department’s continuing 

effort to better effectuate the reporting 

requirements of the LMRDA. 

The Department initially provided for 

a 45-day comment period ending June 

26, 2008. In response to public requests, 

the Department published a notice 

extending the comment period to July 

11, 2008. (73 FR 34913). The 

Department received 536 comments on 

the LM–2/LM–3 NPRM, excluding 

requests for extensions. Of these 

comments, approximately 45 were 

unique comments. The remaining 

comments were copies of a form letter 

endorsing the proposal. Comments were 

received from labor organizations, 

employers, trade and public interest 

groups, and two Members of Congress. 

The LMRDA’s various reporting 

provisions are designed to empower 

labor organization members by 

providing them the means and 

information to maintain democratic 

control over their labor organizations 

and ensure a proper accounting of labor 

organization funds. Labor organization 

members are better able to monitor their 

labor organization’s financial affairs and 

to make informed choices about the 

leadership of their labor organization 

and its direction when they receive the 

financial information required by the 

LMRDA. By reviewing the reports, a 

member may ascertain the labor 

organization’s priorities and whether 

they are in accord with the member’s 

own priorities and those of fellow 

members. At the same time, this 

transparency promotes both the labor 

organizations’ own interests as 

democratic institutions and the interests 

of the public and the government. 

Furthermore, the LMRDA’s reporting 

and disclosure provisions, together with 

the fiduciary responsibility provision, 

29 U.S.C. 501, which directly regulates 

the primary conduct of labor 

organization officials, operate to 

safeguard a labor organization’s funds 

from depletion by improper or illegal 

means. Timely and complete reporting 

also helps deter labor organization 

officers or employees from making 

improper use of such funds or 

embezzling assets. 

The final rule brings the reporting 

requirements for labor organizations in 

line with contemporary expectations for 

the disclosure of financial information. 

Today labor organizations are more like 

modern corporations in their structure, 

scope, and complexity than the labor 

organizations of 1959.1 Further, as 

benefits have become a larger 

component of compensation, 

information about such benefits has 


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2The balance between wages/salaries paid to 

workers and their ‘‘other compensation’’ has 

changed significantly during this time. For 

example, in 1966, over 80% of total compensation 

consisted of wages and salaries, with less than 20% 

representing benefits. U.S. Department of Labor, 

Report on the American Workforce (2001) 76, 87. 

By 2007, wages dropped to 70.8% of total 

compensation and benefits grew to 29.4% of the 

compensation package. U.S. Department of Labor, 

Bureau of Labor Statistics Chart on Total Benefits, 

available on the Web site of the Bureau of Labor 

Statistics, http://www.bls.gov. 

3The format of Forms LM–2 and LM–3 remained 

essentially unchanged from the early 1960s, when 

the Department issued the first and second 

generation of rules under the Act, until October 

2003 when the revised Form LM–2 was issued. See, 

e.g., 25 FR 433 (Jan. 20, 1960); 28 FR 14383 (Dec. 

27, 1963). The Form LM–4 was adopted by a final 

rule in 1992 with an effective date of December 31, 

1993. See 57 FR 49356–49365 (Oct. 30, 1992). The 

effective date was subsequently postponed until 

December 31, 1994. See 58 FR 28304 (May 12, 

1993). The Form LM–4 was then revised slightly 

and adopted by a final rule with the same December 

31, 1994 effective date. See 58 FR 67594 (Dec. 21, 

1993). 

become more important to members.2

Moreover, labor organization members 

today are better educated, more 

empowered, and more familiar with 

financial data and transactions than ever 

before. As labor organization members, 

no less than as consumers, citizens, or 

creditors, they expect access to relevant 

and useful information in order to make 

fundamental investment, career, and 

retirement decisions, evaluate options, 

and exercise legally guaranteed rights. 

B. The LMRDA’s Reporting and Other 

Requirements 

In enacting the LMRDA in 1959, a 

bipartisan Congress made the legislative 

finding that in the labor and 

management fields ‘‘there have been a 

number of instances of breach of trust, 

corruption, disregard of the rights of 

individual employees, and other failures 

to observe high standards of 

responsibility and ethical conduct 

which require further and 

supplementary legislation that will 

afford necessary protection of the rights 

and interests of employees and the 

public generally as they relate to the 

activities of labor organizations, 

employers, labor relations consultants, 

and their officers and representatives.’’ 

29 U.S.C. 401(a). 

The statute was the direct outgrowth 

of a congressional investigation 

conducted by the Select Committee on 

Improper Activities in the Labor or 

Management Field, commonly known as 

the McClellan Committee, chaired by 

Senator John McClellan of Arkansas. In 

1957, the committee began a highly 

publicized investigation of labor 

organization racketeering and 

corruption; and its findings of financial 

abuse, mismanagement of labor 

organization funds, and unethical 

conduct provided much of the impetus 

for enactment of the LMRDA’s remedial 

provisions. See generally Benjamin 

Aaron, The Labor-Management 

Reporting and Disclosure Act of 1959, 

73 Harv. L. Rev. 851, 851–55 (1960). 

During the investigation, the committee 

uncovered a host of improper financial 

arrangements between officials of 

several international and local labor 

organizations and employers (and labor 

consultants aligned with the employers) 

whose employees were represented by 

the labor organizations in question or 

might be organized by them. See 

generally Interim Report of the Select 

Committee on Improper Activities in the 

Labor or Management Field, S. Rep. No. 

85–1417 (1957); see also William J. 

Isaacson, Employee Welfare and Benefit 

Plans: Regulation and Protection of 

Employee Rights, 59 Colum. L. Rev. 96 

(1959). 

The statute was designed to remedy 

these various ills through a set of 

integrated provisions aimed at labor 

organization governance and 

management. These include a ‘‘bill of 

rights’’ for labor organization members, 

which provides for equal voting rights, 

freedom of speech and assembly, and 

other basic safeguards for labor 

organization democracy, see 29 U.S.C. 

411–15; 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; detailed 

procedural, substantive, and reporting 

requirements relating to labor 

organization trusteeships, see 29 U.S.C. 

461–66; detailed procedural 

requirements for the conduct of 

elections of labor organization officers, 

see 29 U.S.C. 481–83; safeguards for 

labor organizations, including bonding 

requirements, the establishment of 

fiduciary responsibilities for labor 

organization officials and other 

representatives, criminal penalties for 

embezzlement from a labor 

organization, a prohibition on certain 

loans by a labor organization to officers 

or employees, prohibitions on 

employment and officeholding of 

certain convicted felons in a labor 

organization, and prohibitions on 

payments to employees, labor 

organizations, and labor organization 

officers and employees for prohibited 

purposes by an employer or labor 

relations consultant, see 29 U.S.C. 501– 

05; and prohibitions against extortionate 

picketing, retaliation for exercising 

protected rights, and deprivation of 

LMRDA rights by violence, see 29 

U.S.C. 522, 529, 530. 

Financial reporting and disclosure 

was conceived as a partial remedy for 

these improper practices. As noted in a 

key Senate Report on the legislation, 

disclosure would discourage 

questionable practices (‘‘The searchlight 

of publicity is a strong deterrent.’’); aid 

labor organization governance (Labor 

organizations will be able ‘‘to better 

regulate their own affairs. The members 

may vote out of office any individual 

whose personal financial interests 

conflict with his duties to members.’’); 

facilitate legal action by members 

against ‘‘officers who violate their duty 

of loyalty to the members’’; and create 

a record (The reports will furnish a 

‘‘sound factual basis for further action in 

the event that other legislation is 

required.’’). S. Rep. No. 187 (1959), at 

16, reprinted in 1 NLRB Legislative 

History of the Labor-Management 

Reporting and Disclosure Act of 1959, at 

412. 

Section 201 of the LMRDA requires 

labor organizations to file annual, public 

reports with the Department, detailing 

the labor organization’s financial 

condition and operations. 29 U.S.C. 

431(b). The Department has developed 

several forms for implementing the 

LMRDA’s financial reporting 

requirements. The annual report forms 

(Form LM–2, Form LM–3, and Form 

LM–4), require information about a 

labor organization’s assets, liabilities, 

receipts, disbursements, loans to officers 

and employees and business 

enterprises, direct and indirect 

payments to each officer, and payments 

to each employee of the labor 

organization paid more than $10,000 

during the fiscal year.3 The reporting 

detail required of labor organizations, as 

the Secretary has established by rule, 

varies depending on the amount of the 

labor organization’s annual receipts. 29 

CFR 403.4. 

Labor organizations with annual 

receipts of at least $250,000 and all 

labor organizations in trusteeship 

(without regard to the amount of their 

annual receipts) must file the Form LM– 

2. 29 CFR 403.2–403.4. This form may 

be filed voluntarily by any other labor 

organization. The Form LM–2 requires 

receipts and disbursements to be 

reported by functional categories, such 

as representational activities; political 

activities and lobbying; contributions, 

gifts, and grants; union administration; 

and benefits. Further, the form requires 

filers to allocate the time their officers 

and employees spend according to 

functional categories, as well as the 

payments that each of these officers and 

employees receive, and it compels the 

itemization of certain transactions 


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4The Form LM–2 and its instructions are 

published at 68 FR 58449–523 (Oct. 9, 2003) and 

are available at http://www.olms.dol.gov. Copies of 

the Form LM–3 and Form LM–4 are also available 

at http://www.olms.dol.gov. 

5The 2003 rule set this amount at $250,000. 

However, the rule inadvertently failed to change the 

figure in 29 CFR 403.4(a)(1) from $200,000 to 

$250,000. As part of this final rule, the Department 

has revised section 403.4(a)(1) by correcting it to 

read ‘‘$250,000.’’ See text of regulation. 

6When the current Form LM–2 was revised in 

2003, the Department also established a Form T–1. 

The latter was vacated by the DC Circuit in 

American Federation of Labor and Congress of 

Industrial Organizations v. Chao, 409 F.3d 377 

(2005). See discussion at 73 FR 57412, 57413 (Oct. 

2, 2008). The Form LM–2 instructions contained 

descriptive information about the Form T–1. As 

discussed in its proposal to revise the Form LM– 

2, 73 FR at 57416, the Department noted that it had 

proposed to establish a new Form T–1 (73 FR 11754 

(Mar. 4, 2008)) and that a final Form T–1 rule 

would affect the instructions to the Form LM–2. 

Because the Form T–1 published on October 2, 

2008, 73 FR 57412, differs in some respects from 

the Form T–1, as described in the 2003 rule, the 

Department has revised the relevant portion of the 

Form LM–2 instructions to reflect the new Form T– 

1. The most significant changes have been made to 

Section X of the General Instructions. Compare the 

language of the new Form LM–2 instructions, at 

pages 4–6, with the language in the new Form T– 

1 instructions, at pages 1–3, shown at 73 FR at 

57457–59. Minor changes have been made to 

sections II and VII of the General Instructions; items 

10 (‘‘Trusts or Funds’’) and 11 (‘‘Political Action 

Committee Funds’’); and Schedule 7 (‘‘Other 

Assets’’). 

totaling $5,000 or more. This form must 

be electronically signed and filed with 

the Department.4

Forms LM–3 and LM–4 were 

developed by the Secretary to meet the 

LMRDA’s charge that she develop 

‘‘simplified reports for labor 

organizations and employers for whom 

[s]he finds by virtue of their size a 

detailed report would be unduly 

burdensome,’’ 29 U.S.C. 438. A labor 

organization not in trusteeship that has 

total annual receipts less than $250,000 

for its fiscal year may elect, ‘‘subject to 

revocation of the privilege,’’ to file Form 

LM–3 or Form LM–4, depending on its 

total annual receipts, instead of Form 

LM–2. See 29 CFR 403.4(a)(1).5 The 

Form LM–3, which may be used by a 

labor organization with annual receipts 

of $10,000 or greater, but less than 

$250,000, is a five-page document 

requiring labor organizations to provide 

particularized information by certain 

categories, but in less detail than Form 

LM–2. A labor organization not in 

trusteeship that has total annual receipts 

less than $10,000 for its fiscal year may 

elect, ‘‘subject to revocation of the 

privilege,’’ to file Form LM–4 instead of 

Form LM–2 or Form LM–3. 29 CFR 

403.4(a)(2). The Form LM–4 is a twopage document that requires a labor 

organization to report only the total 

amounts of its assets, liabilities, 

receipts, disbursements, and payments 

to officers and employees. 

With regard to each of these reports, 

the LMRDA states that the Secretary of 

Labor shall ‘‘prescribe the[ir] form and 

publication * * * and such other 

reasonable rules and regulations * * * 

as he may find necessary to prevent the 

circumvention or evasion of such 

reporting requirements.’’ 29 U.S.C. 438. 

This final rule revises the Form LM–2 

and establishes a procedure and 

standards for revocation of a labor 

organization’s simplified filing 

privilege. The revised Form LM–2 will 

provide greater transparency of labor 

organization finances and effectuate the 

goals of the LMRDA. 

III. Changes to the Form LM–2 and the 

Form LM–3 

A. Form LM–2 

1. Introduction 

The Department proposed changes to 

enhance the Form LM–2 by requiring 

labor organizations to disclose 

additional information about their 

financial activities to their members, 

this Department, and the public. Each of 

the changes proposed has been adopted 

in the final rule, with some 

modifications in response to public 

comment received on the proposals. On 

the revised form, labor organizations 

will provide additional information in 

Schedule 3 (‘‘Sale of Investments and 

Fixed Assets’’) and Schedule 4 

(‘‘Purchase of Investments and Fixed 

Assets’’) that will allow verification that 

these transactions are performed at 

arm’s length and without conflicts of 

interest. Schedules 11 and 12 have also 

been revised to require reporting of the 

value of benefits paid to and on behalf 

of officers and employees. This change 

will provide a more accurate picture of 

total compensation received by labor 

organization officers and employees. 

Labor organizations will report on 

Schedules 11 and 12 travel 

reimbursements indirectly paid on 

behalf of labor organization officers and 

employees. This change will provide 

more accurate information on travel 

disbursements for labor organization 

officers and employees. The 

enhancements also include additional 

schedules corresponding to the 

following categories of receipts: Dues 

and Agency Fees; Per Capita Tax; Fees, 

Fines, Assessments, Work Permits; Sales 

of Supplies; Interest; Dividends; Rents; 

On Behalf of Affiliates for Transmittal to 

Them; and From Members for 

Disbursement on Their Behalf. These 

new schedules will require the reporting 

of additional information, by receipt 

category, of aggregated receipts of 

$5,000 or more. The $5,000 threshold 

for itemization is used throughout the 

Form LM–2. This change is consistent 

with the information currently provided 

for disbursements. Finally, the 

Department is amending the Form 

LM–2 instructions to conform to the 

requirements of the Form T–1 published 

on October 2, 2008.6

The Department also sought comment 

on three specific questions: Whether the 

functional categories on the Form LM– 

2 should be changed in order to improve 

their usability to members of labor 

organizations and the public; whether 

the confidentiality exception from the 

Form LM–2 instructions should be 

narrowed, clarified or removed; and 

‘‘whether all transactions greater than 

$5,000 should be identified by amount 

and date in the relevant schedules, 

permitting, however, labor 

organizations, where acting in good 

faith and on reasonable grounds, to 

withhold information that otherwise 

would be reported, in order to prevent 

the divulging of information relating to 

the labor organization’s prospective 

organizing or negotiat[ing] strategy.’’ 73 

FR at 27352–53. Comments were 

received on these questions; however, 

with the exception of a clarification 

about the use of the confidentiality 

exception for reporting payments under 

a job targeting or market recovery 

program, the Department has made no 

changes to the Form LM–2 on the points 

for which specific comments were 

requested. 

The Department framed the request 

regarding the appropriateness of the 

functional reporting categories as 

follows: 

The Department also requests comment 

from the public regarding the 

appropriateness of the current functional 

disbursement categories in the Form LM–2. 

Comment is sought on whether changes 

should be made to these sections in order to 

improve their usability to members of labor 

organizations and the public. 

73 FR at 27348. Numerous comments 

were received on this question. Several 

commenters expressed support for the 

continued use of the functional 

categories, which they find useful. Some 

commenters argued that no changes 

should be made to the functional 

categories, arguing that the functional 

categories place an unnecessary burden 

on unions and that unions have already 

spent considerable time to modify their 


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accounting systems to allow for 

reporting on the current Form LM–2. 

Among the suggestions for improving 

the functional categories were the 

following: 

• Separate reporting for organizing 

and representation functions and 

require additional itemization. 

• Lower the itemization threshold 

from $5,000 to $200. 

• Require accurate reporting of time 

spent, rather than an estimate to the 

nearest 10%, by officers and employees 

on activities in the functional categories. 

• Require details regarding specific 

matters, cases, contracts, or grievances 

for which legal fees or other 

representational expenses, including 

staff time, are incurred. 

The Department requested comment 

on the functional categories to further 

its understanding of any problems, 

concerns, or areas where improvement 

would be useful. Other than the items 

specifically listed, the Department did 

not propose general changes to the 

functional categories. The Department 

sought comment for informational 

purposes. That information has been 

received and reviewed and will be used 

to guide any changes that may be 

proposed in this area in the future. 

The remaining two questions are 

discussed below in connection with 

Schedule 15. 

The enhancements adopted in today’s 

final rule, as more fully described 

below, will ensure that information is 

reported in such a way as to meet the 

objectives of the LMRDA by providing 

labor organization members with useful 

data that will enable them to be 

responsible and effective participants in 

the democratic governance of their labor 

organizations. The enhancements are 

designed to provide members of labor 

organizations with additional and more 

detailed information about the financial 

activities of their labor organization that 

is not currently available through the 

Form LM–2 reporting. Moreover, 

experience with the software and 

technology developed for the 2003 

revisions show that it is possible to 

provide the level of detail necessary to 

give labor organization members a more 

accurate picture of their labor 

organization’s financial condition and 

operations without imposing an 

unwarranted burden on reporting labor 

organizations. The Department is 

revising the Form LM–2 software 

currently in use by Form LM–2 filers to 

conform to the enhancements made in 

today’s final rule and will make the 

software available to filers without 

charge. 

2. The Revisions to the Form LM–2 and 

Instructions 

a. General 

The Department received numerous 

comments on the proposed changes to 

the Form LM–2. While many comments 

concerned particular aspects of the 

proposal, many who opposed the 

proposal made some or all of the 

following claims: (1) The proposal 

comes too soon after, and without 

adequate justification to depart from, 

the reporting requirements established 

in 2003; (2) the proposal lacks the 

support of union members and 

supersedes their right to examine 

records underlying their union’s 

financial reports; and (3) the proposal, 

especially the additional itemization to 

be required of labor organizations, 

places unnecessary and costly burdens 

on them. The comments received on 

these points are discussed below. 

(1) Timing and Justification for 

Changing the Form 

Several commenters raised questions 

about the timing of and justification for 

the proposed changes. For example, one 

commenter stated that the Department’s 

proposal to require additional detailed 

reporting by labor organizations was 

made without any review by the 

Department of whether the 2003-revised 

Form LM–2 has been effective or 

beneficial to union members. It 

suggested that the Department failed to 

provide concrete examples of the need 

for a particular change or for how a 

change would address a concrete 

problem. Another commenter stated that 

by changing the reporting requirements 

so soon after the 2003 revision, the 

Department would impose needless, but 

significant, non-recurring costs on filers. 

The 2003 rule represented an 

extensive change in the annual financial 

reports required under the LMRDA. The 

2003 rule represented the first 

significant change in the Form LM–2 in 

over 40 years. Among other things, it 

required unions to report information in 

new functional categories, union 

officials to allocate how they spend 

their time working on members’ 

interests, itemize major disbursements, 

identify tardy accounts receivables, and 

file the reports electronically in a format 

that allows for computer-assisted review 

and dissemination via the Internet. 

When the Department formulated its 

proposal to revise further the Form LM– 

2, it had the benefit of three cycles of 

reviewing forms submitted in accord 

with the 2003 revision to assess the 

utility of the form and to identify areas 

in which improvement was needed. In 

developing the proposals, the 

Department has had the opportunity to 

review thousands of forms and to tap 

the experience gained by its staff in 

investigating Form LM–2 issues and 

from their dialogue with union officials 

and union members while providing 

Form LM–2 compliance assistance to 

them. The Department has had the 

additional benefit of the lessons learned 

since the 2003 rule took effect in 

developing other LMRDA reports (Form 

LM–30 and Form T–1) and defending 

these reports in litigation before the 

federal courts. 

The changes proposed and adopted in 

the instant rulemaking are incremental 

changes to the 2003 revisions. As stated 

in the NPRM and the discussion below, 

the Department acknowledges that 

unions will incur some additional 

burden in making the changes. In 

contrast to the 2003 revisions to the 

Form LM–2, however, the burden is 

minimal. Unions already have systems 

with the capability of itemizing 

disbursements; and there is no apparent 

reason (and none of the commenters 

suggested otherwise) why the same 

systems cannot be adapted for itemizing 

receipts. 

As discussed in greater detail in the 

PRA section of the preamble, the 

Department has carefully considered the 

comments about its preliminary burden 

estimates, as set forth in the NPRM. The 

Department has revised upwards its 

estimate of the recurring burden 

associated with the new changes to the 

Form LM–2 to 15.6 hours, an increase 

of about 35 percent from the estimate in 

the NPRM. The revised estimate 

includes the changes made to the form 

and instructions from their proposed 

versions. 

(2) Benefits to Union Members 

Some commenters stated that the 

Department failed to explain why union 

members would find the proposed 

reporting requirements to be useful. 

Another commenter expressed concern 

about the absence of any studies 

showing how union members are using 

the information being reported under 

the 2003-revised Form LM–2 to improve 

the accountability and fiscal 

management of their unions. As the 

Department explained in the NPRM, 73 

FR at 27346–48, the proposed rules 

were designed to improve the 

transparency of union finances and 

better effectuate the intention of 

Congress in enacting the Act’s reporting 

and disclosure provisions. As discussed 

above, the proposed changes were the 

result of the Department’s experience 

with the 2003-revised Form LM–2. 

Through this experience, it became 

evident to the Department’s staff that 


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the Form LM–2 incompletely reflected 

the compensation paid to union 

officials. Notably missing from the 

reports was a true reflection of the 

amounts of compensation being paid to 

or on behalf of individual officials. See 

73 FR at 27350. While salaries and most 

other disbursements were being 

reported on an individual basis, the 

reports failed to disclose the total 

amount of travel expenses incurred by 

union officials or the amount of benefits 

paid to them. In a similar fashion, the 

2003 Form LM–2 failed to provide 

itemization of a union’s receipts. 

Without this information, union 

members, the Department, and the 

public have been missing pertinent, 

material information about the union’s 

finances. The Department’s proposals, 

as adopted in this rule, provide greater 

transparency about a union’s finances. 

Further, each of the proposals was 

accompanied by one or more 

illustrations of why the changes are 

necessary and how they will benefit 

union members. These examples show 

the still opaque nature of the current 

reporting in some areas; the examples 

were chosen to highlight the problems 

rather than serve as an exhaustive 

listing of the problems. 

Some of the commenters suggest that 

union members have little or no concern 

about how the union conducts its 

finances and none about transactions as 

little as $5,000. They further suggest 

that any interest is easily met by a 

member’s right for ‘‘just cause’’ to 

review the union’s financial records if 

he or she has questions relating to the 

union’s finances. They assert, in effect, 

that LMRDA section 201(c), which 

provides union members a right to 

review records underlying a union’s 

financial report for ‘‘just cause,’’ 

becomes superfluous because of the 

additional detail that the Department 

would require. 

The commenters correctly recognize 

that Congress provided members an 

important right to obtain additional 

information about their union’s 

finances. The LMRDA requires both that 

a labor organization file annual reports 

with the Department, LMRDA section 

201(b), 29 U.S.C. 431(b), and make 

available to its members the information 

required to be contained in the annual 

report. LMRDA section 201(c), 29 U.S.C. 

431(c). However, they mistakenly view 

detailed reporting as undermining that 

right. In the Department’s view, the 

additional detail required by the 

changes to the Form LM–2 promotes the 

right of union members to seek further 

information about their union’s 

finances. Sections 201(b) and (c) are 

complementary. As noted by the DC 

Circuit, there is no inconsistency 

between the itemization required by the 

Form LM–2 and subsection 201(c) 

because section 201(c) simply requires 

disclosure of data that underlies a 

subsection 201(b) report. AFL–CIO v. 

Chao, 409 F.3d 377, 383–384 (D.C. Cir. 

2005). The Court explained that 

additional detail in the subsection 

201(b) reports would facilitate a union 

member’s right to probe further 

pursuant to subsection 201(c). Id. 

Today’s rule is entirely consistent with 

the approach taken by the Department 

in 2003 and the court’s view of the 

interplay between section 201(b) and 

201(c). The information that will be 

reported on the Form LM–2 under this 

final rule enhances the member’s right 

to examine underlying records. It 

enables a member to more easily 

identify transactions warranting 

additional scrutiny, which he or she can 

then pursue by requesting and 

examining underlying records. It 

thereby promotes the interests of the 

inquiring member, his or her fellow 

members, and the labor organization as 

an institution. 

By providing itemization of receipts, 

labor organizations will better disclose 

to their members a more complete 

accounting of all funds received and the 

identity of individuals and entities with 

which the labor organization does 

business. The Department also can use 

this information to determine the 

purpose of any receipt from one source 

in an amount of $5,000 or more, which 

will help identify possible 

misappropriation of funds. Members 

will be able to determine that money 

received by the labor organization is 

actually accounted for. For example, 

labor organization members can ensure 

that money they paid to the organization 

for disbursement on their behalf is 

properly accounted for on the Form 

LM–2. If there is no itemized receipt in 

new Schedule 22 for payments of $5,000 

or more, or the receipt is less than 

expected, then the member will know 

that the money was not properly 

reported and may pursue his or her right 

to examine the union’s books and 

records underlying the information 

reported on the Form LM–2. 

One commenter made the point that 

the question whether unions should 

make itemized disclosures of sales of 

union assets to non-insiders is the kind 

of question that should be resolved by 

the unions themselves in accord with 

their internal democratic processes. 

This process, it was argued, would 

better accord with members’ real 

interests than the Department’s imputed 

interest. The commenter points out that 

in many, if not most, instances the 

Department has acknowledged that the 

added detail on the proposed revised 

Form LM–2—for example the sale of a 

union automobile for less than its book 

value to a non-insider-can only be 

evaluated by a union member who, if he 

or she believes the matter worthy of 

further scrutiny, can follow up by 

exercising his or her LMRDA § 201(c) 

right to inspect union records. The 

Department agrees with the assessment 

that in most cases union members will 

be in the best position to determine 

whether a particular transaction or 

transactions raise questions that 

demand further examination of the 

underlying details. Nonetheless, as 

discussed above, Congress established a 

reporting system in which the 

Department and the general public also 

serve important roles. 

The Department cannot ensure 

adequate disclosure if itemization and 

reporting policies are left to the 

discretion of individual unions. 

Different reporting standards would 

lead to as many different forms and 

reporting requirements as there are labor 

organizations. Finally, members would 

have to research each individual labor 

organization to determine whether and 

where they report. For example, a 

member of a local who is affiliated with 

an international has an interest in the 

local, international, and any 

intermediate body. Under this final rule, 

the member can go to the Department 

Web site and search each labor 

organization’s filings containing 

information reported in a consistent 

format. If the decisions were left to the 

unions’ own choice, members would be 

provided information varying in detail 

and which could change from year to 

year, denying members the ability to 

make reliable historical and cross-union 

comparisons. The integrated reporting 

system adopted by the Department 

ensures that members can find 

information and know what information 

is provided on the reports. 

A number of the commenters asserted 

that the new receipt reporting 

requirements would produce a forest of 

financial minutia that is expensive to 

track and impossible for members to 

meaningfully interpret. One commenter 

estimated that the average Form LM–2 

report is 195 pages. The commenters 

also stated that labor organizations with 

$50 million or more in annual receipts 

filed, on average, 96.3 more pages in 

2007 than in 2004, a 97.4% increase. He 

stated that the proposed changes would 

add substantial length to the reports. 

This commenter and others questioned 

how many members will have the time, 

patience, and resources to meaningfully 


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Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 3683 

7The existing instructions for the Form LM–2 

(created in 2003) require itemization of ‘‘any 

individual disbursement of $5,000 or more or total 

disbursements to any single entity or individual 

that aggregate to $5,000 or more during the 

reporting period.’’ 

8The 1959 Senate report on the version of the bill 

later enacted as the LMRDA mandated that union 

members receive a full accounting of ‘‘union 

internal processes and financial operations.’’ S. 

Rep. No. 187, at 2, reprinted in 1 NLRB Leg. Hist. 

of the LMRDA, at 398. The LMRDA states that a full 

accounting includes ‘‘information in such detail as 

may be necessary accurately to disclose [the labor 

organization’s] financial condition and operations 

for its preceding fiscal year * * * [including] 

receipts of any kind and the sources thereof.’’ 29 

U.S.C. 431(b). Senator Kennedy stated that ‘‘receipts 

of any kind’’ was ‘‘intended to be as broad as it 

suggests * * * receipts of any kind and the sources 

thereof.’’ As noted in the Senate report ‘‘the 

members who are the real owners of the money and 

property of the organization are entitled to a full 

accounting of all transactions involving their 

property.’’ S. Rep. No. 187, at 8, reprinted in 1 

NLRB Leg. Hist. of the LMRDA, at 404. This rule 

furthers the Department’s goal of increased 

transparency. 

9The Department has reduced the recordkeeping 

and reporting burden associated with Schedules 14 

and 15, by requiring labor organizations to only 

report on these schedules the yearly aggregates it 

receives from represented employers and labor 

organizations. 

delve into their labor organization’s 

Form LM–2 report. 

The Department acknowledges that 

additional reporting requirements add 

length to a report and that the interest 

of individual union members to 

examine their union’s finances will vary 

greatly from individual to individual. 

The Department also recognizes that a 

typical member will not have an interest 

in investigating each transaction listed 

on the Form LM–2. However, a member 

need not study his or her labor 

organization’s entire Form LM–2 for the 

report to be useful. The member can use 

the summary schedules for quick 

references or, as discussed above, use 

the search function to find specific 

transactions. The summary schedules 

allow for quick references. For example, 

a quick look at any summary schedule 

might reveal a large number where one 

would expect a small number or a small 

number where one might expect a large 

number. If such a disparity is identified, 

the member is free to search the 

itemized receipt/disbursement 

schedules to investigate the unexpected 

aggregate. In one case a labor 

organization indicated on its Form LM– 

2 summary schedule that it had received 

$5,037,071 in rent. This accounted for 

more than ten percent of the labor 

organization’s total receipts. No 

itemized schedule for rents is available 

on the current Form LM–2. Another 

labor organization indicated on its Form 

LM–2 summary schedule that it had 

received $15,123,482 in receipts on 

behalf of affiliates for transmittal to 

them. This accounted for almost a 

quarter of the labor organization’s 

receipts, exceeded only by per capita 

taxes. Like rents, receipts on behalf of 

affiliates for transmittal to them are not 

itemized on the current Form LM–2. 

However, the newly revised Form LM– 

2 will provide the information necessary 

to evaluate the rent receipts and receipts 

on behalf of affiliates for transmittal to 

them. Another labor organization 

indicated that it received $6,900,000 in 

loans. This was the third largest source 

of its receipts and accounted for more 

than ten percent of its total receipts. 

Closer examination of the labor 

organization’s Form LM–2 Schedule 9 

(‘‘Loans Obtained’’) indicated that the 

loans were obtained from two 

institutions. There is no indication that 

these loans were illegal, but a member 

may want to know more about a large 

loan received in a year when the labor 

organization’s total receipts exceeded its 

disbursements by more than two million 

dollars. Further, itemization allows a 

member to search his or her labor 

organization’s Form LM–2 for specific 

vendors or purchasers. 

A commenter expressed concern that 

the Department has failed to recognize 

that labor organizations have numerous 

internal controls in place to detect and 

prevent embezzlement, including 

multiple levels of review for receipts 

and disbursements, annual internal 

audits, segregation of duties, banking 

tools such as ‘‘positive pay,’’ digital 

checks that eliminate check stock 

inventories and therefore, the changes 

are not providing additional benefit to 

union members. The Department 

acknowledges that many labor 

organizations have internal controls in 

place to detect and prevent 

embezzlement. In 2008, these internal 

controls combined with the 

Department’s on-going audit program 

and study of Form LM–2s have resulted 

in 93 embezzlement convictions and 

$3,134,415 in restitution. 

Notwithstanding these efforts, many 

financial irregularities continue to go 

undetected. The greater transparency 

provided by today’s rule will allow 

union members and the Department to 

better detect such irregularities and 

better deter, in the first instance, union 

officials and others from engaging in 

questionable financial practices. 

A few commenters stated that the 

additional reporting required by the 

proposals would confuse union 

members who would not be able to 

discern the nuances associated with 

these new requirements. The 

Department disagrees with this 

suggestion. The changes required by this 

rule are straightforward and will not be 

confusing to union members, whose 

ability to understand basic financial 

information seems to be underestimated 

by some commenters. Moreover, the 

Department would expect labor 

organizations to assist their members in 

properly understanding the financial 

reports and the Department, through its 

extensive compliance assistance 

program, is ready and able to assist any 

members who have questions. 

(3) Itemization 

A number of commenters asserted 

that it was a mistake for the Department 

in 2003 to require itemization of major 

disbursements,7 and that this mistake, 

in effect, would be compounded by 

applying this requirement to major 

receipts by a labor organization. At least 

one commenter stated that the $5,000 

threshold is too high; it suggested 

lowering it to $200. The question 

whether itemization is beneficial was 

answered in the 2003 rulemaking. As set 

forth in the preamble to that rule, 68 FR 

at 58389–91, itemization promotes the 

transparency of union finances, thereby 

providing union members with 

information essential for them to 

exercise their democratic rights within 

the union and to ensure that the union’s 

finances receive appropriate scrutiny by 

the members, this Department, and the 

public.8 In that rule, itemization was 

required for major disbursements by a 

union, providing greater transparency 

on that side of a union’s ledger. Today’s 

rule, in large part, merely extends that 

requirement to the union’s receivables, 

allowing members to see more clearly 

the source and amount of the union’s 

finances. 

The principle of aggregation, i.e., 

reporting an organization’s total 

expenditures within a particular 

category, while an accepted accounting 

principle, provides only a partial view 

of an organization’s finances, a 

shortcoming addressed in the 2003 rule 

by requiring itemization of 

disbursements of $5,000 or greater and 

in today’s rule by requiring as a general 

rule that receipts of $5,000 or greater 

must be identified. In those instances, 

where commenters demonstrated a 

particular problem with itemizing 

certain receipts, the Department has 

modified its proposals to meet these 

concerns. As discussed below, the 

Department acknowledges that the rule 

will impose some additional burden on 

labor organizations, but not nearly as 

much as suggested by some 

commenters.9


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The primary purpose of this 

rulemaking is the furtherance of labor 

organization transparency. See 73 FR at 

27346–47. OLMS experience over years 

of auditing and investigating union 

financial activities indicates that 

increased access to information 

concerning a labor organization’s 

finances will enable members to protect 

their own interests through more 

effective vigilance over union funds, 

and will aid OLMS in enforcement 

efforts. Although a member will not 

have knowledge of each receipt received 

by the labor organization, interested 

members will have information on 

many of the itemized dues and agency 

fees, per capita taxes, fees, fines, 

assessments, and work permits, sales of 

supplies, interest, dividends, rents, 

receipts on behalf of affiliates for 

transmittal to them, and receipts from 

members for disbursement on their 

behalf. For example, a member will be 

able to determine whether his or her 

labor organization is receiving the 

appropriate interest and dividends on 

its investments. Schedule 5 

(‘‘Investments’’) will list the book value 

of each investment of $5,000 or more as 

of the end of the year. The member can 

look at his or her labor organization’s 

most recent Form LM–2 (for the last 

fiscal year covered by the 2003 

revisions) to determine the book value 

of particular assets. With this 

information and the information 

provided on the new Form LM–2, the 

member can determine how much the 

labor organization received in increased 

value or interest during the reporting 

year. The member can calculate the 

amount of appreciation or interest, the 

latter based on either the rate of the 

particular institution identified on the 

Form LM–2 or the market average, 

which is available on the Internet. A 

disparity between the rate computed 

from the Form LM–2 and the market 

rate may indicate that further 

investigation is warranted to determine 

whether the disparity is due to bad 

investment choices or culpable actions. 

Moreover, as discussed in the preceding 

section, itemization effectively 

complements a member’s right to 

examine documentation underlying the 

information reported on the Form LM– 

2 by allowing him or her to identify 

major financial receipts involving the 

union, a task that would be very 

impractical, at best, without the 

itemization required by today’s rule. 

b. Particular Aspects of the Rule 

The following is a ‘‘section-bysection’’ discussion of the sections, 

items and schedules on the revised 

Form LM–2 and instructions: 

Items 1–21. These items are 

unchanged, except for some minor 

editorial changes, mostly concerning the 

reporting of information about trusts in 

which labor organizations hold an 

interest. See n. 6. 

Statement A. This statement is 

unchanged. 

Statement B. Receipts and 

Disbursements: This statement currently 

contains two primary columns, one with 

the heading ‘‘Cash Receipts’’ and one 

with the heading ‘‘Cash 

Disbursements.’’ Under each heading 

are items listed that describe categories 

of receipts or disbursements that should 

be reported. There are no changes to the 

items listed under ‘‘Cash Receipts.’’ As 

discussed below, however, the 

Department is adding, as proposed, 

additional schedules to correspond to 

items listed under ‘‘Cash Receipts’’ for 

which currently no schedules exist. As 

a result of these changes, the remaining 

cash disbursement items will be 

renumbered on Statement B. The new 

Form LM–2, including the new 

numbering system for the cash 

disbursement items can be found in the 

appendix to this final rule. 

Schedules 1–2. These schedules are 

unchanged. 

Schedules 3 and 4—Sale of 

Investments and Fixed Assets and 

Purchase of Investments and Fixed 

Assets: The Department adopts its 

proposal, but exempts certain stock 

transactions from particularized 

reporting as further discussed below. 

The first new column on the form, 

entitled ‘‘Name and Address of 

Purchaser (A),’’ will disclose the 

purchasers of investments and fixed 

assets from the labor organization, if in 

the aggregate the sales amount to $5,000 

or more per purchaser. A second 

column ‘‘Date (C)’’ will disclose the date 

of the sale. These additions will provide 

members of labor organizations and the 

public with information necessary to 

verify that the sale was transacted at 

market price and at arm’s length, 

thereby helping prevent interested 

parties from unjustly enriching 

themselves by purchasing labor 

organization assets at below-market 

price. In addition to the reasons 

discussed below, this disclosure is 

important because if an insider (e.g., 

officer or employee) receives property at 

below market price the receipt of such 

property is a disbursement to the insider 

that should be reported on Schedule 11 

or 12. 

As explained in the NPRM, 73 FR at 

27349–50, the Department believes that 

Schedules 3 and 4 of the current Form 

LM–2 do not provide labor organization 

members with adequate information to 

enable them to determine whether a 

particular purchase or sale of an 

investment or asset was transacted at 

market price and at arm’s length. For 

instance, one labor organization in its 

latest Form LM–2 reported that it had 

sold a ‘‘John Deere Lawn Tractor, Trailer 

and Mower’’ for $678, even though this 

asset had a book value and cost of 

$18,000. Another labor organization 

reported that it had sold automobiles 

that had a book value of $57,997, a ‘‘real 

estate investment trust’’ that had a book 

value of $25,735, and furniture and 

equipment with a book value of $7,634. 

For each of these items, the union listed 

the sale price as $0. This same labor 

organization sold corporate stocks with 

a book value of $29,570,505 for 

$34,297,627. Another union sold a Ford 

Explorer for $9,252 that had a book 

value of $23,471. As explained in the 

NPRM, 73 FR at 27349, in all these 

situations, labor organization members 

would be unable to determine whether 

the labor organization received fair 

market value for the items that it sold, 

whether an insider benefited from these 

transactions, or whether the union’s 

officials are properly managing the labor 

organization’s finances. 

The Department’s review of data filed 

on the current Form LM–2 has 

demonstrated that the current form does 

not provide labor organization members 

with a clear understanding of the 

entities that are receiving in some cases 

hundreds of millions of dollars of the 

labor organization members’ money. For 

instance, as discussed in the NPRM, id., 

one labor organization listed 

disbursements of $789,369,139, another 

labor organization reported 

disbursements of $313,978,214, and 

another labor organization reported 

disbursements of $156,544,561. Labor 

organizations also report smaller 

amounts on this schedule. For instance, 

three labor organizations reported 

disbursements of $5,353, $5,350, and 

$6,952 on this schedule. None of the 

reports disclose the parties that sold 

these assets to these labor organizations. 

As such, the members of these labor 

organizations are not in a position to 

know whether these sums of money 

were well spent. The enhancements 

made today to Schedules 3 and 4 will 

help ensure the disclosure of any 

potential conflicts of interest between 

the seller and the labor organization. 

The book value of an asset is the value 

at which the investment or fixed asset 

was shown on the labor organization’s 

books and reflects the lower of its cost 

or market value. See 73 FR at 27413 

(unchanged from current instructions to 

the form). The value of certain assets 

such as stocks can vary greatly within 


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Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 3685 

the fiscal year. Because the date of sales 

is not listed on the current Form LM– 

2, a labor organization member is unable 

to determine whether the labor 

organization received good value on the 

sale transaction. As the Department 

explained in its proposal, 73 FR at 

27349, the stock on the day of the sale 

may have been worth much more than 

its book value. In this scenario, a labor 

organization member would be unable 

to determine whether the stocks were 

sold by the labor organization at market 

value. The labor organization’s financial 

report filed on the current Form LM–2 

would show this transaction as a profit 

for the labor organization, but the 

transaction could also have been 

detrimental to the labor organization if 

the asset was sold at a price below 

current market value. The changes made 

in today’s final rule will help ensure 

disclosure of any potential conflicts of 

interest between the purchaser and the 

labor organization. The schedule will 

total all individually itemized 

transactions and will provide the sum of 

the sales by itemized individual 

purchasers and the sum of all nonitemized sales of investments and fixed 

assets, as well as the total of all sales. 

The Department received many 

comments supporting the proposed 

changes to the Form LM–2. Many of 

these comments were identical or nearly 

so. Commenters expressed support for 

the Department’s proposed revisions to 

Schedules 3 and 4, which, in their view, 

would allow union members to spot 

transactions where union officers and 

employees are given advantageous 

prices when purchasing labor 

organization assets. Another commenter 

approved of the Department’s ongoing 

promotion of transparency. 

Additionally, the commenter agreed 

with the Department that the additions 

to Schedules 3 and 4 will provide 

members with the information 

necessary to scrutinize those 

transactions to ensure the best practices 

when managing their money. 

Some commenters questioned the 

wisdom of requiring unions to provide 

additional detail in the Form LM–2 

reports, asserting that the new 

information would add length to the 

reports and further burden unions 

without benefit to members. They raised 

specific objection to the burden 

associated with reporting details 

concerning the sale and purchase of 

investments and assets. The Department 

does not expect the average member to 

investigate each investment or asset 

sale/purchase listed on the Form LM–2. 

Such an undertaking by a single 

member would be time consuming and 

impracticable. However, a member need 

not study its labor organization’s entire 

Form LM–2 for the report to be useful. 

The member can use the Schedules 3 

and 4 summary schedules for quick 

references or use the search function to 

find specific transactions. For example, 

a quick look at the summary schedules 

for Schedules 3 and 4 might reveal a 

large number where one would expect 

a small number or a small number 

where one might expect a large number. 

Once one of these disparities is 

identified the member is free to search 

the itemized schedules for an 

explanation for the unexpected 

aggregate. In one case, a labor 

organization indicated on its Form LM– 

2 summary schedule that it had received 

$527,937 from the sale of investments 

and fixed assets. This accounted for 

over 94 percent of the labor 

organization’s total receipts. A closer 

look at Schedule 3 of its Form LM–2 

indicated that the labor organization 

had received all of the $527,937 from 

the sale of one building. This sale left 

the labor organization with only $1,347 

in fixed assets. Another labor 

organization indicated that it received 

$64,389,415 from the sale of 

investments and fixed assets, almost 

half of the labor organization’s total 

receipts. Upon closer inspection of the 

labor organization’s Form LM–2 a 

member would find that $15,782,856 of 

the $64,389,415 was from the sale of 

‘‘common stock.’’ However, the same 

schedule indicated that none of the 

money from the sale was reinvested. 

Nothing indicates that either of these 

sales was illegal, but a member may 

want to know more about such a large 

sale of union assets. Further, itemization 

allows a member to search his or her 

labor organization’s Form LM–2 for 

specific sellers or purchasers. Using the 

OLMS Web site, a member can easily 

search his or her labor organization’s 

Form LM–2 for a specific seller or 

purchaser in seconds, e.g., the labor 

organization’s president’s brother. The 

changes to Schedules 3 and 4 will 

provide members with information 

necessary to verify that sales/purchases 

are transacted at market price and at 

arm’s length. 

The majority of the commenters 

believed that an exception should be 

created for the purchase and sale of 

publicly-traded assets on a registered 

market exchange. They stated that the 

reporting of these open market, arms 

length transactions would provide no 

relevant information to a member. 

Further, since these trades are through 

the ‘‘market,’’ it is doubtful that the 

‘‘seller’’ and ‘‘buyer’’ information is 

even available, due to investments being 

pooled and matched by the investment 

broker market. The only purchaser 

information available to provide on the 

proposed new investment schedules 

would be that of the broker. A national 

labor organization pointed out that the 

Department does not require disclosure 

of transactions involving securities on 

registered public exchanges, such as the 

NYSE and NASDAQ, on Form LM–30. 

Therefore, the labor organization 

reasoned that the same transactions 

should not be disclosed on Form LM– 

2. In both contexts, such sales and 

purchases of securities are by definition 

transacted at ‘‘market prices’’ and ‘‘at 

arm’s length.’’ 29 U.S.C. 432(b). 

The Department agrees with the 

commenters’ position that an exception 

should be created for bona fide market 

transactions over a registered securities 

exchange. Consistent with the current 

Form LM–2 and the Form LM–30, the 

Department excepts marketable 

securities from itemization on Schedule 

3. The labor organization will not be 

required to itemize the purchase or sale 

of marketable securities when the end 

seller or purchaser, i.e., the party 

transacting with the labor organization, 

is not known. (Such as sales of stock 

over a registered exchange.) The 

instructions have been revised and 

include the direction that ‘‘Marketable 

securities are those for which current 

market values can be obtained from 

published reports of transactions in 

listed securities or in securities traded 

‘over the counter,’ such as corporate 

stocks and bonds, stock and bond 

mutual funds, state and municipal 

bonds, and foreign government 

securities.’’ The total amount of such 

sales will be reported on Schedule 3 

Detailed Summary page. 

A number of commenters stated that 

their investment activities are run 

through independent investment 

groups, asserting that for this reason 

such activities should be excepted from 

the proposed reporting requirement. 

The Department disagrees that an 

exception for investment manager 

transactions is appropriate. Such an 

exception is neither good policy nor 

necessary. Although the investment 

manager may have independent control 

over the individual investments, the 

labor organization still has control over 

the manager. If the labor organization is 

dissatisfied with returns or particular 

purchases/sales, then it is free to hire a 

new investment manager. Thus, the 

investment manager is never truly 

independent. Further, the exception laid 

out above should alleviate many of the 

commenters’ concerns. Most of the 

investment manager purchases/sales 

will qualify for the exception provided 


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3686 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

for bona fide transactions made with a 

registered securities exchange. Those 

transactions that do not qualify for the 

exception, i.e., securities purchased 

outside these highly regulated channels, 

will be of particular interest to 

members, the public, and the 

Department. These are the types of 

transactions that are subject to abuse 

whether it is abuse by the labor 

organization or the independent 

investment manager. Therefore, the 

Department has chosen not to create an 

exception for investment manager 

transactions. 

A number of commenters expressed a 

concern that the additional information 

required for the sale and purchase of 

investments on Schedules 3 and 4 will 

be deceptive. A national labor 

organization argued that the value of a 

given stock transaction cannot be 

understood absent an understanding of 

market conditions, news affecting that 

particular stock and market segment at 

the time of sale and the investment 

manager’s strategy resulting in the sale. 

Additionally, it stated that the ‘‘market 

price’’ of a tangible item, such as a car, 

cannot be objectively determined 

without knowledge of the degree of 

wear-and-tear, local market conditions, 

and the like. Without these essential 

facts a national labor organization stated 

that listing the name of the purchaser 

and the date of the sale may well lead 

union members to conclude that a buyer 

received a windfall when, in fact, that 

is not the case. The labor organization 

suggested that the Department retain the 

current reporting format, aggregating the 

total of all such sales and purchases and 

the net effect on assets. 

The Department disagrees with the 

suggestion that the proposed changes to 

Schedules 3 and 4 will be deceptive. As 

discussed earlier, members will be able 

to assess without difficulty whether the 

sale or purchase of an asset and its price 

appears appropriate given its timing and 

the existing market conditions. Unlike 

the previous Form LM–2, members will 

now be able to evaluate sales/purchases 

by date and purchaser/seller. This 

clearly improves the members’ ability to 

evaluate a transaction in its particular 

context. To use an example discussed 

above and in the NPRM, 73 FR at 27349, 

a labor organization indicated on its 

Form LM–2 that it sold a Ford Explorer 

for $9,252, but listed its book value at 

$23,471. The previous Form LM–2 

included price information and a 

general description. The identification 

of the buyer can be used to identify 

interested party transactions, but it can 

also be used to better understand the 

sale. For example, the Ford Explorer 

might have been sold to a dealership 

rather than on the open market. In this 

case the identification of the buyer 

would alleviate any concern of an 

interested party windfall. The 

disclosure of this information will allow 

members to make preliminary 

assessments of sales/purchases from the 

information provided on the Form LM– 

2. If necessary, as discussed below, they 

can then exercise their section 201(c) 

right to obtain additional information 

about the particular transaction. It 

should be noted that most securities 

transactions will fall within the 

exception discussed above. 

The additional information that will 

be disclosed on the Form LM–2 will 

enable union members, the general 

public, and the Department to focus 

their attention on particular transactions 

involving significant sums of money. As 

some commenters have acknowledged 

the information will be most directly 

beneficial to union members who will 

be most familiar with the transactions 

and the parties involved, but the 

information also improves the ability of 

the public and the Department to 

examine the details of a transaction. 

Moreover, to the extent the union 

believes that any particular transaction 

could be misleading, the union may 

choose to provide additional 

information on the Form LM–2 to 

minimize this possibility. By adopting 

this rule, the Department is setting a 

minimum standard that labor 

organizations must meet for reporting 

the sale and purchase of investments 

and assets. A number of commenters 

stated that the revisions were not 

necessary and would not benefit 

members. Multiple national labor 

organizations stated that union members 

already have access to any information 

necessary to assess sales of union assets. 

They explained that any individual 

member could exercise his or her 

section 201(c) right to obtain the 

information. 

The Department recognizes that 

members possess the right to examine 

any books, records and accounts to 

obtain information on the purchase/sale 

of investments and assets under 29 

U.S.C. 431(c). However, members have 

no way of knowing whether they need 

to request the information from the 

labor organization without the Form 

LM–2. As explained above, a quick look 

at the summary schedules for Schedules 

3 and 4 might reveal a large number 

where one would expect a small number 

or a small number where one might 

expect a large number. Once one of 

these disparities is identified the 

member is free to search the itemized 

schedules for an explanation for the 

unexpected aggregate. In one case, a 

labor organization indicated on its Form 

LM–2 summary schedule that it had 

received $35,224,391 from the sale of 

investments and fixed assets. This 

accounted for over half of the labor 

organizations total receipts. A closer 

look at Schedule 3 of its Form LM–2 

indicated that it had sold ‘‘corporate 

stocks’’ for $34,297,627. See 73 FR at 

27349. Nothing indicates that this sale 

was illegal, but a member may want to 

know more about such a large sale of 

union assets. Under the new reporting 

requirements the member will now be 

able to evaluate whether the transaction 

occurred at arm’s length or not. The 

member need only look for the 

purchaser/seller information to know 

whether the transaction merits further 

inquiry. If the transaction occurred on a 

registered exchange the labor 

organization will not detail that 

transaction. In this case, the member 

will know that no insiders received 

unjust enrichment from the transaction. 

However if the transaction occurred not 

on a registered exchange but through 

some other means the transaction 

information of the date and identity of 

the purchaser/seller will be useful to the 

member. If the itemized schedules do 

not provide an adequate explanation or 

reveal a transaction with an interested 

party then the member is free to request 

additional information from the labor 

organization pursuant to 29 U.S.C. 

431(c). This process is more efficient for 

both the labor organization and the 

member. Labor organizations will not 

have to provide information unless the 

member finds a particularly interesting 

transaction and the member will not 

have to request superfluous information 

to obtain a clear accounting of the labor 

organization’s activities. Both 

itemization reporting and the changes 

adopted in this rule are essential to 

providing members with a clear picture 

of their labor organization’s activities. 

Two commenters offered alternatives 

to requiring a labor organization to 

disclose the name and address of the 

purchaser or seller in transactions 

involving labor organization 

investments and other assets. A labor 

organization suggested that if the 

Department is concerned about sales of 

assets for less than market value it can 

merely mandate disclosure of 

specifically such sales of union assets. 

Another commenter suggested that the 

Department pare down the report and 

ask about specific areas of concern. For 

example, instead of modifying 

Schedules 3 and 4 as currently 

proposed, the Department should 

simply ask about related party 

transactions and any non-routine 


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10One commenter suggested that the Department 

replace the Book Value column with a Market Value 

or Par Value column. In the commenter’s view, this 

change would allow those studying the Form LM– 

2 to determine whether the sale of an investment 

or fixed asset was at market value and at arm’s 

length. 

The Department has decided not to change the 

values reported on Schedules 3 and 4 column (E), 

‘‘Book Value.’’ Book value is ‘‘the value at which 

the investment or fixed asset was entered on the 

labor organization’s books.’’ Form LM–2 

Instructions page 16. Depending on when the asset 

was obtained, the book value will reflect the asset’s 

original or depreciated value. Book value allows for 

regularized reporting of the value of assets. Unlike 

market or par value (the latter applicable only to 

equitable assets and even then of limited utility to 

union members and the public), book value does 

not pose problems of verification in comparing the 

value of the reported asset and the value carried on 

the union’s books. Further, unlike market value 

which can be determined independently through 

the market (e.g., by bluebook, comparable real estate 

values, market price of stock) book value cannot be 

easily ascertained by union members and others 

reading the Form LM–2. For these reasons, the 

Department views the book value as an essential 

check to determine the union’s compliance with 

this aspect of its reporting obligation. 

transactions and specifically define 

related parties. 

In the Department’s view, the 

suggested approach is a poor substitute 

for the full transparency achieved under 

the Department’s proposal. The 

Department seeks to provide members 

with the tools by which each member 

can make his or her own evaluations of 

the financial decisions made by the 

officials of his or her labor organization. 

Although members as a general rule will 

have the greatest interest in matters 

involving a party in interest or a sale of 

an asset for less than market value, 

members will also have an interest in 

other less easily categorized 

transactions. For example, a member 

may have an interest in the sale of a 

building to a non-party in interest at 

what appears to be fair market price. As 

a general matter, the sale of the building 

might indicate to the member that his or 

her labor organization is selling off 

assets or not managing his or her money 

appropriately. But a sale of the asset to 

a particular individual or group, such as 

a sale to a company in which a union 

official’s long-time associate has an 

interest or to a company in which a 

politician or his or her associate has an 

interest (who might have inside 

information about a possible change in 

zoning that would substantially increase 

the value of the property) would be of 

substantial interest to members. 

Itemization of the purchase/sale of 

investments and assets provides 

members with a base from which they 

can evaluate transactions.10

Therefore, the Department adopts the 

reporting requirements as outlined in 

the NPRM with an added exception that 

labor organizations need not report bona 

fide purchases or sales of securities 

traded on a securities exchange 

registered as a national securities 

exchange under the Securities Exchange 

Act of 1934, shares in an investment 

company registered under the 

Investment Company Act of 1940 or 

securities of a public utility holding 

company registered under the Public 

Utility Holding Company Act of 1935. 

Schedules 5–10. These schedules are 

unchanged except for a minor editorial 

change to the instructions for Schedule 

7 to clarify the reporting of information 

about a trust in which a labor 

organization is interested. See n. 6. 

Schedule 11—All Officers and 

Disbursements to Officers; and 

Schedule 12—Disbursements to 

Employees: The Department proposed 

two substantive changes to the 

categories of disbursements reported on 

these schedules: Reporting of indirect 

disbursements to officers and employees 

for hotels (room rent charges) and 

public carrier transportation; and 

disclosure of benefits disbursed to 

officers and employees. No commenters 

suggested that one approach was 

appropriate for officers and another for 

employees. In today’s rule, the same 

revisions are being made to both 

Schedules 11 and 12. In today’s final 

rule the Department has decided to 

adopt the proposed items with minor 

changes. These changes are discussed 

below. 

a. Indirect Disbursements to Officers 

and Employees for Hotels (Room Rent 

Charges) and Public Carrier 

Transportation 

The Department proposed to 

eliminate the existing exception to the 

reporting of indirect disbursements, 

thus requiring the reporting of both 

direct and indirect payments on behalf 

of a particular union official for hotels 

(room rent charges and public carrier 

transportation charges) on Schedule 11. 

The Department adopts the proposal, 

with a minor clarification as discussed 

below. 

Indirect disbursements for official 

business, which include travel and 

lodging expenses, will be reported in 

Column G, on both Schedule 11, ‘‘All 

Officers and Disbursements to Officers’’ 

and Schedule 12, ‘‘Disbursements to 

Employees.’’ This column is clearly 

identified, and is distinct from columns 

listing gross salary, allowances, and 

benefits. Concerns raised by 

commenters that union members may 

not grasp the ‘‘nuances of the reporting 

categories’’ and that disclosure would 

result in inflated figures of total 

compensation are unwarranted. 

As explained in the NPRM, 73 FR at 

27350, disbursements for temporary 

lodging and transportation made 

directly to a labor organization official 

by the labor organization are now 

reported, by individual, on Schedule 11; 

however, if the labor organization pays 

the vendor directly for the travel it is 

not reported by individual. This 

distinction does not serve the purpose 

of section 201(b)(3) of the LMRDA, 29 

U.S.C. 431(b)(3), which calls for 

reporting of ‘‘other direct or indirect 

disbursements (including reimbursed 

expenses) to each officer and also to 

each employee.’’ 

A ‘‘direct disbursement’’ to an official 

is a payment made by the labor 

organization to the official in the form 

of cash, property, goods, services, or 

other things of value. An ‘‘indirect 

disbursement’’ to an official is a 

payment made by the labor organization 

to another party for cash, property, 

goods, services, or other things of value 

received by or on behalf of the officer. 

Such payments include those made 

through a credit arrangement under 

which charges are made to the account 

of the labor organization and are paid by 

the labor organization. For example, 

when a union, through its credit 

arrangements, is billed directly and pays 

the airline bills of an officer or 

employee, the union will have to 

include this amount as part of the 

disbursements made to the particular 

official. If the credit arrangement results 

in an invoice that is detailed by officer 

or employee, e.g., hotel room rent 

charges, the labor organization will use 

this detailed invoice when allocating 

expenses by officer or employee. If the 

billing arrangement is set up in such a 

way that expenses are not detailed by 

officer or employee, e.g., when a labor 

organization purchases a block of hotel 

rooms for its officers or employees, then 

the labor organization will divide the 

total cost by the number of officers or 

employees for which the expense was 

incurred. The instructions to the form 

now clarify that unions may allocate 

these disbursements in this manner. 

The distinction between reporting of 

direct and indirect disbursements was 

established because of the difficulties 

faced by unions over 40 years ago in 

reconstructing documentation for 

certain payments for their prior fiscal 

year. Because of this difficulty, 

organizations were allowed to report 

such disbursements as functional 

expenses of the organization rather than 

as disbursements to particular officials. 

This distinction remained in the 

instructions and was not revisited by 

DOL despite changes in data reporting 

and record retention methods over the 


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3688 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

intervening decades. This issue was not 

addressed in the 2002–2003 rulemaking. 

As noted in the NPRM, 73 FR at 

27350, payment for an official’s travel 

and lodging expenses by credit card 

does not reduce the significance of the 

expense to a labor organization member; 

yet the current Form LM–2 treats the 

method of payment as significant. 

Travel and lodging expenses for a 

particular official may raise questions 

among the membership for various 

reasons. The choice of transportation by 

public carrier (airplane, train or bus) 

and the level of accommodation (firstclass or coach) may be significant to a 

member. Lodging choices may run from 

a motor inn to a five-star hotel; where 

options are available, the officer’s 

choice of accommodation may be 

significant to a member. However, the 

mode of payment now controls whether 

a labor organization member knows the 

full extent of disbursements made for a 

particular official of the labor 

organization. Although the specifics of 

the travel will not appear on the Form 

LM–2, members will have a better 

understanding of the total amount of 

disbursements made to or on behalf of 

a particular official. Through this more 

complete reporting, members of the 

labor organization will be better able to 

determine whether such disbursements 

warrant further scrutiny, including 

review of the underlying documentation 

maintained by the labor organization. 

The Department received almost 500 

form letters endorsing its proposal to 

require disclosure of indirect 

disbursements. These commenters 

stated that such disclosure would 

provide union members a more accurate 

idea of how much their union is 

spending on these matters. Noting 

agreement with the proposal, a 

commenter stated that all expenditures 

for travel for officers should be reported 

regardless of the method of payment to 

the vendor. Another commenter noted 

specific examples of union spending 

that highlighted the importance of 

disclosure of travel disbursements. The 

commenter explained that while one 

large union’s membership declined 15% 

last year, the union expended members’ 

dues money to hold meetings at resorts 

and casinos in destinations including 

Palm Springs, Las Vegas, and Atlantic 

City. 

One commenter alleged that a review 

of the legislative history of the LMRDA 

does not provide support for the 

disclosure of indirect disbursements 

made on behalf of an officer or 

employee for official business. The 

commenter alleged that Congress was 

particularly concerned with schemes 

through which corrupt employers and 

union officials could enrich or benefit 

themselves by structuring indirect 

payments through relatives or to 

vendors of goods and services that were 

unrelated to their duties as union 

officials. 

While Congress did evince a 

particular concern over corrupt schemes 

in which union officers sought to enrich 

themselves through indirect payments, 

it also clearly intended that union 

members receive a full accounting of 

their union’s financial operations. See 

discussion above, at n.8. The mandate 

for a full accounting does not exempt 

transactions that may be considered 

‘‘official business.’’ 

Commenters questioned the utility of 

providing disclosure of indirect 

disbursements. The Department believes 

that union members have an interest in 

learning the full extent of disbursements 

made to or for labor organization 

officials. Travel and lodging expenses 

may be of particular interest when 

officers and employees are not utilizing 

particularly cost effective modes of 

transportation, levels of 

accommodation, or choice of lodging. 

This more complete reporting will help 

members determine whether such 

disbursements warrant further scrutiny. 

Information about travel and lodging 

expenses is no less valuable when 

payments are made indirectly to the 

vendor rather than directly to the union 

official. 

Several commenters suggested that 

sums aggregated by individual officials, 

as called for under the proposed rule, 

could easily be misconstrued by 

membership and the public. One 

commenter believed that the data would 

unfairly make individual officers targets 

because of their ‘‘allegedly excessive 

spending.’’ They provided as an 

example the contrasting circumstances 

of two union officials—one who travels 

often, but cheaply, will have a large 

amount of money in travel expenses, 

while another official who only travels 

once but flies first class and stays at a 

high-end hotel will appear to be more 

fiscally responsible with union funds. 

The Department recognizes that dollar 

figures alone will not show how 

profligate or not union officers are with 

their members’ money. A member, 

however, who is familiar with the 

demands of an officer’s duties, 

including travel on behalf of the union, 

will be able to determine from the sums 

reported whether the expenses incurred 

seem about right or not and, if the latter, 

identifies a need for closer scrutiny of 

particular expenses. One commenter 

stated that the proposed change would 

allow ‘‘labor’s enemies’’ to falsely 

inflate an official’s compensation by 

including the cost of legitimate business 

travel. Another commenter noted that 

such indirect disbursements do not 

meet the IRS definition of income. As 

discussed earlier, the Department 

believes that union members deserve 

the benefit of increased transparency 

and these commenters concerns can be 

best addressed by providing information 

about a union’s policies, so members 

will better understand the amounts 

reported by individual officers. Better 

education may also be the answer to 

concerns about false claims about 

disbursements to union officer officials. 

In any event, the Department does not 

believe that members should be denied 

information relevant to disbursements 

made to their officers because of the 

asserted ‘‘misuse’’ of public 

information. Because Congress chose to 

make union financial reports public, the 

Department is required to make public 

information it deems necessary for 

union members to possess a full picture 

of their union’s finances. Finally, the 

Department recognizes, as it believes the 

public does also, that the Form LM–2 

and IRS forms do not capture identical 

information. Indirect disbursements 

represent a significant aspect of a 

union’s expenditures—and as such are 

important for purposes of disclosure 

without regard to any tax consequences 

they may pose for individuals. 

Commenters also noted that 

aggregation of the data by specific 

officers would not provide the same 

utility as disclosure of the specific 

details of such payments and that 

aggregation may prove misleading to 

members. Two commenters argued that 

disclosure of union travel and expense 

policies would be more useful to 

members than data regarding indirect 

travel expenses. One commenter asserts 

that the data revealed by eliminating the 

exemption for indirect expenses will not 

afford union members any more useful 

information than they already have by 

examining the labor organization’s 

itemized expenditures for individual 

hotels and common carriers on 

Schedules 15 and 19. This commenter 

provides that a union’s travel and 

expense policies, which are available to 

members upon request, are far more 

probative because they explain the types 

of expenses that officers and employees 

are entitled to incur when they travel. 

Some commenters noted that providing 

specific details of payments for travel 

and lodging would be more useful to 

union members than providing 

aggregate sums. Two international 

unions argued that requiring disclosure 

of union travel and expense policies 

would be more useful to members. 


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The Department acknowledges that 

providing union members additional 

information regarding the specific 

details of travel disbursements and 

providing members copies of travel and 

expense policies would provide the 

members access to possibly useful 

information. As noted in the NPRM, 73 

FR 27350, eliminating the exception 

from reporting indirect disbursements 

will provide union members a more 

accurate accounting of the total amount 

spent on travel and lodging for union 

officials. This data will help union 

members better determine whether 

further investigation is warranted. To 

the extent that labor organization 

commenters believe greater detail would 

benefit union members, labor 

organizations are free to amend their 

bylaws to require a level of disclosure 

or specificity that is greater than that 

required by the Form LM–2. 

b. Disclosure of Benefits Disbursed to or 

on Behalf of Officers and Employees 

As a second change to this schedule, 

the Department proposed the addition 

of a new column to allow disclosure of 

benefits disbursements made to each 

labor organization official. The final rule 

adopts the proposed changes. Columns 

‘‘(A)’’ through ‘‘(E)’’ are unchanged from 

the current form. Column ‘‘(F)’’ will be 

redesignated ‘‘Benefits.’’ This is the only 

new column on the schedules requiring 

disclosure of additional information. 

Column ‘‘(G)’’ will be redesignated 

‘‘Disbursements for Official Business.’’ 

Column ‘‘(H)’’ will be redesignated 

‘‘Other Disbursements not reported in 

(D) through (G).’’ Column ‘‘(I)’’ will be 

added for ‘‘Total.’’ 

In response to comments received, the 

Department is adding clarifying 

information to the requirements for this 

schedule as follows: 

• Reasonable estimates may be used if 

precise cost figures are not readily 

available for benefits provided to 

individual officers, e.g., insurance 

premiums, defined benefit plan 

contributions, and so forth. 

• FICA, federal and state 

unemployment tax, workers’ 

compensation taxes, and other employer 

taxes that are legally required to be paid 

by the employer are not included within 

the scope of benefits for officers and 

employees. These types of payments are 

to be reported on the Form LM–2 in the 

manner provided for in the current 

instructions. 

• The reporting changes adopted by 

this rule only apply to disbursements on 

behalf of labor organization officers and 

employees. These changes do not apply 

to disbursements to persons who are no 

longer officers or employees of the labor 

organization. Thus, disbursements on 

behalf of individuals who have retired 

from employment by the labor 

organization will be handled the same 

way that these disbursements are 

currently handled for members, i.e., 

they will be aggregated in Schedule 29. 

In proposing the identification of total 

benefits paid to officials on an 

individual by individual basis, the 

Department explained that the current 

Form LM–2 fails to provide sufficient 

information on disbursements by the 

labor organization to or on behalf of its 

officers. See 73 FR at 27350. In the 

Department’s view, labor organization 

members should know the value of 

benefits paid by the union to its officers. 

Benefits received by officers for life 

insurance, health insurance, and 

pensions, for example, make up an 

important part of the compensation 

package paid for by the union and its 

members. Reporting benefits disbursed 

in the aggregate on Schedule 20 (i.e., 

reporting the total benefits paid to all 

union officials) does not provide a 

complete picture of compensation 

received by individual labor 

organization officers. For example, as 

noted in the NPRM, id., one local in its 

Form LM–2 listed almost $500,000 for 

‘‘Officer’s Union Fringes’’ even though 

the labor organization had fewer than 

ten full-time officers. From this 

information alone, a member of a labor 

organization would have no way of 

knowing, for example, if these benefits 

were evenly distributed among the 

officers, or if one officer received 

$400,000 and the other eight officers 

split the remaining amount. Rather than 

report fringe benefits in the aggregate on 

the current Schedule 20, the labor 

organization will now report the 

benefits on Schedule 11 by individual 

labor organization officer. 

In another instance, again as noted in 

the NPRM, id., a labor organization 

reported payments of $49,542 to 

‘‘Various Companies’’ for ‘‘Benefits 

Administration’’ and payments of 

$64,219 to ‘‘Various School Districts’’ 

for ‘‘Benefits paid on behalf of officers.’’ 

Another labor organization reported on 

its Form LM–2 total disbursements of 

$461,971, $460,203, and $244,780 to 

certain individual officers. Id. This 

disclosure did not take into account that 

these same officers and employees also 

received $181,297, $184,397, and 

$161,240 respectively as contributions 

to their employee benefit plans. These 

benefits payments were reported to the 

IRS on an individual-by-individual 

basis, as required by the IRS; however, 

these payments are simply lumped 

together on the Form LM–2, without 

identifying the amounts paid to 

individual officers. The above examples 

demonstrate that the current Form LM– 

2 fails to provide a full accounting of 

labor organizations’ disbursements to 

their officials. The current Form LM–2 

allows benefits payments made to or on 

behalf of officers to be lumped together 

with general benefits paid to members 

in Schedule 20. With such large 

disbursements listed in one category, it 

is impossible for labor organization 

members to ascertain what benefits are 

being paid to labor organization officers 

and employees. The Department 

believes that combining these 

disbursements into an aggregate on a 

single schedule does not adequately 

inform labor organization members and 

the public regarding benefits paid to 

labor organization officers, and thus in 

this area the full reporting mandate of 

the LMRDA is not fulfilled. 

By requiring unions to report the total 

amount of benefits disbursements made 

to each officer, members and the public 

will see the total payments made to or 

on behalf of each officer. This increased 

transparency will better enable union 

members to evaluate whether the 

compensation paid to each officer is 

appropriate for the services he or she 

renders to the organization. This 

information will allow union members, 

among other uses, to debate and vote to 

change the amount of the compensation 

if they deem it appropriate and 

consistent with their organization’s 

constitution, by laws, and the 

organization’s financial status. They 

also will be able to evaluate whether the 

costs of the benefits provided by the 

union are in line with market conditions 

and benefits paid to officers by other 

labor organizations—a factor that may 

bear on the performance of the union 

officials with stewardship over the 

union’s finances. 

The Department received mixed 

comments on its proposal. About 500 

commenters who submitted form letters 

endorsed the Department’s proposal to 

require unions to report aggregate 

benefits disbursements for each officer 

and employee. One commenter cited 

data from a large labor organization’s 

2007 Form LM–2 that showed pension 

benefits paid of $15,858,309 and 

combined payroll for officers and 

employees of $40,468,063. The 

commenter noted that the data may 

indicate ‘‘very generous pension 

benefits,’’ but without the proposed 

change ‘‘there is no way of telling from 

looking at Form LM–2.’’ Many others 

opposed the proposal. One commenter 

stated that the proposed disclosure of 

aggregate benefits data is unnecessary 

because union members already have 

access to much of this information 


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3690 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

11For Form 990 purposes, the IRS defines a ‘‘key 

employee’’ as ‘‘any person having responsibilities, 

powers, or influence similar to those of officers, 

directors, or trustees.’’ Instructions to IRS Form 990 

(2007), at p. 40. To illustrate this requirement, the 

IRS states: A chief financial officer and the officer 

in charge of the administration are both key 

employees if they have the authority to control the 

organizations, activities, its finances, or both.’’ Id. 

For the 2008 tax year, the IRS is requiring Form 990 

filers to also provide information on the filer’s five 

current highest compensated employees (other than 

officers, directors, trustees, or key employees) 

receiving more than $100,000 in reportable 

compensation from the filer or related 

organizations. IRS Form 990 (2008), Part VII, 

Section A, 1a. 

12As noted in the NPRM, 73 FR at 27351, the 

changes are consistent with the level of disclosure 

required in other contexts for executive and 

employee compensation. Both the IRS (see Form 

990) and the Securities and Exchange Commission 

(see 71 FR 78338 (2006)) require similar disclosure 

for certain officials. 

already under the Form LM–2; others 

stated that any other information 

needed may be obtained by invoking 

their ‘‘just cause’’ right to examine the 

union’s underlying financial reports; 

while some suggested that the 

information, as earlier noted, was 

available to union members by 

requesting a copy of the union’s IRS 

Form 990. While the Department agrees 

that the current Form LM–2 provides 

important information about the salaries 

paid to individual officers, members 

receive only an incomplete picture of 

the payments made to individual 

officers. Without the reporting required 

by today’s rule, members would be left 

guessing as to the total compensation 

paid to particular officers. Moreover, as 

discussed further below, the IRS Form 

990 fails to provide the same level of 

transparency as proposed by the 

Department. 

Commenters are correct that labor 

organizations are required to track and 

report officer benefits disbursements for 

the IRS Form 990. There is a minor level 

of overlap in the information required to 

be disclosed for officers and employees 

on the Form 990 and the Form LM–2. 

Disclosure of benefits disbursements on 

the Form LM–2 is not identical to the 

disclosure required on the Form 990 

because the Form 990 requires 

disclosure of this information for ‘‘key 

employees,’’ unlike the Form LM–2 

where this information must be 

disclosed for all employees earning 

$10,000 or more a year.11 As such, while 

there is overlap between the Form 990 

and the Form LM–2, the Form LM–2 

will provide more comprehensive 

information because the required 

disclosures apply to a larger group of 

individuals. Moreover, the Department’s 

proposal ensures that all members will 

have ready access to this particular 

information in a single database. While 

some members might be aware that 

individual payments would be reported 

to the IRS, others are not likely to be 

aware of this disclosure source. 

Additionally, union members should be 

able to determine easily the total 

compensation paid to all their officials, 

not merely the key officials. Where a 

labor organization has a large number of 

highly paid employees, only a fraction 

will be reported on the Form 990. While 

a few commenters suggested that the 

Department underestimates the burdens 

associated with tracking the information 

in a way that allows compliance with 

both the Form LM–2 and the IRS Form 

990, the Department remains convinced 

that unions can maintain their records 

in a way that avoids any unnecessary 

additional burden. This point is further 

discussed below in the Department’s 

analyses under the Regulatory 

Flexibility Act and the Paperwork 

Reduction Act. 

Other commenters stated that 

members already know or can easily 

estimate the value of the benefits paid 

to officers. One commenter stated that 

each of its officers and employees 

participated in the same medical plan as 

its members, so members could already 

ascertain the value of the benefits 

provided to officers and employees. The 

Department recognizes that in some 

instances a member can estimate the 

value of a particular benefit, but that 

this will exist only for certain benefits 

and for certain unions. Transparency is 

ill served where it varies from union to 

union and from benefit to benefit. 

Several commenters asserted that 

some benefits would be difficult to 

report on an individual-by-individual 

basis. For example, one commenter 

noted that it would be burdensome to 

collect data because there may be 

multiple benefit plans involved (0034) 

(0044). Another commenter noted that 

the insured group may vary from month 

to month, requiring the organization to 

recalculate the amount attributed to 

each officer and employee, which may 

result in increased costs. Other 

commenters requested clarification of 

how to treat benefits for retirees, lump 

sum benefit data, and administration 

expenses associated with benefits. 

The Department recognizes that labor 

organizations may have to estimate the 

particular value of a benefit provided a 

union official. It is not the intention of 

the Department to impose on unions a 

complex methodology to arrive at the 

most precise valuation of benefits made 

to each individual official. In this 

regard, the Department notes that the 

IRS, which requires labor organizations 

to report all forms of deferred 

compensation, allows: ‘‘[r]easonable 

estimates * * * if precise cost figures 

are not readily available.’’ See 

instructions to 2007 IRS Form 990, p. 

41. Under this final rule, the 

Department will also accept reasonable 

good faith estimates of the value of 

benefits paid to individual officials.12

As noted above, several commenters 

expressed concerns about the need to 

report information that could intrude 

upon an individual’s legitimate 

concerns for his or her privacy. Several 

commenters raised a generalized 

concern that the proposal would raise 

privacy issues under HIPAA. Four 

commenters raised specific concerns 

about reporting payments where the 

labor organization is self-insured and 

thus pays directly for the health care of 

its officials. The commenters argue that 

a self-insured organization would 

violate HIPAA by providing information 

relating to ‘‘past payment[s] for the 

provision of health care.’’ One 

commenter noted that it would be 

unable to report some information, even 

if it were required, because the 

employees in the union’s accounting 

office are unable to view records that 

include protected health information. 

Two comments noted that the proposal 

would allow a union member for just 

cause to examine the underlying 

information which would violate 

HIPAA. Another commenter, while 

noting that the Department was not 

requiring labor organizations to identify 

the nature or value of any particular 

benefit—the Department proposed only 

that the total value of all the benefits to 

an individual be reported—questioned 

whether this would sufficiently address 

HIPAA privacy concerns. 

As noted in the NPRM, 73 FR at 

27351, the Department is fully cognizant 

of the need to protect the legitimate 

privacy interests of individuals under 

HIPAA and other laws. To further 

address the concerns of commenters, the 

Department, as discussed below, has 

clarified the rule to further protect the 

privacy of individuals. However, the 

Department disagrees with the premise 

of some commenters that the rule as 

proposed infringed on the privacy of 

individuals. In the 2003 revisions to the 

Form LM–2, the Department made the 

decision to aggregate the benefits paid to 

union officials on Schedule 20 

(Benefits) based on privacy 

considerations. See 68 FR 58374, 58387, 

58399, 58426 (Oct. 9, 2003). Based on 

those same considerations, the 

Department crafted Schedule 11 and 

Schedule 12 in order to preserve the 

privacy interests of individuals. Under 

the proposal and the final rule, a person 


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13Current schedules 14 through 20 will be renumbered as schedules 21 through 29. 

reading the report would be unable to 

ascertain what types of benefits labor 

organization officers and employees 

receive, only the total value of these 

benefits. For instance, if a labor 

organization officer received a matching 

contribution to a 401(k) plan in the 

amount of $5,000, indirect payment of 

health insurance premiums in the 

amount of $6,700, and a health club 

membership in the amount of $1,200, 

the labor organization’s Form LM–2 

would disclose that this officer received 

a total of $12,900 in benefits. Given that 

benefits that must be reported are 

aggregated without identifying the 

nature of particular benefits that 

comprise the total, the potential for 

disclosing information of a private or 

protected nature is only remotely 

possible if at all. However, in those rare 

instances, where a labor organization, in 

good faith and on reasonable grounds, 

believes that a particular disclosure 

would violate HIPAA, or other federal 

or state law, or confidential settlement 

agreement, it should not include that 

particular information for the affected 

individual, but should instead include 

its value as part of the aggregated, nonitemized amount reported on the 

schedules and identify that reason and 

the individual affected in item 69 

(additional information) of the Form 

LM–2. 

On a related matter, a commenter 

questioned whether FICA, federal and 

state unemployment tax, long term 

disability insurance, accident death and 

dismemberment insurance, and 

workers’ compensation would be 

required to be included in the benefits 

disclosure by the officer or employee’s 

name. As noted above, the Department 

is not requiring labor organizations to 

report the value of such payments on an 

individual-by-individual basis. 

Schedule 13—Membership Status: 

This schedule is unchanged. 

Detailed Summary Page: The current 

detailed summary page contains 

information from Schedule 14 through 

Schedule 19. The new detailed 

summary page, as proposed and 

adopted by today’s rule, includes 

information from Schedule 14 through 

Schedule 29. These summary pages 

provide a snapshot of the labor 

organization’s activities. Members of the 

union and the public may then use this 

snapshot to determine whether further 

analysis of the individual itemized 

schedules is required. There is no 

additional burden associated with these 

summary schedules because the 

software will automatically enter the 

totals in the appropriate lines of the 

summary schedules as the labor 

organization fills out the individual 

itemization schedules. 

Schedules 14–22. Currently, Form 

LM–2 filers only report the total amount 

received from dues and agency fees, per 

capita taxes, fees, fines, assessments, 

and work permits, sales of supplies, 

interest, dividends, rents, receipts on 

behalf of affiliates for transmittal to 

them, and receipts from members for 

disbursement on their behalf on 

Statement B. As noted in the NPRM, 

these line items exceed $20 million in 

some instances. 73 FR at 27351. For 

example, one labor organization stated 

that it received over $298 million in per 

capita taxes and another received over 

$28 million in rent. Id. Little useful 

information can be discerned from these 

totals alone. The Department proposed 

that for each of these schedules the 

labor organization would separately 

identify payments from any individual 

or entity that alone or in the aggregate 

total $5,000 or greater during a reporting 

period. The Department has adopted 

this proposal with some modifications 

for schedules relating to the receipt of 

dues payments and per capita taxes. The 

general instructions for completing 

these schedules have been modified to 

account for these changes, including 

notice to filers that they should 

complete the revised schedules 14 

(‘‘Dues and Agency Fees’’) and 15 (‘‘Per 

Capita Tax’’) before completing the 

summary detail page. 

As explained in the NPRM, 73 FR at 

27351, the lack of itemization of most 

receipts on the current Form LM–2 

makes it easier for individuals to 

embezzle money coming to labor 

organization accounts. In one case, the 

president and treasurer of a local labor 

organization converted over $184,129 in 

dues checks. See 73 FR at 27352. One 

commenter took issue with this example 

in the NPRM, stating that simply 

requiring a listing of checks received by 

a Form LM–2 filer will not prevent the 

type of embezzlement identified in the 

example. (38) The commenter noted that 

the purpose of every receipt is not 

reflected in a corresponding 

disbursement of the same amount, 

reducing the value of the new 

itemization schedules. The Department 

agrees that it will not be possible to 

track the disbursement of each receipt 

from the information on the revised 

Form LM–2. The difference between the 

receipt and disbursement functional 

categories makes such a comparison 

impossible. Nonetheless, the itemization 

of individual receipts provides helpful 

information to union members. The 

revised form will contain itemized 

information for each check that is 

$5,000 or more and disclose whether 

other checks aggregate to $5,000 or 

more. The change will address this 

problem, which extends to all the 

various reporting categories on the 

current form and not merely the receipt 

of dues payments, because now 

receipts-side embezzlements like the 

embezzlement of $184,129 mentioned 

above will be harder to hide. 

The Department proposed to add new 

schedules that coincide with the items 

of cash receipts listed on Statement B.13

In today’s final rule, the Department 

adopts the proposal with the 

modifications discussed below. The 

Department is revising the existing 

Form LM–2 to include schedules for 

dues and agency fees, per capita taxes, 

fees, fines, assessments, and work 

permits, sales of supplies, interest, 

dividends, rents, receipts on behalf of 

affiliates for transmittal to them, and 

receipts from members for disbursement 

on their behalf. Except as discussed 

below, the itemization schedules for 

receipts will operate in the same fashion 

as do the itemization schedules for 

disbursements. 

Schedule 14—Dues and Agency Fees. 

The Department proposed the 

requirement that a labor organization 

report dues and agency fees of $5,000 or 

more it receives from an individual or 

entity during the reporting period, and 

that each individual payment of $5,000 

or more be disclosed on a separate line. 

The Department adopts the proposal as 

modified. As modified, labor 

organizations are not required to itemize 

such payments made by individual 

members. The aggregate dues and 

agency fees received directly from a 

represented employer must be reported 

by each individual employer. However, 

as modified, filers will only have to 

report for each employer the total such 

payments received during the reporting 

period—not each payment from the 

employer that alone or in combination 

with other payments is $5,000 or 

greater. Filers will enter in Column (A) 

the full name and business address of 

the represented employer. Filers will 

enter in Column (B) the purpose of the 

receipt of $5,000 or more, which means 

a brief statement or description of the 

reason the receipt was received. An 

adequate description includes 

information about the number and type 

of units covered by the receipt and the 

number of employees covered by the 

receipt. Filers will enter in Column (C) 

the total received from the represented 

employer during the reporting period. 

Some commenters expressed concerns 

with the difficulties associated with 


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3692 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

itemizing the receipt of dues. As 

explained by one commenter, its 

members work for multiple employers 

that are signatory to collective 

bargaining agreements. Under collective 

bargaining agreements, working dues 

are deducted from members’ paychecks 

and forwarded to an intermediate body 

or a local union. The commenter 

explained that in such situations 

information regarding the specific 

employer may not be transmitted to or 

recorded by the intermediate body, 

leading to difficulties in how to report 

such receipts. The commenter posited 

three possibilities: The dues can be 

considered received from (a) the 

member from whose paycheck the dues 

were deducted, (b) the employer that 

forwarded the dues either to the labor 

organization or to another entity that 

then forwarded the dues to the labor 

organization, or (c) where the working 

dues were sent by an employer to some 

other entity and then forwarded to the 

union, the entity that forwarded the 

dues. Another commenter explained 

that many unions do not allocate or 

transmit on a receipt-by-receipt basis 

the dues they receive on behalf of local 

unions or affiliates. The commenter 

explained that under the unions’ own 

internal procedures they would do so 

only periodically and based on the total 

amount collected during that period. 

This commenter explained that the 

itemization of dues receipts would have 

to make calculations that do not 

correspond to the amounts they actually 

transmit to their locals; he also 

indicated that unions would have to 

devise accounting systems that pro rate 

every dues check received or perform 

such calculations manually. One 

commenter explained that the timing of 

the dues deductions from members’ pay 

varied from unit to unit and that 

employers of more than one unit often 

remit payment for these units in a single 

check to the international. One 

commenter expressed concern that the 

Department was confused about how 

dues money is handled by most unions, 

including unions in the railroad 

industry. 

The Department believes that labor 

organizations have misread the 

Department’s proposal and thereby 

overstated the burdens associated with 

reporting the receipt of dues payments. 

The Form LM–2 Instructions, as 

proposed, state on page 31 that the filer 

must enter ‘‘the purpose of each 

individual receipt of $5,000 or more 

which means a brief statement or 

description of why the union received 

the receipt.’’ See 73 FR at 2742. The 

proper reporting of dues will depend on 

how the dues are collected. If the dues 

are received directly from the employer, 

the labor organization receiving these 

payments should identify the employer 

that sent the dues. If another entity, 

such as an intermediate body, sent the 

dues to the labor organization, then the 

labor organization receiving the 

payments should identify the 

intermediate body and the intermediate 

body should list the dues payments 

received from the employer on the 

schedule for ‘‘receipts on behalf of 

affiliates for transmittal to them’’ (now 

renumbered as schedule 21). Both the 

intermediate body and the labor 

organization must identify the units 

covered by the payment. 

If a parent labor organization receives 

$5,000 or more on behalf of affiliates for 

transmittal to them from a represented 

employer covering an affiliated labor 

organization then the parent labor 

organization must identify the payer, 

the type or classification of the payment 

(which in most cases will be dues), the 

purpose, including information as to 

which affiliates the receipt covers, and 

the amount of the receipt. This type of 

information will be readily available as 

the parent must determine what portion 

of the check is to be disbursed to each 

local. The Department recognizes that 

unions may have to change the manner 

in which they capture and report 

information such as dues, but they 

remain free to devise their own 

procedures for collecting this 

information in order to meet the 

reporting requirements. The Department 

has not required unions to conform their 

procedures to a prescribed template; 

they are free to craft their own 

procedures so long as the dues receipts 

are fairly and accurately allocated and 

reported. 

Two commenters expressed concern 

that the itemization of the dues 

schedule would disclose members’ 

personal information. Under the 

proposal, a labor organization would 

have to report the member’s name and 

address. The commenters felt that 

members’ names and addresses should 

remain confidential. The same concern 

was expressed with respect to initiation 

fees, fines, assessments, and work 

permits. The Department has 

accommodated these concerns. The 

Department is not requiring the 

identification of members who made 

payments directly to their labor 

organization for dues, fees, fines 

assessments, work permits, and 

disbursements on their behalf. Instead, 

the labor organizations should add these 

amounts to the aggregate reported on the 

line 3 (Other Receipts) of summary 

schedules 14, 16, and 22. 

Schedule 15—Per Capita Tax. The 

Department proposed that a labor 

organization report on a new Schedule 

15 per capita payments it receives from 

an individual or entity during the 

reporting period. The Department 

adopts the proposal as modified to 

clarify how the information should be 

described. 

The labor organization will report per 

capita taxes of $5,000 or more received 

during the reporting period. Per capita 

taxes received directly from a labor 

organization must be aggregated for the 

year and reported by each individual 

labor organization. Filers will enter in 

Column (A) the full name and address 

of the labor organization from which the 

per capita tax was received. Enter in 

Column (B) the purpose of the receipt of 

$5,000 or more, which means a brief 

statement or description of the reason 

the receipt was received. An adequate 

description includes information about 

the number and type of units covered by 

the receipt and the number of 

employees covered by the receipt. Filers 

will enter in Column (C) the total 

received from the represented employer 

during the reporting period. 

The Department received several 

comments relating to the reporting of 

per capita taxes. Because the comments 

on this schedule were essentially the 

same as those received on the other new 

schedules proposed for a labor 

organization’s receipts, they are 

discussed together below. 

Schedule 16–22. As earlier discussed, 

the Department proposed the addition 

of these schedules to capture, by 

functional category, a labor 

organization’s various receipts. Labor 

organizations are required to itemize the 

individual categories of receipts 

aggregated to $5,000 from any one 

source. The labor organization will be 

required to complete a separate 

itemization schedule for each individual 

or entity from which the labor 

organization has received $5,000 or 

more. Each transaction from that 

individual or entity will include 

information about the individual, the 

purpose of the payment, the date of the 

payment, and the amount of the 

payment. The total amount received 

from the individual or entity, both 

itemized and non-itemized, will be 

included at the bottom of the itemized 

schedule. The totals from each itemized 

schedule will then be added together 

and that number will be entered in the 

appropriate item on Statement B. 

By establishing this reporting 

obligation, the Department is requiring 

labor organizations to provide the same 

information about their ‘‘major’’ receipts 

as they are currently required to report 


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14The Department recognizes that some national 

or international labor organizations receive dues 

payment from hundreds and, in some cases, 

thousands of employers. Although this will add 

length to the reports, the recurring burden will be 

minimal given the sorting feature in accounting 

software. Further, members interested in tracking 

payments to and from the national organization and 

between that organization and an intermediate body 

of local labor organization will be able to quickly 

search for payments involving particular employers, 

labor organizations, and bargaining units. The 

Department expects that most labor organizations 

already track such payments in order to ensure they 

are receiving the appropriate amount in dues 

payment and that most will receive payments from 

only a relatively small number of employers. 

15One commenter noted that it has 750 local 

affiliates, the vast majority of which have no office 

address other than the home of the local president 

or treasurer. It explained that all of these local 

affiliates make per capita payments over $5,000 per 

year and therefore it would be required to report on 

Schedule 15 the name and address of the person/ 

entity making the payment. Expressing concern for 

the privacy of these officials, it urged the 

Department to except it from reporting their home 

addresses. The Department does not agree that an 

exception is necessary. Labor organizations already 

must disclose a publicly available address for itself 

or a registered agent for service of process in order 

to comply with state corporation laws. Further, the 

IRS requires a labor organization to list its address 

on IRS Form 990. For purposes of Schedule 15, a 

labor organization may use the address used by the 

labor organization in complying with state law or 

reported on the Form 990. Alternatively, a labor 

organization concerned about the disclosure of an 

officer’s home address may elect to obtain a P.O 

Box and use that as its mailing address. 

about their ‘‘major’’ disbursements. 

Most of the general comments about the 

proposal to require itemization of both 

sides of the ledger were addressed 

earlier in the preamble. Neither those 

comments nor the Department’s 

response to those comments will be 

repeated. Instead, only comments about 

particular aspects of the receipts 

schedules, not already discussed, are 

addressed below. Schedules 16, 21, and 

22, like Schedules 14 and 15, require 

filers to identify receipts by units, jobs, 

and timeframes. The instructions have 

been modified for this purpose. 

A national labor organization stated 

that it does not break down sales of 

supplies by entity and will have to alter 

substantially its account system to track 

the sales of supplies to affiliates by 

entity. Another national labor 

organization was particularly concerned 

with itemizing receipts on Schedule 21, 

‘‘Receipts on Behalf of Affiliates for 

Transmittal to Them.’’ The commenter 

explained that many parent labor 

organizations collect dues, fees, and 

other amounts that include the 

members’ dues for subordinate or local 

unions. The commenter stated that it 

will be extremely difficult to designate 

the precise amount of each receipt to be 

transmitted to one or more locals or 

affiliates. One labor organization 

calculated that the proposed receipts 

schedules will increase its yearly 

burden by 250–500 hours (compared to 

the Department’s estimated average of 

.47 hours per year). A commenter 

estimated that the ‘‘per capita tax’’ 

schedule alone would increase the 

number of itemized entries on its Form 

LM–2 by 1,200. Another commenter 

stated that under the Department’s 

proposal it would have to make about 

10,000 itemized entries, one for each 

employer from whom it receives 

members’ dues payments. 

As stated earlier in this preamble and 

in the preamble to the proposed rule, 

greater transparency promotes the 

detection of embezzlement and financial 

irregularities and, in so doing, also 

deters individuals at the front end from 

engaging in criminal or other improper 

conduct. Receipts from dues, per capita 

taxes, and sales of supplies are as 

susceptible to embezzlement or other 

improper use as any other receipt. For 

example, as noted in the NPRM, 73 FR 

at 27351–52, the president and treasurer 

of a local labor organization converted 

over $184,129 in dues checks. The dues 

and agency fees schedule will provide 

an essential check for transactions 

between affiliates and parent bodies.14

Members of the affiliate labor 

organization will be able to check the 

amount their labor organization 

received in dues against the parent labor 

organizations receipts on behalf of 

affiliates for transmittal to them. The 

same analysis can be done on lump sum 

payments from the represented 

employer to the parent labor 

organization covering multiple affiliates. 

The member need only look at each of 

the covered affiliates’ dues schedule and 

aggregate the payments to ensure they 

match the sum reported on Schedule 21. 

A difference in these two numbers 

could indicate embezzlement and 

warrant further investigation. 

As discussed in the NPRM, 73 FR at 

27352, the per capita tax schedules of 

affiliates and parent labor organization 

can also be used to detect embezzlement 

and financial irregularities. The member 

can check for possible embezzlement or 

misallocation of funds owed his or her 

labor organization by checking his or 

her labor organization’s per capita tax 

disbursements reported in Item 57 

against the per capita tax receipts of the 

parent and its intermediate bodies. This 

can be done by entering his or her labor 

organization’s name in the payer/payee 

search available on unionreports.gov. 

The search results will identify each 

labor organization that received per 

capita taxes from the member’s labor 

organization. These payments can then 

be aggregated to determine whether the 

per capita disbursements from the 

member’s labor organization match the 

per capita receipts reported on all the 

recipients’ per capita tax schedules 

(Schedule 15). A difference in these two 

numbers could indicate an 

embezzlement or misallocation and 

warrant further investigation.15

Schedule 23—Other Receipts: This 

schedule, currently numbered Schedule 

14, will be renumbered Schedule 23. No 

other changes will be made to this 

schedule. 

Schedule 24—Representational 

Activities: This schedule, currently 

numbered Schedule 15, will be 

renumbered Schedule 24. No other 

changes will be made to this schedule. 

Schedule 25—Political Activities and 

Lobbying: This schedule, currently 

numbered Schedule 16, will be 

renumbered Schedule 25. No other 

changes will be made to this schedule. 

Schedule 26—Contributions, Gifts 

and Grants: This schedule, currently 

numbered Schedule 17, will be 

renumbered Schedule 26. No other 

changes will be made to this schedule. 

Schedule 27—General Overhead: This 

schedule, currently numbered Schedule 

18, will be renumbered Schedule 27. No 

other changes will be made to this 

schedule. 

Schedule 28—Union Administration: 

This schedule, currently numbered 

Schedule 19, will be renumbered 

Schedule 28. No other changes will be 

made to this schedule. 

Schedule 29—Benefits: This schedule, 

currently numbered Schedule 20, will 

be renumbered Schedule 29. As 

described above in the discussion 

regarding the proposed changes to 

Schedule 11 and Schedule 12, those 

benefits inuring to officers and 

employees of the labor organization will 

be listed next to the corresponding 

officer’s or employee’s name. Apart 

from this change, the same 

disbursements that were disclosed on 

Schedule 20 will be disclosed on the 

new Schedule 29. These include direct 

and indirect disbursements associated 

with direct and indirect benefits to 

members and members’ beneficiaries. 

Special Procedures for Reporting 

Confidential Information 

The Department requested comments 

on whether to narrow, clarify, or remove 

the confidentiality exception from the 

Form LM–2 instructions. The 

Department recently considered this 

same question in connection with the 

Form T–1 rulemaking. There the 

Department issued a final rule retaining 

the special procedure without change 

but cautioning that it was to be used in 


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3694 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

16 In this rulemaking the Department only 

addresses whether the information is available 

pursuant to the ‘‘just cause per se’’ provision of the 

special reporting procedure. The Department does 

not reach the question whether a union member for 

‘‘just cause’’ would be able to examine underlying 

documents. The result may well depend upon the 

particular circumstances giving rise to the member’s 

request, the nature of the information that is at 

issue, and the potential applicably of nondisclosure provisions under statute and case law. 

17The revised section reads: ‘‘This provision does 

not apply to disclosure that is otherwise prohibited 

by law or that would endanger the health or safety 

of an individual, or that would consist of 

individually identifiable health information the 

trust is required to protect under the Health 

Insurance Portability and Accountability Act of 

1996 (HIPAA) Privacy Regulation.’’ 

limited circumstances. As discussed 

below, the Department reaches the same 

result here, i.e., preserving the 

confidentiality procedure. However, 

based in part on comments received in 

connection with the proposed changes 

to the Form LM–2 but primarily based 

on the agency’s interpretation of its own 

regulations, the Department is clarifying 

that the procedure may not be used by 

unions in connection with payments 

made by them to employers if such 

payments are made as part of a job 

targeting, market recovery or similar 

program. 

Additionally, the Department 

modifies the instructions to clarify that 

the procedure may be used to report 

information the disclosure of which is 

proscribed by HIPPA or other federal or 

state law and that where this 

information is reported in aggregated 

form for this purpose, it is not subject 

to the per se ‘‘just cause’’ proviso of the 

procedure. See 29 CFR 403.8 (2008); see 

also 73 FR at 57449 (revising 29 CFR 

403.8(c)).16 This change conforms the 

instructions in the Form LM–2 to the 

instructions and regulatory text in the 

Form T–1 final rule, which takes effect 

on December 31, 2008. See 73 FR at 

57449, 57469.17

The instructions currently allow 

unions to use the confidentiality 

procedure for information that would 

(1) identify individuals paid by the 

union to work in a non-union facility in 

order to assist the union in organizing 

employees, provided that such 

individuals are not employees of the 

union who receive more than $10,000 in 

the aggregate from the union in the 

reporting year; (2) expose the reporting 

union’s prospective organizing strategy; 

(3) provide a tactical advantage to 

parties with whom the reporting union 

or an affiliated union is engaged or will 

be engaged in contract negotiations; (4) 

subject to a confidentiality agreement in 

a settlement agreement; or (5) endanger 

the health or safety of an individual. See 

73 FR at 27423–24 (unchanged from 

current rule). If the receipt or 

disbursement fits within one of the 

above categories, then the labor 

organization need not itemize the 

receipt or disbursement. Instead, it may 

include the receipt or disbursement in 

the aggregated total on Line 3 of 

Summary Schedule 23 (‘‘Other 

Receipts’’) or on Line 5 of Summary 

Schedules 24 (‘‘Representational 

Activities’’) or 28 (‘‘Union 

Administration’’), as appropriate. A 

union member has a statutory right ‘‘to 

examine any books, records, and 

accounts necessary to verify’’ the labor 

organization’s financial report if the 

member can establish ‘‘just cause’’ for 

access to the information. 29 U.S.C. 

431(c); 29 CFR 403.8. The instructions 

and regulatory text expressly provide 

that if a labor organization chooses to 

utilize the special procedures for 

confidential information, such use 

constitutes a per se demonstration of 

‘‘just cause for access to the 

information’’ and thus the information 

must be available to a member for 

inspection. 68 FR at 58448, 58499–00. 

Information that is withheld from full 

disclosure is not subject to the per se 

disclosure rule if its disclosure would 

consist of individually identifiable 

health information of the kind required 

to be protected under the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

privacy regulation, violate state or 

federal law, violate a non-disclosure 

provision of a settlement agreement, or 

endanger the health or safety of an 

individual. 

Several commenters objected to the 

use of special procedures for reporting 

confidential information. The 

objections, however, were directed at 

the use of the procedure to shield from 

the view of union members and the 

public the amount of union funds 

directed at organizing activities, not at 

the use of the procedure to protect the 

legitimate privacy interests of 

individuals. One commenter asserted 

that the procedure effectively allowed 

labor organizations to assert 

unsubstantiated claims as a guise to 

justify any instance where they elect to 

withhold information. One commenter 

argued that the exemption affords labor 

organizations greater ability to withhold 

information than what is permitted 

under the discovery rules of federal civil 

procedure or permitted by the National 

Labor Relations Board (NLRB). Another 

commenter noted that narrowing or 

removing the exemption ‘‘will provide 

labor organization members with clearer 

information regarding [labor 

organization] receipts and 

disbursements.’’ The commenter argued 

that financial information should be 

available to labor organizations’ 

membership without having to petition 

the labor organization directly. The 

commenter also alleged that because of 

potential tax and other impacts and 

implications, the public is entitled to 

and should have the same benefit of 

clarity regarding labor organization 

receipts and disbursements. 

Several commenters argued in favor of 

maintaining the special procedure for 

reporting organizing activities, asserting 

it was necessary to balance the interest 

of union members in transparency 

against the interest in protecting a 

union’s ongoing organizing campaigns. 

One commenter expressed the 

unsubstantiated view that but for the 

inclusion of the special procedure in the 

2003 rule, the courts would have 

overturned the rule. Another 

commenter, while noting that 

transparency is a positive benefit to the 

public, urged the Department to weigh 

this benefit against the labor 

organizations’ primary responsibility— 

to represent its members. This 

commenter concluded that the damage 

done to unions’ representational 

responsibilities far outweighs the value 

of this transparency in and of itself. 

Other comments noted that 

eliminating the confidentiality 

exception would be detrimental to 

legitimate organizing efforts and could 

compromise a labor organization’s 

efforts to effectively engage in collective 

bargaining. Specifically, one commenter 

argued that requiring a union to identify 

‘‘salts’’ on the Form LM–2 will 

unreasonably chill, if not destroy, this 

legitimate form of organizing under the 

NLRA. Disclosure of ‘‘salts’’ could 

jeopardize the individual’s ability to 

earn a livelihood. This category of 

information subject to the Special 

Procedures for Confidential Information 

remains unchanged in the final rule. 

Labor organizations should note that 

notwithstanding the confidentiality 

provisions any employee who receives 

over $10,000 in any fiscal year is 

required by the LMRDA to be disclosed, 

even if employed as a ‘‘salt.’’ 

One commenter argued that the need 

for a confidentiality exemption is self 

evident. One commenter noted that the 

current exception is already narrowly 

tailored to protect legitimate union 

interests while ensuring union members 

have access to information. Two 

commenters suggested that concerns 

that the Department found ‘‘persuasive’’ 

in 2003 when it adopted this narrow 

exception to itemized reporting are no 

less real or compelling today. Several 

commenters also noted that the 


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Department cited no complaints from 

union members that this exception 

prevented them from accessing 

information on their union. 

Several commenters argued against 

imputing an improper motive to a labor 

organization’s use of the confidentiality 

procedure. One noted that a union’s 

decision to protect information from 

disclosure should not be assumed to 

connote misuse or abuse of the 

exception. This commenter alleged that 

use of the exemption is evidence of the 

extent to which the Department has 

already transformed the Form LM–2 

from a vehicle Congress created to 

strengthen unions into a trap for the 

unwary and a weapon of choice for antiunion consultants bent on stopping 

workers from organizing. Two 

commenters believed that misuse of the 

exemption may be attributed to the 

steep ‘‘learning curve’’ inherent in the 

complex reporting scheme. 

The Department also specifically 

invited comments on an alternative 

proposal to require that all transactions 

greater than $5,000 be identified by 

amount and date on the relevant 

schedules, permitting however, labor 

organizations, where acting in good 

faith and on reasonable grounds, to 

withhold information that would 

otherwise be reported, in order to 

prevent the divulging of information 

relating to the labor organization’s 

prospective organizing or negotiating 

strategy. Only one commenter addressed 

this proposed alternative. The 

commenter noted that such an approach 

did not provide protection for 

information recognized in the other 

parts of the existing confidentiality 

section, such as information that is 

required to be kept confidential 

pursuant to a settlement agreement, 

information the union is prohibited by 

law from disclosing, or information 

where disclosure would endanger the 

health or safety of the individual. The 

commenter also noted that such an 

approach would require additional 

itemization and reporting that would 

provide meaningless information to 

members. 

The Department has carefully 

considered the comments relating to the 

Special Procedures for Reporting 

Confidential Information. It also has 

undertaken further review of the use of 

this procedure by reporting labor 

organizations. The Department’s review 

of Form LM–2 data indicates that the 

confidentiality exception is used only 

by a small number of Form LM–2 filers. 

However, the Department has found that 

in some cases where the confidentiality 

exception is used, large portions of the 

labor organizations’ disbursements are 

not being itemized. For example, one 

labor organization treated $360,308.00 

in disbursements as confidential 

information and entered this amount on 

line 5 of Schedule 17. The $360,308 

accounted for 45% of the labor 

organization’s total disbursements. A 

mid-sized local labor organization 

treated $1,011,863 as confidential. This 

accounted for 49% of the labor 

organization’s total disbursements. 

Finally, a large local labor organization 

treated $5,931,513.00 as confidential. 

This accounted for 46% of the labor 

organization’s total disbursements. As 

these examples demonstrate, an 

undisciplined use of the special 

procedures may result in the nonitemization of disbursements of millions 

of dollars and thus deny members the 

very transparency that is the foundation 

of the LMRDA’s disclosure provisions. 

Thus, while this final rule retains the 

Special Procedure for Reporting 

Confidential Information, the 

Department reemphasizes the limited 

situations in which it should be used 

and clarifies that it was not the 

Department’s intention that it should be 

used to shield the itemization and full 

disclosure of payments to employers for 

job targeting, market recovery or other 

similar programs. In clarifying this 

aspect of the rule, the Department 

remains of the view that a labor 

organization should not be required to 

disclose information that would harm 

the labor organization’s prospective 

organizing campaign or negotiations, by 

disclosing strategy that would otherwise 

be confidential. However, the 

Department reiterates, as it did in the 

Form T–1 final rule, that labor 

organizations are required to itemize 

transactions related to organizing drives 

and contract negotiations after the 

confidentiality interest giving rise to the 

exemption has ended. The instructions 

make clear that absent unusual 

circumstances information about past 

organizing drives or contract 

negotiations should not be treated as 

confidential under the reporting 

requirements. The Department also 

reiterates, as noted in the 2003 final 

rule, the procedures may not be used for 

Schedules 16 through 18. 68 FR at 

58500. This rule has renumbered 

Schedules 16 through 18 as Schedules 

25 through 27. Thus, the instructions for 

this final rule state that the procedures 

may not be used for the new Schedule 

25 (‘‘Political Activity and Lobbying’’), 

Schedule 26 (‘‘Contributions, Gifts and 

Grants’’), and Schedule 27 (‘‘General 

Overhead’’). 

The Department is also clarifying that 

the procedure may not be used for 

payments made to employers as part of 

a labor organization’s job targeting, 

market recovery or other similar 

program. A commenter urged the 

Department to eliminate the 

confidentiality procedure because of 

what it saw as a widespread practice by 

labor organizations to avoid reporting 

the names of, and amount of payments 

to, employers who had received job 

targeting funds. Independently, the 

Department’s own recent investigative 

experience has shown that some labor 

organizations have been using this 

procedure to shield from disclosure 

payments to employers as part of the 

unions’ job targeting or market recovery 

programs. Although the total number of 

instances appears relatively small, the 

amount of money involved is 

substantial. The labor organizations 

have informed the Department that they 

consider such payments to be part of 

their ‘‘organizing strategy’’ and that the 

disclosure of such payments would 

adversely affect future organizing 

efforts. As discussed below, the 

Department has determined that 

payments to employers for job targeting 

or market recovery purposes are not 

encompassed by the special procedure. 

Therefore, any payments of $5,000 or 

greater to a particular employer must be 

itemized. 

In the 2003 rule, the Department, 

recognizing that the disclosure of 

certain payments related to organizing 

might adversely affect a union’s 

legitimate interests, created a special 

procedure for reporting confidential or 

sensitive information. The key language 

of the 2003 rule is embodied in the 

instructions to the Form LM–2: ‘‘Filers 

may use the [special procedure for 

reporting confidential information] to 

report * * * [i]nformation that would 

expose the reporting union’s 

prospective organizing strategy. The 

union must be prepared to demonstrate 

that disclosure of the information would 

harm an organizing drive’’ (emphasis 

added). 

Neither the rule nor its preamble 

illustrated the particular kinds of 

payments that would or would not 

qualify for this limited reporting 

procedure. Although the preamble to 

the rule mentioned ‘‘job targeting’’ in a 

few instances, the preamble did not 

specifically identify which particular 

schedule should be used for reporting 

such payments. See 68 FR at 58387, 

58400. The closest the preamble comes 

to addressing how job targeting 

disbursements should be reported is the 

following statement: ‘‘In the 

Department’s view, receipts and 

disbursements of job targeting funds 

that exceed the itemization threshold 

will be disclosed as a result of the 


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3696 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

18The revocation procedures will not affect labor 

organizations with annual receipts less than 

$10,000. While section 208 allows the Secretary to 

revoke the privilege of such labor organizations to 

file the highly simplified Form LM–4, the 

Department is not proposing at this time to apply 

such procedure to Form LM–4 filers. 

19OLMS intends to continue its regular practice 

of contacting Form LM–3 filers at the end of their 

fiscal year about their filing obligation, and, in 

doing so, it will inform them of the potential 

revocation of their privilege to file the Form LM– 

3 if they are delinquent in filing the form, file a 

Form LM–3 that is materially deficient, or for other 

appropriate cause. The instructions to the Form 

LM–3 already inform labor organization officers of 

their statutory obligation to file the completed 

forms with OLMS within 90 days after the end of 

their labor organization’s fiscal year. 

general reforms implemented by this 

rule.’’ Id., at 58400. The Department 

acknowledges that the term ‘‘organizing 

strategy’’ is ambiguous, and that the rule 

did not make clear whether payments 

made directly to employers, such as job 

targeting payments, would qualify. The 

ambiguity of the term is illustrated by 

literature reviewed by the Department, 

some of which classified activities as far 

flung as community service projects and 

pension investment strategies as being 

part of a union’s ‘‘organizing strategy.’’ 

Kate Bronfenner, Organizing to Win: 

New Research on Union Strategies, 302. 

The Department never intended that the 

term should be read so broadly. Such 

activities may have an indirect impact 

on the attractiveness of a union to 

workers, but do not directly attempt to 

organize workers, and thus fall outside 

the meaning of the term as interpreted 

and administered by the Department. 

Moreover, the ‘‘key language’’ of the 

rule, as quoted above, dictates that the 

special procedure must be read as 

limited to information that would 

‘‘harm an organizing drive.’’ Payments 

to an employer in order to assist it in 

bidding for construction jobs on which 

union members will be paid in accord 

with union industry practice cannot be 

viewed as part of an ‘‘organizing drive.’’ 

Such payments stand in contrast to 

payments commonly associated with an 

organizing drive, such as payments to 

printing vendors for literature and 

signage, and rental of meeting facilities, 

communication equipment, 

transportation vehicles, and various 

consultants. For this reason, the 

Department modifies the rule by 

explicitly stating that ‘‘payments made 

by a labor organization to an employer 

under a market recovery, job targeting, 

or like program (e.g., for ‘‘industry 

advancement’’), must be reported. Such 

payments must be itemized where they 

aggregate to more than $5,000. If the 

labor organization chooses to report 

such payments on Schedule 24 

(‘‘Representational Activities’’), it may 

not use the confidentiality exception. 

Additionally, it is the Department’s 

view that this clarification best serves 

the LMRDA’s purpose, by providing 

transparency to this substantial aspect 

of a union’s financial operations 

without impeding a union’s prospective 

organizing drives. In making this 

change, the Department takes no 

position in this rule on the propriety or 

not of job targeting or similar payments 

made by a labor organization under the 

Labor Management Relations Act, the 

Davis-Bacon Act, or other law, or how 

such information has been addressed 

under the discovery rules of federal civil 

procedure and NLRB practice. The 

changes are based solely on the 

Department’s interpretation of the 

confidential reporting procedure and its 

view that the disclosure purposes of the 

LMRDA are best served by making 

known to union members and the 

public the amounts and recipients of job 

targeting, market recovery or other 

similar payments. 

C. Proposed Procedure and Standards 

To Revoke the Simplified Reporting 

Option Where Appropriate in Particular 

Circumstances 

1. Introduction 

The Department proposed to establish 

standards and procedures for revoking 

the simplified report filing privilege 

provided by 29 CFR 403.4(a)(1) for those 

labor organizations that are delinquent 

in their Form LM–3 filing obligation, 

fail to cure a materially deficient Form 

LM–3 report after notification by OLMS, 

or where other situations exist where 

revoking the Form LM–3 filing privilege 

furthers the purposes of LMRDA section 

208. The final rule adopts the proposal 

with some modifications. The new 

procedure will effectuate the 

Department’s authority to revoke a labor 

organization’s existing Form LM–3 

filing privilege if it fails to timely file a 

Form LM–3 or files a Form LM–3 that 

is materially deficient. Without such a 

procedure, the Department has been 

unable to revoke a labor organization’s 

privilege to file a simplified report—no 

matter how egregious a labor 

organization’s noncompliance with its 

reporting obligations, or obvious the 

indications of financial 

mismanagement, embezzlement, or 

corruption within that organization. See 

73 FR at 27353. The procedures 

established in this rule will remedy this 

shortcoming in the Department’s 

reporting system.18

As discussed in the NPRM, 73 FR at 

27346–47, the goal of these changes is 

to improve transparency in situations 

where it is most needed, i.e., where a 

union has failed to comply with its 

basic financial reporting obligation. 

Although it may appear counterintuitive 

to require a non-compliant organization 

that fails to meet its relatively simple 

Form LM–3 obligation to file a more 

detailed Form LM–2, this view assumes 

that the only reason for non-compliance 

was relatively benign, e.g., a responsible 

officer was brand new to the position or 

his or her illness delayed the timely 

submission or clarification of a 

submission. The Department recognizes 

that some submissions are delayed for 

such reasons; thus, the Department did 

not propose that a delinquent or 

materially deficient filing would 

automatically trigger revocation and 

require the submission of a Form LM– 

2. However, as most commenters 

appeared to recognize, the reasons for 

non-compliance are varied and by no 

means all benign. Labor organizations 

will be given the opportunity to explain 

the reasons for the delay, including 

mitigating circumstances, and may 

thereby avoid having to file the Form 

LM–2. But where revocation is 

appropriate, the union will incur some 

additional burden in completing the 

Form LM–2 but, as discussed below, the 

burden is manageable and outweighed 

by the gains in transparency. The Form 

LM–2 not only requires more detail in 

general than the Form LM–3, but the 

Form LM–2 requires information that 

may be particularly pertinent to 

situations where possible financial 

mismanagement or embezzlement may 

have occurred. This additional financial 

information will assist members of labor 

organizations and OLMS investigators 

in reviewing the labor organization’s 

funds and assets during the reporting 

period and enable them to determine 

whether additional scrutiny of the labor 

organization’s finances is in order, for 

example, by requesting an explanation 

of the accounting, examining the 

underlying records of various 

transactions, or both.19

The differences between the Form 

LM–2 and the Form LM–3 forms have 

been accentuated by the substantial 

revisions made to the Form LM–2 in 

2003 and those adopted in this final 

rule. As the Department explained in 

the preamble to the 2003 Form LM–2 

rule, the broad aggregated categories on 

the old Form LM–2 enabled officials of 

labor organizations to potentially hide 

embezzlements and financial 

mismanagement. 68 FR 58420. The 

more detailed reporting required of all 

financial transactions covered by Form 

LM–2 was designed, in part, to 

discourage and reduce corruption by 

making it more difficult to hide 


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Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 3697 

financial irregularities from members 

and the Department’s investigators and 

thereby strengthen the effective and 

efficient enforcement of the LMRDA. 68 

FR 58402. Requiring labor organizations 

to file a Form LM–2, after a 

determination that revocation of the 

privilege of filing a Form LM–3 is 

warranted, will make it more difficult to 

hide fraud. 

The Form LM–2 requires labor 

organizations to provide more specific 

information than the Form LM–3 in 

several areas relating to labor 

organization finances including, in part, 

the following: Investments, fixed assets, 

loans payable and owed, contributions, 

grants, and gifts, overhead expenses, 

union administration, and receipts. 

With regard to labor organization 

receipts, Form LM–2 filers are explicitly 

required to report all receipts including: 

‘‘Receipts from fundraising activities, 

such as raffles, bingo games, and 

dances; funds received from a parent 

body, other labor organizations, or the 

public for strike assistance; and receipts 

from another labor organization which 

merged into the labor organization.’’ See 

p. 29 of Instructions to Form LM–2, as 

reproduced at 68 FR 58501. 

Form LM–2 requires filers to itemize 

receipts from and disbursements to any 

individual or business or other entity 

that exceed $5,000 in a fiscal year either 

in a single transaction or aggregated 

over the year. Itemization prevents a 

labor organization from ‘‘hiding’’ 

significant receipts from or 

disbursements to the same individual or 

entity, a possibility that exists under the 

Form LM–3. The name, address, and 

other information must be provided for 

any such entity or individual. This 

information, which is not required by 

the Form LM–3, enables members of a 

labor organization to detect payments to 

individuals or entities that are out of the 

ordinary (given information that is 

known to the member but would not 

appear irregular to someone without 

such information). Thus, this 

information enables members to identify 

situations that may reflect a breach of 

the labor organization’s duties to its 

members or provide a reasonable basis 

for inquiry to determine whether 

officials of the labor organization are 

improperly diverting funds for their 

own benefit or the shared benefit of 

others. Additionally, a member who is 

aware that the labor organization has a 

financial relationship with one or more 

of these businesses will be in a better 

position to determine whether the 

business has made any required reports 

(Form LM–10). The itemization of 

payments at or above $5,000 also puts 

members in a better position to 

determine whether any of the recipients 

of the payments are businesses in which 

a labor organization official (or the 

official’s spouse or minor child) holds 

an interest, a circumstance that will 

require a report to be filed by the official 

(Form LM–30). 

The Form LM–2, unlike the Form 

LM–3, requires filers to provide a list of 

accounts receivable and payable 

(involving a particular individual or 

entity in an amount of $5,000 or greater, 

singly or aggregated) that are past due 

by more than 90 days. As explained in 

the 2003 Form LM–2 rulemaking, 68 FR 

at 58401–02, such itemized disclosure 

can provide a vital early warning signal 

of financial improprieties. In the case of 

an already overdue report, the 

delinquency demonstrates that such 

improprieties already may exist. 

As discussed in the NPRM, 73 FR at 

27354, the Department’s enforcement 

experience has shown that the failure of 

labor organizations to file the annual 

Form LM–3 on time and without 

material deficiencies is often an 

indicator of larger problems about the 

way such organizations maintain their 

financial records, and may be an 

indicator of more serious financial 

mismanagement. OLMS review of data 

indicates that labor organizations that 

are repeatedly delinquent are more 

likely than other labor organizations to 

suffer embezzlement, or related crime. 

For instance, in one recent case an 

investigation of a labor organization that 

was delinquent in its reports for two 

years showed that the labor organization 

had been the victim of a serious 

embezzlement. Its former president pled 

guilty to embezzling $112,525 and 

received a prison sentence of 33 

months, and was ordered to pay back 

the money he had stolen. In another 

case, a former financial secretary of a 

labor organization that had been 

delinquent in filing its reports for 

several years pled guilty to 

embezzlement and was ordered to pay 

restitution of $103,248 and also received 

a sentence including confinement for 

eight months, home detention for four 

months, and probation for three years. 

Many of the reasons that contribute to 

delinquent filings also result in the 

filing of reports that omit or misstate 

material information about the labor 

organization’s finances. The members of 

a labor organization that fails to correct 

a material reporting deficiency will also 

benefit from the increased transparency. 

For example, the labor organization may 

delay filing a Form LM–3 to avoid 

making timely public disclosures about 

financial improprieties of officers, such 

as the diversion of funds for personal 

use. Even if the Department eventually 

succeeds in encouraging a delinquent 

labor organization to file the required 

form, the lack of specificity in Form 

LM–3 may permit significant problems 

to remain undetected. The greater detail 

required by the Form LM–2 makes it 

more difficult to hide such problems. 

As discussed in the NPRM, at 73 FR 

at 27357, the Department’s enforcement 

experience reveals various reasons for 

delinquent filings, such as a labor 

organization’s failure to maintain the 

records required by the LMRDA; 

inadequate office procedures; frequent 

turnover of labor organization officials 

and their often part-time status; 

uncertainty of first-time officers about 

their reporting responsibilities under 

the LMRDA and their inexperience with 

bookkeeping, recordkeeping, or both; an 

‘‘inherited bookkeeping mess;’’ an 

inattention generally to ‘‘paperwork;’’ 

overworked or under-trained officers; an 

officer’s unwillingness to question or 

report apparent irregularities due to the 

officer’s own inexperience or concern 

about the repercussions of reporting 

such matters; or a conscious effort to 

hide embezzlement or the 

misappropriation of funds by the 

officers, other members of the 

organization, or third parties associated 

with the labor organization. Many of 

these causes of delinquency highlight 

the need for more, not less, detailed 

reporting. The inability to comply with 

the reporting obligations may be 

symptomatic of financial management 

problems, benign or otherwise, within 

the union. As discussed below, 

commenters generally agreed with the 

Department’s assessment of why labor 

organizations are delinquent or deficient 

in filing the Form LM–3. Some 

commenters, however, disagreed with 

the efficacy of additional reporting as a 

means of detecting fraud or 

embezzlement. As discussed further 

below, the Department recognizes that 

the changes will not eliminate fraud or 

embezzlement. But the changes should 

increase the ability of union members, 

the Department, and the public to 

identify how the union’s finances are 

being managed. This increased 

transparency, especially insofar as 

overdue accounts and major 

transactions (those valued at $5,000 or 

greater) are concerned, will increase the 

prospect that fraud will be uncovered 

and the fear of detection may deter 

individuals from engaging in the 

improper conduct in the first instance. 

To implement this procedure and 

standards for revocation, the 

Department proposed to modify section 

403.4 of its regulations, 29 CFR 403.4, 

and to amend the instructions to the 

Form LM–3 in order to fully apprise 


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3698 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

20OLMS will notify a filer whose Form LM–3 is 

materially deficient by letter, advising in what 

respects the filing is deficient and providing a date 

by which the filer must submit a corrected Form 

LM–3. Ordinarily, the filer will be allowed not less 

than 30 days from the date of the letter to submit 

a corrected Form LM–3. 

21The Department anticipates that the new rule 

will provide ample incentive for labor organizations 

to fulfill timely their Form LM–3 filing 

responsibilities. If the rule has that salutary effect, 

the number of unions potentially subject to 

revocation of their Form LM–3 privilege will be 

relatively small. Should this not be the case, 

available resources may limit the ability of the 

Department to pursue revocation in all cases where 

it may be warranted. In such instances, the 

Department will exercise, fairly and impartially, its 

enforcement discretion in deciding where 

revocation should be pursued. 

filers of the procedure and standards. 

The Form LM–3 instructions will 

remain unchanged except for a new 

paragraph that notes that the privilege to 

file the Form LM–3 may be revoked 

under certain circumstances, and refers 

filers to the standards and procedures 

set forth in the Department’s regulations 

(29 CFR 403.4). 

Where there appear to be grounds for 

revoking a labor organization’s privilege 

to file the Form LM–3, such as where 

the labor organization has failed to 

timely file the Form LM–3, or files a 

Form LM–3 that lacks material 

information,20 the Department will 

conduct an investigation to confirm the 

facts relating to the delinquency or other 

possible ground for revocation. The 

depth of the investigation will depend 

upon the particular circumstances. For 

example, where OLMS has no record of 

receiving a timely Form LM–3, the 

investigation may be limited to 

confirming that the labor organization 

did not timely submit the report. In 

other circumstances, an investigation 

may be needed to review the labor 

organization’s books, to review 

documents, and to interview subjects 

and obtain statements from individuals 

with knowledge about a labor 

organization’s finances and their 

reporting to determine whether or not 

the deficiencies on the Form LM–3 are 

material. 

If the Department finds grounds for 

revocation after the investigation, the 

Department will send the labor 

organization a notice of the proposed 

Form LM–3 revocation stating the 

reason for the proposed revocation and 

explaining that revocation, if ordered, 

will require the labor organization to file 

the more detailed annual financial 

report, Form LM–2.21 The letter will 

also provide notice that the labor 

organization has the right to a hearing 

if it chooses to challenge the proposed 

revocation; and that the hearing will be 

limited to written submissions due 

within 30 days of the date of the notice. 

The submissions and any supporting 

facts and argument must be received by 

OLMS at the address provided in the 

notice within 30 days after the date of 

the letter proposing revocation. The 

letter will also advise that the labor 

organization’s failure to timely respond 

within 30 days will waive such labor 

organization’s opportunity to request a 

hearing and the proposed revocation 

shall take effect automatically unless the 

Secretary in his or her discretion 

determines otherwise. 

In its written submission, the labor 

organization must present relevant facts 

and arguments that address whether: (1) 

The report was delinquent or deficient 

or other grounds for the proposed 

revocation exist; (2) whether the 

deficiency, if any, was material; (3) 

whether the circumstances concerning 

the delinquency or other grounds for the 

proposed revocation were caused by 

factors reasonably outside the control of 

the labor organization; and (4) any 

factors exist that mitigate against 

revocation. Factors reasonably outside 

the control of a labor organization could 

include, for example, natural disasters 

that destroyed the records necessary to 

complete a Form LM–3, or the death or 

serious illness of the labor 

organization’s president or treasurer 

while the form was being prepared for 

filing. Mitigating factors could also 

include, for example, that the form was 

timely completed but was mailed to an 

incorrect address or an attachment was 

inadvertently omitted from the filing. 

After review of the labor 

organization’s submission, the Secretary 

(or her designee who will not have 

participated in the investigation) will 

issue a written determination, stating 

the reasons for the determination, and, 

as appropriate based on neutral criteria, 

informing the labor organization that it 

must file the Form LM–2 for such 

reporting periods as he or she finds 

appropriate. Where a labor organization 

has failed to timely respond to the 

notice of proposed revocation, the 

Secretary will notify the labor 

organization in writing that its privilege 

has been revoked (or in an exercise of 

his or her discretion that revocation is 

unnecessary). The determination by the 

Secretary shall be the Department’s final 

agency action on the revocation. 

The revocation of the Form LM–3 

filing privilege will ordinarily only 

apply to the fiscal year for which the 

labor organization was delinquent or 

failed to file a properly completed 

amended report after notification of a 

material deficiency and the fiscal year 

during which the revocation 

determination is issued, but in no event 

will a labor organization be required to 

submit a Form LM–2 for any past fiscal 

year for which the labor organization 

already has properly and timely filed a 

Form LM–3. If the revocation is for a 

longer period of time, the Department’s 

reasons will be included in its written 

determination. Labor organizations that 

are required to file a Form LM–2 

because their Form LM–3 filing 

privilege has been revoked will not be 

required to submit the Form LM–2 

electronically. 

2. Discussion of Comments Received 

A few commenters addressed the 

authority of the Secretary to make the 

proposed changes. One commenter 

noted that the Secretary has the 

statutory authority to revoke the 

simplified reporting privilege and doing 

so will promote greater transparency. 

The commenter also noted that the 

revocation procedure will act as an 

effective deterrent to deliberately 

inaccurate or late reporting of financial 

information. Others, however, argued 

that Congress intended revocation under 

section 208 to be limited to situations 

where the simplified report would not 

accurately reflect the finances of a small 

labor organization, i.e., where filing the 

simplified form would permit the labor 

organization to circumvent or evade its 

reporting obligations. A suggested 

example of its appropriate use would be 

where a single labor organization, in 

effect, was formed as two separate labor 

organizations in order to decrease its 

annual receipts below the $250,000 

filing threshold for the Form LM–2. The 

same commenters stated that the 

authority under section 208 was not 

intended to be used for individual or 

episodic violations. In its view, the only 

appropriate remedies for individual 

violations are already provided for 

under the LMRDA—civil and criminal 

enforcement. Another commenter 

argued that where conduct is culpable, 

it should be dealt with through criminal 

investigations and prosecutions. 

The Department disagrees with this 

narrow reading of the Secretary’s 

authority. Section 208 permits the 

Secretary to establish simplified forms 

for labor organizations where she ‘‘finds 

by virtue of their size a detailed report 

would be unduly burdensome.’’ Section 

208 also authorizes the Secretary to 

revoke a labor organization’s privilege to 

file such forms when the Secretary 

determines, after investigation, due 

notice, and an opportunity for a hearing, 

‘‘that the purposes of this section would 

be served [by revocation].’’ Contrary to 

the view of these commenters, section 

208 grants her express, unambiguous 

statutory authority to revoke the 


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22As ‘‘evidence’’ of the burden, two commenters 

noted that the Form LM–2 is so difficult to 

complete that the Department, in light of the legal 

challenge to the 2003 rule, recognized that unions 

would need at least 18 months to prepare for filing 

the form. (As discussed in the text, the actual 

burden to an affected union under this aspect of 

today’s rule will be much less demanding than for 

a typical Form LM–2 filer. The ‘‘lead time’’ for the 

submission of the Form LM–2s, as revised by the 

2003 rule, was provided because of two factors: (1) 

The need for some unions to substantially revise 

sophisticated recordkeeping and accounting 

systems; and (2) the delay in the Department’s 

development of software by which unions would 

electronically submit their Form LM–2s. Neither 

factor is in play under the instant rule. 

privilege of a labor organization to file 

a simplified report. There is nothing in 

the text of the LMRDA or its legislative 

history to suggest that the Secretary’s 

authority to revoke the privilege is 

somehow constrained by her separate 

grant of civil and criminal enforcement 

powers. The Department’s primary 

method of enforcement to obtain a 

timely and complete report, a civil 

action seeking a court order that the 

labor organization file an adequate 

report, is a time-consuming process that 

permits the evasion of the reporting 

requirements to continue for lengthy 

periods, denying members the timely 

disclosure of this financial information, 

without which they are unable to 

properly oversee the operations of their 

labor organization and, where they 

believe appropriate, to timely change its 

leadership, policies, or both. Moreover, 

requiring unions that are delinquent or 

materially deficient in their reports to 

file the more detailed Form LM–2 will 

help identify situations demanding civil 

and criminal investigations and 

prosecutions. The revocation process is 

but one tool that the Department may 

utilize to ensure that labor organizations 

are complying with the LMRDA 

reporting requirements. Where conduct 

warrants criminal enforcement, the 

Department will use this 

complementary tool. 

A few commenters took an alternative 

tack by stating that implicit in the 

authority to create a simplified financial 

report is the assumption that simplified 

reports adequately reveal a small labor 

organization’s finances, or that small 

organizations are incapable of filing the 

same report as larger organizations, or 

both. They suggested limiting 

revocation to only those situations 

where a simplified report would not 

accurately reflect the finances of a small 

labor organization. While Congress 

clearly viewed simplified reports as 

potentially adequate for reporting the 

finances of small labor organizations, it 

left the Secretary to decide whether to 

permit some unions to file a simpler 

form. It is difficult to square the 

decision by Congress to leave the choice 

to the Secretary while, at the same time, 

hobbling her authority to revoke the 

authority where she deems it 

appropriate. Congress left it to the 

Secretary to determine what is ‘‘unduly 

burdensome.’’ And, where action (or 

inaction) of individuals, not a union’s 

size, is the reason for the reporting 

deficiency, the argument that the 

Secretary is constrained by the language 

of section 208 loses any remaining force. 

Commenters have failed to provide any 

persuasive arguments in support of such 

a reading. 

A few commenters suggested that the 

Department was exaggerating the 

problem, one stating that a phone call to 

the labor organization in question 

should be sufficient to remedy the 

problems, while other suggested that the 

Department should address the problem 

by providing compliance assistant to 

small unions so that they will 

understand their filing obligation. As 

most commenters appeared to 

recognize, however, it is hard to 

exaggerate the difficulties confronting 

the Department in obtaining timely and 

complete Form LM–3s from a 

substantial percentage of unions in this 

category. The problems persist despite 

the Department’s robust compliance 

efforts to assist unions with their filing 

obligations. 

Several labor organization 

commentators believed that increased 

disclosure was punitive. A commenter 

asserted that compliance does not 

appear to be the goal of this proposal, 

explaining its view that the proposal 

would impose extraordinary costs on 

labor organizations. (45) The 

Department disagrees with this 

assertion. Filing a delinquent or 

materially deficient report violates the 

labor organization’s duty to provide 

accurate disclosure of its financial 

condition and operations. Such evasion 

of the reporting requirements may be a 

sign of more serious financial 

mismanagement. Increased transparency 

and disclosure will help labor 

organization members and the 

Department ascertain whether serious 

financial mismanagement is occurring. 

Revocation of a labor organization’s 

simplified reporting privilege will 

further the purposes of the LMRDA, 

namely, ensuring that the organization 

accurately discloses its financial 

condition and operations. 

Many commenters described the 

proposal as unnecessarily burdensome. 

Commenters stated that Form LM–3 

filers do not keep track of data that is 

required on the Form LM–2. 

Specifically, one commenter believed 

that the Form LM–2 functional 

categories would pose a particular 

challenge for Form LM–3 filers. An 

additional commenter also noted that 

aggregation, itemization and 

categorization could pose a problem. 

This international labor organization 

commenter noted that from its 

experiences with filing Form LM–2 

reports for Form LM–3 filers that had 

been placed in trusteeship, conversion 

of data to the Form LM–2 format had 

been difficult.22

The Department acknowledges that 

the Form LM–2 will prove more 

burdensome to complete than the Form 

LM–3, a fact that should provide 

incentive for an organization to file its 

Form LM–3 on time and without 

material deficiencies. At the same time, 

however, the Department believes that 

some commenters overstate the burden 

to those labor organizations that will be 

required to file the Form LM–2. The 

burden to a labor organization of filing 

a Form LM–2 is proportionate to the 

size of the labor organization. Form LM– 

2 requires additional information and 

specificity that is not captured by the 

Form LM–3. A labor organization that 

has had the Form LM–3 filing privilege 

revoked will have to assign receipts and 

disbursements into functional 

categories, a new task for those unions. 

However, due to the relatively small 

number of receipts and disbursements, 

assigning the receipts and 

disbursements to functional categories 

should not require a significant 

adjustment in the labor organization’s 

recordkeeping systems. The burden 

imposed by requiring itemization of 

receipts and disbursements into 

functional categories is linked to the 

amount of receipts and disbursements 

that a labor organization has. A labor 

organization with less than $250,000 in 

annual receipts will have significantly 

fewer receipts and disbursements to 

itemize than a larger labor organization. 

And where the labor organization 

believes that it does not have voluntary 

resources to complete the form itself, it 

can turn to its parent or other affiliated 

unions for assistance or referral to third 

parties experienced in preparing the 

Form LM–2. Additionally, labor 

organizations that will file the Form 

LM–2 due to having their Form LM–3 

filing privilege revoked are relieved of 

the requirement to file the Form LM–2 

electronically, which may reduce the 

burden of converting files to a system 

that is compliant with the electronic 

form. 


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3700 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

The Department notes that currently 

situations exist where a Form LM–3 filer 

may be required to file a Form LM–2 

with little notice. For example, a 

traditional Form LM–3 filer that 

received $230,000 in annual receipts in 

the previous year but nearing the end of 

its current fiscal year eclipses that total, 

and now has $260,000 in annual 

receipts must file a Form LM–2 for that 

year with little advance notice. 

Similarly, a traditional Form LM–3 filer 

that received $100,000 in annual 

receipts in the previous fiscal year but 

nearing the end of its current fiscal year 

sells an asset thus bringing its annual 

receipts over the $250,000 Form LM–2 

threshold, would be required to file the 

Form LM–2 with little advance notice. 

Additionally, the Department has long 

required a Form LM–2 to be filed for a 

labor organization that has been placed 

in trusteeship without regard to the 

amount of its annual receipts. 

Depending on particular circumstances, 

a Form LM–2 could have to be filed 

shortly after the imposition of a 

trusteeship, even though but for the 

trusteeship, a Form LM–3 would have 

fulfilled the organization’s annual 

financial reporting obligation. See 29 

CFR 403.4 and 408.5. 

Focusing on the Department’s 

estimate of 96 revocations a year out of 

a much larger potential universe of 

delinquent filers, commenters 

questioned the Department’s intention 

or ability to identify those labor 

organizations that will be required to 

file the Form LM 2. Some commenters 

suggest that the procedure invites, if not 

compels, arbitrary action by the 

Department. One commenter noted that 

nearly 80% of all 2006 Form LM–3 filers 

filed on time or within 30 days of their 

filing deadline. The commenter noted 

that over 2,000 Form LM–3 filers remain 

delinquent over 30 days after their filing 

deadline. Another commenter asserted 

that the proposal would require the 

Form LM–2 to be filed by less than onetenth of one percent of all Form LM–3 

filers, allowing the Department 

unbridled discretion in singling out 

those for sanction. Two commenters 

questioned what process the 

Department would utilize to determine 

which delinquent and deficient filers 

would have their Form LM–3 filing 

privilege revoked. One commenter 

requested the Department present clear, 

precise, and reasoned criteria for 

revocation. One commenter worried that 

the Department would revoke the Form 

LM–3 filing privilege for labor 

organizations that filed their Form LM– 

3 one day late. 

Such fear is unfounded and, in any 

event, premature. As explained in the 

NPRM, 73 FR at 27370, the Department 

anticipates that the vast majority of 

situations where revocation occurs will 

be for delinquency or material 

deficiency. (See Regulatory Flexibility 

Analysis below; the Department there 

estimates that of the 96 cases per year 

in which the simplified reporting 

privilege will be revoked all but two 

will be for delinquency or deficiency.) 

The term ‘‘other circumstances’’ is 

necessarily broad to encompass 

situations that are contrary to the Act’s 

disclosure provisions but not easily 

catalogued in advance. Moreover, the 

Department’s actions are constrained by 

the language of section 208, which 

requires that revocation be limited to 

situations where it would serve the 

purposes of that section. The 

Department has established a procedure 

that ensures due process—notably no 

commenter has taken issue with the 

investigatory and decision making 

process. This process ensures fair and 

even-handed treatment. Moreover, any 

labor organization that believes it has 

been aggrieved by the Department’s 

decision to revoke the Form LM–2 filing 

privilege could secure judicial review of 

the Department’s decision. 

The ‘‘other circumstances’’ provision 

will rarely be used. As the commenters 

noted, if a large labor organization 

divided itself into two separate labor 

organizations, while continuing to 

function as one entity, the labor 

organization would be evading the Form 

LM–2 reporting requirement. In such a 

situation, the labor organizations may be 

filing timely Form LM–3 reports, which 

may comply with the technical 

requirements of Form LM–3, but 

revocation would still be warranted. 

While revocation is appropriate in that 

instance, the commenters, have failed to 

make a convincing argument that the 

Department’s statutory discretion 

should be limited by specifying 

particular situations where revocation 

may be appropriate. The Department 

cannot anticipate every situation where 

revocation would be appropriate and for 

this reason it retains the ‘‘other 

circumstances’’ language in the final 

rule. 

Two commenters asserted that the 

examples of mitigating circumstances in 

the proposal, ‘‘natural disasters’’ and 

‘‘death or serious illness’’ of the 

president or treasurer of the labor 

organization, indicated that the 

Department will allow mitigation only 

in the most extreme situations, inviting 

arbitrariness in singling out violators for 

the revocation sanction. (38, 40) The 

language in question does not require 

such inference. For example, the NPRM 

stated that ‘‘[m]itigating factors could 

also include, for example, that the form 

was timely completed but was mailed to 

an incorrect address or an attachment 

was inadvertently omitted from the 

filing.’’ 73 FR 27356. To alleviate this 

concern, however, the Department 

acknowledges that mitigating factors, 

including a labor organization officer’s 

lack of recordkeeping or bookkeeping 

experience will be taken into account by 

the Department in deciding whether 

revocation is appropriate. However, 

where officers of a labor organization 

have deliberately obscured its financial 

condition and operations, the Secretary 

will exercise her statutory right to 

revoke the simplified filing privilege of 

the labor organization. 

Two commenters expressed concern 

that the Secretary could impose the 

Form LM–2 filing requirement 

indefinitely. The revocation of the Form 

LM–3 filing privilege will ordinarily 

only apply to the fiscal year for which 

the labor organization was delinquent or 

filed a materially deficient report, and 

the fiscal year during which the 

revocation was issued. However, to the 

extent that a labor organization 

continues to fail to accurately disclose 

its financial conditions and operations 

despite the revocation, application of 

the revocation to additional fiscal years 

may be appropriate. Thus the duration 

of the revocation is limited by the 

Section 208 requirement that revocation 

further the purposes of the Act. 

Labor organizations will receive 

notice of their delinquency well before 

the revocation process is invoked. Only 

after notification of the delinquency and 

voluntary cooperation has failed to 

resolve the delinquency will a 

revocation proceeding commence. Labor 

organizations will be notified that a 

consequence of failure to file a timely 

report or filing a report with material 

deficiencies may be revocation of their 

simplified reporting privilege. They will 

be so informed not less than 30 days 

before the revocation process is 

invoked. Under the final rule, labor 

organizations that file a delinquent or 

materially deficient Form LM–3 will be 

notified of their right to file a written 

submission contesting the proposed 

revocation. The notice also informs the 

labor organization that failure to file a 

written submission within 30 days will 

result in an automatic revocation of 

their simplified reporting privilege. The 

written submission must address four 

issues that should be readily 

ascertainable to a labor organization 

official: (1) The existence of a 

delinquency, material deficiency or 

other circumstances; (2) whether the 

deficiency, if any, was material; (3) 

whether a delinquency or other 


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Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 3701 

circumstance for revocation was caused 

by factors reasonably outside the control 

of the labor organization; and (4) any 

mitigating factors. In light of the labor 

organization’s prior notification of the 

delinquency and opportunity to 

voluntarily resolve the delinquency, 30 

days is sufficient for a labor 

organization to prepare its response. 

The automatic revocation of the 

simplified reporting privilege for a labor 

organization that fails to contest the 

proposed revocation, much like a 

default judgment in a civil suit, is a 

reasonable response to the labor 

organization’s continuing inattention to 

its filing obligations. Whether the 

privilege will be revoked will ultimately 

depend on the Secretary’s determination 

of whether revocation is warranted, 

which is a fact-specific inquiry 

requiring evaluation of the 

circumstances of the delinquency, 

material deficiency or other grounds, 

and evidence presented by the labor 

organization. 

Several commenters noted the 

possible consequences to a labor 

organization whose Form LM–3 filing 

privilege is revoked. One commenter 

stated that the need to file the more 

burdensome Form LM–2 would divert 

the labor organization from grievance 

handling and its other core business. By 

filing a timely Form LM–3 report 

without material deficiencies a labor 

organization can avoid any diversion of 

resources that may occur as a result of 

the revocation of the simplified filing 

privilege. One international labor 

organization worried that labor 

organization officers may resign should 

their organization’s Form LM–3 

privilege be revoked. Another 

international labor organization 

believed that if a local labor 

organization’s Form LM–3 filing 

privilege were revoked the parent 

organization would move to place the 

local in trusteeship or merge it with 

another local organization. Revocation 

of the Form LM–3 filing privilege is the 

culmination of an investigation which 

may unearth underlying financial 

problems within a labor organization. 

The Department acknowledges these 

possible consequences. At the same 

time, such consequences are foreseeable 

and, depending on the particular 

circumstances, may be reasonable and 

appropriate actions. Where a union 

official believes that complying with his 

or her financial reporting obligation will 

interfere with the union’s grievance 

handling or other responsibilities to its 

members, the revocation procedure will 

bring this to light, allowing members to 

weigh this factor in exercising their 

democratic right to elect or remove such 

officer. In the Department’s view, there 

is no merit to the suggestion that filing 

an annual financial report is not within 

the union’s ‘‘core business.’’ Labor 

organizations, including parent 

organizations, and individual officers, 

however, must ultimately decide what 

actions they deem appropriate in such 

situations. 

One commenter argued that the 

definition of materiality presented in 

the NPRM set too low a threshold for 

material deficiency. The Department 

disagrees. As explained in the NPRM, 

the proposed definition of ‘‘material’’ 

was modeled on the standards of the 

Financial Accounting Standards Board 

(‘‘FASB’’), and the standard applied to 

corporations in TSC Industries Inc. v. 

Northway Inc., 426 U.S. 438, 449 (1976) 

and tailored to apply to the unique 

circumstances of the LMRDA reporting 

requirements. The standard proposed in 

the NPRM was as follows: ‘‘a deficiency 

is ‘material’ if in the light of 

surrounding circumstances, the 

inclusion or correction of the item in the 

report is such that it is probable that the 

judgment of a reasonable person relying 

upon the report would have been 

changed or influenced.’’ 73 FR 27355. 

One commenter argued that the 

proposed standard is too low because it 

does not include language from the 

FASB regarding the ‘‘magnitude’’ of the 

deficiency and language utilized in TSC 

Industries Inc. v. Northway Inc. 

regarding the ‘‘total mix’’ of information 

available. The Department disagrees 

with this assessment. The proposed 

standard requires that a deficiency be 

judged ‘‘in the light of surrounding 

circumstances’’ which inherently 

involves consideration of the magnitude 

of the deficiency in light of the total 

information available to determine 

whether ‘‘a reasonable person relying 

upon the report would have been 

changed or influenced.’’ 

Some commenters argued that 

requiring a labor organization to file an 

opposition to a notice of proposed 

revocation within 30 days was 

insufficient and believed that 60 days 

would be appropriate. Two commenters 

suggested that the Department 

implement an alternate compliance 

system modeled on Federal lobbying 

disclosure laws. Under the Federal 

lobbying disclosure system, a lobbyist is 

notified in writing of his or her 

noncompliance and then given 60 days 

to provide an adequate response. If an 

adequate response is not provided 

within 60 days the matter is referred to 

the United States Attorney for the 

District of Columbia. 2 U.S.C. 

1605(a)(8). The Department disagrees 

with these suggestions. The Department 

already contacts delinquent Form LM– 

3 filers to encourage them to fulfill their 

reporting obligations. Currently if a 

labor organization’s annual report is not 

received timely, the Department sends 

the labor organization a delinquency 

notice letter. If the annual financial 

report is still not submitted, the 

Department District Office in whose 

jurisdiction the labor organization is 

located will open a delinquent report 

case and seek to obtain the report. The 

Department will continue its practice of 

contacting delinquent filers in order to 

promote the timely remedying of their 

delinquency. Only when delinquent 

filers have failed to timely remedy their 

delinquency would revocation of the 

Form LM–3 filing privilege be utilized. 

Another commenter noted that filers 

who could not timely file a Form LM– 

3 would not likely be able to prepare a 

written response to a notice of proposed 

revocation with the 30 days allotted for 

this purpose. For this reason, the 

commenter stated that it would be 

unfair in those situations to, in effect, 

impose a default judgment. The 

Department cannot agree with this point 

of view. As discussed above, the 

Department currently provides 

reminders to labor organizations about 

the need to timely file a Form LM–3; it 

will continue to provide such ‘‘early 

warnings’’ about the need to timely and 

completely file the required reports, 

now coupled with a reminder that 

failure to do so may result in having to 

file the more detailed Form LM–2. 

Where, despite these reminders, a labor 

organization fails to timely submit its 

position within 30 days of the 

revocation notice, the entry of a ‘‘default 

judgment’’ seems entirely appropriate. 

The Department recognizes that there 

may be some situations in which a labor 

organization, for good cause, may be 

unable to submit a complete statement 

of position on the proposed revocation 

within the 30-day timeframe. Where 

good cause is shown, the Department 

will approve a timely request for a short 

extension of time for submission of the 

union’s statement. 

One commenter suggested that an 

exception should be crafted to the Form 

LM–3 revocation procedures for 

situations where an international union 

has assumed responsibility for assuring 

that locals file LM–3s. The commenter 

noted that once the Department has 

notified the international labor 

organization that its affiliate was 

delinquent in its reporting obligation, 

the international would then assist and 

promote the filing of a delinquent Form 

LM–3. Another commenter noted that 

compliance assistance programs have 


jlentini on PROD1PC65 with RULES2
3702 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

23The RFA requires that an agency’s final 

regulatory flexibility analysis include ‘‘a summary 

of the significant issues raised by the public 

comments in response to the initial regulatory 

flexibility analysis, a summary of the assessment of 

the agency of such issues, and a statement of any 

changes made in the proposed rule as a result of 

such comments.’’ 5 U.S.C. 604(a)(2). 

been effective within the Department of 

Labor, citing EBSA’s ‘‘Delinquent Filer 

Voluntary Compliance Program.’’ 

The Department promotes the 

importance of voluntary compliance. It 

recognizes the efforts that many 

international labor organizations have 

made to remedy their affiliated local 

labor organizations’ delinquent 

reporting. Their efforts to assist and 

promote timely compliance by their 

affiliates are a responsible response to a 

significant problem. Approximately 40 

parent national and international labor 

organizations regularly assist the 

Department with obtaining delinquent 

annual disclosure reports from their 

affiliated organizations. The Department 

periodically sends each parent 

organization a list of the subordinate 

affiliates that have failed to file reports 

for either of the two most recent fiscal 

years. An accompanying letter requests 

that the parent organization assist in 

obtaining the delinquent reports and in 

providing the Department with updated 

contact information, for the labor 

organization officials responsible for 

filing them. 

The revocation procedure is to be 

used after attempts to secure timely 

voluntary compliance, through a 

program or otherwise, have proven 

unsuccessful. The procedure established 

in the final rule is designed to address 

the situations where despite the best 

efforts of the Department and parent 

labor organizations, a labor organization 

fails to file its required Form LM–3. 

Whatever its reasons for noncompliance, the time has come to 

determine whether revocation of the 

privilege is warranted. The officials of 

the non-complying labor organization 

may be trying to obscure the financial 

condition and operations of the 

organization in order to hide more 

serious financial problems, including 

criminal activity such as embezzlement. 

The additional information provided by 

the Form LM–2 is a measured and 

proportionate remedy to ensure accurate 

disclosure of the financial condition and 

operations of a labor organization. 

IV. Regulatory Procedures 

Executive Order 12866 

This final rule has been drafted and 

reviewed in accordance with Executive 

Order 12866, section 1(b), Principles of 

Regulation. Based on a preliminary 

analysis of the data the rule is not likely 

to have an annual effect on the economy 

of $100 million or more or adversely 

affect in a material way the economy, a 

sector of the economy, productivity, 

competition, jobs, the environment, 

public health or safety, or state, local, or 

tribal governments or communities. As 

a result, a full economic impact and 

cost/benefit analysis is not required for 

the rule under Section 6(a)(3) of the 

Order. However, because of its 

importance to the public the rule was 

treated as a significant regulatory action 

and was reviewed by the Office of 

Management and Budget. Because this 

final rule makes revisions to 

information collection requirements, 

our discussion of its impact can be 

found in the Paperwork Reduction Act 

and Final Regulatory Flexibility Act 

sections that follow. 

Unfunded Mandates Reform 

For purposes of the Unfunded 

Mandates Reform Act of 1995, this final 

rule does not include a federal mandate 

that might result in increased 

expenditures by state, local, and tribal 

governments, or increased expenditures 

by the private sector of more than $100 

million in any one year, adjusted by the 

rate of inflation between 1995 and 2008 

($130.38 million) per 2 U.S.C. 1532(a). 

Executive Order 13132 (Federalism) 

The Department has reviewed this 

final rule in accordance with Executive 

Order 13132 regarding federalism and 

has determined that the final 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.’’ 

Paperwork Reduction Act 

This statement is prepared in 

accordance with the Paperwork 

Reduction Act of 1995, 44 U.S.C. 3501. 

As discussed in the preamble, this rule 

implements an information collection 

that meets the requirements of the PRA 

in that: (1) The information collection 

has practical utility to labor 

organizations, their members, other 

members of the public, and the 

Department; (2) the rule does not 

require the collection of information 

that is duplicative of other reasonably 

accessible information; (3) the 

provisions reduce to the extent 

practicable and appropriate the burden 

on labor organizations that must provide 

the information, including small labor 

organizations; (4) the form, instructions, 

and explanatory information in the 

preamble are written in plain language 

that will be understandable by reporting 

labor organizations; (5) the disclosure 

requirements are implemented in ways 

consistent and compatible, to the 

maximum extent practicable, with the 

existing reporting and recordkeeping 

practices of labor organizations that 

must comply with them; (6) this 

preamble informs labor organizations of 

the reasons that the information will be 

collected, the way in which it will be 

used, the Department’s estimate of the 

average burden of compliance, the fact 

that reporting is mandatory, the fact that 

all information collected will be made 

public, and the fact that they need not 

respond unless the form displays a 

currently valid OMB control number; (7) 

the Department has explained its plans 

for the efficient and effective 

management and use of the information 

to be collected, to enhance its utility to 

the Department and the public; (8) the 

Department has explained why the 

method of collecting information is 

‘‘appropriate to the purpose for which 

the information is to be collected’’; and 

(9) the changes implemented by this 

rule make extensive, appropriate use of 

information technology ‘‘to reduce 

burden and improve data quality, 

agency efficiency and responsiveness to 

the public.’’ 5 CFR 1320.9; see also 44 

U.S.C. 3506(c). 

A. Issues Raised in Public Comments 

Related to the Department’s Cost 

Estimates 

As the Department has done with the 

final rule, the NPRM employed the cost 

conclusions derived in the PRA analysis 

in order to assess burdens to small labor 

organizations for the purposes of the 

Regulatory Flexibility Act (‘‘RFA’’) 

analysis. As a result, for the most part, 

the comments received by the 

Department on its costs analysis did not 

indicate whether they were specifically 

addressing the PRA analysis, the RFA, 

or both. Because of the interrelationship 

between the analyses, and because the 

RFA specifically requires the 

Department to address comments 

related to its burden analysis,23 the 

Department has construed all comments 

received regarding its assessment of 

costs to the regulated community as 

comments related to both the PRA and 

the RFA analysis. Therefore, the 

introduction to the PRA analysis below 

is a complete recitation of the 


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significant issues raised by the 

comments, the Department’s response 

thereto, and changes made to both the 

PRA and RFA analyses as a result of 

those comments. 

A number of commenters expressed 

concern that the Department used as the 

foundation for the NPRM’s burden 

analysis the Department’s estimates of 

compliance costs associated with 

revisions made to the LM–2 in 2003, 

instead of collecting data from a survey 

of labor organizations’ actual 

compliance costs realized as a result of 

the earlier revision. Commenters 

questioned whether the Department 

could accurately estimate the current 

Form LM–2 and new Form LM–2 

burdens using estimates that pre-dated 

the current Form LM–2. Although actual 

data on burden was not available in 

2003, labor organizations have been 

filing the revised Form LM–2 for three 

years, and several commenters 

suggested that the Department should 

have sought information regarding 

compliance burdens from the regulated 

community rather than rely on those 

estimates as a baseline for the burden 

analysis in this rule. 

Several labor organizations provided 

specific data regarding their own 

compliance costs associated with that 

revision. One commenter indicated that 

his labor organization spent 

approximately $100,000 in 2004, its first 

reporting year, on staff time, outside 

accounting services, and new software 

to comply with the data gathering 

requirements of the current Form LM– 

2, approximately $75,000 more than the 

Department estimated in the 2003 rule. 

The same labor organization asserted 

that it cost an additional $100,000 each 

year to comply with the recordkeeping 

and reporting requirements of the 2003 

rule, approximately $83,000 more than 

the Department estimated in the 2003 

rule. Two other LM–2 filers estimated 

that they spent over $120,000 a year to 

comply with the requirements of the 

current LM–2 in a timely manner. Based 

on these estimates, the commenters 

indicate that the Department has 

underestimated the total burden by at 

least 50 percent. Another commenter 

estimated that the Department had 

underestimated the total burden by at 

least a factor of three. Finally, one 

commenter, citing an unpublished 

analysis of the increase in the number 

of pages submitted as part of the LM– 

2 filing, noted that for labor 

organizations with at least $50 million 

in annual revenue, their submissions 

increased in size an average of 94 

percent for the three years of filing 

experience after the 2003 revisions, 

suggesting that the Department 

underestimated the costs to labor 

organizations associated with 

complying with those revisions. These 

commenters and others indicate that 

actual compliance experience, rather 

than the Department’s estimates, could 

be used to inform and calculate the 

Form LM–2 burden estimates associated 

with the revisions in this rule. 

After considering the comments 

regarding actual costs associated with 

the LM–2 revision in 2003, the 

Department has decided to retain the 

approach adopted in the NPRM and use 

the costs estimates developed in 2003 as 

a baseline for the costs associated with 

this revision. The cost estimates 

developed in 2003 were the result of a 

comprehensive and detailed empirical 

analysis of costs to all labor 

organizations affected by the change, 

not just the costs incurred by the largest 

labor organizations. Certainly, some 

labor organizations will spend more 

time on recordkeeping and reporting 

than others, as shown in the examples 

offered by the commenters. For 

example, a labor organization with 

$2,500,000 in annual receipts will have 

many times more itemized receipts to 

report than a labor organization with 

$250,000 in annual receipts. It is likely, 

as noted above, that there are multiple 

labor organizations that spend $100,000 

or more on recordkeeping and reporting. 

However, just over half of LM–2 filers 

have more than $1 million in annual 

receipts. Those LM–2 filers with less 

than $1 million in receipts will spend 

significantly less on recordkeeping and 

reporting than the larger labor 

organizations, those with millions in 

receipts. To account for these size 

differences, the Department used 

weighted average burden estimates to 

ensure that the cost estimates 

represented the experience of all labor 

organization filers, and that large labor 

organizations are not over represented 

and small labor organizations are not 

underrepresented in the final burden 

estimate. 

For a number of reasons, the 

Department has confidence in its 2003 

estimates of compliance burdens as a 

fair and realistic representation of costs 

to labor organizations for compliance 

with the previous Form LM–2 revisions. 

The 2003 estimates were based on the 

Department’s detailed review of the 

recordkeeping and reporting 

requirements of the Form LM–2. That 

review incorporated the expertise of 

investigators with first-hand knowledge 

of union financial reporting. In addition, 

the burden estimates used in 2003 were 

based on the Department’s review of 

extensive public comments, which 

included a survey of affected labor 

organizations submitted by the AFL– 

CIO as part of its 2003 comment. Where 

appropriate, the AFL–CIO’s survey data 

were incorporated into the 2003 

analysis to improve those burden 

estimates. In response to public 

comments in 2003, the Department 

improved its methodology and, as a 

result, its overall estimate of burden 

hours was ultimately increased from 

15.25 hours to 292.00 hours. Moreover, 

to further improve the 2003 burden 

estimates, the Department conducted 

internal time trials to determine the 

amount of time needed to change the 

accounting structure, document records, 

and fill out the Form LM–2. Finally, 

legal challenges by the AFL–CIO to the 

Department’s methodology underlying 

and conclusions regarding its burden 

estimates in 2003 were rejected by the 

court in American Federation of Labor 

and Congress of Industrial 

Organizations v. Chao, 298 F.Supp.2d 

104, 121–126 (D.D.C. 2004), aff’d 409 

F.3d 377 (D.C. Cir. 2005) (AFL–CIO v. 

Chao). In the Department’s view, the 

collection of data regarding compliance 

costs from a survey of affected labor 

organizations would not result in a 

significant improvement to the 

Department’s analysis of costs 

associated with the prior Form LM–2 

revisions, and the use of a survey tool 

would have injected into the analysis 

substantial issues regarding appropriate 

respondent sampling, verification of 

reported respondent costs, and 

comparability of results to prior 

estimates, significantly limiting the 

utility of such an approach. 

The majority of comments submitted 

regarding the Department’s burden 

analysis indicated that the analysis of 

the costs to implement the new receipts 

schedule was flawed and significantly 

underestimated the recordkeeping and 

reporting burden. In particular, the 

commenters were concerned that basing 

the number of itemizations on the 

current Schedule 14 (‘‘Other Receipts’’) 

grossly underestimated the number of 

itemized receipts on the other receipt 

itemization schedules. The commenters 

pointed out that the current schedule 14 

does not include the major sources of 

union revenues, and that most itemized 

receipts will be reported on the new 

dues, per capita tax and investment 

schedules. As one example, a labor 

organization stated that it receives more 

than $5,000 in annual withheld dues 

from more than 10,000 employers, and 

that the schedule will require it to enter 

a line item for each of those 10,000 

employers. A certified public 

accounting firm noted that depending 

on a labor organization’s investment 


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activities, the potential volume of 

itemized transactions is tremendous. An 

international labor organization 

estimated that it would spend 120 to 

240 hours per year putting together its 

investment records to comply with the 

reporting requirements. Another 

international labor organization noted 

that it receives over $5,000 from over 

750 affiliates. This labor organization 

estimated that the additional 

itemization schedules will add 1,000 

pages to its Form LM–2. An accountant 

with experience in filling out LM–2s 

believed that the reporting time required 

is 5 to 10 times what was estimated in 

the NPRM, employer contributions 

could take 20 to 25 hours alone. 

As discussed elsewhere in this 

preamble, the Department has created 

exceptions in the final rule to itemized 

receipt reporting that responds to these 

and other commenters, and will 

significantly reduce the recordkeeping 

and reporting burden proposed in the 

NPRM, and the Department has revised 

its burden analysis accordingly. First, as 

discussed above, dues and agency fees, 

which make up approximately 70% of 

all receipts, received directly from an 

employer need not be itemized by 

transaction. The labor organization need 

only report the aggregate dues and 

agency fees received from each 

employer over the year. As a result, 

however, it is axiomatic that those labor 

organizations that receive payments of 

dues and agency fees from many 

employers will have a greater reporting 

responsibility on this schedule than 

those labor organizations that receive 

dues and agency fees from relatively 

fewer employers. Second, as discussed 

above, investment transactions made 

over a registered market exchange need 

not be itemized. Finally, as discussed 

above, per capita taxes received directly 

from an affiliate should not be itemized 

by transaction. The labor organization 

need only report the aggregate per capita 

taxes received from each affiliate over 

the year. These exceptions should 

alleviate many of the concerns raised by 

the commenters and significantly 

reduce the overall burden. In addition to 

these new itemization exceptions and as 

discussed further below, the Department 

has improved the burden estimates 

associated with the new receipts 

schedules by using the aggregates 

currently reported on Summary 

Schedule B, which were divided by 

$5,000 to estimate the number of 

itemized receipts per schedule. 

Regarding reporting obligations for 

disbursements to officers and 

employees, a number of commenters 

stated that they could not breakdown 

benefits by officer and employee, nor 

could they breakdown indirect 

disbursements to officers and employees 

for travel and lodging, without extensive 

changes to their recordkeeping system. 

A number of labor organizations 

explained that they frequently make 

single credit card payments that cover 

the hotel and transportation expenses of 

more than one officer or employee. As 

a result, several labor organizations 

estimated that they would need between 

40 and 120 hours per year to comply 

with the new officer and employee 

reporting requirements. 

In response to concerns raised 

regarding the reporting of officer 

benefits, the Department reiterates, as 

noted in the NPRM, that there should be 

no increased recordkeeping burden 

associated with the report of officer 

benefits because labor organizations are 

currently required to track each officer’s 

benefits to complete the IRS Form 990. 

In response to concerns raised 

regarding the reporting of indirect 

disbursements to officers and 

employees, the Department’s final rule 

has created an exception for certain 

indirect disbursements to decrease the 

overall burden, and has improved the 

methodology to improve indirect 

disbursement burden estimates. To 

reduce the overall burden, the 

Department will now allow labor 

organizations to distribute indirect 

disbursements equally between multiple 

officers and employees if they meet the 

exception discussed elsewhere in this 

preamble. In the NPRM, the Department 

accounted for the increase burden for 

indirect disbursements by applying the 

same burden to this change as it would 

apply to a new schedule in 2003, and 

estimated that, on average, each officer 

and employee will have one reportable 

indirect disbursement. As explained 

further below, to improve the burden 

estimates for indirect disbursements for 

travel and lodging, the Department 

adopted a new methodology for 

calculating the number of reportable 

indirect disbursements. The number of 

indirect disbursements is now based on 

the number of disbursements currently 

reported on the LM–2. These changes 

should reduce the burden hours and 

significantly improve the overall burden 

estimates. 

Several commenters stated the overall 

cost conclusions reached in the NPRM 

were flawed because the salary 

estimates employed in the calculations 

were artificially low. First, some 

asserted that the Department incorrectly 

used general Bureau of Labor Statistics 

(‘‘BLS’’) salary data rather than labor 

organization-specific data. Second, 

some asserted that the Department 

incorrectly used an average salary for an 

in-house and outside accountant when 

labor organizations must only use 

outside accountants in order to comply 

with their fiduciary duties. Some 

commenters noted that outside 

accountants frequently charge $100 or 

more an hour. Finally, some 

commenters noted that the salary 

estimates did not account for fringe 

benefits, which constitute 

approximately 30% of total 

compensation costs. 

The Department has improved the 

compensation cost estimates in response 

to these comments. First, instead of 

employing BLS salary data, the 

Department has estimated the average 

salary of the president and secretary 

using the e.Lors database and a stratified 

random sample. Second, unlike the 

NPRM, the Department did not average 

the in-house and outside accountants’ 

and bookkeepers’ salaries, and instead 

derived them exclusively from the BLS 

survey. Finally, based on BLS data and 

explained further below, all of the 

salaries were increased by 30.2% to 

account for the costs of benefits, 

resulting in a more accurate total 

compensation cost for each employee 

identified. The same method was used 

to estimate the LM–3 compensation 

costs, and these changes will improve 

the accuracy of the cost estimates for the 

final rule. 

Given the costs associated with 

implementation, some commenters 

questioned whether the benefits of this 

final rule outweigh the costs. The 

Department has not conducted a formal 

cost/benefit analysis of this rule. 

However, as outlined above, labor 

organization members will benefit from 

greater transparency and accountability. 

For the first time, members will have a 

nearly complete accounting of all 

receipts and disbursements. These 

benefits are difficult to quantify, but we 

believe members have benefited greatly 

from the 2003 revisions to the Form 

LM–2. The revisions adopted in this 

final rule and those adopted in the 2003 

final rule have created the most 

functional and informative Form LM–2 

in Department history. 

Regarding the LM–3 revocation 

burden analysis, several commenters 

suggested that the analysis was flawed 

in many aspects. First, some 

commenters questioned the means by 

which the Department estimated that 96 

LM–3 filers will have their privilege 

revoked. Second, some commenters 

argued that the Department failed to 

fully account for the reporting burden 

by not including the computer hardware 

and software costs in the analysis. 

Third, some commenters argued that the 

Department did not use actual data from 


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24As indicated in the NPRM, the Department’s 

analysis has segregated labor organizations into 

three ‘‘tiers,’’ based on size of annual receipts. Tier 

I labor organizations are those with annual receipts 

between $250,000 and $499,999; Tier II labor 

organizations are those with annual receipts 

between $500,000 and $6.5 million; and Tier III 

labor organizations are those with annual receipts 

over $6.5 million. 

25This upward revision was modest, and 

occurred despite the fact that overall compliance 

costs to labor organizations were reduced as a result 

of changes made in the final rule, in particular, to 

reporting requirements for the two largest receipt 

itemization schedules, dues and per capita taxes. 

These modifications from the NPRM realized a 

reduction in overall compliance costs for covered 

labor organizations, but the methodological 

improvements in the cost analysis offset those 

savings. 

26The PRA analysis for the revisions to Form 

LM–2 in 2003 is set forth at 68 FR 58436–42. 

Form LM–2 reports to estimate the total 

burden hours and costs, and instead of 

using actual data available on the 

e.LORS database, the Department 

merely reduced the total LM–2 burden 

hours by 69% and used the Tier I LM– 

2 filers’ salary data.24 Critics suggested 

that such a blanket reduction does not 

take into account the time needed to 

review the LM–2 rules and 

requirements, review each disbursement 

and receipt, record the necessary 

information, place the disbursements 

into the appropriate functional 

categories, and prepare the form. 

The Department has revised its 

methodology to determine the LM–3 

revocation burden and cost. As 

explained further below, where 

possible, the Department has based the 

LM–3 revocation burden on actual data 

taken from LM–3s. The information that 

could not be drawn from the LM–3s was 

estimated from LM–2 filers with 

between $250,000 and $500,000 in 

annual receipts. These additions will 

improve both the burden and cost 

estimates. 

In sum, based upon careful 

consideration of all the comments 

regarding the burden analysis in the 

NPRM, the Department has made 

adjustments to its quantitative methods 

and therefore to its burden estimates. As 

reflected in the analysis that follows, the 

Department has, among other things: 

• Calculated salary data for labor 

organizations presidents and treasurers 

from LM–2 data using a proportionate 

stratified random sample; 

• Revised the compensation cost for 

each individual, accountant, president, 

treasurer, etc., by increasing wages by 

30.2% to account for total 

compensation, including compensation 

received in the form of benefits; 

• Employed publicly available data 

from the Department’s e.LORS database 

and the Federal Mediation and 

Conciliation Service to determine the 

number of employers that will make 

dues payments; 

• Employed data from the 

Department’s e.LORS database to 

determine the number of labor 

organizations that will pay and receive 

per capita taxes; 

• Employed the aggregate receipts 

reported on Summary Schedule B to 

estimate the number of itemized 

receipts on Schedules 16–22; 

• Calculated the number of indirect 

disbursements to officers and employees 

for lodging or travel by employing the 

total number of disbursements for 

official business currently reported on 

the LM–2; 

• Replaced the overall percentage 

reduction for computing the burden 

associated with LM–3 revocation with 

discrete analyses of the burden for each 

schedule, summary schedule, and item 

using the same assumptions as used in 

the LM–2 analysis; and 

• Where possible, employed LM–3 

data to estimate the number of itemized 

receipts and disbursements, and if LM– 

3 data was not available, employing Tier 

I LM–2 data. 

As a result of these improvements to 

the Department’s methodological 

approach, the estimates of costs to labor 

organizations for compliance with this 

rule have been revised upward.25 Those 

figures are reported in the analyses that 

follow. Pursuant to the PRA, the 

information collection requirements 

contained in this final rule were 

submitted to OMB, and received 

approval on January 8, 2009, under an 

OMB control number 1215–0188, which 

will expire on September 30, 2011. The 

Form LM–2 and its instructions, which 

are modified to reflect the new filing 

criteria, are published as an appendix to 

this final rule. The instructions to the 

Form LM–3, which have been modified 

to reflect the new revocation procedure, 

are also published as an appendix to 

this final rule. 

B. Summary of the Rule: Need and 

Economic Impact 

This final rule has improved the 

usefulness and accessibility of 

information to members of labor 

organizations subject to the LMRDA. 

The LMRDA reporting provisions were 

devised to protect the basic rights of 

labor organization members and to 

guarantee the democratic procedures 

and financial integrity of labor 

organizations. The 1959 Senate report 

on the version of the bill later enacted 

as the LMRDA stated clearly that ‘‘[t]he 

members who are the real owners of the 

money and property of the organization 

are entitled to a full accounting of all 

transactions involving their property.’’ 

S. Rep. No. 187 (1959), at 8, reprinted 

in 1 NLRB Legislative History of the 

Labor-Management Reporting and 

Disclosure Act of 1959, at 404. A full 

accounting included ‘‘full reporting and 

public disclosure of union internal 

processes [and] financial operations.’’ 

Id. at 2. 

As labor organizations have become 

more multifaceted and have created 

hybrid structures for their various 

activities, the form used to report 

financial information with respect to 

these activities had until recently 

remained relatively unchanged and had 

become a barrier to the complete and 

transparent reporting of labor 

organizations’ financial information 

intended by the LMRDA. By providing 

members of labor organizations with 

more complete, understandable 

information about their labor 

organizations’ financial transactions, 

investments, and solvency, this final 

rule will put them in a much better 

position than they are today to protect 

their personal financial interests and to 

exercise their rights of self-governance. 

The information collection achieved by 

this rule is integral to this purpose. The 

paperwork requirements associated with 

the final rule are necessary to enable 

workers to be responsible, informed, 

and effective participants in the 

governance of their labor organizations; 

discourage embezzlement and financial 

mismanagement; prevent the 

circumvention or evasion of the 

statutory reporting requirements; and 

strengthen the effective and efficient 

enforcement of the LMRDA by the 

Department. 

The Department’s NPRM in this 

rulemaking contained an initial PRA 

analysis, which was also submitted to 

OMB. The initial PRA analysis was 

based largely on the PRA analysis 

prepared by the Department in 

connection with its 2003 final rule that 

substantially revised the Form LM–2.26

The PRA analysis employed in 2003 

was approved by the Office of 

Management and Budget. Based upon 

careful consideration of comments 

received regarding the Department’s 

estimate of costs in the NPRM, the 

Department made methodological 

revisions which resulted in adjustments 

to its burden estimates in this final rule. 

The costs to the Department also were 

adjusted. Federal annualized costs are 

discussed following the consideration of 

the burden on the reporting labor 

organizations. 

Based upon the analysis presented 

below, the Department estimates that 

the total first year burden to comply 


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27The compliance costs for all covered labor 

organizations for the first year, and the compliance 

costs averaged over the first three years—$22.14 

million and $8.86 million, respectively—are well 

below the $100,000,000 threshold that would make 

this rule economically significant under Executive 

Order 12866. Therefore, as noted above, this rule is 

not an ‘‘economically significant’’ regulatory action 

under section 3(f)(1) of Executive Order 12866. 

28The Department has updated these figures from 

the NPRM, which relied on 205 LM–2 reports. 

with revised Form LM–2 will be 

685,924 hours for all covered labor 

organizations. The total first year 

compliance costs associated with this 

burden is estimated to be $22,143,880 

for all covered labor organizations. Both 

the burden hours and the compliance 

costs associated with Form LM–2 

decline in subsequent years. The 

Department estimates that the total 

burden averaged over the first three 

years for all covered labor organizations 

to comply with the Form LM–2 to be 

274,539 hours per year. The total 

compliance costs associated with this 

burden averaged over the first three 

years are estimated to be $8,863,038 for 

all covered labor organizations.27

C. Background on Current Form LM–2 

Every labor organization whose total 

annual receipts are $250,000 or more 

and those organizations that are in 

trusteeship must currently file an 

annual financial report using the current 

Form LM–2, Labor Organization Annual 

Report, within 90 days after the end of 

the labor organization’s fiscal year, to 

disclose its financial condition and 

operations for the preceding fiscal year. 

The current Form LM–2 is also used by 

covered 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. 

The current Form LM–2 consists of 21 

questions that identify the labor 

organization and provide basic 

information (in primarily a yes/no 

format); a statement of 11 financial 

items on different assets and liabilities; 

a statement of receipts and 

disbursements; and 20 supporting 

schedules. The information that is 

reported includes: whether the labor 

organization has any trusts; whether the 

labor organization has a political action 

committee; whether the labor 

organization discovered any loss or 

shortage of funds; the number of 

members; rates of dues and fees; the 

dollar amount for seven asset categories, 

such as accounts receivable, cash, and 

investments; the dollar amount for four 

liability categories, such as accounts 

payable and mortgages payable; the 

dollar amount for 13 categories of 

receipts such as dues and interest; and 

the dollar amount for 16 categories of 

disbursements such as payments to 

officers and repayment of loans 

obtained. Four of the supporting 

schedules include a detailed itemization 

of loans receivable and payable and the 

sale and purchase of investments and 

fixed assets. There are also 10 

supporting schedules 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 Department also has developed 

an electronic reporting system for labor 

organizations, e.LORS, which uses 

information technology to perform some 

of the administrative functions for the 

current forms. 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, 

information from previously filed 

reports and officer or employee 

information can be directly imported 

into Form LM–2. Not only is entry of the 

information eased, the software also 

makes mathematical calculations and 

checks for errors or discrepancies. 

D. Overview of Changes to Form LM–2 

The revised Form LM–2 includes: the 

same number of questions (21) as the 

current form that identify the labor 

organization and provide basic 

information (in the same general yes/no 

format); the same (11) financial items on 

assets and liabilities in Statement A; an 

updated Statement B that asks for 

information in the same categories of 

receipts (13) as the current Form LM–2 

and ten additional supporting schedules 

(for a total of 23 instead of 13). 

Under this final rule, several of the 

current supporting schedules will 

change. The schedules for ‘‘Sale of 

Investments and Fixed Assets’’ and 

‘‘Purchase of Investments and Fixed 

Assets’’ will be modified by the 

inclusion of the name of the party 

transacting with the labor organization 

in the purchase or sale. The schedule for 

‘‘Benefits’’ will be modified and the 

disbursements for benefits to labor 

organization officers and employees will 

be reported in the schedules for 

disbursements to officers and 

employees. 

Under the final rule, the Form LM–2 

will be revised to require labor 

organizations to individually identify 

receipts within supporting schedules for 

all of the current categories of receipts. 

E. Methodology for the Burden 

Estimates 

As an initial matter, it should be 

noted, as was noted in the NPRM, that 

some of the numbers included in both 

this PRA analysis and the preceding 

regulatory flexibility analysis will not 

add perfectly due to rounding. 

In reaching its estimates, the 

Department considered both the one 

time and recurring costs associated with 

the final rule. Separate estimates are 

included for the initial year of 

implementation as well as the second 

and third years. For filers, the 

Department included separate estimates, 

based on the relative size of labor 

organizations as measured by the 

amount of their annual receipts. The 

size of a labor organization, as measured 

by the amount of its annual receipts, 

will affect the burden on reporting labor 

organizations. For example, larger labor 

organizations have more receipts and 

disbursements to itemize and more 

employees who have to estimate their 

time allocation. 

In 2006, there were approximately 

4,571 labor organizations that were 

required to file Form LM–2 reports 

under the LMRDA (approximately 19.11 

percent of all labor organizations 

covered by the LMRDA).28 Although 

these estimates may not be predictive of 

the exact number of labor organizations 

that will be impacted by this rule in the 

future, the Department believes these 

estimates to be sound and derived from 

the best available information. 

The Department’s estimates include 

costs incurred by the labor organization 

for both labor and equipment. The labor 

costs reflect the Department’s 

assumption that the labor organizations 

will rely upon the services of some or 


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all of the following positions (either 

internal or external staff, including the 

labor organization’s president, secretarytreasurer, accountant, bookkeeper, and 

computer programmer) and the 

compensation costs for these positions, 

as measured by wage rates and 

employer costs published by the Bureau 

of Labor Statistics or derived from data 

reported in e.LORS. 

The Department also made 

assumptions relating to the amount of 

time that particular tasks or activities 

would take. The activities occur during 

the distinct ‘‘operational’’ phases of the 

rule: first, tasks associated with 

modifying bookkeeping and accounting 

practices, including the modification or 

purchase of software, to capture data 

needed to prepare the required reports; 

second, tasks associated with 

recordkeeping; and third, tasks 

associated with sending or exporting the 

data in an electronic format that can be 

processed by the Department’s import 

software. Since the analysis is designed 

to provide estimates for a 

‘‘representative’’ labor organization the 

Department’s estimates largely reflect 

weighted averages. Where an estimate 

depends upon the number of labor 

organizations subject to the LMRDA or 

included in one of the tier groups, the 

Department has relied upon data in the 

e.LORS system (for the years stated for 

each example in the text or tables). 

The following methodology and 

assumptions underlie the Department’s 

burden estimates: 

• The size of a labor organization, as 

measured by the amount of its annual 

receipts, will affect the burden on 

reporting labor organizations. Larger 

labor organizations have more receipts 

and disbursements to itemize and more 

employees who have to estimate their 

time allocation. Three tiers, based on 

annual receipts, have been constructed 

to differentiate the burdens among Form 

LM–2 filers. 

• A labor organization’s use of 

computer technology, or not, to 

maintain its financial accounts and 

prepare annual financial reports under 

the current rule, will affect the burden 

on reporting labor organizations. 

Although few Form LM–2 filers do not 

have computers, the larger the labor 

organization the greater likelihood that 

it will be using a specialized accounting 

program instead of commercial-off-theshelf accounting software. 

• Relative burden will correspond to 

the following predictable stages: review 

of the rule, instructions, and forms; 

adjustments to accounting software and 

computer hardware; installation, testing, 

and review of the Department’s 

reporting software; changing accounting 

structures and developing, testing, 

reviewing, and documenting accounting 

software queries as well as designing 

query reports; training officers and 

employees involved in bookkeeping and 

accounting functions; training officers 

and employees to maintain information 

relating to transactions and estimating 

the amount of time they expend in 

prescribed categories; the actual 

recordkeeping of data under the revised 

procedures associated with itemizing 

receipts and disbursements and 

allocating them by functional categories; 

preparing a download methodology to 

either submit electronic reports using 

‘‘cut and paste’’ methods or the import/ 

export technology allowing for a more 

automated transfer of data to the 

Department; the development, testing, 

and review of any translator software 

that may be required between a labor 

organization’s accounting software and 

the Department’s reporting software; 

and completing a continuing hardship 

exemption request if necessary. 

• Burden can be categorized as 

recurring or non-recurring, with the 

latter primarily associated with the 

initial implementation stages. 

Recordkeeping burden, as distinct from 

reporting burden, will predominate 

during the first months of 

implementation. 

• Burden can be usefully reported as 

an overall total for all filers in terms of 

hours and cost. This burden, for most 

purposes, can be differentiated for each 

individual form. The Federal burden 

cannot be reasonably estimated by form. 

• The estimated burden associated 

with the current Form LM–2 and Form 

LM–3 is the appropriate baseline for 

estimating the burden and cost 

associated with the final rule. 

F. Baseline Adjustments: Current Form 

LM–2 

Prior to the 2003 revision, the 

Department assumed that 5,038 local 

labor organizations would take 200 

hours and 141 national and 

international labor organizations would 

take 1,500 hours to collect and report 

their information on the current Form 

LM–2 for a weighted average of 

approximately 240.0 hours for each of 

the 5,179 respondents. In addition, the 

Department assumed at that time that 

Form LM–2 filers would take an average 

24.0 hours for accounting, 16.0 hours for 

programming, 8.0 hours for legal review, 

and 4.0 hours for consulting assistance 

to complete the current form for an 

average total burden of 292.0 hours per 

respondent. Further, the Department 

previously estimated that 160.0 hours of 

the total is for recordkeeping burden 

and 132.0 hours is for reporting burden. 

In 2003, the Department estimated that 

on average, labor organizations would 

spend 536.0 hours to comply with the 

recordkeeping and reporting 

requirements. 

In 2003 the Department estimated that 

the average annual cost of complying 

with the current Form LM–2 

recordkeeping and reporting 

requirements per respondent would be 

$24,271. The total annual cost for all 

respondents (based on the more recent 

estimate of 4,452 reporting labor 

organizations rather than the 5,038 

estimate used in 2003) is estimated to be 

$116.0 million for the current Form 

LM–2. 

G. Hours To Complete and File Form 

LM–2: Recurring and Nonrecurring 

Reporting and Recordkeeping 

To estimate the burden hours and 

costs for revisions to Form LM–2, the 

Department, as it did in connection with 

the 2003 rule, divided the Form LM–2 

filers into three groups or tiers, based on 

the amount of the labor organizations’ 

annual receipts. As discussed, in 2006 

there were 4,571 such filers. In Tier I, 

the Department estimates there are 

1,325 labor organizations with annual 

receipts from $250,000 to $499,999.99. 

The Department assumes that labor 

organizations within this tier probably 

use some type of commercial off-theshelf accounting software program and 

will most likely use the ‘‘cut and paste’’ 

feature of the reporting software (see 

Table 3). In Tier II, the Department 

estimates there are 3,194 labor 

organizations with annual receipts from 

$500,000 to $49.9 million. The 

Department assumes that labor 

organizations within this tier most 

likely use some type of commercial offthe-shelf accounting software program 

and will use all of the electronic filing 

features of the reporting software. Id. 

Finally, in Tier III, the Department 

estimates there are 52 labor 

organizations with annual receipts of 

$50.0 million or more. Id. The 

Department assumes that labor 

organizations within this tier most 

likely will use some type of specialized 

accounting software program and also 

will use all of the electronic filing 

features of the reporting software. 

For each of the three tiers, the 

Department estimated burden hours for 

the additional nonrecurring (first year) 

recordkeeping and reporting 

requirements, the additional recurring 

recordkeeping and reporting burden 

hours, and a three-year annual average 

for the additional nonrecurring and 

recurring burden hours associated with 

the final rule. 


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29The sum is divided for Tier II labor 

organizations because, as noted above, the 

Department estimated that one-half of these 

organizations already keep these records. 

The final rule will revise Form LM– 

2 to improve financial disclosure and 

clarity within categories of receipts and 

disbursements. Under the final rule, 

receipts will have to be disclosed in the 

same manner that disbursements are 

currently disclosed and certain 

disbursements (e.g., benefit payments, 

travel reimbursements, and transactions 

involving investment and fixed assets) 

will be reported in greater detail. To 

accomplish this result, additional 

schedules will be required, which will 

add to the burden associated with each 

Form LM–2 filed. 

For this analysis the Department has 

used an approach that largely replicates 

the approach used in 2003, i.e., 

estimating the burden and costs by the 

size of labor organizations as measured 

by the amount of their annual receipts. 

However, the current approach differs 

somewhat from the 2003 approach. 

Since the basic information required on 

the new and revised schedules is 

already needed to complete the current 

Form LM–2, the Department assumes 

that most of the burden associated with 

the changes will occur in the first year 

due to needed changes to the accounting 

software and staff training. Like it did in 

2003, the Department has estimated 

burden hours and costs for the 

additional nonrecurring (first year) 

recordkeeping and reporting 

requirements, the additional recurring 

recordkeeping and reporting burden 

hours, and a three-year annual average 

for the additional nonrecurring and 

recurring burden hours. As in 2003, the 

Department assumes that Tier I and Tier 

II labor organizations use commercial 

off-the-self accounting packages and 

Tier III labor organizations use 

customized accounting software. 

1. Hours to Complete Schedules 3 

and 4 

For revised Schedules 3 and 4 (Sale 

of Investments and Fixed Assets and 

Purchase of Investments and Fixed 

Assets), the Department estimates that 

labor organizations will spend, on 

average, an additional, nonrecurring 

10.38 hours per schedule to change their 

accounting structures; develop, test, 

review, and document accounting 

software queries; design query reports; 

and train accounting personnel. See 

Table 2 below. This estimated burden is 

derived from the 2003 Form LM–2 PRA 

estimate for the first year nonrecurring 

burden associated with Schedule 17 

(Contributions, Gifts, and Grants). The 

changes to that schedule under the 2003 

rule (the addition of date, name and 

address of payer or payee) are the same 

changes that are included for Schedules 

3 and 4 in this final rule. In 2003, the 

Department determined that in order to 

provide this information it would take 

Tier I and II labor organizations 5.3 

hours to change their accounting 

systems and Tier III labor organizations 

13.3 hours. Again, as in 2003, the 

Department estimates that it will take 

Tier I, II and III labor organizations 1 

hour to design the report, 1 hour to 

develop a query, .75 hours to test the 

query, .5 hours for management review, 

.75 hours to document the query 

process, and .25 hours to train staff. The 

Department estimates that Tier II and III 

labor organizations will spend an 

additional hour preparing download 

methodology. The average burden was 

computed by taking the burden in each 

tier and weighting it by the number of 

unions in each tier. 

To record the date of the transaction 

and address of the payee on Schedule 4, 

the Department estimates, using a 

weighted average based on the number 

of labor organizations within each tier, 

that labor organizations will spend an 

additional (recurring) .03 hours on 

recordkeeping burden and .48 hours on 

reporting. To record the date of the 

transaction and address of the payer on 

Schedule 3, the Department estimates, 

using a weighted average based on the 

number of labor organizations within 

each tier, that labor organizations will 

spend and an additional (recurring) .01 

hours on recordkeeping burden, and .49 

hours on reporting burden. Based on 

extensive public comment and analysis, 

the Department in 2003 made the 

following underlying assumptions in 

determining its final burden numbers. 

First, that it would take the average 

Form LM–2 filer approximately .05 

hours of additional recordkeeping time 

per receipt/disbursement to record the 

name and address of the payer/payee. 

Second, Tier I labor organizations 

would incur an additional 

recordkeeping burden from training (.25 

hours) and preparing the report (.33 

hours) to record the name and address 

of the payer/payee. Third, that 

approximately one-half of the Tier II 

labor organizations already kept these 

records, and all Tier III labor 

organizations kept these records. 

Therefore, all Tier I labor organizations 

would be subject to the additional 

recordkeeping burden, and one-half the 

Tier II labor organizations would be 

subject to the additional recordkeeping 

burden. The Department has adopted 

these underlying assumptions for its 

current analysis. 

The number of receipts and 

disbursements on Schedules 3 and 4 for 

2006 was compiled from the e.LORS 

database, which showed that Tier I labor 

organizations report, on average, less 

than 1 receipt in Schedule 3 and slightly 

more than 1 disbursement in Schedule 

4. On average, Tier II labor organizations 

report 1.5 receipts in Schedule 3 and 

less than 3.4 disbursements in Schedule 

4. Therefore, the additional 

recordkeeping burden for Tier I and Tier 

II filers is .06 hours and .13 hours 

respectively (average number of 

disbursements/receipts per tier on 

Schedules 3 and 4 times .05 hours; then 

divided by two for the Tier II 

estimate).29 It should be noted that the 

newly adopted exception for purchases 

and sales over a registered market 

exchange will further reduce the 

recordkeeping and reporting burden on 

these schedules. 

Based on the same assumptions 

underlying the Department’s 2006 

estimates, the Department assumes that 

75% of Tier I filers will use the cut and 

paste method to enter their data on the 

Form LM–2 (.08 hour burden per 

schedule) and 25% will manually enter 

the data on the Form LM–2 (.016 hour 

burden per disbursement or receipt) and 

that all Tier II and III filers will import 

or attach their data to the Form LM–2 

for an additional reporting burden of .42 

hours per schedule. The average burden 

was computed by taking the burden in 

each tier and weighting it by the number 

of labor organizations in each tier. 

2. Hours to Complete Schedules 11 

and 12 

For revised Schedules 11 (All Officers 

and Disbursements to Officers) and 12 

(Disbursements to Employees), the 

Department estimates that labor 

organizations will spend, on average, 

10.38 hours to change their accounting 

structures; develop, test, review, and 

document accounting software queries; 

design query reports; and train 

accounting personnel. As explained 

below, this estimated burden was 

reached by analyzing the 2003 burden 

estimates from the Form LM–2 final rule 

for Schedules 11 and 17 and applying 

that data to the Form LM–2 officer and 

employee entries on Form LM–2 reports 

filed with the Department in 2007. As 

in 2003, the Department assumes that 

the time required to add a column to 

one schedule is the same for any 

schedule. To download the relevant 

information from their records, 

programmers will only have to 

designate an appropriate location on 

their electronic filing system for 

collecting and reporting this 

information. Therefore, each labor 


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30The Department suspects that it will take 

significantly less time to make the changes listed 

above to column F (Disbursements for Official 

Business) on Schedules 11 and 12, which will now 

include indirect disbursements for temporary 

lodging or transportation while on official business 

for the labor organization. However, this 

information has never been reported by individuals 

and there is no data upon which to reliably estimate 

the number of disbursements. 

organization would require, on average, 

approximately 5.2 hours to add the 

benefits column to Schedules 11 and 12 

(one-half the time required to add two 

columns to Schedules 3 and 4). The 

Department has applied the same 

nonrecurring burden to the 

Disbursements for Official Business 

revision as to the benefits revision, 5.2 

hours.30 The average burden was 

computed by taking the burden in each 

tier and weighting it by the number of 

labor organizations in each tier. 

As explained below, the Department 

estimates that, on average, labor 

organizations will take an additional 

(recurring) hour on recordkeeping 

burden and half an hour on reporting 

burden to enter the amount officers 

receive in benefits on Schedule 11 and 

track the indirect disbursements for 

temporary lodging or transportation. 

Again, these estimates are calculated 

using the recurring burden estimates 

from 2003 for Schedules 11 and 17. The 

average burden was computed by taking 

the burden in each tier and weighting it 

by the number of labor organizations in 

each tier. 

The changes to Schedule 11 involve 

individual columns, not entire 

schedules. Nevertheless, the Department 

has assumed that labor organizations 

will expend about the same amount of 

time keeping records and entering data 

required by the new columns on 

Schedule 11 (using the same 

methodology, as discussed above, for 

Schedules 3 and 4). To report the 

additional information required by the 

new schedule, labor organizations will 

have to report the amount each of its 

officers receives in benefits from the 

labor organization. The labor 

organization must keep records of the 

benefits each officer receives, like an 

itemized schedule, then aggregate the 

payments and report the aggregate 

amount next to the officer’s name. 

Although the individual disbursements 

of $5,000 or more need not be entered 

on the Form LM–2, the labor 

organization must track all the 

disbursements for benefits so that a final 

lump sum total can be entered for each 

officer on Schedule 11. Currently, labor 

organizations are required to keep 

records of all benefits they provide to 

officers on the IRS Form 990. Therefore, 

there is no recurring recordkeeping 

burden associated with the new benefits 

column. 

The Department assumes that Tier III 

labor organizations are already tracking 

the data required to report travel and 

lodging on Schedule 11. After weighting 

the averages based on the number of 

labor organizations in the two remaining 

tiers, the Department concludes that 

labor organizations in Tier I and Tier II 

will spend one hour a year tracking 

indirect disbursements for temporary 

lodging or transportation as a result of 

the following analysis. In 2007, 46% of 

Tier I officers, or approximately 4.53 

officers per labor organization, reported 

$1,800 in disbursements for official 

business; 55% of Tier II officers, 

approximately or 7.27 officers per labor 

organization, reported $3,768 in 

disbursements for official business; and 

84% of Tier III officers, or 

approximately 46.43 officers per labor 

organization, reported $9,354 in 

disbursements for official business. 

Based on institutional experience, the 

Department assumes that the average 

trip or hotel will cost $600. Dividing the 

average reported disbursements for 

official travel by $600 provides a 

reasonable estimate of the number of 

indirect disbursement for official travel 

or lodging. Therefore, on average, each 

Tier I labor organization will have 4.53 

officers who receive slightly more than 

3 indirect disbursements for travel or 

lodging and each Tier II labor 

organization will have 7.27 officers who 

receive approximately 6.28 indirect 

disbursements for travel or lodging. The 

Department again assumes that Tier I 

labor organizations will spend 3 

minutes on recordkeeping per 

disbursement, half of the tier II labor 

organizations will spend 3 minutes on 

recordkeeping per disbursement. 

There is a slight recurring reporting 

burden, on average, of .50 hours. The 

Department assumes that 75% of Tier I 

filers would use the cut and paste 

method to enter their data on the Form 

LM–2 (.08 hour burden per column 

entering data, .25 hours on training, .33 

hours preparing the report), and 25% 

would manually enter the data on the 

Form LM–2 (.016 hour burden per 

officer, .25 hours on training, .33 hours 

preparing the report). Tier II and III 

filers will import or attach their data to 

the Form LM–2 for an additional 

reporting burden of .42 hours. Indirect 

disbursements for travel and lodging 

will be included in the aggregate 

reported in ‘‘Disbursements for Official 

Business.’’ Therefore, there is no new 

recurring reporting burden for indirect 

disbursements for temporary lodging or 

transportation. The average burden was 

computed by taking the burden in each 

tier and weighting it by the number of 

labor organizations in each tier. 

Compared to revised Schedule 11, the 

Department estimates that, on average, 

labor organizations in Tiers I and II will 

spend slightly more time on revised 

Schedule 12, and that labor 

organizations in Tier III already keep 

records of benefits and indirect 

disbursements. Labor organizations in 

Tiers I and II, on average, will spend an 

additional (recurring) 1.91 hours of 

recordkeeping burden and .49 hours of 

reporting burden to track and enter the 

amount employees receive in benefits 

on Schedule 12 and track the indirect 

disbursements for temporary lodging or 

transportation. Unlike benefits to 

officers (which are reported on 

Schedule 11), labor organizations do not 

have to track benefits paid to employees 

for the IRS Form 990 unless those 

employees are ‘‘key employees.’’ 

Further, labor organizations have not 

had to track by individual employee the 

indirect disbursements to employees for 

lodging or travel under the current Form 

LM–2. 

There is no way to determine the 

amount or number of benefits or 

indirect disbursement for lodging or 

travel being paid to employees from the 

current Form LM–2. To estimate the 

additional burden associated with these 

tasks, the Department assumes that 

labor organizations will expend the 

same amount of time keeping records of 

benefits and indirect disbursements for 

lodging or travel for data entry on 

Schedule 12 as they do on Schedules 3 

and 4. The Department assumes that 

labor organizations already keep some 

records of benefits paid to employees 

and indirect disbursements for lodging 

and travel. However, it is unlikely that 

these benefits or disbursements appear 

next to the name of the person who 

received them. Therefore, like 

Schedules 3 and 4, the labor 

organizations will now have to track the 

name of the person to whom (or on 

whose behalf) the disbursement is 

made. As on Schedule 3 and 4, the 

Department assumes that Tier I labor 

organizations will spend 3 minutes (.05 

hours) on keeping records per 

disbursement, one half of the Tier II 

labor organizations will already keep 

data on benefits and indirect 

disbursements for lodging or travel 

made to employees, but the other one 

half will spend approximately 3 

minutes (.05 hours) per disbursement, 

and Tier III labor organizations already 

keep records of benefits and indirect 

disbursements. 

The Department assumes that each 

employee will receive, on average, one 

reportable benefit. If each employee 


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31Because there is no publicly available source 

for obtaining the number of employers employing 

workers represented by labor organizations, the 

Department has relied instead on the number of 

Form 7s filed by labor organizations to estimate this 

figure. The Department recognizes that the filing of 

a Form 7 is a requirement of the National Labor 

Relations Act, 29 U.S.C. 158(d)(3), and, as a result, 

labor organizations and employers covered by the 

Railway Labor Act, 45 U.S.C. 151 et seq., and public 

sector labor organizations not covered by the NLRA 

but that file LM reports as ‘‘mixed’’ unions, are not 

included in this figure. Further, the Department 

recognizes that because Form 7s represent contract 

disputes, more than one Form 7 may be filed by 

employers or labor organizations representing 

employees employed by that employer. Finally, the 

estimate assumes full compliance with the NLRA 

notice requirement. Although imperfect, the 

Department views this figure as a best estimate of 

the number of employers employing workers 

represented by labor organizations. 

receives one reportable benefit, then 

Tier I labor organizations will spend 

approximately 3 minutes (.05 hours) per 

employee keeping records of benefits 

paid employees. On average, Tier I labor 

organizations have 2.79 employees 

listed on their Form LM–2 and Tier II 

labor organizations have 10.24 

employees listed on their Form LM–2. 

Therefore, on average, labor 

organizations will spend .02 hours 

keeping records on benefits to 

employees each year. 

Like Schedule 11, the Department 

calculated the schedule 12 indirect 

disbursements for travel and lodging 

recordkeeping burden using the 

aggregate currently reported in 

disbursements for official business. In 

2007, 35% of Tier I employees, or 

approximately 1 employee per labor 

organization, reported $2,550.78 in 

disbursements for official business; 59% 

of Tier II employees, or approximately 

6 employees per labor organization, 

reported $5,049.82 in disbursements for 

official business; and 74% of Tier III 

employees, or approximately 240.67 

employees per labor organization, 

reported $9,022 in disbursements for 

official business. The Department 

assumes that the average trip or hotel 

will cost $600. Dividing the average 

reported disbursements for official 

travel by $600 provides a reasonable 

estimate of the number of indirect 

disbursement for official travel or 

lodging. Therefore, on average, each 

Tier I labor organization will have 1 

employee who receives 4.25 indirect 

disbursements for travel or lodging and 

each Tier II labor organization will have 

6 employees who receive approximately 

8.42 indirect disbursements for travel or 

lodging. The Department again assumes 

that Tier I labor organizations will 

spend 3 minutes on recordkeeping per 

disbursement, half of the Tier II labor 

organizations will spend 3 minutes on 

recordkeeping per disbursement, and 

Tier III labor organizations will already 

track the data. Therefore, on average, 

labor organizations in Tier I and Tier II 

will spend 1.89 hours keeping records 

on indirect disbursements for travel and 

lodging to employees each year. 

Labor organizations will spend an 

additional 1.91 hours keeping records of 

employee benefits and indirect 

disbursements to employees for lodging 

or travel. Like Schedules 3 and 4, the 

Department assumes it will take Tier I 

labor organizations .05 hours for 

recordkeeping burden per transaction to 

keep the new data. The Department, 

however, also assumes that one-half the 

Tier II labor organizations currently 

keep the records, and all the Tier III 

labor organizations keep the records. 

Additionally, the Department assumes 

that labor organizations will use the 

same method for reporting benefits as 

they use throughout the Form LM–2. 

Therefore, the Department estimates 

that labor organizations will spend an 

additional .49 hours per year reporting 

benefits on the Form LM–2. There is no 

additional reporting cost associated 

with the removal of the exemption for 

indirect disbursements to employees for 

lodging or travel. This information is 

now reported in Schedules 15 through 

20, as appropriate, so only the reporting 

location on the form is changed. The 

average burden was computed by taking 

the burden in each tier and weighting it 

by the number of labor organizations in 

each tier. 

3. Hours To Complete Schedule 14 

On average, labor organizations will 

spend 10.38 hours in the first year 

changing the accounting structure; 

developing, testing, reviewing, and 

documenting accounting software 

queries; designing query reports; and 

training accounting personnel. As in 

2003, the Department estimates that it 

will take Tier I and Tier II labor 

organizations 5.3 hours to change their 

accounting structures and 13.3 hours for 

Tier III labor organizations to change 

their accounting structures. 

Additionally, the Department estimates 

that each labor organization will spend 

approximately 4.95 hours setting up the 

reporting system. The smallest Form 

LM–2 filers, Tier I, will spend 

approximately 4.25 hours setting up 

their reporting schedules (1 hour to 

design report, 1 hour to develop query, 

.75 hours to test query, .5 hours for 

management review, .75 hours for 

document query process, and .25 hours 

to train new staff). The Tier II and III 

labor organizations will spend an 

additional hour setting up their systems 

as their systems are more complicated 

and will require a greater number of 

entries. 

To reduce the overall recordkeeping 

and reporting burden, the Department 

amended the itemization rules for 

Schedule 14. The labor organization 

will never have to itemize dues and 

agency fees received directly from 

members; dues and agency fees received 

directly from an employer are reported 

as yearly totals. 

Unlike the NPRM which used 

Schedule 14 data to estimate the 

number of itemized receipts on 

Schedule 14, this final rule used Federal 

Mediation and Conciliation Service 

(‘‘FMCS’’) data to estimate the number 

of dues and agency fees itemized on 

Schedule 14. To estimate the number of 

union employers, the Department relied 

on FMCS’s Form F–7, which must be 

filed by a labor organization or 

employer with the FMCS thirty days 

after notification to the other party of 

the intent to terminate or modify a 

collective bargaining agreement. 

Typically, collective bargaining 

agreements are renegotiated every 3 

years. Therefore, the Department can 

reasonably estimate the number of 

employers employing employees in 

bargaining units represented by labor 

organizations by determining the 

number of Form F–7s filed between 

2004 and 2006, 54,884.31 In 2006, the 

Department received 4,571 Form LM–2s 

out of 23,924 labor organization filings. 

The Department assumes that smaller 

labor organizations, those that do not 

file the LM–2, represent the employees 

of one employer. That leaves 30,960 

(54,884 ¥ 23,924) union employers who 

have collective bargaining agreements 

with LM–2 filers. Therefore, on average, 

each LM–2 filer receives dues from 6.77 

employers. 

In 2003 the Department made the 

underlying assumption that labor 

organizations will spend 3 minutes (.05 

hours) on recordkeeping per 

disbursement or receipt. Further, the 

Department assumed that all the largest 

labor organizations, Tier III, and 10% of 

the Tier II labor organizations will 

already keep this data. The Department 

has adopted the above underlying 

assumptions in its current analysis. If it 

takes 3 minutes of recordkeeping per 

receipt or disbursement, then the 

average labor organization will spend 

.31 hours on recordkeeping each year. 

Further, as in 2003, the Department 

assumes that Tier I filers will spend .25 

hours on training, .33 hours preparing 

the report and 1 minute (.02 hours) to 

manually enter each disbursement or 

receipt on the report and Tier II and III 

filers will spend 25 minutes (.42 hours) 

per schedule to cut and paste or import 

their data onto the Form LM–2. 


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Therefore, the Department estimates the 

reporting burden per schedule to be .50 

hours. The average burden was 

computed by taking the burden in each 

tier and weighting it by the number of 

labor organizations in each tier. 

4. Hours To Complete Schedule 15 

On average, labor organizations will 

spend 10.38 hours in the first year 

changing the accounting structure; 

developing, testing, reviewing, and 

documenting accounting software 

queries; designing query reports; and 

training accounting personnel. As in 

2003, the Department estimates that it 

will take Tier I and Tier II labor 

organizations 5.3 hours to change their 

accounting structures and 13.3 hours for 

Tier III labor organizations to change 

their accounting structures. 

Additionally, the Department estimates 

that each labor organization will spend 

approximately 4.95 hours setting up the 

reporting system. The smallest Form 

LM–2 filers, Tier I, will spend 

approximately 4.25 hours setting up 

their reporting schedules (1 hour to 

design report, 1 hour to develop query, 

.75 hours to test query, .5 hours for 

management review, .75 hours for 

document query process, and .25 hours 

to train new staff). The Tier II and III 

labor organizations will spend an 

additional hour setting up their systems 

as their systems are more complicated 

and will require a greater number of 

entries. 

To reduce the overall recordkeeping 

and reporting burden, the Department 

amended the itemization rules for 

Schedule 15. The labor organization 

will never have to itemize per capita 

taxes received direct from members and 

per capita taxes received directly from 

an affiliate are reported as yearly totals. 

Unlike the NPRM, which used 

Schedule 14 data to estimate the 

number of itemized receipts on 

Schedule 15, this final rule used e.LORS 

data to estimate the number of per 

capita taxes itemized on Schedule 15. 

To determine the per capita tax 

recordkeeping burden the Department 

estimated the number of affiliates per 

LM–2. In 2006, 12,025 LM–3s were filed 

with OLMS, and of these 11,168 were 

designated locals. Labor organizations 

need only itemize per capita taxes from 

affiliates that exceed $5,000. Therefore, 

the Department limited its LM–4 search 

to those that had $5,000 or more in 

disbursements. OLMS received 1,332 

LM–4s in 2006 from labor organizations 

that had greater than $5,000 in 

disbursements. Additionally, 1,325 Tier 

I LM–2 filers indicated that they were 

locals; 2,702 Tier II LM–2 filers 

indicated that they were locals; and 15 

Tier III LM–2 filers indicated that they 

were locals. In sum, there were 16,592 

local labor organizations and 650 

intermediate and international LM–2 

filers. Tier I has 121 intermediate and 

international LM–2 filers, Tier II has 492 

intermediate and international LM–2 

filers, and Tier III has 37 intermediate 

and international LM–2 filers. Without 

more precise data, the Department 

assumed that all intermediate and 

international LM–2 filers had the same 

number of affiliates, 25.53 itemized per 

capita taxes. 

In 2003, the Department made the 

underlying assumption that labor 

organizations will spend 3 minutes (.05 

hours) on recordkeeping per 

disbursement or receipt. Further, the 

Department assumed that all the largest 

labor organizations, Tier III, and 10% of 

the Tier II labor organizations will 

already keep this data. The Department 

has adopted the above underlying 

assumptions in its current analysis. If it 

takes 3 minutes of recordkeeping per 

receipt or disbursement, then the 

average labor organization will spend 

.16 hours on recordkeeping each year. 

Further, as in 2003, the Department 

assumes that Tier I filers will spend .25 

hours on training, .33 hours preparing 

the report and 1 minute (.02 hours) to 

manually enter each disbursement or 

receipt on the report and Tier II and III 

filers will spend 25 minutes (.42 hours) 

per schedule to cut and paste or import 

their data onto the Form LM–2. 

Therefore, the Department estimates the 

reporting burden per schedule to be .48 

hours. The average burden was 

computed by taking the burden in each 

tier and weighting it by the number of 

labor organizations in each tier. 

5. Hours To Complete Schedules 16 

Through 22 

For revised Schedules 16 through 22, 

the Department estimates that labor 

organizations will spend, on average, 

10.38 hours per schedule to change their 

accounting structures; develop, test, 

review, and document accounting 

software queries; design query reports; 

and train accounting personnel. This 

burden estimate is based largely on the 

2003 burden estimates for Schedule 14. 

As in 2003, the Department estimates 

that it will take Tier I and Tier II labor 

organizations 5.3 hours to change their 

accounting structures, and 13.3 hours 

for Tier III labor organizations to change 

their accounting structures. 

Additionally, the Department estimates 

that each labor organization will spend 

approximately 4.95 hours setting up the 

reporting system. The smallest Form 

LM–2 filers, Tier I, will spend 

approximately 4.25 hours setting up 

their reporting schedules (1 hour to 

design report, 1 hour to develop query, 

.75 hours to test query, .5 hours for 

management review, .75 hours for 

document query process, and .25 hours 

to train new staff). The Tier II and Tier 

III labor organizations will spend an 

additional hour setting up their systems, 

as their systems are more complicated 

and will require a greater number of 

entries. 

Unlike the NPRM, the burden 

estimate in this final rule used the 

aggregates reported on Statement B 

items 38 through 42 and 46 through 47 

to estimate the number of itemized 

receipts reported on the new schedules 

16 through 22. The aggregates reported 

in each item were divided by $5,000 to 

estimate the number of itemized 

receipts. For example, in 2006, on 

average, Tier I LM–2 filers report that 

they received $5,684.98 in interest. 

When the aggregate is divided by 

$5,000, we reach 1.14 itemized 

disbursements. These findings are 

summarized on Table 1. 

TABLE 1—LM–2 RECEIPT ITEMIZATION SUMMARY

Schedule Tier I Tier II Tier III 

Fees, Fines, Assessments, Work Permits .................................................................................. 4.72 39.44 235.64 

Sale of Supplies ........................................................................................................................... 0.08 0.50 22.70 

Interest ......................................................................................................................................... 1.14 10.05 685.52 

Dividends ..................................................................................................................................... 0.22 2.88 146.74 

Rents ............................................................................................................................................ 0.56 4.86 272.42 

On Behalf of Affiliates for Transmittal to Them ........................................................................... 0.74 37.60 3,017.36 

From Members for Disbursement on Their Behalf ...................................................................... 1.02 9.35 644.38 


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32The wage and salary data is based on 

information contained in Bureau of Labor Statistics, 

Occupational Employment Statistics Survey, 2007. 

In 2003, the Department made the 

underlying assumption that labor 

organizations will spend 3 minutes (.05 

hours) on recordkeeping per 

disbursement or receipt. Further, the 

Department assumed that all the largest 

labor organizations, Tier III, and 10% of 

the Tier II labor organizations will 

already keep this data. The Department 

has adopted the above underlying 

assumptions in its current analysis. 

Further, as in 2003, the Department 

assumes that Tier I filers will spend .25 

hours on training, .33 hours preparing 

the report and 1 minute (.02 hours) to 

manually enter each disbursement or 

receipt on the report and Tier II and III 

filers will spend 25 minutes (.42 hours) 

per schedule to cut and paste or import 

their data onto the Form LM–2. The 

burden estimates for Schedules 16 

through 22 are summarized on Table 3. 

The average burden was computed by 

taking the burden in each tier and 

weighting it by the number of labor 

organizations in each tier. 

6. Hours to Review Instructions 

Finally, the Department estimates that 

labor organizations will spend, on 

average, an additional, recurring 2.0 

hours reviewing the revised Form LM– 

2 and instructions. In 2003, the 

Department estimated that, on average, 

labor organizations would spend 4.0 

hours reviewing the current Form LM– 

2 and instructions. The 2003 

instructions were 44 pages and the new 

instructions are 52 pages. The changes 

to the LM–2 have added only 6 pages. 

The Department views as sufficient an 

additional 2.0 hours for review of the 

instructions. 

7. Subsequent Yearly Burden 

Given the current widespread use of 

automated accounting packages and 

labor organizations’ experience with the 

electronic filing, the Department is not 

making the assumption (that was made 

in 2003) that over time the recurring 

burden would be reduced due to 

efficiency gains as the accounting staff 

became familiar with the software. 

Rather, the Department assumes that the 

second and third year burden will be 

equal to the recurring first year burden. 

8. Compensation Cost 

The Department assumes that, on 

average, the completion by a labor 

organization of Form LM–2 will involve 

an accountant/auditor, computer 

software engineer, bookkeeper/clerk, 

labor organization president and labor 

organization treasurer. Based on the 

2007 BLS wage data, accountants earn 

$30.37 per hour, computer engineers 

earn $41.18 per hour, and bookkeepers/ 

clerks earn $15.76 per hour.32 BLS 

estimates that the cost of an employee’s 

total compensation is approximately 

30.2% higher than the employee’s 

wages alone. Therefore, in order to 

account for total compensation, the 

Department adjusted each of the BLS 

salaries upward to include the 

additional 30.2% attributed to benefit to 

estimate the total compensation cost for 

each of the individuals involved in 

completing the Form LM–2. 

To estimate the average annual 

salaries of labor organization officers 

needed to complete tasks for 

compliance with this rule—the 

president and treasurer—the 

Department drew a proportionate 

stratified sample from the 4,571 LM–2 

filers. A proportionate stratified sample 

ensured that neither large nor small 

labor organizations were overrepresented in the sample and permitted 

the final cost figures to be reported 

without regard to ‘‘tier’’ or size, as was 

done with the NPRM. 

The Department first calculated the 

appropriate sample size. Consistent 

with commonly accepted statistical 

practices, the Department determined 

that a level of precision or sample error 

of 6%, a confidence interval of 90%, 

and a degree of variability of 50% 

(maximum variability) was acceptable 

for the Form LM–2 final burden 

analysis. The sample size of 180 LM–2 

filers was then increased by 20% to 217, 

in order to ensure an appropriate 

sample size was maintained throughout 

the analysis. 

The population was arranged into 

three strata based on annual receipts: 

• Strata I ($250,000—$499,999 

receipts): 1,325 Form LM–2 filers 

• Strata II ($500,000—$6.5 mil receipts): 

2,895 Form LM–2 filers 

• Strata III ($6.5 mil and higher 

receipts): 351 Form LM–2 filers 

The proportion of each strata to the 

population was then determined: 

• Strata I ($250,000—$499,999 

receipts): 28.99% 

• Strata II ($500,000—$6.5 mil receipts): 

63.33% 

• Strata III ($6.5 mil and higher 

receipts): 7.68% 

Finally, the sample size from each 

strata was drawn proportionately to its 

representation in the population: 

• Strata I ($250,000—$499,999 

receipts): 217 × 28.99% = 63 

• Strata II ($500,000—$6.5 mil receipts): 

217 × 63.33% = 137 

• Strata III ($6.5 mil and higher 

receipts): 217 × 7.68% = 17 

These average annual salary figures 

were then adjusted to include the 

additional 30.2% attributed to benefits 

to reflect total compensation cost for 

each officer, which the Department 

calculated as $35.15 per hour for labor 

organization president and $30.71 per 

hour for labor organization treasurer. 


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TABLE 3—COMPENSATION COST TABLE

Title Salary hourly Salary—yearly Compensation— 

cost—hourly 

Accountants/Auditors ............................................................................................................... $30.37 $63,180.00 $43.51 

Computer software engineers, applications ............................................................................ 41.18 85,660.00 59.00 

Bookkeepers/Clerks ................................................................................................................. 15.76 32,780.00 22.58 

President .................................................................................................................................. 24.53 51,027.10 35.15 

Treasurer ................................................................................................................................. 21.44 44,592.89 30.71 

Weighted Average ................................................................................................................... ........................ ........................ 32.28 

The Department estimated the 

percentage of time the accountant, 

computer software engineer, 

bookkeeper, president, and treasurer 

would spend completing the LM–2. 

These percentages were used to 

calculate a weighted average 

compensation cost, $32.28. 

9. Conclusion 

The Department estimates the 

additional weighted average reporting 

and recordkeeping burden for the 

revised Form LM–2 to be 150.06 hours 

per respondent in the first year 

(including nonrecurring implementation 

costs) and 15.06 hours per respondent 

in the second and third years. See Table 

3 below. The Department estimates the 

total additional annual burden hours for 

respondents for the revised Form 

LM–2 to be 685,924 hours in the first 

year and 68,847 hours in the second and 

third years. 

The Department estimates the 

additional weighted average annual cost 

for the revised Form LM–2 to be $4,844 

($32.28 (weighted average cost per hour) 

× 150.06 (additional hours to complete 

the changes to Form LM–2 in first year) 

= $4,844) per respondent in the first 

year (including nonrecurring 

implementation costs) and $486 ($32.28 

(weighted average cost per hour) × 15.06 

(additional hours to complete the 

changes to Form LM–2 in second and 

third year) = $486) per respondent in 

the second year and third year. The 

Department also estimates the total 

additional annual cost to respondents 

for the revised Form LM–2 to be $22.14 

million ($32.28 × 685,924 (total hours to 

complete changes to Form LM–2 in first 

year) = $22.14 million) in the first year 

and $2.22 million ($32.28 × 68,847 (total 

hours to complete changes to Form 

LM–2 in second and third year) = $2.22 

million) in the second and third years. 

The Department’s estimates of the 

additional burden and costs associated 

with the revisions to the Form LM–2 are 

presented in Table 3. This table only 

presents the increases associated with 

the changes to the form. Neither the 

burden or costs associated with the 

current Form LM–2 nor the revocation 

of the privilege of some labor 

organizations to file the Form LM–3 is 

included in these estimates. 

H. Form LM–3 Revocation Procedures 

Burden Estimates 

The Department has established a 

procedure for revoking the simplified 

reports filing privilege, provided by 29 

CFR 403.4(a)(1), for labor organizations 

that are delinquent in their Form LM– 

3 filing obligation, have failed to timely 

file an amended form after notification 

that the report is materially deficient, or 

those for which the Department 

otherwise finds that the purposes of 

section 208 of the LMRDA, 29 U.S.C. 

438, would be served by such 

revocation. The Department’s ultimate 

goal in revoking the filing privilege for 

such labor organizations is to promote 

greater financial transparency. As 

discussed above, the revised paperwork 

requirements are necessary to effectuate 

the purposes of the LMRDA by 

providing members of labor 

organizations with information about 

their labor organizations that will enable 

them to be responsible, informed, and 

effective participants in the governance 

of their labor organizations; discourage 

embezzlement and financial 

mismanagement; prevent the 

circumvention or evasion of the 

statutory reporting requirements; and 

strengthen the effective and efficient 

enforcement of the LMRDA by the 

Department. The manner in which the 

collected information will serve these 

purposes is discussed throughout the 

preamble to this final rule. 

Rather than using a general burden 

reduction, the Department estimated the 

LM–3 revocation burden using the 

underlying assumptions in this rule and 

the 2003 LM–2 final rule. The number 

of receipts, disbursements, and officers 

was determined using a proportionate 

random sample of 2006 LM–3 data 

found on the e.LORS database. The 

distribution of receipts and 

disbursements was based on 2006 Tier 

I LM–2 filers. 

The Department’s proposal has sought 

to minimize the burden on the reporting 

labor organization by permitting it to 

submit the report manually. Upon its 

receipt of manual reports, the 

Department will enter the information 

electronically so that members of labor 

organizations, the public, and the 

Department’s investigators will be able 

to access and fully search these reports 

through the OLMS Online Public 

Disclosure Room. 

For the analysis below, recordkeeping 

burden is the amount of time the LM– 

3 filer will spend going through its 

records to identify the information 

needed to complete the LM–2. 

Reporting burden is the amount of time 

the LM–3 filer will spend transcribing 

the information onto the LM–2. 


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1. Review LM–2 Form and Instructions 

The Department determined that LM– 

3 filers who have had their filing 

privilege revoked will spend 8.32 hours 

reviewing the Form LM–2 and 

instructions, which allows an LM–3 

filer approximately .16 hours to review 

each page. 

2. LM–2 Page 1 Burden Hours 

There is no recordkeeping burden 

associated with the first page of the LM– 

2. The first page of the LM–2 reports the 

same information provided on the first 

page of the LM–3. The LM–3 filer need 

only copy the contents of the first page 

of its LM–3 onto the first page of its LM– 

2. This copying should take 

approximately 3 minutes per item. 

There are 16 items on the first page. 

Therefore, the reporting burden is 

estimated at .80 hours. 

3. LM–2 Page 2 Burden Hours 

The Department estimates that LM–3 

filers will expend .33 hours on 

recordkeeping and .60 hours on 

reporting to complete the second page of 

the LM–2. The second page of the LM– 

3 asks 6 yes/no questions found on the 

second page of the LM–2 and includes 

the same 4 fillable items found on the 

LM–2. There is no additional 

recordkeeping burden associated with 

the 6 repeat questions or the 4 fillable 

items. However, two questions found on 

the LM–2 are not repeated on the LM– 

3. The LM–3 filer will spend .33 hours 

answering these questions. Once the 

LM–2 specific questions are answered, 

the LM–3 filer need only copy the 

information found on its LM–3 onto the 

LM–2. The Department estimates that 

LM–3 filers will spend 3 minutes per 

item copying the information from the 

LM–3 onto the LM–2 and answering the 

two additional questions. 

4. LM–2 Itemization Schedules 

It should be noted that LM–3 filers 

should already have the information 

necessary to itemize the receipts, 

disbursements, assets, and liabilities for 

the LM–2. The LMRDA requires labor 

organization to maintain records ‘‘on 

matters required to be reported which 

will provide in sufficient detail the 

necessary basic information and data 

from which the documents filed with 

the Secretary may be verified, explained 

or clarified, and checked for accuracy 

and completeness, and shall include 

vouchers, worksheets, receipts, and 

applicable resolutions, and shall keep 

records available for examination for a 

period of not less than five years.’’ 29 

U.S.C. 436. However, it is unlikely that 

LM–3 filers keep the information in the 

detail or format necessary to complete 

the LM–2. Therefore, the Department 

has accounted for this detail and 

formatting change by adding a 

recordkeeping burden to itemized 

receipts, disbursements, assets, and 

liabilities. 

In order to improve the LM–3 

revocation burden estimates employed 

in the NPRM, the Department sampled 

a randomly selected subset of the 10,977 

Form LM–3 filers in 2006. The 

Department first calculated the 

appropriate sample size. Consistent 

with commonly accepted statistical 

practices, the Department determined 

that a level of precision or sample error 

of 6%, a confidence interval of 90%, 

and a degree of variability of 50% 

(maximum variability) was acceptable 

for the Form LM–3 revocation final 

burden analysis. The sample size of 185 

LM–3 filers was then increased by 20% 

to 222, in order to ensure an appropriate 

sample size was maintained throughout 

the analysis. 

To improve estimates of means, the 

Department used a proportionate 

stratified sample, which ensured that 

neither large nor small labor 

organizations were over-represented in 

the sample and permitted the final cost 

figures to be reported without regard to 

‘‘tier’’ or size, as was done with the 

NPRM. The population was arranged 

into three strata based on annual 

receipts: 

• Strata I ($10,000–$49,999 receipts): 

5,868 Form LM–3 filers 

• Strata II ($50,000–$149,999 receipts): 

3,782 Form LM–3 filers 

• Strata III ($150,000–$249,999 

receipts): 1,327 Form LM–3 filers 

The proportion of each strata to the 

population was then determined: 

• Strata I ($10,000–$49,999 receipts): 

53.46% 

• Strata II ($50,000–$149,999 mil 

receipts): 34.45% 

• Strata III ($150,000–$249,999 

receipts): 12.09% 

Finally, the sample size from each 

strata was drawn proportionately to its 

representation in the population: 

• Strata I ($10,000–$49,999 receipts): 

222 × 53.46% = 119 

• Strata II ($50,000–$149,999 mil 

receipts): 222 × 34.45% = 76 

• Strata III ($150,000–$249,999 

receipts): 222 × 12.09% = 27 

This sample indicated that the 

average 2006 LM–3 filer reports $68,585 

in annual receipts, $67,459 in annual 

disbursements, $69,673 in assets, and 

$1,901 in liabilities. The Department 

divided the annual receipts, 

disbursements, assets, and liabilities by 

$5,000 to estimate the maximum 

number of itemized transactions, and 

based on this calculation has concluded 

that LM–3 filers will likely have13.71 

itemized receipts, 13.49 itemized 

disbursements, 13.93 itemized assets, 

and .38 itemized liabilities reported on 

the LM–2. 

The Department used Tier I LM–2 

data to determine in which schedules 

these receipts, disbursements, assets, 

and liabilities would be reported. The 

Department assumes that the 

distribution of LM–3 itemized receipts, 

disbursements, assets and liabilities is 

similar to the distribution found in LM– 

2s of labor organizations with between 

$250,000 and $500,000 in receipts. For 

example, the Department found that 

6.51% ($31,326,557/$481,289,983 = 

.0651 or 6.51%) of total receipts are 

attributed to fees, fines, assessments, 

etc. These findings are summarized on 

Tables 5 through 8. 

TABLE 5—ITEMIZED RECEIPT DISTRIBUTION

Receipt functional category Receipts Percentage of all 

receipts 

Dues and Agency Fees ........................................................................................................................... $356,476,010.00 74.07 

Per Capita Tax ......................................................................................................................................... 22,574,114.00 4.69 

Other Fees ............................................................................................................................................... 31,326,557.00 6.51 

Sales of Supplies ..................................................................................................................................... 541,767.00 0.11 

Interest ..................................................................................................................................................... 7,602,504.00 1.58 

Dividends ................................................................................................................................................. 1,495,909.00 0.31 

Rents ........................................................................................................................................................ 3,781,903.00 0.79 

On Behalf of Affiliates .............................................................................................................................. 4,912,381.00 1.02 

From Members ........................................................................................................................................ 6,877,831.00 1.43 

Loan Repayments .................................................................................................................................... 518,391.00 0.11 


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TABLE 5—ITEMIZED RECEIPT DISTRIBUTION—Continued 

Receipt functional category Receipts Percentage of all 

receipts 

Loans Obtained ....................................................................................................................................... 1,307,960.00 0.27 

Sales of Investments and Assets ............................................................................................................ 7,402,058.00 1.54 

Other Receipts ......................................................................................................................................... 36,472,598.00 7.58 

Total Receipts ................................................................................................................................... 481,289,983.00 100.00 

TABLE 6—ITEMIZED DISBURSEMENT DISTRIBUTION

Disbursement functional category Disbursements Percentage of all 

disbursements 

Representational Activities ...................................................................................................................... $106,498,651.00 22.30 

Political Activities & Lobbying .................................................................................................................. 8,034,914.00 1.68 

Contributions, Gifts, & Grants .................................................................................................................. 8,655,415.00 1.81 

General Overhead ................................................................................................................................... 76,126,990.00 15.94 

Union Administration ................................................................................................................................ 85,108,151.00 17.82 

Benefits .................................................................................................................................................... 37,836,304.00 7.92 

Per Capita Tax ......................................................................................................................................... 102,038,579.00 21.36 

Strike Benefits .......................................................................................................................................... 3,545,000.00 0.74 

Fees, Fines, Assessments, etc. .............................................................................................................. 4,203,835.00 0.88 

Office & Administrative Expense ............................................................................................................. 71,976.00 0.02 

Professional Fees .................................................................................................................................... 1,075.00 0.00 

Supplies for Resale ................................................................................................................................. 749,492.00 0.16 

Purchase of Investments & Fixed Assets ............................................................................................... 14,954,159.00 3.13 

Loans Made ............................................................................................................................................. 326,659.00 0.07 

Repayment of Loans Obtained ................................................................................................................ 1,443,492.00 0.30 

To Affiliates of Funds Collected on Their Behalf .................................................................................... 6,957,774.00 1.46 

On Behalf of Individual Members ............................................................................................................ 6,556,628.00 1.37 

Direct Tax ................................................................................................................................................ 14,515,926.00 3.04 

Total Disbursements ......................................................................................................................... 477,625,020.00 100.00 

TABLE 7—ITEMIZED ASSET DISTRIBUTION

Asset functional category Assets Percentage of all 

assets 

Cash ......................................................................................................................................................... $218,193.74 57.55 

Investments .............................................................................................................................................. 235,122.64 14.25 

Treasury Securities .................................................................................................................................. 120,077.14 1.41 

Loans Receivable .................................................................................................................................... 12,850.12 0.66 

Accounts Receivable ............................................................................................................................... 4,499.69 0.97 

Fixed Assets ............................................................................................................................................ 287,842.82 24.37 

Other Assets ............................................................................................................................................ 2,975.39 0.79 

Total Assets ...................................................................................................................................... 881,561.54 100.00 

TABLE 8—ITEMIZED LIABILITY DISTRIBUTION

Liability functional category Liabilities Percentage of all liabilities 

Accounts Payable .................................................................................................................................... $5,400,228.00 20.06 

Loans Payable ......................................................................................................................................... 5,944,284.00 22.08 

Mortgages Payable .................................................................................................................................. 7,249,483.00 26.92 

Other Liabilities ........................................................................................................................................ 8,332,886.00 30.95 

Total Liabilities .................................................................................................................................. 26,926,881.00 100.00 

The Department can estimate the 

number of receipts, disbursements, 

assets, and liabilities itemized on each 

schedule using the Tier I LM–2 

distribution data and the LM–3 itemized 

transactions data. For example, if the 

LM–3 filing privilege is revoked, LM–3 

filers will itemize approximately 13.71 

receipts per year on the Form LM–2. 

Based on the Tier I LM–2 distribution, 

.89 (13.71 (total itemized receipts) × 

6.51% = .89) of the 13.71 receipts will 

be itemized on Schedule 16 (‘‘Fees, 

Fines, Assessments, etc.’’). The 

Department used the same method to 

determine the number of itemized 

transactions on each of the itemization 

schedules. The results are summarized 

in Table 9. 

It should be noted that the 

Department assumes that LM–3 filers 


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will receive dues payments from one 

employer. Consistent with the reporting 

requirements adopted in this rule, LM– 

3 filers will have one itemized dues 

receipt. Further, the Department 

estimates that like Tier I LM–2 filers, 

non-local LM–3 filers will receive 2.33 

per capita receipts. Approximately 

7.13% of LM–3 filers are non-locals. 

Therefore, on average each LM–3 filer 

will have .02 per capita itemizations. 

TABLE 9—LM–3 ITEMIZATION SUMMARY

Average 

number of 

entries 

Total Itemized Receipts ..................................................................................................................................................................... 13 .71 

Schedule 2: Loans Receivable ................................................................................................................................................... 0 .01 

Schedule 3: Sale of Investments and Fixed Assets .................................................................................................................. 0 .21 

Schedule 9: Loans Payable ....................................................................................................................................................... 0 .04 

Schedule 14: Dues and Agency Fees ....................................................................................................................................... 1 

Schedule 15: Per Capita Tax ..................................................................................................................................................... .02 

Schedule 16: Fees, Fines, Assessments, Work Permits ........................................................................................................... 0 .89 

Schedule 17: Sale of Supplies ................................................................................................................................................... 0 .02 

Schedule 18: Interest ................................................................................................................................................................. 0 .22 

Schedule 19: Dividends .............................................................................................................................................................. 0 .04 

Schedule 20: Rents .................................................................................................................................................................... 0 .11 

Schedule 21: On Behalf of Affiliates for Transmittal to Them ................................................................................................... 0 

Schedule 22: From Members for Disbursement on Their Behalf .............................................................................................. 0 .20 

Schedule 23: Other Receipts ..................................................................................................................................................... 1 .04 

Total Itemized Disbursements ........................................................................................................................................................... 13 .49 

Schedule 24: Representational Activities ................................................................................................................................... 3 .01 

Schedule 25: Political Activities and Lobbying ........................................................................................................................... 0 .23 

Schedule 26: Contributions, Gifts, and Grants .......................................................................................................................... 0 .24 

Schedule 27: General Overhead ................................................................................................................................................ 2 .15 

Schedule 28: Union Administration ............................................................................................................................................ 2 .41 

Schedule 29: Benefits ................................................................................................................................................................ 1 .07 

Item 57: Per Capita Tax ............................................................................................................................................................. 1 .00 

Item 58: Strike Benefits .............................................................................................................................................................. 0 .10 

Item 59: Fees, Fines, Assessments, etc. ................................................................................................................................... 0 .12 

Item 60: Supplies for Resale ...................................................................................................................................................... 0 .02 

Schedule 4: Purchase of Investments and Fixed Assets .......................................................................................................... 0 .42 

Schedule 2: Loans Made ........................................................................................................................................................... 0 .01 

Schedule 9: Repayment of Loans Obtained .............................................................................................................................. 0 .04 

Item 64: To Affiliates of Funds Collected on Their Behalf ......................................................................................................... 0 

Item 65: On Behalf of Individual Members ................................................................................................................................ 0 .19 

Item 66: Direct Taxes ................................................................................................................................................................. 0 .41 

Assets ................................................................................................................................................................................................ 13 .93 

Item 22: Cash ............................................................................................................................................................................. 8 .02 

Schedule 1: Accounts Receivable .............................................................................................................................................. 0 .13 

Schedule 2: Loans Receivable ................................................................................................................................................... 0 .09 

Item 25: U.S. Treasury Securities .............................................................................................................................................. 0 .20 

Schedule 5: Investments ............................................................................................................................................................ 1 .99 

Schedule 6: Fixed Assets ........................................................................................................................................................... 3 .40 

Schedule 7: Other Assets .......................................................................................................................................................... 0 .11 

Liabilities ............................................................................................................................................................................................ 0 .38 

Schedule 8: Accounts Payable .................................................................................................................................................. 0 .08 

Schedule 9: Loans Payable ....................................................................................................................................................... 0 .08 

Item 32: Mortgages Payable ...................................................................................................................................................... 0 .10 

Schedule 10: Other Liabilities .................................................................................................................................................... 0 .12 

The Department estimates that LM–3 

filers will expend .25 hours on each 

schedule identifying those receipts that 

must be itemized, and .03 hours per 

column putting together the necessary 

information and inputting it onto the 

LM–2. For example, LM–3 filers who 

have had their filing privilege revoked 

will spend .32 hours on recordkeeping 

and .07 hours on reporting completing 

the fees, fines, assessment schedule. The 

average LM–3 filer will itemize .89 fees, 

fines, assessments, etc. on LM–2 

schedule 16. The initial search and 

identification of itemized fees, fines, 

assessments, etc. will take .25 hours. 

Once the itemized fees, fines, 

assessments, etc. are identified, the 

labor organization must identify and 

enter the source, type, purpose, date, 

and amount of the fee, fine, assessment, 

etc. onto the Form LM–2, .15 hours or 

approximately .03 hours per item. The 

results are summarized in table 10. 


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Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 3717 

5. All Officers and Disbursement to 

Officers 

There is no recordkeeping burden 

associated with identifying officers and 

their salaries. This information is 

reported on the LM–3 schedule ‘‘All 

Officers and Disbursements to Officers.’’ 

Labor organizations will have to break 

down the amount reported in column 

(E) of LM–3 schedule ‘‘All Officers and 

Disbursements to Officers’’ between 

columns (E), (G), and (H) of LM–2 

Schedule 11, and report benefits next to 

each officer’s name. Officers will have 

to estimate the time they spend on 

representational activities, political and 

lobbying activities, contributions, 

general overhead, and union 

administration. 

LM–3 filers who have had their filing 

privileges revoked and their officers will 

spend 69.53 hours compiling the 

information necessary to complete the 

Form LM–2 Schedule 11. The labor 

organization will spend .25 hours 

compiling the records on disbursements 

and .08 hours per disbursement 

assigning the disbursements to a 

particular officer and disbursement 

category (allowances, official business 

or other). The LM–3 sample indicated 

that, on average, an LM–3 filer has 8.31 

officers. The Department estimates that 

each officer will receive one benefit 

disbursement and one indirect 

disbursement for travel or lodging. 

Based on the LM–3 sample, 

approximately 43.70% of the officers 

listed on the LM–3, or 3.47 officers per 

LM–3 filer, receive allowances and 

other disbursements. On average, these 

officers receive $973.92 in allowances 

and other disbursements. Unlike the 

LM–2 analysis above, the Department 

estimates that the average LM–3 officer 

disbursement will be $200. The average 

disbursement amount was reduced to 

take into account the smaller size of 

LM–3 filers. Therefore, the 3.47 officers 

who receive allowances and other 

disbursements will receive, on average, 

4.87 disbursements for allowances and 

other disbursements ($973.92/$200 = 

4.87), 1 disbursement for benefits, and 

1 indirect disbursement for lodging or 

travel. The remaining 4.84 officers who 

do not receive allowances or other 

disbursements will receive 1 

disbursement for benefits and 1 indirect 

disbursement for lodging or travel. In 

sum, each LM–3 filer will make 33.51 

disbursements to its officers. The labor 

organization will spend 2.93 hours 

compiling all disbursements to officers. 

In addition to compiling the 

disbursement data, officers will have to 

estimate how much time they spent on 

each of the functional categories: 

representational activities, political and 

lobbying activities, contributions, 

general overhead, and union 

administration. In 2003, the Department 

estimated that officers will spend 1 hour 

at the beginning of the year reviewing 

the LM–2 instructions, .5 hours a month 

dividing up their time, 1 hour at the end 

of the year checking the distributions. In 

sum, each officer will spend 8 hours 

estimating the percentage of time spent 

on each functional category. If the 

average LM–3 filer has 8.31 officers, and 

it takes each officer 8 hours to estimate 

the percentage of time spent on each 

functional category, then officers will 

expend 66.48 hours on recordkeeping to 

complete Schedule 11. 

The labor organization will spend 

2.08 hours on reporting. Each officer 

row on the LM–2 Schedule 11 has 15 

separate fillable items. The Department 

assumes that a labor organization can 

fill out an item in one minute. 

Therefore, the labor organization will 

spend .25 hours filling out each officer 

row. If the average LM–3 filer has 8.31 

officers, and it takes .25 hours to fill out 

one row, then labor organizations will 

expend 2.08 hours completing Schedule 

11. 

6. Disbursements to Employees 

There is no recordkeeping burden 

associated with identifying employees 

and their salaries. The LM–3 does not 


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3718 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

include a separate schedule for 

reporting disbursements to employees, 

but LM–3 filers have to track 

disbursements to employees to complete 

LM–3 Statement B, item 46. Labor 

organizations will have to break down 

the amount reported on LM–3 Statement 

B, item 46, by employee and type of 

disbursement (allowance, official 

business, or other). Additionally, the 

labor organization will have to report 

the benefits each employee receives. 

Employees will have to estimate the 

time they spend on representational 

activities, political and lobbying 

activities, contributions, general 

overhead, and union administration. 

LM–3 filers who have had their filing 

privileges revoked and their employees 

will spend 23.48 hours compiling the 

information necessary to complete the 

Form LM–2 Schedule 12. The labor 

organization will spend .25 hours 

compiling the records on disbursements 

and .08 hours per disbursement 

assigning the disbursements to a 

particular employee and disbursement 

category (allowances, official business 

or other). 

The Department used the average 

number of employees listed on LM–2s 

with between $250,000 and $500,000 in 

annual receipts to estimate the number 

of employees employed by LM–3 filers. 

On average, LM–2 filers with between 

$250,000 and $500,000 in annual 

receipts list 2.79 employees on 

Schedule 12. The Department estimates 

that each employee will receive one 

benefit disbursement and one indirect 

disbursement for travel or lodging. 

Approximately 39.82% of the 

employees listed on LM–2s with 

between $250,000 and $500,000 in 

annual receipts, or 1.11 employees per 

LM–2 filer with between $250,000 and 

$500,000 in annual receipts, receive 

allowances and other disbursements. 

The Department cannot estimate the 

number of employee allowances and 

other disbursements from the LM–3. 

Therefore, the Department applied the 

estimated number of officer 

disbursements, 4.87, to employees. The 

1.11 employees who receive allowances 

and other disbursements will receive, 

on average, 4.87 disbursements for 

allowances and other disbursements, 1 

disbursement for benefits, and 1 indirect 

disbursement for lodging or travel. The 

remaining 1.68 employees who do not 

receive allowances or other 

disbursements will receive 1 

disbursement for benefits and 1 indirect 

disbursement for lodging or travel. In 

sum, each LM–3 filer will make 10.99 

disbursements to its employees. 

In addition to compiling the 

disbursement data, employees will have 

to estimate how much time they spent 

on each of the functional categories: 

representational activities, political and 

lobbying activities, contributions, 

general overhead, and union 

administration. In 2003, the Department 

estimated that employees will spend 1 

hour at the beginning of the year 

reviewing the LM–2 instructions, .5 

hours a month dividing up their time, 

1 hour at the end of the year checking 

the distributions. In sum, each 

employee will spend 8 hours estimating 

the percentage of time spent on each 

functional category. If the average LM– 

3 filer has 2.79 employees and it takes 

each employee 8 hours to estimate the 

percentage of time spent on each 

functional category, then employees 

will expend 22.32 hours on 

recordkeeping to complete Schedule 12. 

The labor organization will spend .70 

hours on reporting. Each employee row 

on the LM–2 Schedule 12 has 15 

separate fillable items. The Department 

assumes that a labor organization can 

fill out an item in one minute. 

Therefore, the labor organization will 

spend .25 hours filling out each 

employee row. If the average LM–3 filer 

has 2.79 employees, and it takes .25 

hours to fill out one row, then labor 

organizations will expend .70 hours 

completing Schedule 12. 

7. Member Status Schedule 

The Department estimates that LM–3 

filers who have had their filing privilege 

revoked will spend .25 hours filling out 

Schedule 13 (‘‘Membership Status’’). All 

labor organizations already keep track of 

membership status. Therefore, there is 

no recordkeeping burden. 

Most labor organizations have 3 types 

of membership: Active, retired, and 

journeyman. Each membership type will 

require an independent itemization on 

Schedule 13. The Department has 

determined that each itemized 

membership should require 5 minutes. 

If there are 3 itemized memberships, 

then LM–3 filers will expend .25 hours 

filling out the LM–2. 

8. LM–2 Statement A Burden Hours 

There is no recordkeeping burden 

associated with LM–2 Statement A. This 

information is already provided on the 

LM–3’s Statement A. The LM–3 filer 

need only copy the information from the 

LM–3 onto the LM–2. The Department 

estimates that such copying should take 

approximately 1 minute per item. 

Statement A has 26 different items. At 

one minute each the LM–3 will spend 

.43 hours filling out Statement A. 

9. LM–2 Statement B Burden Hours 

The Department estimates that LM–3 

filers will expend .42 hours on 

recordkeeping and .58 hours on 

reporting to complete LM–2 Statement 

B. Twenty-two out of the twenty-nine 

aggregates reported on Statement B 

either have a corresponding LM–2 

itemization schedule or are already 

reported on the LM–3. The 

recordkeeping burden associated with 

these items is either included in the 

recordkeeping burden for its 

corresponding schedule or it is included 

in the LM–3 recordkeeping burden. 

There is no recordkeeping burden for 

these items associated with Statement B. 

The remaining seven items, strike 

benefits, fees, fines, assessments, etc., 

supplies for resale, repayment of loans 

obtained, to affiliates of funds collected 

on their behalf, on behalf of individual 

members, and direct taxes, are unique 

LM–2 functional categories with no 

corresponding itemization schedules. 

Using the distributions taken from LM– 

2s of labor organizations with between 

$250,000 and $500,000 in annual 

receipts and the LM–3 itemized receipt 

estimate, the Department has 

determined that LM–3 filers will have 

one per capita tax disbursement, .10 

strike disbursement, .12 fees, fines, 

assessment, etc. disbursement, .02 

supplies for resale disbursement, zero 

disbursements to affiliates on their 

behalf, .19 disbursement on members 

behalf, and .41 disbursement for direct 

taxes. Five out of the six items will have 

some amount of money reported in the 

item, approximately one transaction per 

item. The LM–3 filers will spend 5 

minutes on recordkeeping per 

transaction or .42 hours total. 

The LM–3 filers will copy twenty-two 

of the twenty-nine aggregates from the 

other itemization schedules on their 

LM–3. As discussed above, the 

remaining five items will have to be 

compiled by the LM–3 filer. LM–3 filers 

will spend one minute per item filling 

out Statement B, or .48 hours in total. 

10. Detailed Summary Schedules 3 and 

4 

The Department estimates that LM–3 

filers who have had their filing privilege 

revoked will spend .25 hours on 

recordkeeping and .2 hours on reporting 

to complete summary schedules 3 and 

4. These summary schedules do not 

include any new information. They 

merely summarize the information 

itemized on Itemization Schedules 3 

and 4. LM–3 filers will spend .25 

minutes compiling the information from 

the itemization schedules for reporting 

here. 


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33The wage and salary data is based on 

information contained in Bureau of Labor Statistics, 

Occupational Employment Statistics Survey, 2007. 

Once the information is compiled it 

must be transcribed onto the summary 

schedules. There are six items per 

summary schedule. LM–3 filers can 

transcribe the information into each 

item in 1 minute, .2 hours to completely 

transcribe all the information onto 

summary schedules 3 and 4. 

11. Detailed Summary Schedules 14 

through 28 

The Department estimates that LM–3 

filers who have had their filing privilege 

revoked will spend .25 hours on 

recordkeeping and 1 hour on reporting 

to complete summary schedules 14 

through 28. These summary schedules 

do not include any new information. 

They merely summarize the information 

itemized on Itemization Schedules 14 

through 28. LM–3 filers will spend .25 

minutes compiling the information from 

the itemization schedules for reporting 

here. 

Once the information is compiled it 

must be transcribed onto the summary 

schedules. There are four items per 

summary schedule. LM–3 filers should 

be able to transcribe the information 

into each item in 1 minute. There are 15 

separate summary schedules and each 

has 4 items that must be filled. 

Therefore, LM–3 filers will spend 1 

hour (15 itemization schedules × 4 items 

per schedule × 1 minute per item = 60 

minutes) transcribing all the 

information onto summary schedules 14 

through 28. 

12. Compensation Cost 

The Department assumes that, on 

average, the completion by a labor 

organization with between $10,000 and 

$250,000 in annual receipts of Form 

LM–2 will involve an accountant/ 

auditor, bookkeeper/clerk, labor 

organization president and labor 

organization treasurer. Based on the 

2007 BLS wage data, accountants earn 

$30.37 per hour, computer engineers 

earn $41.18 per hour, and bookkeepers/ 

clerks earn $15.76 per hour.33 BLS 

estimates that the cost of an employee’s 

total compensation is approximately 

30.2% higher than the employee’s 

wages alone. Therefore, the Department 

adjusted upward each of the BLS 

salaries to include the additional 30.2% 

attributed to benefits to estimate the 

total compensation cost for each of the 

individuals involved in completing the 

Form LM–2. 

The Department estimated the average 

annual salaries of labor organization 

officers needed to complete tasks for 

compliance with the LM–3 revocation— 

the president and treasurer—from 

responses to salary inquiries contained 

in the sample of 222 labor organizations 

that filed a Form LM–3 in 2006. The 

Department assumed that LM–3 parttime officers work approximately 200 

hours per year. These average annual 

salary figures were then adjusted to 

include the additional 30.2% attributed 

to benefits to reflect total compensation 

cost for each officer. Accordingly, the 

Department calculated as total hourly 

compensation cost $21.68 per hour for 

labor organization president and $25.08 

per hour for labor organization 

treasurer. 

TABLE 11—COMPENSATION COST TABLE

Title Salary—hourly Salary—yearly Compensation— 

cost—hourly 

Accountants/Auditors ............................................................................................................... $30.37 $63,180.00 $43.51 

Bookkeepers/Clerks ................................................................................................................. 15.76 32,780.00 22.58 

President .................................................................................................................................. 15.13 3,026.45 21.68 

Treasurer ................................................................................................................................. 17.51 3,501.73 25.08 

The Department estimated the 

percentage of time the accountant, 

bookkeeper, president, and treasurer 

would spend completing the LM–2. 

These percentages were used to 

calculate a weighted average 

compensation cost, $25.40. 

13. Conclusion 

The Department estimates that Form 

LM–2 filers with total annual receipts 

under $250,000 (LM–3 Filers that have 

had the privileged revoked) will spend 

102.40 hours fulfilling recordkeeping 

requirements and 16.83 hours 

completing the form, which corresponds 

to $3,028.23 in costs. 


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3720 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

14. Annualized Federal Costs 

The estimated annualized Federal 

cost of this rule is $231,924.52 This 

represents estimated operational 

expenses such as computer 

programming to amend the Form LM–2 

and staff time to draft documents and 

review materials in cases where a labor 

organization’s privilege to file the Form 

LM–3 is revoked. 


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Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 3721 

34Section 601(4) provides in part: ‘‘the term 

‘small organization’ means any not-for-profit 

enterprise which is independently owned and 

operated and is not dominant in its field. * * *’’ 

Final Regulatory Flexibility Analysis 

The Regulatory Flexibility Act of 

1980, 5 U.S.C. 601 et seq., requires 

agencies to prepare regulatory flexibility 

analyses, and to develop alternatives 

wherever possible, in drafting 

regulations that will have a significant 

economic impact on a substantial 

number of small entities. The 

Department certifies that the final rule 

will not have a significant economic 

impact on a substantial number of small 

entities. To evaluate whether this final 

rule would have a significant economic 

impact on a substantial number of small 

entities, the Department conducted a 

Final Regulatory Flexibility Analysis 

(‘‘FRFA’’) as a component of this final 

rule. 

In the 2003 Form LM–2 rule, the 

Department’s regulatory flexibility 

analysis utilized 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 (as 

updated in 2005 to $6.5 million) for 

purposes of its regulatory flexibility 

analyses. See 65 FR 30836 (May 15, 

2000); 70 FR 72577 (Dec. 6, 2005). This 

same standard, which has also been 

used in rulemakings involving the Form 

T–1, 73 FR 57412 (October 2, 2008), has 

been used in developing the final 

regulatory flexibility analysis for this 

rule. 

The Department recognizes that the 

SBA has not established fixed, financial 

thresholds for ‘‘organizations,’’ as 

distinct from other entities. See A Guide 

for Government Agencies: How to 

Comply with the Regulatory Flexibility 

Act, Office of Advocacy, U.S. Small 

Business Administration at 12–13, 

available at http://www.sba.gov. The 

Department further recognizes that 

under SBA guidelines, the relationship 

of an entity to a larger entity with 

greater receipts is a factor to be 

considered in determining the necessity 

of conducting a regulatory flexibility 

analysis. Thus, the affiliation between a 

local labor organization and a national 

or international labor organization, a 

widespread practice among labor 

organizations subject to the LMRDA, 

may have an impact on the number of 

organizations that should be counted as 

‘‘small organizations’’ under section 

601(4) of the RFA, 5 U.S.C. 601(4).34

However, for purposes of analysis here, 

and for ready comparison with the RFA 

analysis in its earlier Form LM–2 

rulemaking, the Department has used 

the $6.5 million receipts test for ‘‘small 

businesses.’’ rather than the 

‘‘independently owned and operated 

and not dominant’’ test for ‘‘small 

organizations.’’ Application of the latter 

test likely would reduce the number of 

labor organizations that would be 

counted as small entities under the 

RFA. It is the Department’s view, 

however, that it would be inappropriate, 

given the past rulemaking concerning 

the Form T–1 and the Form LM–2, to 

depart from the $6.5 million receipts 

standard in preparing this final 

regulatory flexibility analysis. 

Accordingly, the following analysis 

assesses the impact of these regulations 

on small entities as defined by the 

applicable SBA size standards. 

All numbers used in this analysis are 

based on 2006 data taken from the 

OLMS electronic labor organization 

reporting (‘‘e.LORS’’) database, which 

includes all records of labor 

organizations that have filed LMRDA 

reports with the Department. 

A. Statement of the Need for, and 

Objectives of, the Final Rule 

The following is a summary of the 

need for and objectives of the final rule. 

A more complete discussion is found 

earlier in this preamble. 

The objective of this final rule is to 

increase the transparency of financial 

reporting by revising the current 

LMRDA disclosure Form LM–2 to 

enable workers to be responsible, 

informed, and effective participants in 

the governance of their labor 

organizations; discourage embezzlement 

and financial mismanagement; prevent 

the circumvention or evasion of the 

statutory reporting requirements; and 

strengthen the effective and efficient 

enforcement of the Act by the 

Department. Form LM–2 is filed by the 

largest reporting labor organizations, 

i.e., those with $250,000 or more in total 

annual receipts. 

The revisions to the Form LM–2 made 

by the Department in 2003 have helped 

to fulfill the mandate of full reporting 

set forth in the LMRDA. However, based 

upon the Department’s experience since 

2003, and after reviewing data from 

reports filed on the revised form, the 

Department has determined that further 

enhancements to the Form LM–2 are 

necessary. These enhancements will 

ensure that information is reported in 

such a way as to meet the objectives of 

the LMRDA by providing labor 

organization members with useful data 

that will enable them to be responsible 

and effective participants in the 

democratic governance of their labor 

organizations. The changes are designed 

to provide members of labor 

organizations with additional and more 

detailed information about the financial 

activities of their labor organization that 

is not currently available through the 

Form LM–2 reporting. 

The enhancements provide additional 

information in Schedule 3 (Sale of 

Investments and Fixed Assets) and 

Schedule 4 (Purchase of Investments 

and Fixed Assets) that will allow 

verification that these transactions are 

performed at arm’s length and without 

conflicts of interest. Schedules 11 and 

12 will be revised to include the value 

of benefits paid to and on behalf of 

officers and employees. This will 

provide a more accurate picture of total 

compensation received by these labor 

organization officials. In addition, the 

changes will require the reporting in 

Schedules 11 and 12 of travel 

reimbursements indirectly paid these 

officials. This change will provide more 

accurate information on travel 

disbursements made to them by their 

labor organizations. The enhancements 

also include additional schedules 

corresponding to categories of receipts, 

which will provide additional 

information, by receipt category, of 

aggregated receipts of $5,000 or more. 

This change is consistent with the 

information currently provided on 

disbursements. 

The Department’s enforcement 

experience has shown that the failure of 

small labor organizations to file the 

annual Form LM–3 on time and the 

filing of reports with material 

deficiencies are often indicators of 

larger problems associated with the 

ways in which such organizations 

maintain their financial records, and 

may be an indicator of more serious 

financial mismanagement. The 

Department’s enforcement experience 

reveals various reasons for delinquent 

filings, including a labor organization’s 

failure to maintain the records required 

by the LMRDA; inadequate office 

procedures; frequent turnover of labor 

organization officials, who often serve 

on a part-time basis; uncertainty of firsttime officers about their reporting 

responsibilities under the LMRDA and 

their inexperience with bookkeeping, 

recordkeeping, or both; an inattention 

generally to ‘‘paperwork;’’ overworked 

or under-trained officers; an officer’s 

unwillingness to question or report 

apparent irregularities due to the 

officer’s own inexperience or concern 

about the repercussions of reporting 

such matters; or a conscious effort to 

hide embezzlement or the 

misappropriation of funds by the 

officers, other members of the 

organization, or third parties associated 


jlentini on PROD1PC65 with RULES2
3722 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Rules and Regulations 

35 In the 2003 Form LM–2 rule, the Department 

estimated the burden for each of three categories of 

reporting labor organizations as measured by their 

range of annual receipts: Tier I ($250,000 to less 

than $500,000); Tier II ($500,000 to less than 

$50,000,000) and Tier III ($50,000,000 or more). 

36The estimated burden on labor organizations is 

discussed in detail in the previous section 

concerning the Paperwork Reduction Act. The 

figures discussed above are derived from the figures 

explained in that section. 

37The estimates reported in this paragraph do not 

include labor organizations that voluntarily filed 

the Form LM–2 nor an estimate of the number of 

labor organizations (with annual receipts less than 

$250,000) that would have to file the Form LM–2 

under the proposed Form LM–3 revocation 

procedures. The number of such labor organizations 

(158) represents only a small fraction of the total 

number of reporting labor organizations and thus 

their inclusion would not have a material effect on 

the burden estimates. 

with the labor organization. Many of 

these causes of delinquency, including 

pre-existing bookkeeping problems, 

inattention, overwork, insufficient 

training, and an unwillingness to 

confront or report financial 

irregularities, demonstrate that the labor 

organization members and the public 

would benefit from a more detailed 

accounting of the organization’s 

financial conditions and operations. 

Moreover, OLMS experience indicates 

that labor organizations that are 

repeatedly delinquent are more likely 

than other labor organizations to suffer 

embezzlement, or related crime. Many 

of the reasons that contribute to 

delinquent filings also result in the 

filing of reports that omit or misstate 

material information about the labor 

organization’s finances. The members of 

a labor organization that fails to correct 

a material reporting deficiency after 

being notified by the Department and 

being given an opportunity to address 

the error would benefit from the 

increased transparency of the Form 

LM–2. 

As explained previously in the 

preamble, additional reporting by labor 

organizations is necessary to ensure, as 

intended by Congress, the full and 

comprehensive reporting of a labor 

organization’s financial condition and 

operations, including a full accounting 

to members from whose work the 

payments were earned. 67 FR 79282–83. 

This final rule will prevent 

circumvention and evasion of these 

reporting requirements by providing 

members of labor organizations with 

financial information concerning their 

labor organization. 

The legal authority for the final rule 

is provided by sections 201 and 208 of 

the LMRDA, 29 U.S.C. 431, 438. Section 

201 requires labor organizations to file 

annual financial reports and to disclose 

certain financial information, including 

all assets, receipts, liabilities, and 

disbursements of the labor organization. 

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. Section 208 also 

authorizes the Secretary to establish 

‘‘simplified reports for labor 

organizations and employers for whom 

[s]he finds by virtue of their size a 

detailed report would be unduly 

burdensome.’’ 29 U.S.C. 438. Section 

208 authorizes the Secretary to revoke 

this privilege for any labor organization 

or employer if the Secretary determines, 

after such investigation as she deems 

proper and due notice and opportunity 

for a hearing, that the purposes of 

section 208 would be served by 

revocation. 

B. Summary of the Significant Issues 

Raised by Public Comments 

The Department’s NPRM in this 

rulemaking contained an Initial 

Regulatory Flexibility Analysis and 

Paperwork Reduction Act analyses. As 

noted above in the introduction to the 

Department’s PRA analysis, because of 

the overlapping nature of costs for the 

purposes of both the RFA and PRA 

analyses, the Department construed all 

comments received related to the 

Department’s assessment of costs to the 

regulated community as comments 

addressing both the PRA and the RFA 

analyses. The Department’s discussion 

of significant issues raised in comments 

related to cost estimates, the agency’s 

response thereto, and adjustments made 

to the methodology as a result of 

comments is found in the PRA section 

of this preamble. See, supra, Paperwork 

Reduction Act, Sec. A. As explained in 

that section, based upon careful 

consideration of the comments, the 

Department made adjustments to the 

methodology employed to assess costs, 

and those adjustments resulted in 

modifications to conclusions on costs, 

which have been employed in the 

following final RFA analysis. Thus, the 

statutory requirement that the 

Department provide in its final RFA 

analysis ‘‘a summary of the significant 

issues raised by the public comments in 

response to the initial regulatory 

flexibility analysis, a summary of the 

assessment of the agency of such issues, 

and a statement of any changes made in 

the proposed rule as a result of such 

comments[,]’’ 5 U.S.C. 604(a)(2), has 

been satisfied. Moreover, the 

Department received no comments 

addressing or challenging the specific 

conclusion in the NPRM that the rule 

does not have a significant economic 

impact on a substantial number of small 

entities. 

C. Number of Small Entities Covered 

Under the Rule 

The primary impact of this final rule 

will be on those labor organizations that 

have $250,000 or more in annual 

receipts. There are approximately 4,571 

labor organizations of this size that are 

required to file Form LM–2 reports 

under the LMRDA. See Table 13 below. 

The Department estimates that 4,220 of 

these labor organizations, or 92.32%, are 

considered small under the current SBA 

standard (annual receipts less than $6.5 

million). These labor organizations have 

annual average receipts of $1.30 

million.35 See Table 13. The Department 

estimates that about 96 labor 

organizations with annual receipts of 

less than $250,000 will be affected by 

the final rule. These 96 labor 

organizations have annual average 

receipts of $68,468. See Table 13. 

Although these estimates may not be 

predictive of the exact number of small 

labor organizations that will be 

impacted by this final rule in the future, 

the Department believes these estimates 

to be sound and they are derived from 

the best available information. 

D. Reporting, Recording and Other 

Compliance Requirements of the Rule 36

This final 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. 

For the estimated 4,220 Form LM–2 

filers with between $250,000 and 

$6,500,000 in annual receipts, the 

estimated average annual reporting and 

recordkeeping burden for the current 

Form LM–2 is $16,328.22 or 1.26% of 

their average annual receipts. See Table 

13, which provides a more complete list 

of the burden estimates.37 The average 

additional first year cost (including first 

year non-recurring implementation 

costs) to these organizations is estimated 

at $4,717.39, or .36% of average annual 

receipts. Id. The average total first year 

cost of the revised Form LM–2 on these 

labor organizations is estimated at 

$21,045.61, or 1.62% of total annual 

receipts. Id. The Department views as 

unlikely that the smallest subset of these 

labor organizations (those with between 


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38The several magnitude difference in 

percentages is accountable to the much smaller 

number of labor organizations with $250,000 to 

$499,999 in annual receipts (1,325) compared to the 

number of labor organizations with $500,000 to $6.5 

million in annual receipts (2,895) and the three and 

one half-fold difference in average receipts between 

labor organizations with $250,000 to $499,999 in 

annual receipts and labor organizations with 

$500,000 to $6.5 million in annual receipts. 

39Note: Some of the figures used in this table and 

other figures mentioned in this document may not 

add due to rounding. 

$250,000 and $499,999 in annual 

receipts) would incur many of the costs 

incurred by the typical Form LM–2 filer 

(those with receipts between $500,000 

and $6.5 million). The labor 

organizations with the smallest annual 

receipts are likely to have less 

complicated accounts covering fewer 

transactions than the typical, larger 

Form LM–2 filer. However, to assess the 

‘‘maximum’’ or ‘‘worst-case’’ impact on 

this subset of labor organizations, the 

Department considered the unlikely 

event that the labor organizations in this 

subset could incur the same compliance 

burden as the average for labor 

organizations with annual receipts of 

$500,000 to $49.9 million. Under this 

unlikely scenario, the total additional 

cost of the final rule on such labor 

organizations is estimated at $4,891.21 

in the first year, or .38% of the annual 

receipts of all organizations with 

receipts of $250,000 to $6.5 million, and 

$462.88 in the second year, or .04% of 

annual receipts. Id. For a small labor 

organization with $250,000 to $499,999 

in annual receipts, the estimated 

maximum additional cost of the final 

rule would be 1.26% of receipts in the 

first year and .12% in the second year.38

Id. 

The average annual reporting and 

recordkeeping burden for the current 

Form LM–3 is estimated at $1,404.00 or 

2.08% of average annual receipts for 

Form LM–3 filers. See Table 1. The 

Department assumes that Form LM–3 

filers will spend approximately $23.13 

per hour to complete the form. See 

Table 11. The additional cost of filing a 

Form LM–2 is $3,028.23 or 4.49% of 

average annual receipts for Form LM–3 

filers. The Department estimates that on 

average, 96 Form LM–3 filers annually 

will have their Form LM–3 filing 

privilege revoked and thus will incur 

this additional burden. The Department 

arrived at this figure by examining the 

number of deficiency and delinquency 

cases processed by the Department. In 

the latest fiscal year, the Department 

processed 684 deficiency cases for Form 

LM–3 filers and 1,187 cases for 

delinquent Form LM–3 filers. The 

Department assumes that it will 

examine one half of the deficiency and 

delinquency cases for possible 

revocation (935.5 per year) and that 

10% of the cases examined will 

ultimately lead to revocation of the 

Form LM–3 filing privilege (93.55). 

Further the Department assumes that in 

another 2 cases per year it will find 

‘‘other circumstances exist that warrant 

revocation,’’ for a total of 96 revocations 

per year (rounded up). 

TABLE 13—SUMMARY OF REGULATORY FLEXIBILITY ANALYSIS 39

For unions that meet the SBA small entities standard 

Total burden 

hours per 

respondent 

Total cost per 

respondent 

Weighted Average Cost of Current Form LM–2 ..................................................................................................... 507.62 $16,382.22 

Percentage of Average Annual Receipts ................................................................................................................ n.a. 1.26% 

Average Cost of Current Form LM–3 ...................................................................................................................... 116.00 1,404.00 

Percentage of Average Annual Receipts ................................................................................................................ n.a. 2.08% 

Weighted Average First Year Cost of Revised Form LM–2 ................................................................................... 653.86 21,045.61 

Percent of Average Annual Receipts ...................................................................................................................... n.a. 1.62% 

Weighted Average Second Year Cost .................................................................................................................... 520.36 16,748.65 

Percent of Average Annual Receipts ...................................................................................................................... n.a. 1.29% 

Weighted Average Increase in Cost of Final Rule, First Year ................................................................................ 146.56 4,717.39 

Percent of Average Annual Receipts ...................................................................................................................... n.a. 0.36% 

Weighted Average Increase in Cost of Final Rule, Second Year ........................................................................... 13.06 420.44 

Percent of Average Annual Receipts ...................................................................................................................... n.a. 0.03% 

Maximum First Year Cost of Revised Form LM–2 for Unions with $250,000 to $499,999 in Annual Receipts .... 659.26 19,677.27 

Percentage of Average Annual Receipts ................................................................................................................ n.a. 5.47% 

Maximum Second Year Cost ................................................................................................................................... 521.68 15,570.78 

Percentage of Average Annual Receipts ................................................................................................................ n.a. 4.33% 

Maximum Increase in Cost of Final Rule, First Year .............................................................................................. 151.96 4,891.21 

Percent of Annual Receipts for $250,000 to $499,999 Union ................................................................................ n.a. 1.26% 

Percent of Annual Receipts for $500,000 to $6,500,000 Union ............................................................................. n.a. 0.29% 

Percent of Annual Receipts for $250K to $6.5M Union .......................................................................................... n.a. 0.38% 

Maximum Increase in Cost of Final Rule, Second Year ......................................................................................... 14.38 462.88 

Percent of Annual Receipts for $250,000 to $499,999 Union ................................................................................ n.a. 0.12% 

Percent of Annual Receipts for $500,000 to $6,500,000 Union ............................................................................. n.a. 0.03% 

Percent of Annual Receipts for $250K to $6.5M Union .......................................................................................... n.a. 0.04% 

Average Cost of Revised Form LM–2 ..................................................................................................................... 119.22 3,028.23 

Union with between $10K and $249,999 in Annual Receipts ................................................................................. n.a. 4.49% 

Total 2006 Filers between $250K & $6.5M ....................................................................................................................................... 4,220 

Total 2006 Filers between $250K & $499,999 .................................................................................................................................. 1,325 

Total 2006 Filers between $500K & $6.5 .......................................................................................................................................... 2,895 

Total 2006 Filers between $500K & $49.9M ..................................................................................................................................... 3,194 

Number of Form LM–2 Filers with Annual Receipts between $250K & $2M ............................................................................... 3,401 

Total 2006 Form LM–3 Filers ............................................................................................................................................................ 10,977 

Total 2006 Form LM–2 Filers ............................................................................................................................................................ 4,571 

Total 2006 Union Filers ..................................................................................................................................................................... 23,924 

Percentage of All Union Filers that File Form LM–2 ...................................................................................................................... 19.11% 

Percentage of all Union Filers with Annual Receipts between $250K & $6.5M ............................................................................ 18.1% 

Percentage of Union Filers with Annual Receipts between $250K & $499,999 ............................................................................. 5.5% 

Percentage of Form LM–2 Filers with Annual Receipts between $250K & $6.5M ........................................................................ 92.32% 


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Percentage between $250K & $499,999 ............................................................................................................................................. 31.40% 

Percentage between $500K & $6.5M ................................................................................................................................................. 68.60% 

Percentage of Form LM–3 Filers that will File Form LM–2 ............................................................................................................ .87% 

2006 Average Annual Receipts for Unions between $250K & $6.5M ............................................................................................. $1,296,219.27 

2006 Average Annual Receipts for Unions between $250K & $499,999 ........................................................................................ $359,925.03 

2006 Average Annual Receipts for Unions between $500K & $6.5M ............................................................................................. $1,724,895.80 

2006 Average Annual Receipts for Unions between $10K and $249,999 ...................................................................................... $67,468.14 

OLMS will update the e.LORS system 

to coincide with all changes embodied 

in this final rule. OLMS will provide 

compliance assistance for any questions 

or difficulties that may arise from using 

the reporting software. A help desk is 

staffed during normal business hours 

and can be reached by telephone toll 

free at 1–866–401–1109. 

The use of electronic forms makes it 

possible to download information from 

previously filed reports directly into the 

form; enables officer and employee 

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 reduces 

the likelihood of having to file an 

amended report. The error summaries 

provided by the software, combined 

with the speed and ease of electronic 

filing, will 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. 

As discussed previously in the 

preamble, labor organizations that are 

required to file a Form LM–2 because 

their Form LM–3 filing privilege has 

been revoked are not required to comply 

with the electronic submission 

requirement. 

E. Description of the Steps the Agency 

Has Taken To Minimize the Economic 

Impact on Small Entities 

The Department considered a number 

of alternatives to the final rule that 

could minimize the economic impact on 

small entities. One alternative would be 

not to change the existing Form LM–2. 

This alternative was rejected because 

OLMS experience demonstrates that the 

goals of the Act are not being fully met. 

As explained further in the preamble, 

members of labor organizations cannot 

accurately determine from the current 

Form LM–2 important information 

regarding their union’s finances, 

including the parties to whom it sells, 

and from whom it purchases, 

investments and fixed assets; the 

identity of parties from whom the union 

receives major amounts of funds; and 

the benefits and indirect disbursements 

received by officials and employees of 

the labor organization. Members need 

this information to make informed 

decisions on the governance of their 

labor organizations. 

Another alternative would be to limit 

the new reporting requirements to 

national and international parent labor 

organizations. However, the Department 

has concluded that such a limitation 

would eliminate the availability of 

meaningful information from local and 

intermediate labor organizations, which 

may have far greater impact on and 

relevance to members of labor 

organizations, particularly since such 

lower levels of labor organizations 

generally set and collect dues and 

provide representational and other 

services for their members. Such a 

limitation would reduce the utility of 

the information to a significant number 

of members. Of the 4,571 labor 

organizations that are required to file 

Form LM–2, just 101 are national or 

international labor organizations. 

Requiring only national and 

international organizations to file more 

detailed reports would not provide any 

deterrent to fraud and embezzlement by 

local and intermediate body officials nor 

would it increase transparency in local 

and intermediate bodies. 

Another alternative would be to 

phase-in the effective date for the Form 

LM–2 changes and provide smaller 

Form LM–2 filers with additional lead 

time to modify their recordkeeping 

systems to comply with the new 

reporting requirements. The Department 

has concluded that a three-month 

period for all Form LM–2 filers to adapt 

to the new reporting requirements 

should provide sufficient time to make 

the necessary adjustments. OLMS also 

plans to provide compliance assistance 

to any labor organization that requests 

it. 

A review of the revisions was 

undertaken to reduce paperwork burden 

for all Form LM–2 filers and an effort 

was made during the review to identify 

ways to reduce the impact on small 

entities. The Department concludes that 

it has minimized the economic impact 

of the form revision on small labor 

organizations to the extent possible, 

while recognizing workers’ and the 

Department’s need for information to 

protect the rights of members of labor 

organizations under the LMRDA. 

F. Conclusion 

The Regulatory Flexibility Act 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 final rule will 

apply to 4,220 Form LM–2 filers and 

approximately 96 Form LM–3 filers that 

meet the SBA standard for small 

entities, about 18% of all labor 

organizations that must file an annual 

financial report under the LMRDA. 

Further, the Department estimates that 

just 1,325 labor organizations with 

annual receipts from $250,000 to 

$499,999, or 5.5% of all labor 

organizations covered by the LMRDA, 

would be affected by this rule. Even less 

(5.5% of the total) would incur the 

maximum additional costs of the final 

rule described above. Finally, the 

Department estimates that 

approximately 96 Form LM–3 filers, or 

.87% of all Form LM–3 labor 

organizations covered by the LMRDA, 

would be affected by this rule. 

For the estimated 4,220 Form LM–2 

filers with between $250,000 and 

$6,500,000 in annual receipts, the 

estimated average annual reporting and 

recordkeeping burden for the current 

Form LM–2 is $16,328.22 or 1.26% of 

their average annual receipts. The 

average additional first year cost 

(including first year non-recurring 

implementation costs) to these 

organizations is estimated at less than 

$4,717.39, or 0.36% of average annual 

receipts. The average total first year cost 

of the revised Form LM–2 on these labor 

organizations is estimated at $21,045.61, 

or 1.62% of total annual receipts. The 

Department believes that it is unlikely 

that the smallest subset of these labor 

organizations (those with between 

$250,000 and $499,999 in annual 

receipts) would incur many of the costs 

incurred by the typical Form LM–2 filer 

(those with receipts between $500,000 


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and $6.5 million). Under this ‘‘worst 

case’’ scenario for these organizations, 

the total additional cost of the final rule 

on such labor organizations is estimated 

at $4,891.21 in the first year, or 0.38% 

of the annual receipts of all 

organizations with receipts of $250,000 

to $6.5 million, and $462.88 in the 

second year, or .04% of annual receipts. 

The average annual reporting and 

recordkeeping burden for the current 

Form LM–3 is estimated at $1,404.00 or 

2.08% of average annual receipts for 

Form LM–3 filers. For the estimated 96 

Form LM–3 filers that would have their 

privilege to file Form LM–3 revoked (all 

of which meet the SBA standard for 

small entities), the additional cost of 

filing a Form LM–2 will be $3,028.23 or 

4.49% of average annual receipts 

Given the relatively small costs of 

compliance in relation to the revenues 

of the affected labor organizations, the 

Department concludes that the 

economic impact of this rule is not 

significant. As to the number of labor 

organizations affected by this rule, the 

Department has determined by 

examining e.LORS data that in 2006, the 

Department received 4,228 Form LM–2s 

from labor organizations with receipts 

between $250,000 and $6,500,000, or 

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 

certifies that the final rule will not have 

a significant economic impact on a 

substantial number of small entities. 

Executive Order 13045 (Protection of 

Children From Environmental Health 

Risks and Safety Risks) 

In accordance with Executive Order 

13045, the Department has evaluated 

the environmental safety and health 

effects of the final rule on children. The 

Department has determined that the 

final rule will have no effect on 

children. 

Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) 

The Department has reviewed this 

final rule in accordance with Executive 

Order 13175, and has determined that it 

does not have ‘‘tribal implications.’’ The 

final rule does not ‘‘have substantial 

direct effects on one or more Indian 

tribes, on the relationship between the 

Federal government and Indian tribes, 

or on the distribution of power and 

responsibilities between the Federal 

government and Indian tribes.’’ 

Executive Order 12630 (Governmental 

Actions and Interference With 

Constitutionally Protected Property 

Rights) 

This final rule is not subject to 

Executive Order 12630, Governmental 

Actions and Interference with 

Constitutionally Protected Property 

Rights, because it does not involve 

implementation of a policy with takings 

implications. 

Executive Order 12988 (Civil Justice 

Reform) 

This final rule has been drafted and 

reviewed in accordance with Executive 

Order 12988, Civil Justice Reform, and 

will not unduly burden the federal court 

system. The final rule has been written 

so as to minimize litigation and provide 

a clear legal standard for affected 

conduct, and has been reviewed 

carefully to eliminate drafting errors and 

ambiguities. 

Environmental Impact Assessment 

The Department has reviewed the 

final rule in accordance with the 

requirements of the National 

Environmental Policy Act (‘‘NEPA’’) of 

1969 (42 U.S.C. 4321 et seq.), the 

regulations of the Council on 

Environmental Quality (40 U.S.C. part 

1500), and the Department’s NEPA 

procedures (29 CFR part 11). The final 

rule will not have a significant impact 

on the quality of the human 

environment, and, thus, the Department 

has not conducted an environmental 

assessment or an environmental impact 

statement. 

Executive Order 13211 (Actions 

Concerning Regulations That 

Significantly Affect Energy Supply, 

Distribution, or Use) 

This final rule is not subject to 

Executive Order 13211, because it will 

not have a significant adverse effect on 

the supply, distribution, or use of 

energy. 

Electronic Filing of Forms and 

Availability of Collected Data 

Appropriate information technology 

is used to reduce burden and improve 

efficiency and responsiveness. The 

current forms can be downloaded from 

the OLMS Web site. OLMS has also 

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 minimal fee to obtain 

electronic signature capability for the 

two officers who sign the form. These 

digital signatures ensure the 

authenticity of the reports. Information 

about this system can be obtained on the 

OLMS Web site at http:// 

www.olms.dol.gov. 

The OLMS Online Public Disclosure 

Room 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 

on the information in each report that is 

searchable through the Internet. 

OLMS includes e.LORS information 

in its outreach program, including 

compliance assistance information on 

the OLMS Web site, individual 

guidance provided through responses to 

e-mail, written, or telephone inquiries, 

and formal group sessions conducted for 

labor organization officials regarding 

compliance. 

List of Subjects in 29 CFR Part 403 

Labor unions, Reporting and 

recordkeeping requirements. 

Text of Final Rule 

■ In consideration of the foregoing, the 

Department amends part 403 of 29 CFR 

Chapter IV as set forth below: 

PART 403—LABOR ORGANIZATION 

ANNUAL FINANCIAL REPORTS 

■ 1. The authority citation for Part 403 

is revised to read as follows: 

Authority: 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. 

■ 2. Amend 29 CFR 403.4 by: 

■ a. Revising paragraph 403.4(a)(1) to 

read as set forth below: 

■ b. Redesignating paragraph (b) as 

paragraph (f). 

■ c. Adding new paragraphs (b), (c), (d), 

and (e) to read as set forth below. 

§ 403.4 Simplified annual reports for 

smaller labor organizations. 

(a)(1) If a labor organization, not in 

trusteeship, has gross annual receipts 

totaling less than $250,000 for its fiscal 

year, it may elect, subject to revocation 

of the privilege as provided in section 

208 of the LMRDA, to file the annual 

financial report called for in section 

201(b) of the LMRDA and § 403.3 of this 

part on United States Department of 

Labor Form LM–3 entitled ‘‘Labor 

Organization Annual Report,’’ in 

accordance with the instructions 

accompanying such form and 

constituting a part thereof. 

* * * * * 

(b) The Secretary may revoke a labor 

organization’s privilege to file the Form 

LM–3 simplified annual report 

described in § 403.4(a)(1) and require 


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the labor organization to file the Form 

LM–2 as provided in § 403.3, if the 

following conditions are met: 

(1) The Secretary has provided notice 

to the labor organization that revocation 

is possible if conditions warranting 

revocation are not remedied; 

(2) The Secretary has undertaken such 

investigation as the Secretary deems 

proper revealing: 

(i) The date the labor organization’s 

Form LM–3 was due has passed and no 

Form LM–3 has been received; or 

(ii) The labor organization filed the 

Form LM–3 with a material deficiency 

and failed to remedy this deficiency 

after notification by the Secretary that 

the report was deficient; or 

(iii) Other circumstances exist that 

warrant revocation of the labor 

organization’s privilege to file the Form 

LM–3. 

(3) The Secretary has provided notice 

to the labor organization of a proposed 

decision to revoke the filing privilege, 

the reason for such revocation, and an 

opportunity for the labor organization to 

submit in writing a position statement 

with relevant factual information and 

argument regarding: 

(i) The existence of the delinquency 

or the deficiency (including whether a 

deficiency is material) or other 

circumstances alleged in the notice; 

(ii) The reason for the delinquency, 

deficiency or other cited circumstance 

and whether it was caused by factors 

reasonably outside the control of the 

labor organization; and 

(iii) Any other factors, including those 

in mitigation, the Secretary should 

consider in making a determination 

regarding whether the labor 

organization’s privilege to file the Form 

LM–3 should be revoked. 

(4) The Secretary (or a designee who 

has not participated in the 

investigation), after review of all the 

information collected and provided, 

shall issue a determination in writing to 

the labor organization. If the Secretary 

determines that the privilege shall be 

revoked, the Secretary will inform the 

labor organization of the reasons for the 

determination and order it to file the 

Form LM–2 for such reporting periods 

as the Secretary finds appropriate. 

(c) A labor organization that receives 

a notice as set forth in § 403.4(b)(3) must 

submit its written statement of position 

and any supporting facts, evidence, and 

argument by mail, hand delivery, or by 

alternative means specified in the notice 

to the Office of Labor-Management 

Standards (OLMS) at the address 

provided in the notice within 30 days 

after the date of the letter proposing 

revocation. If the 30th day falls on a 

Saturday, Sunday, or Federal holiday, 

the submission will be timely if 

received by OLMS on the first business 

day after the 30th day. Absent a timely 

submission to OLMS, the proposed 

revocation shall take effect 

automatically unless the Secretary in his 

or her discretion determines otherwise. 

(d) The Secretary’s determination 

shall be the Department’s final agency 

action on the revocation. 

(e) For purposes of this section, a 

deficiency is ‘‘material’’ if in the light of 

surrounding circumstances the 

inclusion or correction of the item in the 

report is such that it is probable that the 

judgment of a reasonable person relying 

upon the report would have been 

changed or influenced. 

Signed in Washington, DC, this 8th day of 

January 2009. 

Don Todd, 

Deputy Assistant Secretary for LaborManagement Programs. 

Appendix 

Note: This appendix, which will not 

appear in the Code of Federal Regulations, 

contains the revised Form LM–2 and the 

revised instructions to that form. The 

appendix also contains the revised 

instructions to the Form LM–3. The form 

itself is not included because no changes 

have been made to the current version. 

BILLING CODE 4510–CM–P 


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[FR Doc. E9–503 Filed 1–16–09; 8:45 am] 

BILLING CODE 4510–CM–C 


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