`[Federal Register Volume 73, Number 192 (Thursday, October 2, 2008)]
[Rules and Regulations]
[Pages 57412-57473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22853]



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Part II





Department of Labor





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 Office of Labor-Management Standards



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29 CFR Part 403



Labor Organization Annual Financial Reports for Trusts in Which a Labor 
Organization Is Interested, Form T-1; Final Rule

  Federal Register / Vol. 73, No. 192 / Thursday, October 2, 2008 / 
Rules and Regulations  

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 403

RIN 1215-AB64


Labor Organization Annual Financial Reports for Trusts in Which a 
Labor Organization Is Interested, Form T-1

AGENCY: Office of Labor-Management Standards, Employment Standards 
Administration, Department of Labor.

ACTION: Final rule.

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SUMMARY: The Employment Standards Administration (ESA) Office of Labor-
Management Standards (OLMS) of the Department of Labor publishes this 
final rule to establish a form to be used by labor organizations to 
file trust annual financial reports (Form T-1) and to provide 
appropriate instructions and revise relevant portions of 29 CFR Part 43 
relating to such reports. On March 4, 2008, the Department published a 
notice of proposed rulemaking setting forth the Department's Form T-1 
proposal. Under the proposal, certain labor organizations would file 
annual reports about certain trusts to which they contributed money or 
otherwise provided financial assistance or over which they exercised 
managerial control. This document sets forth the Department's review of 
and response to comments on the proposal. This final rule requires that 
a labor organization with total annual receipts of $250,000 or more 
file a Form T-1 for each trust of the type defined by section 3(l) of 
the Labor-Management Reporting and Disclosure Act (LMRDA) and that 
meets one of the two following filing triggers: The labor organization, 
alone or with other labor organizations, either: Appoints or selects a 
majority of the members of the trust's governing board; or makes 
contributions to the trust that exceed 50 percent of the trust's 
receipts during the trust's fiscal year. This final rule provides five 
exemptions to the Form T-1 filing requirements: A political action 
committee (PAC) fund, if publicly available reports on the PAC fund are 
filed with federal or state agencies; any political organization for 
which reports are filed with the IRS under section 527 of the IRS code; 
trusts required to file a Form 5500 under the Employee Retirement 
Income Security Act (ERISA); federal employee health benefit plans that 
are subject to the provisions of the Federal Employees Health Benefits 
Act (FEHBA); and any trust for which an independent audit has been 
conducted, in accordance with the standards set forth in this final 
rule. This final rule will apply prospectively.

DATES: Effective Date: This rule will be effective on December 31, 
2008.

FOR FURTHER INFORMATION CONTACT: Denise Boucher, Director, Office of 
Policy, Reports, and Disclosure, Office of Labor-Management Standards 
(OLMS), U.S. Department of Labor, 200 Constitution Avenue, NW., Room N-
5609, Washington, DC, (202) 693-1185 (this is not a toll-free number). 
Individuals with hearing impairments may call 1-800-877-8339 (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, disclosing the labor organization's financial 
condition and operations during the reporting period. 29 U.S.C. 431(b). 
As administratively implemented, section 201 requires a labor 
organization to identify its assets and liabilities, receipts, salaries 
and other direct or indirect disbursements to each officer and all 
employees receiving $10,000 or more in aggregate from the labor 
organization, direct or indirect loans (in excess of $250 aggregate) to 
any officer, employee, or member, loans (of any amount) to any business 
enterprise, and other disbursements. 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 directs the Secretary to issue rules ``prescribing 
reports concerning trusts in which a labor organization is interested'' 
as she ``may find necessary to prevent the circumvention or evasion of 
[the LMRDA's] reporting requirements.'' 29 U.S.C. 438. Section 3(l) of 
the LMRDA provides:

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

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

II. Background

A. Introduction

    On March 4, 2008, the Department issued a notice of proposed 
rulemaking (73 FR 11754) proposing to establish a Form T-1 to capture 
financial information pertinent to ``trusts in which a labor 
organization is interested'' (section 3(l) trusts), information that 
has largely gone unreported despite the trusts' significant effect on 
labor organization financial operations and their members' own 
interests. As noted in the proposal, the establishment of the Form T-1 
is part of the Department's continuing efforts to better effectuate the 
reporting requirements of the LMRDA, which are designed to empower 
labor organization members by providing them the means to maintain 
democratic control over their labor organizations and to ensure proper 
accounting of labor organization funds. Labor organization members are 
better able to monitor their labor organization's financial affairs and 
to make informed choices about the leadership of their labor 
organization and its direction when labor organizations provide 
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 
organization's own interests as a democratic institution and the 
interests of the public and the government. Furthermore, the LMRDA's 
reporting and disclosure provisions, together with the fiduciary duty 
provision, 29 U.S.C. 501, which directly regulates the primary conduct 
of labor organization officials, operate to safeguard a labor 
organization's funds from depletion by improper or illegal means. 
Timely and complete reporting also helps deter labor organization 
officers or employees from embezzling or otherwise making improper use 
of such funds.
    The proposal noted that the Form T-1 closes a reporting gap under 
the Department's former rule whereby labor organizations were only 
required to report on ``subsidiary organizations.'' As noted in the 
proposal, labor organizations use section 3(l) trusts,

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which by definition have a primary purpose to provide benefits for the 
members of the labor organization or their beneficiaries, 29 U.S.C. 
402(l), for a myriad of purposes. Common examples of section 3(l) 
trusts include credit unions, strike funds, development or investment 
groups, training funds, apprenticeship programs, pension and welfare 
plans, building funds, and educational funds. Such trusts may be 
administered by trustees appointed by a labor organization(s), either 
singly or jointly with other labor organizations, or jointly with an 
employer(s). As discussed below, trusts administered jointly by 
trustees appointed by labor organization(s) and employer(s) are known 
as Taft-Hartley trusts. By requiring that labor organizations file the 
Form T-1 for specific section 3(l) trusts, labor organization members 
and the public will receive some of the same benefit of transparency 
regarding the trust that they now receive under the Form LM-2, thereby 
preventing a labor organization from using the trust to circumvent or 
evade its reporting obligations.
    This final rule takes into account the Department's earlier efforts 
in 2003 and 2006 to implement a Form T-1. In fashioning this final 
rule, and as discussed in greater detail in the proposed rule, the 
Department relies on guidance from the United States Court of Appeals 
for the District of Columbia Circuit in its review of the 2003 Form T-1 
rule (68 FR 58374, Oct. 9, 2003), American Federation of Labor and 
Congress of Industrial Organizations v. Chao, 409 F.3d 377 (DC Cir. 
2005) and the District Court for the District of Columbia in its review 
of the 2006 Form T-1 rule (71 FR 57716, Sept. 29, 2006), American 
Federation of Labor and Congress of Industrial Organizations v. Chao, 
496 F. Supp. 2d 76 (D.DC 2007). See 73 FR 11757. Thus, this final rule 
limits the labor organization's reporting requirement to those trusts 
in which the labor organization has managerial control or financial 
dominance, as defined in this rule.
    The Department initially provided for a 45 day comment period 
ending April 18, 2008. 73 FR at 11754. In response to a number of 
requests, the Department published a notice extending the comment 
period to May 5, 2008. 73 FR 16611. The Department received 556 
comments on the Form T-1 proposed rule. Of these comments, 
approximately 88 were unique comments. The remaining comments were form 
letters endorsing the proposal. Comments were received from labor 
organizations, employer, trade and public interest groups, Taft-Hartley 
plans, accounting firms, a Member of Congress and labor organization 
members.

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.'' LMRDA, section 2(a), 29 U.S.C. 401(a). 
The statute creates a comprehensive scheme designed to empower labor 
organization members by providing them the means to maintain democratic 
control over their labor organizations and ensure a proper accounting 
of labor organization funds.
    The legislation 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; its findings of financial abuse, 
mismanagement of labor organization funds, and unethical conduct 
provided much of the impetus for enactment of the LMRDA's remedial 
provisions. See generally, Benjamin Aaron, The Labor-Management 
Reporting and Disclosure Act of 1959, 73 Harv. L. Rev. 851, 851-55 
(1960). During the investigation, the committee uncovered a host of 
improper financial arrangements between officials of several 
international and local labor organizations and employers (and labor 
consultants aligned with the employers) whose employees were 
represented by the labor organizations in question or might be 
organized by them. Similar arrangements also were found to exist 
between labor organization officials and the companies that handled 
matters relating to the administration of labor organization benefit 
funds. See generally, Interim Report of the Select Committee on 
Improper Activities in the Labor or Management Field, S. 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 LMRDA, sections 101-105, 29 U.S.C. 411-415; financial reporting and 
disclosure requirements for labor organizations, their officers and 
employees, employers, labor relations consultants, and surety 
companies, see LMRDA, sections 201-06, 211, 29 U.S.C. 431-36, 441; 
detailed procedural, substantive, and reporting requirements relating 
to labor organization trusteeships, see LMRDA, sections 301-06, 29 
U.S.C. 461-66; detailed procedural requirements for the conduct of 
elections of labor organization officers, see LMRDA, sections 401-03, 
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, loans by a labor 
organization to officers or employees, employment by a labor 
organization of certain convicted felons, and payments to employees for 
prohibited purposes by an employer or labor relations consultant, see 
LMRDA, sections 501-05, 29 U.S.C. 501-05; and prohibitions against 
extortionate picketing and retaliation for exercising protected rights, 
see LMRDA, sections 601-11, 29 U.S.C. 521-31. As explained in the 
Department's 2002 proposal and 2003 rule (67 FR 79280, 79290; 68 FR at 
58374), the reporting regimen had hardly changed in the more than 40 
years since the Department issued its first reporting rule under the 
LMRDA. The original rule was published in 1960. See 25 FR 433, 434 
(1960).
    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 during the reporting 
period, and, as implemented, identifying its assets and liabilities, 
receipts, salaries and other direct or indirect disbursements to each 
officer and all employees receiving $10,000 or more in aggregate from 
the labor organization, direct or indirect loans (in excess of $250 
aggregate) to any officer, employee, or member, any loans (of any 
amount) to any business enterprise, and other disbursements. 29 U.S.C. 
431(b).

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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. This information is reported 
on the Form LM-2 by labor organizations that have $250,000 or more in 
total annual receipts.
    Section 202 of the LMRDA requires all labor organization officials 
to annually disclose any income or interests, as there identified, they 
have received that pose an actual or potential conflict of interest. 
See 29 U.S.C. 432. A labor organization official must also identify any 
income paid to, or financial interests held by, the official's spouse 
or minor children, if such payment is from or interest is held in a 
business or company under circumstances that could give rise to a 
conflict of interest. Id. The section 202 information is reported on 
the Form LM-30. Section 203 of the Act also requires an employer, with 
certain exceptions, to annually file a report showing in detail, the 
date and amount of any payment, loan, promise, agreement or arrangement 
to any labor organization or representative of a labor organization and 
a full explanation of any such transaction. See 29 U.S.C. 433. The 
section 203 employer information is reported on the Form LM-10.
    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 (including rules 
prescribing reports concerning trusts in which a labor organization is 
interested) as [it] finds necessary to prevent the circumvention or 
evasion of such reporting requirements.'' 29 U.S.C. 438. This final 
rule adopts the Form T-1 to require labor organizations to report on 
certain section 3(l) trusts so as to provide labor organization members 
with an accounting of how funds are invested or otherwise expended by 
the trust. The Form T-1 provides transparency of labor organization 
finances and effectuates the goals of the LMRDA.

C. Overview of the Form T-1 Final Rule and Reasons for the Rule

    This final rule provides that the largest labor organizations, 
those with total annual receipts of $250,000 or more, must file a Form 
T-1 for those section 3(l) trusts in which the labor organization, 
either alone or in combination with other labor organizations, has 
management control or financial dominance. For purposes of this rule, a 
labor organization must file a Form T-1 for a trust if it alone or in 
combination with other labor organizations (1) selects or appoints the 
majority of the members of the trust's governing board, or (2) 
contributes more than 50 percent of the trust's receipts during the 
annual reporting period; contributions made pursuant to a collective 
bargaining agreement shall be considered contributions by the labor 
organization.
    The Form T-1 requires that the labor organization itemize major 
transactions of the trust during the annual reporting cycle on two 
schedules: Schedule 1, which would separately identify any individual 
or entity from which the trust received ``major receipts'' of $10,000 
or more, individually or in the aggregate during the reporting period; 
and Schedule 2, which would separately identify any entity or 
individual that received ``major disbursements'' of $10,000 or more, 
individually or in the aggregate, from the trust during the reporting 
period. The final rule does not require itemization of receipts by a 
trust made pursuant to a collective bargaining agreement or 
disbursements made by the trust pursuant to a written agreement that 
specifies the detailed basis on which the payments are to be made by 
the trust. The Form T-1 includes a Schedule 3 that requires disclosure 
of the names of all officers of the trust, all employees of the trust 
who receive $10,000 or more during a reporting period, and all direct 
or indirect disbursements to each of these officers and employees.
    The Form T-1 provides for a number of exemptions or alternative 
means of compliance with the reporting requirement. No Form T-1 is 
required for any trust that meets the statutory definition of a labor 
organization as such trust would already file a separate Form LM-2, LM-
3 or LM-4. An exemption is provided for trusts that are established as 
a Political Action Committee (PAC) or as a political organization under 
section 527 of the Internal Revenue Code, 26 I.R.C. section 527, 
provided timely, complete and publicly available reports are filed with 
the appropriate federal or state agency. This final rule includes an 
exemption for trusts that constitute a federal employee health benefit 
plan subject to the provisions of the Federal Employees Health Benefits 
Act (FEHBA), 5 U.S.C. 8901 et seq., and for trusts where the plan 
administrator is required to file an annual report under ERISA (Form 
5500 exemption). The requirements of the Form 5500 exemption are 
discussed more fully below. The final rule also includes an alternative 
means of compliance by filing an audit of the trust, provided the audit 
is prepared according to standards set forth in the Form T-1 
instructions and the audit is filed with a Form T-1 with Items 1-15 and 
Items 26 and 27 completed.
    This final rule will make it more difficult for a labor 
organization, its officials, or other parties with influence over the 
labor organization to avoid, simply by transferring money from the 
labor organization's books to the trust's books, the basic reporting 
obligation that would apply if the funds had been retained by the labor 
organization. Labor organization officials and trustees both owe a 
fiduciary duty to their labor organization and the trust, respectively, 
but the Department's case files reveal numerous examples of 
embezzlement of funds held by both labor organizations and their 
section 3(l) trusts.\1\ The Form T-1, by disclosing information to 
labor organization members, among the true beneficiaries of such 
trusts, will increase the likelihood that wrongdoing is detected and 
may deter individuals who might otherwise be tempted to divert funds 
from the trusts. See Archibald Cox, Internal Affairs of Labor 
Organizations Under the Labor Reform Act of 1959, 58 Mich. L. Rev. 819, 
827 (1960) (``The official whose fingers itch for a `fast buck' but who 
is not a criminal will be deterred by the fear of prosecution if he 
files no report and by fear of reprisal from the members if he does'').
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    \1\ The fiduciary duty owed by trustees and others to refrain 
from taking a proscribed action has never been thought to be 
sufficient by itself to protect the interests of a trust's 
beneficiaries or a principal. Although a fiduciary's own duty to a 
trust's beneficiaries, like the duty owed by an agent to a 
principal, include disclosure and accounting components (See 
Restatement (Third) of Trusts Sec.  2; Restatement (Third) of Agency 
Sec.  8.01 (T.D. No. 6, 2005) et seq.; see also 1 American Law 
Institute, Principles of Corporate Governance Sec.  1.14 (1994)), 
public disclosure requirements, government regulation, and the 
availability of civil and criminal process, complement and help 
ensure a trustee's observance of his or her fiduciary duty.
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    Because the labor organization's obligation to submit a Form T-1 
overlaps with the responsibility of labor organization officials to 
disclose payments received from the trust (see 29 U.S.C. 432), the 
prospect that one party may report the payment increases the likelihood 
that a failure by the other party to report the payment will be 
detected. Moreover, given the increased transparency that results from 
the Form T-1 reporting, in some instances the Form T-1 reporting may 
cause the parties to reconsider the primary conduct that would trigger 
the reporting requirement. As discussed above, the LMRDA's primary 
reporting obligation (Forms LM-2, LM-3, and LM-4) applies to labor 
organizations as institutions;

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other important reporting obligations under the LMRDA apply to officers 
and employees of labor organizations (Form LM-30), requiring them to 
report any conflicts between their personal financial interests and the 
duty they owe to the labor organization they serve, and to employers 
who must report payments to labor organizations and their 
representatives (Form LM-10). See 29 U.S.C. 432; 29 U.S.C. 433. Thus, 
requiring labor organizations to report the information requested by 
the Form T-1 rule provides an essential check for labor organization 
members and the Department to ensure that labor organizations, their 
officials, and employers are accurately and completely fulfilling their 
reporting duties under the Act, obligations that can easily be ignored 
without fear of detection if reports related to trusts are not 
required.
    Both historical and recent examples demonstrate the vulnerability 
of trust funds to misuse and misappropriation by labor organization 
officials and others. The McClellan Committee, as discussed above, 
provided several examples of labor organization officials using funds 
held in trust for their own purposes rather than for their labor 
organization and its members. Additional examples of the misuse of 
labor organization benefit funds and trust funds for personal gain may 
be found in the 1956 report of the Senate's investigation of welfare 
and pension plans, completed as the McClellan Committee was beginning 
its investigation. See Welfare and Pension Plans Investigation, Final 
Report of the Comm. of Labor and Public Welfare, S. Rep. No. 1734 
(1956); see also Note: Protection of Beneficiaries Under Employee 
Benefit Plans, 58 Colum. L. Rev. 78, 85-89, 96, 107-08 (1958). In the 
most comprehensive report concerning the influence of organized crime 
in some labor organizations, a presidential commission concluded that 
``the plunder of labor organization resources remains an attractive end 
in itself. * * * The most successful devices are the payment of 
excessive salaries and benefits to organized crime-connected labor 
organization officials and the plunder of workers' health and pension 
funds.'' President's Commission on Organized Crime, Report to the 
President and Attorney General, The Edge: Organized Crime, Business, 
and Labor Unions 12 (1986).
    The enactment, administration, and enforcement of ERISA has 
ameliorated much abuse, but many section 3(l) trusts are not covered by 
ERISA and the annual reporting under ERISA serves a different purpose 
than the reporting under the LMRDA. The Department has discovered 
numerous situations, as illustrated by the following examples, where 
funds held in section 3(l) trusts have been used in a manner that, if 
reported, would have been scrutinized by the members of the labor 
organization and this Department:
     A case in which no information was publicly disclosed 
about the disposition of tens of thousands of dollars (over $60,000 on 
average per month) by participating locals into a trust established to 
provide statewide strike benefits. No information was disclosed because 
the trust was established by a group of labor organization locals and 
not wholly controlled by any single labor organization.
     A case in which a credit union trust largely financed by a 
local labor organization had made large loans to labor organization 
officials but had not been required to report them because the trust 
was not wholly owned by any single local. (One local accounted for 97 
percent of the credit union's funds on deposit). Membership in the 
credit union was limited to members of three locals; all of the credit 
union directors were local officials and employees. Four loan officers, 
three of whom were officers of the Local, received 61 percent of the 
credit union's loans.
    Under the final rule, each labor organization in these examples 
would have been required to file a Form T-1 because each of these funds 
is a 3(l) trust. In each instance, the labor organization's 
contribution to the trust, including contributions made on behalf of 
the organization or its members, made alone or in combination with 
other labor organizations, represented greater than 50 percent of the 
trust's revenue in the one-year reporting period. The labor 
organizations would have been required to annually disclose for each 
trust the total value of its assets, liabilities, receipts, and 
disbursements. For each receipt or disbursement of $10,000 or more 
(whether singly or in the aggregate), the labor organization would have 
been required to provide the name and business address of the 
individual or entity involved in the transaction(s), the type of 
business or job classification of the individual or entity, the purpose 
of the receipt or disbursement, its date, and amount. Further, the 
labor organization would have been required to provide additional 
information concerning any trust losses or shortages, the acquisition 
or disposition of any goods or property other than by purchase or sale; 
the liquidation, reduction, or write off of any liabilities without 
full payment of principal and interest, and the extension of any loans 
or credit to any employee or officer of the labor organization at terms 
below market rates, and any disbursements to trust officers and to 
employees of the trust who received more than $10,000 from the trust.
    The need for the Form T-1 is also demonstrated by additional 
examples of improper administration and diversion of funds from section 
3(l) trusts. Labor organization officials in New York were convicted in 
a ``pension-fund fraud/kickback scheme'' where labor organization 
officials were bribed by members of organized crime to invest pension 
fund assets in corrupt investment vehicles. The majority of the funds 
were to be invested in legitimate securities, but millions of dollars 
were placed into a sham investment, which was to be used to fund 
kickbacks to the labor organization officers, while the return on 
investment from the majority of the legitimately invested assets would 
cover the amounts lost as kickbacks. U.S. v. Reifler, 446 F.3d 65 (2d 
Cir. 2006); see The Final Report of the New York State Organized Crime 
Task Force: Corruption and Racketeering in the New York City 
Construction Industry (1990) 27-29, 91-92 (describing devices typically 
used by labor organization officials and third parties to divert trust 
funds for their own enrichment).
    In another case, nepotism and no-bid contracts depleted a labor 
organization's health and welfare funds of several million dollars. The 
problems associated with the fund included, among others, paying the 
son-in-law of a board member, a local labor organization official, a 
salary of $119,000 to manage a scholarship program that gave out 
$28,000 per year; paying a daughter of this board member $111,799 a 
year as a receptionist; and paying $123,000 for claims review work that 
required only a few hours of effort a week. See Steven Greenhouse, 
Laborers' Union Tries to Oust Officials of Benefits Funds, N.Y. Times, 
June 13, 2005, at B5. If the Department's proposed rule had been in 
place, the members of the affected labor organizations, aided by the 
information disclosed in the labor organizations' Form T-1s, would have 
been in a much better position to discover the improper use of the 
trust funds and thereby minimize the injury to their stake in the 
trust. Further, the fear of discovery might have deterred the 
wrongdoers from engaging in the offending conduct in the first place.
    As the foregoing discussion makes clear, the Form T-1 rule, as set 
forth in this final rule, will add necessary safeguards to deter 
circumvention and evasion of the LMRDA's reporting

[[Page 57416]]

requirements. It will be more difficult for labor organizations and 
complicit trusts to avoid the disclosure required by the LMRDA. Labor 
organization members will be able to review financial information they 
may not otherwise have had, empowering them to better oversee their 
labor organization's officials and finances as contemplated by 
Congress.\2\
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    \2\ The instructions to the Form LM-2 were published as part of 
the 2003 final rule. The instructions contain some information 
relating to the Form T-1. The Department will revise the relevant 
portions of the Form LM-2 instructions to conform with today's final 
rule.
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III. Comments on the Proposal and the Department's Response to the 
Comments

A. Determining Management Control and Financial Dominance

    The final rule adopts a modified management control and financial 
dominance test for determining those trusts for which a labor 
organization is required to file the Form T-1.
    The Department has clarified the test to better identify how to 
determine whether a labor organization's contributions to the section 
3(l) trust during a reporting period trigger a reporting obligation. As 
a general rule, a labor organization must file a report only if it 
alone or in combination with other labor organizations (1) selects or 
appoints the majority of the members of the trust's governing board, or 
(2) contributes more than 50 percent of the trust's receipts during the 
annual reporting period; contributions made pursuant to a collective 
bargaining agreement shall be considered contributions by the labor 
organization. The Department has also modified two terms used in the 
proposed rule in determining whether a labor organization must file a 
Form T-1 for a section 3(l) trust by:
     Substituting ``receipts'' in place of ``revenues,'' the 
term used in the proposal; the change addresses accounting concerns 
raised by some commenters; and
     Substituting the phrase ``contributions made pursuant to a 
collective bargaining agreement shall be considered the labor 
organization's contributions'' in place of ``contributions made on 
behalf of the labor organization or its members shall be considered the 
labor organization's contribution''; this change clarifies that only 
contributions by employers that are required under an agreement 
negotiated by labor organizations should be counted as labor 
organization contributions and that other contributions, including 
contributions made by employees themselves should not be counted as 
labor organization contributions.
    The Department received numerous comments on the proposed 
management control and financial dominance test. Most commenters 
opposed the proposed test, focusing on its application to Taft-Hartley 
trusts.\3\ Commenters asserted that the proposal was contrary to the 
decisions in court challenges to the Department's earlier efforts to 
establish a Form T-1: AFL-CIO v. Chao, 409 F.3d 377 (DC Cir. 2005) 
(2003 final rule); AFL-CIO v. Chao, 496 F. Supp. 2d 76, 90 (D.DC 2007) 
(2006 final rule); violated ERISA or at least created unnecessary 
burden for section 3(l) trusts subject to ERISA; ignored the legal 
status of trusts and the fiduciary duty that trust officials owe to the 
trust exclusively, not to the labor organizations or employers 
participating in the trust; and mistakenly characterized contributions 
by employers on behalf of employees to the trusts as contributions by 
or on behalf of the participating labor organizations. Some commenters 
expressed concern about practical difficulties associated with the 
proposal, including how to differentiate between labor organization 
members and others as beneficiaries under the trust and how to measure 
the trust's revenues during a reporting period to determine whether 
labor organization contributions constitute a majority of such 
revenues.
---------------------------------------------------------------------------

    \3\ Labor organizations hold financial interests in various 
types of section 3(l) trusts, some of which they jointly administer 
with employers and others that are wholly administered by labor 
organizations or a trustee or trustees selected by labor 
organizations. Although the Department received numerous comments 
about its proposal, none suggested that the test was inappropriate 
for trusts other than those operated jointly with employers. The 
comments instead focused on the application of the test to ``Taft-
Hartley'' trusts, i.e., joint labor organization and employer trusts 
established pursuant to section 302 of the Taft-Hartley Act. 29 
U.S.C. 186(c)
    It deserves emphasis that the managerial control test will not 
trigger a Form T-1 filing requirement for Taft-Hartley funds because 
they have boards whose directors are divided equally between 
employers and labor organizations. (The managerial control test 
requires labor organizations to appoint a majority of the board.) 
Thus, only where the labor organization or a combination of labor 
organizations are responsible for a majority of the receipts of the 
trust (financial dominance test) will a Form T-1 be required for the 
trust, and, as discussed later in the text of this preamble, this 
will apply in the relatively small number of instances where a Taft-
Hartley fund does not fall within the exemption for entities filing 
the Form 5500. Although many commenters asserted, in effect, that 
labor organizations should not have to file a Form T-1 for any Taft-
Hartley trust, they fail to acknowledge, as further discussed in the 
text of the preamble, that the DC Circuit recognized the 
Department's ability to fashion a reporting obligation based either 
on managerial control or financial dominance.
---------------------------------------------------------------------------

Whether the Management Control and Financial Dominance Test Is 
Justified and Consistent With Form T-1 Court Decisions
    A Member of Congress expressed a concern--which is representative 
of several other comments--that the Department's proposal failed to 
heed the instructions provided by the court of appeals and the district 
court in the above cited cases. With respect to the 2006 rule, the same 
commenter stated:

    Without any explanation or justification * * * the 2006 final 
rule stated that in order to determine whether unions have financial 
domination over a trust, ``contributions by an employer on behalf of 
the union members as required by a collective bargaining agreement 
are considered to be contributions of the union as are any 
contributions otherwise made on the union's behalf.'' Id. at 57,746. 
By counting employers' contributions to trusts as union 
contributions, the rule continued to require disclosure from the 
vast majority of trusts in which unions are interested, since 
employers routinely make the majority of contributions to thousands 
of multi-employer Taft-Hartley funds that provide pension, health, 
and other benefits to union workers.

    Another commenter asserted that the Department's proposal ``is 
based on a basic misunderstanding of collective bargaining.'' A third 
commenter described the Department's proposal as based on the mistaken 
basis that ``employers have no interest in how a trust invests and 
spends its money.'' The Department disagrees with the assertion that 
the determination that a labor organization has financial dominance 
based on employer contributions pursuant to a collective bargaining 
agreement is either unexplained or unjustified. The ``financial 
dominance'' test was developed in response to the DC Circuit's opinion 
in AFL-CIO v. Chao. In that case, the court vacated the Department's 
2003 Form T-1 final rule (68 FR at 58374) on the ground that the 
Department exceeded its authority by ``requiring general trust 
reporting.'' Id. at 378-79, 391. As explained in the NPRM, the court 
held that ``absent circumstances involving dominant control over the 
trust's use of union members' funds or union members' funds 
constituting the trust's predominant revenues, a report on the trust's 
financial condition and operations would not reflect on the related 
union's financial condition and operations.'' 73 FR 11757.
    The NPRM further explained:

    [T]he court focused its inquiry on the extent of the labor 
organizations' relationship

[[Page 57417]]

with section 3(l) trusts and indicia of their management control or 
financial domination of the trusts. Id. at 388-89. * * * [T]he 
appeals court found that the Secretary had not demonstrated how a 
labor organization's contribution of $10,000, an amount that could 
be infinitesimal given the trust's other contributions, could be 
indicative of the labor organization's ability to exercise any 
effective control over the trust.
    * * *
    Under this proposal, management domination or financial control 
is determined by looking at the involvement of all labor 
organizations contributing to or managing the trust. As discussed 
above, the Department's experience, as noted by the DC Circuit in 
its 2005 opinion, demonstrates that participating labor 
organizations may ``retain a controlling management role, [even 
though] no individual union wholly owns or dominates the trust.'' 
409 F.3d at 389. This occurs, for example, where a trust is created 
from the participation of several labor organizations with common 
affiliation, industry, or location, but none alone holds predominant 
management control over or financial stake in the trust. Absent the 
Form T-1, the contributing labor organizations, if so inclined, 
would be able to use the trust as a vehicle to expend pooled labor 
organization funds without the disclosure required by Form LM-2 and 
the members of these labor organizations would continue to be denied 
information vital to their interests. If a single labor organization 
may circumvent its reporting obligations when it retains a 
controlling management role or financially dominates a trust, then a 
group of labor organizations may also be capable of doing so. A rule 
directed to preventing a single labor organization from 
circumventing the law must, in all logic, be similarly directed to 
preventing multiple labor organizations from also evading their 
legal obligations.

    73 FR at 11761. The NPRM also explained:

    [T]ypically the establishment of such trusts and their funding 
is set through collective bargaining. Such payments comprise a 
portion of the employer's labor expenses, along with salaries, 
wages, and employer administered benefits. Thus, the money paid into 
the trusts reflects payments that otherwise could be made directly 
to employees as wages, benefits, or both, but for their assignment 
to the trusts.

    Id.
    With respect to the Department's current proposal, a Member of 
Congress expressed the following opinion:

    The Department * * * does not explain how an employer's 
contributions to an employee benefit fund (which is jointly 
administered by labor and management trustees) on behalf of its 
employees could cause a union to exercise such financial domination. 
The Department's failure to explain the legal and empirical 
justifications for this controversial policy [has] deprive[d] 
interested parties of the opportunity to provide meaningful comments 
on the proposal and test the Department's analysis. In addition, 
because the District Court noted that the question of whether an 
employer's trust contributions cause union financial domination of 
trusts is an ``empirical'' question, the Department's failure to 
present any empirical information makes it very likely that the 
District Court will vacate the rule for a third time.

    Another commenter stated that the Department relied heavily on a 
presumption that employer contributions to jointly-trusteed funds are 
tantamount to union contributions for the purposes of establishing 
``union domination'' of the trusts, adding that unions cannot 
unilaterally compel employers to make contributions.
    The NPRM explained the Department's rationale for establishing 
employer contributions as indicia of financial control over a trust by 
labor organizations. The NPRM sketched the contemporary and historical 
instances of the diversion of trust funds to labor organization 
officials and third parties working with them, including instances of 
trusts funded with employer contributions and theoretically subject to 
the control of trustees appointed by labor organizations and employers 
and subject to strict fiduciary duties. Trusts that are set up pursuant 
to collective bargaining agreements between a labor organization and 
the employer, the terms of which, and level of contributions to, are 
established in those agreements are subject to considerable influence 
by the labor organization.\4\ At the same time, the Department fully 
recognizes that labor organizations do not have a free hand in setting 
contribution amounts. As several commenters recognized, the amount of 
an employer's contributions to such a trust is part of the employer's 
total labor costs. How the employer's ``labor outlay'' is allocated is 
of relatively greater concern to the labor organization than the 
employer, a factor that directly affects the amount of a trust's 
funding, especially to the extent that money is allocated on some 
basis, such as training, that does not serve equally each particular 
individual's interests, such as where there is an across the board 
increase in health benefits or in the hourly rate of pay. As such, 
contributions paid into the trust by employers provide an effective 
gauge of the labor organizations influence over a trust's financial 
operations.
---------------------------------------------------------------------------

    \4\ In its proposal, the Department noted that in other 
contexts, effective, de facto, or practical control is an 
appropriate measure of control, explaining that such a standard 
would also be consistent with the DC Circuit's opinion. In the 
proposal, the Department observed that some legal commenters had 
expressed the view that practical control over many Taft-Hartley 
trusts had been ceded to labor organizations. 73 FR at 11762. The 
Department invited comment on whether this observation was accurate 
and, if so, for this reason or other independent reasons, whether 
the Department should establish a reporting threshold that is based 
on less than predominant labor organization control over a section 
3(l) trust. No commenter supports this observation as accurate and 
several stated that it was contrary to their experience. As such the 
Department has retained the filing thresholds contained in the NPRM 
instead of adopting lower thresholds.
---------------------------------------------------------------------------

    In order to prevent circumvention or evasion for purposes of 
reporting, it is necessary to equate employer payments to the trust on 
behalf of employees as contributions by the labor organization, not in 
the sense that the contributions are the property of the labor 
organization, but rather that the amount of those contributions serves 
as a proxy for measuring the labor organization's influence over the 
trust. As the D.C. Circuit explained, notwithstanding a trust's funding 
by an employer, such trusts are properly regulated by the Department 
under 29 U.S.C. 208, because ``[f]or such trusts, the union has used 
its bargaining power to establish the trust, to define the purposes for 
which funds may be used, to appoint union representatives to the 
governing board * * * and to obligate the employer to direct funds to 
the trust's account.'' AFL-CIO v. Chao, 409 F.3d 387. Under the 
proposed and final rule, in contrast to the 2003 rule, a labor 
organization is required to file a Form T-1 only where the labor 
organization has predominant managerial control over the trust or the 
trust's revenues are ``dominated by union member funds,'' i.e., funds 
contributed on their behalf by an employer. See 403 F.3d at 391.
    Inasmuch as Taft-Hartley trusts by definition are funded by 
employer payments under these agreements, the commenters' assertion, in 
essence, is reduced to the proposition that Taft-Hartley trusts cannot 
be subject to the Form T-1 reporting obligation given the source of 
their funding. This position, however, ignores the D.C. Circuit's 
rejection of this theory. 409 F.3d at 387 (``[Section 3(l)'s] terms do 
not dictate a narrow conception of union financial operations such that 
as the AFL-CIO maintains, Taft Hartley * * * plans funded by employer 
rather than union contributions * * * would be beyond the reach of [the 
Department's] authority under section 208''). Moreover, this position 
also lacks support under the district court's decision in AFL-CIO v. 
Chao, 496 F. Supp. 2d 76 (D.D.C. 2007) (vacating the 2006 Form T-1 
Final Rule on procedural grounds). That decision simply noted that the 
AFL-CIO had asserted that the Department's determination to include 
employer contributions as part of a labor organization's financial 
stake in a trust lacked an ``empirical basis.'' See 496 F.

[[Page 57418]]

Supp. 2d at 90. The court did not suggest that it agreed with the 
assertion. Id. This result is consistent with D.C. Circuit's 
recognition of the Department's authority to require labor 
organizations to report on the financial operations of Taft-Hartley 
trusts and the Court's acknowledgment of the Department's finding that 
a joint training fund (Taft-Hartley trust) could be required to file a 
Form T-1. See 409 F.3d at 387. As observed by the district court, 
``[t]he DC Circuit's 2005 decision * * * left the Secretary ample 
discretion in fashioning a new rule'' and that ``included within the 
bounds of that discretion * * * was the decision to equate employer 
contributions made pursuant to a collective bargaining agreement with 
contributions from the unions themselves.'' 496 F. Supp. 2d at 87. 
Additionally, as discussed above, the Department's position fully 
recognizes that the funding of section 3(l) trusts is dependent upon 
collective bargaining. Because the amount of the contributions to a 
trust is tied directly to the collective bargaining agreement, it is 
entirely appropriate to use the payments made by an employer pursuant 
to that agreement as a proxy for measuring the influence of the labor 
organization over the trust. Where those contributions comprise a 
majority of the trust's receipts, it is also entirely appropriate to 
require labor organizations to file a Form T-1.
    Under the final rule, management control or financial dominance is 
determined by looking at the involvement of all the labor organizations 
contributing to or managing the trust. As noted by the D.C. Circuit, 
the Department's experience demonstrates that participating labor 
organizations may ``retain a controlling management role, [even though] 
no individual union wholly owns or dominates the trust.'' 409 F.3d at 
389. This occurs, for example, where several labor organizations with 
common affiliation, industry, or location, participate in a trust, but 
none alone holds predominant management control over or dominates the 
trust financially. Absent the Form T-1, the contributing labor 
organizations, if so inclined, would be able to use the trust as a 
vehicle to expend pooled labor organization funds without the 
disclosure required by Form LM-2, thereby denying members of the 
participating labor organizations information vital to their interests. 
If a single labor organization may circumvent its reporting obligations 
when it retains a controlling management role or financially dominates 
a trust, then a group of labor organizations may also be capable of 
doing so.
Whether the Management Control and Financial Dominance Test Is 
Necessary in Light of, and Can Be Reconciled With, Other Regulatory 
Regimes
    Commenters asserted that the proposal exceeds the Department's 
authority under the LMRDA and ignored ERISA's effectively exclusive 
regulation of Taft-Hartley trusts.
    Some commenters stated that Congress did not intend the Department 
to regulate employee benefit trusts under the LMRDA, and instead sought 
to regulate these trusts, mandate disclosure, and prevent misconduct 
through ERISA and the Welfare and Pension Plans Disclosure Act of 1958 
(WPPDA), the pension law that preceded ERISA.\5\ Accordingly, the 
commenters assert that the Department should withdraw its proposed 
financial dominance test, which has the primary effect of imposing 
LMRDA reporting requirements on ERISA plans.
---------------------------------------------------------------------------

    \5\ A commenter asserted, without elaboration, that the 
Department's proposal violates section 302(c) of the LMRA. The 
Department disagrees with this statement. As evinced by section 208 
of the LMRDA, Congress expressly recognized the Department's 
authority to require labor organizations to report on the financial 
interests of section 3(1) trusts. Moreover, there is a clear 
distinction between the reporting requirements of the LMRDA and the 
substantive requirements of section 302(c); that section strictly 
limits payments by employers to trusts in which labor organization 
have an interest without indicating that these requirements would 
``preempt'' reporting requirements of the LMRDA or ERISA.
---------------------------------------------------------------------------

    Most of the commenters objected to the financial dominance test on 
the ground that the trustees of a Taft-Hartley trust owe an absolute 
duty of loyalty to the trust--to the exclusion of any duties to either 
the labor organization or the employer. They explained that the funding 
of the trust by agreement between the labor organization and the 
employer does not evince labor organization (or management) control 
over the trust.
    There is no merit to the claim that ERISA was intended to supplant 
the LMRDA insofar as requiring labor organizations to report on the 
financial interests of trusts in which they hold management control or 
financial dominance. Section 514(d) of ERISA states: ``Nothing in this 
subchapter shall be construed to alter, amend, modify, invalidate, 
impair, or supersede any law of the United States [with exceptions not 
here pertinent] or any rule or regulation issued under any such law.'' 
29 U.S.C. 1144(d). The WPPDA contained a similar provision, casting 
doubt on the assertion that these Acts constrain the Department's 
authority under the LMRDA. See WPPDA section 10(b) (72 Stat. at 1003 
(1958) (WPPDA does not exempt any person from any duty under any 
present or future federal law affecting the administration of employee 
welfare or pension benefit plans)). In the Department's view, the LMRDA 
and ERISA serve complementary purposes. There also is an evident 
similarity between the duty labor organizations officials owe to their 
labor organization and the duty trust officials owe to their trust.
    Contrary to an implicit premise underlying many of the comments 
that ERISA and the LMRDA are co-extensive insofar as labor 
organization-related trusts are concerned, ERISA applies to only a 
subset of the section 3(l) trusts. Some section 3(l) trusts are not 
covered at all by ERISA. Title I of ERISA covers only pension and 
``employee welfare benefit plans'' established or maintained (1) by any 
employer engaged in commerce or in any industry or activity affecting 
commerce; or (2) by any employee organization or organizations 
representing employees engaged in commerce or in any industry or 
activity affecting commerce; or (3) both. 29 U.S.C. 1003(a). While 
there is considerable overlap between section 3(l) trusts and ERISA 
``employee welfare benefit plans,'' some funds in which labor 
organizations participate fall outside ERISA coverage, including strike 
funds, recreation plans, hiring hall arrangements, and unfunded 
scholarship programs. 29 CFR 2510.3-1. Other section 3(l) trusts that 
are subject to ERISA are not required to file the Form 5500 or file 
only abbreviated annual reports. See, e.g., 29 CFR 2520.104-20 (welfare 
plans with fewer than 100 participants); 29 CFR 2520.104-26 (unfunded 
dues financed welfare plans); 29 CFR 2520.104-27 (unfunded dues 
financed pension plans). See also Reporting and Disclosure Guide for 
Employee Benefit Plans, U.S. Department of Labor (2004 ed.), available 
at http://www.dol.gov/ebsa/pdf/rdguide.pdf.
    Several commenters stated that section 302 of the Labor Management 
Relations Act (Taft-Hartley Act) contains structural requirements 
designed to avoid any possibility of labor organization dominance, 
including a requirement that payments must be held in trust for the 
sole and exclusive benefit of employees and their dependents, and a 
requirement of an annual audit. They assert that section 302 was 
enacted precisely ``to ensure that the funds in such a trust are not 
used as a labor organization `war chest'.'' NLRB v. Amax Coal Co., 453

[[Page 57419]]

U.S. 322 (1981). By definition, therefore, they argue that trusts that 
are subject to section 302 cannot be subject to labor organization 
dominance and therefore pose no risk of ``circumvention or evasion'' of 
the LMRDA's reporting requirements. In the NPRM, the Department 
explicitly recognized the fiduciary duties that apply to trustees under 
ERISA. Nothing in the proposal suggested that trustees routinely ignore 
these duties and put the interests of their labor organizations or 
their own interests ahead of their obligation to the trust. The 
Department recognizes that most trustees faithfully observe their 
duties. Nonetheless, it cannot be doubted that there are also instances 
where those duties are ignored with the attendant loss of funds held in 
trust for the labor organization and its members.
    This rule is prophylactic; as such, of necessity it must require 
reporting even where trustees faithfully observe their duties. At the 
same time, its reach is necessary to empower labor organization members 
to determine whether transactions between the trust and other 
individuals and entities are proper. In many instances, the rule also 
allows labor organization members and this Department to determine 
whether transactions by or with the trust created a reciprocal 
reporting obligation on labor organization officials and employers who 
have separate reporting obligations under the LMRDA. As stated in the 
NPRM, ``[b]ecause a labor organization's obligation to submit a Form T-
1 overlaps with the responsibility of the labor organization officials 
[pursuant to 29 U.S.C. 432] to disclose payments received from the 
trust, the prospect that one party may report the payment increases the 
likelihood that a failure by the other party to report the payment will 
be detected.''
    As an additional benefit, the transparency provided by the rule may 
have the salutary benefit of deterring individuals from engaging in 
improper or illegal transactions. Neither as proposed nor modified in 
this final rule does the reporting obligation interfere with ERISA. 
Indeed, given that labor organizations now have no obligation to file 
Form T-1 for many if not most trusts subject to ERISA, the arguments 
against the proposal on this basis lose much of their force.
    Where trusts are not subject to ERISA or not required to file the 
annual reports required of most ERISA-regulated trusts, the Form T-1 
reporting obligation provides labor organization members their first 
opportunity, in most instances, to receive an annual report on the 
financial operations of their labor organization's section 3(l) trusts.
Whether the Management Control and Financial Dominance Test Creates 
Unwarranted Compliance Difficulties
    Some commenters expressed concern about the practical difficulty of 
determining whether a trust beneficiary was a labor organization member 
or not. Some commenters noted that although the trusts have records 
distinguishing between contributions submitted pursuant to collective 
bargaining agreements--as distinct from contributions submitted on 
behalf of non-bargaining unit groups, the trusts do not have records 
permitting them to differentiate employer contributions made on behalf 
of labor organization members from contributions made on behalf of non-
labor organization employees. These commenters stated that in order to 
provide such data labor organizations would be required to ask 
participating employers to take on an additional reporting obligation 
to the plans. A commenter explained that in order to determine whether 
the 50% revenue threshold was met, the trust and the labor organization 
would have to exchange records to identify trust participants who are 
members of the labor organization, a task that would require 
significant time.
    These concerns are based upon a simple misunderstanding of the 
proposal and are easily resolved. As discussed in the NPRM, 73 FR 
11758-61, the labor organization exercises effective control over a 
trust if it directly contributes the trust's funds or if it negotiates 
with an employer for employer funding of the trust. Whether the 
individuals on whose behalf contributions are made pursuant to a 
collective bargaining agreement are themselves members of the labor 
organization is irrelevant. Thus, it is not necessary to determine how 
many beneficiaries of the trust are members or non-members of the labor 
organization to determine whether the threshold has been met; instead 
the relevant factor for making this determination is the amount of 
receipts contributed pursuant to the collective bargaining agreement, 
whether made on behalf of members or non-members.
    Contributions made pursuant to a collective bargaining agreement by 
an employer will be considered contributions of the labor organization 
(as, of course, would contributions by the labor organization itself). 
The instructions and regulation have been revised accordingly. 
Consequently, the phrase ``contributions made on behalf of the labor 
organization or its members shall be considered the labor 
organization's contribution'' has been revised to read ``contributions 
made pursuant to a collective bargaining agreement shall be considered 
the labor organization's contributions.''
    Contributions received by the trust on behalf of persons 
represented by the labor organization but who are not members of the 
labor organization (such as agency fee payers) would thus be included 
within the definition of ``receipts.'' The test is whether the 
contributions are made pursuant to a collective bargaining agreement. 
The test is not whether the beneficiaries of the trust are labor 
organization members.
Whether Financial Dominance Should Be Measured by ``Receipts'' or by 
``Revenue''
    Several commenters asked the Department to clarify how to determine 
whether the labor organization's contributions comprised a majority of 
the trust's revenues during the reporting period. In the NPRM, the 
Department, as noted above, framed its financial dominance test in 
terms of a labor organization's contributions (more than 50%) of the 
trust's revenues during the annual reporting period. The term 
``revenue'' was used by the D.C. Circuit in discussing how the 
Department could properly fashion a reporting obligation where a labor 
organization or labor organizations financially dominated a trust. See 
AFL-CIO v. Chao, 409 F.3d at 390. The court did not define this term, 
nor suggest that its usage was to limit the Department to an approach 
constrained by the technical meaning ascribed to the term by 
accountants.
    Some commenters noted that the term ``revenue'' has a different 
meaning than ``receipts.'' One commenter, noting that accounting 
professionals use slightly different interpretations of what 
constitutes ``revenue,'' proposed the following as included within its 
reach--contributions, interest and liquidated damages charged for 
delinquent contributions, all investment income, realized gains, 
grants, rents, reimbursements and other income, grants and employee 
elective deferrals to 401(k) and cafeteria plans. Some commenters 
asserted that if ``revenue'' is defined in such a way as to include 
income such as capital gains, interest, dividends and the like, then 
many trusts will fall in and out of Form T-1 coverage depending on 
market returns. They explained that this could result in a lack of 
disclosure in good financial years, and conversely, could require 
reporting in poor financial years. The resulting shifting reporting 
requirements

[[Page 57420]]

would lead to a lack of consistent reporting on these trusts and create 
confusion for labor organization members. Thus, for example, if 
``revenue'' includes all amounts received from the sale of securities, 
even when promptly reinvested or ``rolled over,'' the amount of 
``revenue'' attributable to the trust could easily dwarf any other 
source of income or receipts, reducing the number of Form T-1 reports 
filed.
    The Department agrees that the rule should be clarified. To address 
these concerns, the Department has adopted for this purpose the 
``receipts'' test used in the Form LM-2. Thus, the instructions to the 
Form T-1 now provide that ``receipts'' means anything actually received 
by the labor organization within that fiscal year, with the one 
exception being sales of investments that are promptly reinvested. In 
that situation, only the capital gain is counted toward the gross 
receipts figure.
    For purposes of the Form T-1, the term ``receipts'' will include 
cash, interest, dividends, realized short and long term capital gains, 
rent, royalties and other receipts of any kind.
    It will exclude investment proceeds that are promptly reinvested. 
Generally, ``promptly reinvested'' means reinvesting (or ``rolling 
over'') the funds in a week or less without using the funds for any 
other purpose during the period between the sale of the investment and 
the reinvestment. This change lessens the likelihood that market 
fluctuations will move the trust in and out of coverage in a given 
fiscal year. Market performance volatility will be less likely to 
affect reporting requirements because receipts will not be registered 
until gains from the sale of securities are realized.
    A commenter pointed out that labor organization members have an 
interest in the governance of the trusts that extends beyond the fiscal 
year in which particular contributions were made, suggesting that the 
financial dominance test should look to a multi-year period to 
determine Form T-1 coverage. While the Department believes there is 
some merit to the suggestion, the Department believes that a multi-year 
approach is unworkable. The key factor to showing financial dominance 
is the position of the labor organization as an entity that bargains 
with employers and is thus in a position to exert control over the 
contributions to the trust. If there are no contributions made in a 
particular fiscal year it is difficult to show that a labor 
organization is in a position to financially dominate these trusts. 
Furthermore, outside the Taft-Hartley trust context, a labor 
organization is more likely to be required to file a Form T-1 because 
it has managerial control over a trust and not because of financial 
dominance.
    Two commenters stated that the Department's test would require 
reports from single employer trusts (whose contributions are not 
established pursuant to a collective bargaining agreement) that have 
equal (labor organization and employer) representation on their 
governing boards. One of these commenters also stated that some single 
employer plans, established pursuant to a collective bargaining 
agreement, are administered without any labor organization involvement. 
The Department has determined that these plans, and other such trusts 
that are employer created and employer administered, do not fall within 
the scope of section 3(l).
Whether Elective Deferrals Are Considered in Determining Financial 
Dominance
    One commenter, a 401(k) plan multiemployer defined contribution 
pension plan, receives payments from employees who have the option to 
defer a portion of their wages to the plan. Employees have the 
opportunity, in addition, to control how their funds are invested. The 
commenter expressed uncertainty over whether these elective deferrals 
made by the employees themselves are considered labor organization-
derived payments that establish financial dominance, arguing that they 
should not be so treated. The Department agrees that employee-directed 
payments to the trust should not be treated as labor organization 
contributions.
Managerial Control and Taft-Hartley Funds
    The Department received few comments on the managerial control test 
it proposed. These comments were in the context of trustees appointed 
to the board of directors of a Taft-Hartley fund. The boards of these 
funds are allocated half to employer representatives and half to labor 
organization representatives. As such no Taft-Hartley fund would ever 
meet the managerial control trigger for filing the Form T-1 as the 
trigger requires the labor organization to appoint or select a majority 
of the board before filing is required. However, as discussed above, 
Taft-Hartley funds could be subject to the financial dominance test.

B. Applicability of the Form T-1 Reporting Requirement to Smaller Labor 
Organizations

    The Department proposed a reporting threshold based solely on the 
size of the labor organization; labor organizations with total annual 
receipts of at least $250,000 must file a Form T-1 for a section 3(l) 
trust, if the labor organization alone or with other labor 
organizations exercises management control or financial dominance over 
the trust. The Department received no comments regarding this aspect of 
its proposal. This final rule maintains this reporting threshold and 
the Form T-1 reporting requirement only applies to those labor 
organizations with total annual receipts of at least $250,000. The 
Department believes that limiting the Form T-1 reporting requirement to 
the largest labor organizations responds to concerns that the Form T-1 
would impose a substantial burden on smaller labor organizations. By 
requiring a Form T-1 to be filed only by a labor organization with 
annual receipts of at least $250,000, the proposed rule is consistent 
with the reporting threshold for Form LM-2. The $250,000 reporting 
threshold ensures that labor organizations required to file Form T-1 
will be better prepared to meet the recordkeeping burden, having 
already had experience with the recordkeeping and reporting software 
utilized for the filing of Form LM-2.

C. Elimination of Threshold Requirements in Prior Rules

    In addition to limiting reporting to labor organizations with at 
least $250,000 in annual receipts, the 2003 and 2006 final rules 
conditioned reporting on a two-part threshold ($10,000 or greater 
contribution threshold for the reporting labor organization and a 
$250,000 or greater receipts threshold for the trust). In the NPRM, the 
Department proposed eliminating these thresholds and this final rule 
does not include a contribution threshold for the reporting labor 
organization or a receipt threshold requirement for the trust.
    Several commenters objected to the removal of the $10,000 
contribution threshold for reporting labor organizations and stated 
that the threshold should be maintained. Commenters stated that the 
$10,000 contribution threshold represented a reasonable determination 
by the Secretary of the appropriate balance of benefit and burden, i.e. 
the burden of filing the Form T-1 on labor organizations contributing 
less than $10,000 outweighed the marginal

[[Page 57421]]

increase in transparency. Commenters asserted that it would be hugely 
disproportionate to impose the burdensome cost of Form T-1 compliance 
when a small amount of labor organization funds are at stake. A 
commenter questioned whether the management control and financial 
dominance requirements for filing a Form T-1 would alleviate the 
difficulty in obtaining information from the trusts. Two commenters 
asserted that the proposed rule did not offer a reasoned basis for the 
removal of the $10,000 labor organization contribution threshold. The 
commenters further noted that there has been no evidence of changed 
facts or circumstances that would warrant the departure from the 
threshold requirements of previous proposed Form T-1 rules.
    As noted in the NPRM the $10,000 contribution threshold was 
included in the 2003 and 2006 final rules in response to concerns about 
a labor organization's ability to obtain the required information from 
trusts in which they did not have a substantial stake. The Department 
believes that limiting the trust reporting requirement to trusts in 
which a labor organization exercises management control or financial 
dominance, as discussed above in section A, addresses this concern. 
Moreover, the Department believes that under the LMRDA labor 
organization members have an interest in financial transparency related 
to trusts to which their labor organizations contribute regardless of 
the amount of the contribution.
    The recordkeeping and reporting burdens correspond to the size of 
the trust. Smaller trusts have smaller burdens in these areas than do 
large trusts. A member's interest in knowing the details of financial 
dealings is not diminished simply because the trust is smaller. Even in 
smaller trusts, members are likely to be interested in the nature and 
purpose of the trust, the spending decisions of the trust, the money 
directed to the trust as compared to the wages or wealth of the 
members, and the extent of the labor organization's control and 
domination of the trust. The Department's proposal to require reporting 
by labor organizations with annual receipts of at least $250,000 tracks 
the mandatory filing threshold for the Form LM-2. Requiring the filing 
of a Form T-1 on the same basis as the filing of the Form LM-2 ensures 
that labor organizations required to file Form T-1 will be better 
prepared to meet the recordkeeping burden having had experience with 
the recordkeeping and reporting software utilized for filing the Form 
LM-2.
    The Department was persuaded to change to a filing requirement 
based on the size of the labor organization rather than amount of 
contribution to a trust by comments in connection with the 2002 NPRM. 
Many commenters during the 2002 rulemaking expressed the view that the 
relative size of a labor organization, as measured by its overall 
finances, would affect its ability to comply with the proposed Form T-1 
reporting requirements.
    In proposing to eliminate the $250,000 receipts threshold for 
trusts, the NPRM noted that the Department's review of section 3(l) 
trusts revealed that a number of trusts do not have substantial annual 
receipts yet still hold large amounts of labor organization derived 
money. One building trust held $802,323 in assets, yet had less than 
$200 in receipts. Another trust reported $434,501 in assets, only 
$45,285 in receipts, and rental expenses of $75,483 resulting in net 
receipts of -$29,198. Removing the $250,000 annual receipts threshold 
provides for the disclosure of significant financial information. As 
noted in the NPRM, by not including a receipts threshold for trusts 
labor organization, members will have greater transparency and access 
to information relating to trusts that hold large amounts of labor 
organization derived money yet do not receive a significant amount of 
annual receipts.
    Commenters objected to the removal of the $250,000 receipts 
threshold for trusts because they argued that it may result in Form T-1 
reporting of trusts with insubstantial receipts or assets and result in 
a burden that may outweigh the benefit of disclosure. Commenters also 
stated that the proposed rule did not offer enough evidence or a 
reasoned basis for the removal of the $250,000 threshold. Specifically, 
a commenter questioned the Department's examples of building trusts 
that have significant labor organization derived assets but do not 
receive significant receipts. A commenter further noted that there has 
been no evidence of changed facts or circumstances that would warrant 
the departure from the threshold requirements of previous proposed Form 
T-1 rules. A labor organization commented that the $250,000 receipts 
threshold limited Form T-1 reporting to significant trusts. The 
commenter asserted that the occurrence of a trust with significant 
assets but no significant receipts was rare and that the benefits of 
including such trusts were outweighed by the burden of filing reports 
on trusts that are insignificant.
    After considering the comments in opposition, the Department has 
concluded that the final rule will not include the $250,000 receipts 
threshold for trusts. Eliminating the $250,000 in annual receipts 
threshold for the trust operates to provide information about trusts to 
labor organization members whose labor organizations have a substantial 
investment in a trust notwithstanding the absence of significant annual 
receipts by the trust during the reporting period. The two examples of 
such trusts provided in the NPRM are illustrative of the problem and 
were not intended to be an exhaustive list. Like all the examples in 
the NPRM, they point to the need for disclosure.
    The removal of the reporting thresholds will substantially increase 
labor organization financial transparency and decrease the evasion and 
circumvention of the LMRDA requirements. Due to the application of the 
management control and financial dominance thresholds set forth in this 
rulemaking, the Department believes that the $10,000 contribution 
threshold and the $250,000 annual receipts threshold are unnecessary.
    The Department also sought comments on whether it would be 
appropriate to establish a threshold based on the amount of assets held 
by a trust, and if so, what amount would be appropriate. Only one 
comment responded to the Department's question. A labor organization 
proposed creating such a threshold and setting the threshold at no less 
than $250,000 for trust assets, in order to minimize the burden on 
small trusts. In the absence of significant comment on this point and 
the Department's further consideration of this alternative proposal, 
the Department believes the better approach is to continue without an 
asset threshold. The Department believes that a member's interest in 
the details of the labor organization's financial dealings is not 
diminished by the amount of trust assets. A member's interest is more 
likely to be based on the nature and purpose of the trust, the spending 
decisions of the trust, the money directed to the trust as compared to 
the wages or wealth of the members, and the extent of the labor 
organization's control and domination of the trust. Based on these 
factors, in this final rule the Department has not established a 
reporting threshold based on assets held by a trust.

D. Itemization of Receipts and Disbursements

    The Department proposed that the Form T-1 include two itemized 
schedules for ``major'' transactions: Schedule 1, which would 
separately identify any individual or entity from

[[Page 57422]]

which the trust received ``major receipts'' of $10,000 or more, 
individually or in the aggregate, during the reporting period; and 
Schedule 2, which would separately identify any entity or individual 
that received ``major disbursements'' of $10,000 or more, individually 
or in the aggregate, from the trust during the reporting period. The 
final rule retains the itemization and aggregation requirements, but no 
longer requires the itemization of receipts by a trust made pursuant to 
a collective bargaining agreement or benefit payments made by the trust 
pursuant to a written agreement specifying the detailed basis on which 
such payments are to be made. By exempting labor organizations from 
filing a Form T-1 for those trusts required to file the Form 5500, as 
discussed below, the Department has substantially reduced the burden 
associated with this aspect of the rule. Additionally, the Department 
has clarified some particular reporting requirements, as suggested by 
commenters.
    As stated in the NPRM:

    Itemization is an essential component of Form LM-2 and also is 
integral to Form T-1 as a means to prevent circumvention or evasion 
of the reporting obligations imposed on labor organizations and 
labor organization officials. Itemization not only provides members 
with information pertinent to the trusts, but allows them to better 
monitor the other reporting obligations of their labor organization 
and its officials under the LMRDA and to detect and thereby help 
prevent circumvention or evasion of the LMRDA's reporting 
requirements. Among other requirements under this proposal, Form T-1 
requires a labor organization to identify:
     The names of all the trust's officers and all employees 
making more than $10,000 in salary and allowances and all direct and 
indirect disbursements to them;
     Disbursements to any individual or entity that 
aggregate to $10,000 or more during a reporting period and provide 
for each individual or entity their name, business address, type of 
business or job classification, and the purpose and date of each 
individual disbursement of $10,000 or more; and
     Any loans made at favorable terms by the trust to the 
labor organization's officers or employees, the amount of the loan, 
and the terms of repayment.

    73 FR 11763. Where certain payments from a business that buys, 
sells or otherwise deals with a trust in which a labor organization is 
interested are made to a labor organization officer or employee or his 
or her spouse, or minor child, the LMRDA imposes on the labor 
organization officer or employee a separate obligation to report such 
payments (Form LM-30, as required by 29 U.S.C. 432). Thus, the Form T-1 
operates to deter a labor organization official from evading this 
reporting obligation.
    The proposed $10,000 figure is an outgrowth of the earlier 
rulemaking efforts and is shaped by the concerns there expressed and 
the Department's accommodation to those concerns. This amount is a 
higher amount than the itemization threshold provided for the Form LM-2 
($5,000). The Department will continue to monitor this threshold, as 
well as all other thresholds established by this rule, in order to 
ensure that the information reported is meaningful. See 68 FR at 58389.
    The Form T-1 will identify the trust's significant vendors and 
service providers, i.e., those who make or receive payments of $10,000 
or greater during the one-year reporting period. Labor organization 
members will be able to utilize the advantages of computer technology 
to review Form T-1s (and other documents required to be filed under the 
LMRDA). Electronic filing permits the reviewer to use a search engine 
to guide the inquiry, allowing review of a potentially large number of 
itemization reports with relative ease compared to review of the same 
documents in hard copy. Among other uses, a labor organization member 
who is aware that a labor organization official has a financial 
relationship with one or more of these businesses will be able to 
determine whether the business and the labor organization official have 
filed the required reports (concerning their relationship as required 
by sections 202 and 203 of the LMRDA, 29 U.S.C. 432 and 433).
    The Department proposed that the itemization threshold for major 
receipts and disbursements be set at $10,000 in the aggregate. No 
exceptions were proposed; however, a special procedure was provided for 
reporting sensitive information. Therefore, filers would report all 
trust receipts from any source that aggregate to $10,000 or more, as 
well as any disbursements from the trust to any source that aggregate 
to $10,000 or more during the trust's fiscal year. One commenter urged 
the Department to increase the threshold for larger employee benefit 
plans, and instead base it upon a percentage of assets at the beginning 
of the year. This commenter also urged the entire elimination of 
itemization of disbursements for benefit payments, because of the many 
participants who receive in excess of $10,000. This commenter also 
questioned the value of requiring the reporting of disbursements to 
service providers and payments to parties-in-interest, which are both 
reported on the Form 5500. Others opposed the proposed threshold as 
being too high, and instead would lower it to $5,000, which, in their 
view, would increase transparency and align the Form T-1 with the Form 
LM-2.
    The Department adopts the $10,000 threshold requirement for 
itemization in Schedules 1 and 2. This amount, in the Department's 
view, represents a substantial transaction that would be of interest to 
labor organization members. For that same reason, a percentage 
threshold would be inappropriate, as it would deny information about 
substantial transactions to members of labor organizations with 
considerable assets, information about transactions that might have a 
significant impact on the labor organization's finances. A percentage-
based threshold that is subject to annual fluctuation would lack 
predictability and complicate a year-to-year comparison of reports. If 
a percentage test was used based upon a percentage of assets at the 
beginning of the year, information concerning large trusts would be 
disclosed in much higher dollar amounts and information from smaller 
trusts would be reported in smaller amounts. For example, if there are 
two trusts, one with $100,000 in assets at the beginning of its fiscal 
year and the other with $10,000,000 at the beginning of its fiscal year 
and the itemization threshold was 1 percent, then the first trust would 
report any receipts and disbursements that aggregate to $1,000 or more 
while the second trust would only report receipts and disbursements 
that aggregate to $100,000 or more.
    Because knowledge about significant transactions by the trust is an 
essential element of transparency, the size of the trust should not 
affect the members' ability to obtain this information. Therefore, the 
Department adopts a flat dollar threshold of $10,000 for itemization 
purposes in order to ensure a uniform level of disclosure regardless of 
the size of the trust. Additionally, in the Department's view, the 
difference between the reporting threshold for itemized transactions 
under the Form LM-2 ($5,000) and the threshold under Form T-1 ($10,000) 
is appropriate because it reduces the reporting burden and because the 
finances of a trust are less likely to directly impact labor 
organization members than the expenditures by the labor organization 
itself. Finally, as the Department said in the NPRM (See 73 FR at 
11763-64), the Department will continue to monitor this threshold and 
may make future adjustments based on experience and economic 
conditions.
    For itemization and reporting purposes, the Department proposed 
that

[[Page 57423]]

a labor organization aggregate the trust's receipts from, or 
disbursements to, a particular entity or individual during the 
reporting period. The Department explained that aggregation provides a 
more accurate picture of a trust's receipts and disbursements because 
it focuses on the total amount of money received from or paid to an 
entity or individual, rather than only on individual receipts or 
disbursements. The Department further explained its view that insofar 
as such payments are of interest to a labor organization member, there 
is no difference between a single $10,000 (or more) receipt or 
disbursement from one source and several receipts or disbursements from 
one source totaling $10,000 or more. Furthermore, aggregation reduces 
the incentive to break up a ``major'' disbursement to a single entity 
or individual in order to avoid itemizing the payment and thereby 
circumvent the Form T-1 reporting requirements.
    Several commenters objected to the aggregation requirement. One 
commenter suggested that the Department remove this requirement because 
it requires labor organizations and trusts to tally relatively small 
amounts with no additional benefit. After considering the comments, the 
Department has decided to retain the ``aggregation'' standard for 
itemization on Schedules 1 and 2. The Department believes that multiple 
payments to or from the same individual or entity that, combined, 
surpass $10,000 in any single reporting year, require separate 
identification as much as one payment of such amount. The benefit of 
such ``aggregation'' is that the labor organization member or other 
viewer of the Form T-1 will receive a more accurate picture of the 
financial activity of the trust. The additional burden imposed on the 
trust and labor organization in tracking these multiple payments is 
offset by the increased transparency that enables members to know that 
the trust has made ``major'' disbursements or has received ``major'' 
receipts, whether in the aggregate or in a single instance.
    Several commenters opposed the itemization of a trust's receipts. 
They asserted that it imposed unnecessary administrative burden on the 
trust without corresponding benefit of disclosure to the labor 
organization members and the public. Others expressed concerns over 
potential business competition problems caused by labor organization 
reporting individual employer contributions to trusts, such as 
disclosure of detailed manpower information and other business 
information. Some commenters opposed itemization of certain kinds of 
transactions such as receipts of pension funds or the sale of 
investments because they provided no information of value to members, 
plan participants, or the public.
    Several commenters opposed itemization of disbursements by trusts. 
They asserted that it imposed unnecessary administrative burden on the 
trust without corresponding benefit of the disclosure to the labor 
organization members and the public. Several commenters also opposed 
itemization of particular types of transactions, as they argued that 
this reporting would offer nothing of value to members and the public. 
In their view, the Department should exclude, among other items, the 
purchase of investments and benefit payments, particularly pension 
benefits from Internal Revenue Service (IRS) tax qualified plans.
    After carefully considering the comments, the Department continues 
to believe that Form T-1 should separately identify major receipts and 
disbursements of the trust. Based on the comments received, however, 
the Department has made a number of changes to the rule that should 
ameliorate, if not eliminate altogether, many of the concerns 
identified by the commenters.
    First, the Department agrees with those commenters who questioned 
the advantages of reporting customary, bona fide contributions to and 
payments from pension funds and other benefit plans to participants and 
their beneficiaries. Thus, the Department has changed the instructions 
to except such contributions and payments from itemization, if made 
pursuant to a collective bargaining agreement or pursuant to a written 
agreement specifying the detailed basis on which such payments are to 
be made, as explained in more detail below. The Department believes 
that information about these transactions that are constrained by basic 
governing documents of the trust--collective bargaining agreements and 
written agreements specifying the detailed basis on which such payments 
are to be made--is unnecessary for members to monitor the operation of 
the trust. As a result, labor organizations are only required to report 
such plan contributions made pursuant to a collective bargaining 
agreement and beneficiary payments made pursuant to a written agreement 
specifying the detailed basis on which such payments are made in the 
aggregate as part of Items 23 and 24.
    Second, the Department has made several other changes that it 
believes will reduce the burden of reporting itemized receipts and 
disbursements: the reinstatement of a modified Form 5500 exemption; the 
clarification that investments that are promptly reinvested are not 
receipts and disbursements for itemization purposes; the explicit 
recognition that payments related to the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA) are confidential information not 
to be reported; and the explanation that filers do not have to itemize 
benefit payments made to officers and employees of the trust on 
Schedule 3 of the Form T-1. These changes are discussed in more detail 
below.
    Several commenters opposed the itemization of the sale of 
investments as a burden on the trust and filer. The Department 
concludes that excluding proceeds from the sale of investments that are 
promptly reinvested from individually identified receipts will 
alleviate much of this burden. The clarification regarding the 
reporting of ``rolled over'' investments will reduce many of these 
receipts below the $10,000 threshold. This will reduce burden on the 
trust and the labor organization.
    The reinstatement of the Form 5500 exemption has significantly 
reduced the number of section 3(l) trusts that will file the Form T-1. 
As discussed in section G(3) of this preamble, labor organizations are 
not required to file a Form T-1 for their section 3(l) trusts that are 
required to file the Form 5500. The remaining trusts for which a Form 
T-1 must be filed, i.e., those trusts that are not required to file a 
Form 5500, will primarily consist of building trusts, strike funds, and 
apprenticeship and training funds. Unlike pension and health plans, 
many of these trusts will have comparatively fewer disbursements, 
receipts, officers, and employees. For example, strike funds are likely 
to have few, if any, disbursements unless the labor organization's 
members are on strike.
    The Department believes that there is significant benefit to 
disclosure to labor organization members of the receipts and 
disbursements remaining within the scope of the itemization 
requirement. Specifically, information related to the nature and 
purpose of transactions in which a trust engages will enable members to 
actively participate in the governance of their labor organization. 
Without itemization, members would be denied information critical to 
monitoring the trust's finances. For example, without itemization, 
members

[[Page 57424]]

would be unable to know the value of the final sale and initial 
purchase of investments by the trust, as well as the service providers 
it hires to perform functions of the trust. This separately identified 
information is important to labor organization members, in part, 
because they elect the officers who run their labor organization, who 
in turn will affect the labor organization's funding and operations of 
the trust over which the labor organization has management control or 
financial dominance. The financing of these trusts can be used to 
circumvent or evade the labor organization's reporting requirement and 
this specified information will empower members to monitor whether or 
not the trusts are properly investing their money and fulfilling their 
goals.
    Trusts are already tracking most receipts, disbursements, and 
payments to officials and employees in the regular course of business. 
However, they may not be currently tracking the information in the 
detail or structure required by Form T-1 reporting. Therefore, covered 
section 3(l) trusts may opt to make changes to their accounting systems 
to track the relevant information in a format that can be provided to 
the interested labor organization(s) to complete the Form T-1. The 
Department is not requiring trusts to establish a particular accounting 
or other system to accomplish this goal. As indicated elsewhere in the 
document, the labor organization may need to request access to the 
trust's books and records in order to obtain the information necessary 
to report information on the Form T-1 in the required detail and 
structure. Further, as also indicated elsewhere in this document, the 
Department's Employee Benefits Security Administration (EBSA) advised 
that it would not consider a plan fiduciary to have violated ERISA's 
fiduciary duty or prohibited transaction provisions by providing 
officials of a sponsoring labor organization with financial and other 
information from the plan's books and records as needed to complete the 
Form T-1, provided the plan is reimbursed for any material costs 
incurred in collecting and providing the information to the labor 
organization officials. Consistent with that conclusion, EBSA further 
advised that fiduciaries may be able to prudently conclude that it is 
more efficient and less disruptive of normal plan operations to make 
adjustments to the plan's information management or accounting software 
so that the plan can provide information contained in its books and 
records at a particular level of detail or in a particular structure, 
provided the labor organization reimburses the plan for any material 
costs incurred in making such adjustments. Although some section 3(l) 
trusts may need to contact their third party recordkeepers to collect 
information requested by labor organizations for the schedules, this 
burden should be ameliorated as much of required information will 
already be kept in the normal course of their businesses. And, for 
labor organizations whose section 3(l) trusts are required to file the 
Form 5500, there is no Form T-1 to be filed and therefore no LMRDA 
reporting burden whatsoever.

E. Disbursements to Officers and Employees

    The Department proposed that labor organizations would disclose on 
Schedule 3 of the Form T-1 the names and titles of all officers of the 
trust and report all direct and indirect disbursements to them as well 
as to all employees of the trust who received $10,000 or more during 
the reporting period. The Department adopts Schedule 3 as proposed with 
clarifications discussed below.
    Commenters asked the Department to clarify the meaning of the terms 
``trust officer'' and ``trust employee,'' including whether the 
trustees are considered ``officers'' of the trust, and how the terms 
will be applied to the trust administrator and individuals working 
under his or her control who might be employed by an entity other than 
the trust.
    The Department has added clarifications to the definitions of 
``trust officer'' and ``trust employee'' on the Form T-1 Instructions 
for Schedule 3. The definition of trust officer is adapted from the 
LMRDA's definition of ``officer.'' Section 3(n) of the LMRDA states in 
pertinent part: `` `Officer' means any constitutional officer [of and], 
any person authorized to perform the * * * executive functions * * * of 
a labor organization, and any member of its executive board or similar 
governing body.'' 29 U.S.C. 402(n). The instructions to the Form T-1 
now provide that for Form T-1 purposes, a ``trust officer'' means ``any 
person designated as an officer in the trust's governing documents, any 
person authorized to perform the * * * executive functions * * * of the 
trust, and any member of its executive board or similar governing 
body.'' The language is purposefully broad so that it will include the 
officials of each trust's governing board, and any other individuals 
conferred with executive authority under the trust's governing 
documents. Typically, this will include the trustees of each trust, 
and, depending upon the particular trust, may include the trust 
administrator and other individuals.
    Similarly, the definition of a ``trust employee'' is adapted from 
the LMRDA's definition of this term. Section 3(f) states that `` 
`[e]mployee' means any individual employed by an employer.'' 29 U.S.C. 
402(f). Thus, for Form T-1 purposes, an ``employee'' means ``any 
individual employed by an employer'' that constitutes a section 3(l) 
trust. These definitions will require a fact-specific inquiry by filers 
to determine whether trustees, the trust administrator, and other 
individuals performing service to the trust under its control or the 
trust's administrator's control are officers or employees of the trust. 
In most instances, the determination will be resolved without any 
significant difficulty. Where such individuals are trust officers, or 
trust employees who received more than $10,000 from the trust during 
the reporting period, payments to them, unless otherwise exempted, are 
required to be reported in the aggregate in Item 24 and by their names 
in Schedule 3. Where such individuals are not officers or employees, 
payments to them, unless otherwise exempted, must be reported in the 
aggregate in Item 24 and separately itemized in Schedule 2 if they 
aggregate to $10,000 or more.
    Two commenters expressed concern over the heavy burden of reporting 
disbursements to their trusts' officers and employees. Commenters said 
that this information is disclosed on the Form 5500. The Department 
notes that no Form T-1 will be required on behalf of trusts that are 
required to file a Form 5500. The Department acknowledges that this 
requirement may impose some increased burden on labor organizations 
and, where requested by the labor organization, on the remaining 
section 3(l) trusts, but the Department believes that modern 
developments in electronic recordkeeping (such as software that assists 
in tracking financial transactions rather than the costly and time-
consuming paper records used in the past) have greatly reduced the 
burden on labor organizations and trusts in terms of overall reporting 
and disclosure, and that trusts already keep records on their officers 
and employees for purposes of reporting under other statutes and for 
internal purposes. Furthermore, labor organization members could 
benefit from this information to ensure that their labor organization 
is not, for example, providing undisclosed additional

[[Page 57425]]

compensation to labor organization officials.
    Commenters also asked the Department to clarify how to report 
``indirect'' disbursements to health care providers, such as hospital 
and surgery costs, on behalf of trust officers or employees.
    The Department has amended the Instructions for Schedule 3, Column 
(E), Other Disbursements, as well as the definition of ``indirect 
disbursement,'' to clarify that benefits payments to the trust officers 
and employees are not of the type required to be reported in Schedule 3 
if made pursuant to a written agreement specifying the detailed basis 
on which such payments are to be made. Rather, these payments should be 
reported in Item 24, and in Schedule 2 to the extent that all trust 
payments to a particular source, in the aggregate, must be separately 
identified. For example, if a trust makes, in the aggregate, $10,000 in 
payments to a particular health care provider on behalf of all of its 
officers and employees, then the filer would report this aggregate 
amount separately in Schedule 2 and include it within the disbursement 
total in Item 24. This clarification should eliminate any concerns 
related to the potential misleading nature of Column (E), particularly 
as it relates to protecting the confidentiality under HIPAA of health 
care provider payments.

F. Protection of Sensitive Information

    In proposing this rule, the Department recognized the need to 
balance the legitimate privacy interests of individuals receiving 
payments from section 3(l) trusts and the right of labor organization 
members to transparency in the financial operations of such trusts. See 
73 FR 11764. The Department was particularly concerned about protecting 
the identity of individuals receiving payments for medical-related and 
similar expenses of a highly personal nature. The final rule 
strengthens these protections by eliminating the need to itemize any 
payments--medical or otherwise--customarily made under and in 
accordance with the trust's governing documents. This point is 
addressed in the instructions to the Form T-1 and the regulatory text 
(revising 29 CFR 403.8). This reporting exclusion, coupled with the 
availability of the rule's reporting exemption for those trusts that 
are required to file the Form 5500 (which does not require such 
itemization), substantially reduces the disclosure of individual-
specific information on the Form T-1.
    Many commenters expressed concerns relating to the itemization of 
disbursements, most on privacy or security grounds, or both. Some 
expressed concern that the posting of such information on the 
Department's Web site would be intrusive and heighten the possibility 
of identity theft. They asserted that plan participants and 
beneficiaries have an ``expectation of privacy'' and that the trustees 
of benefit and pension plans are obliged to protect their privacy under 
ERISA and other state and federal laws. Several commenters referred to 
the regulations issued by the Department of Health and Human Services 
(45 CFR 160-164) pursuant to HIPAA, prohibiting the disclosure of 
``Protected Health Information.'' Other commenters argued for an 
exemption of all payments made pursuant to the terms of an employee 
benefit plan. Another suggested that the Department include in the 
final rule an exception akin to that provided in the Department's Form 
LM-30 rule. The commenter noted that the Form LM-30 excepts from 
reporting benefit payments to officers and employees from a trust that 
are provided pursuant to a specific written agreement covering such 
payments. Others expressed doubt about the value of requiring the 
reporting of routine payments to or by section 3(l) trusts, especially 
given the voluminous number of such payments by large trusts, 
notwithstanding the $10,000 threshold for itemization. Some commenters 
expressed concern that reporting of employer contributions to trusts 
could reveal the extent of its business operations to competitors and 
unnecessarily affect its business interests.
    The Department has carefully considered these comments. As noted, 
the Department crafted the proposed rule with an eye toward protecting 
the privacy interests of plan participants. The Department has been 
persuaded that additional protections are appropriate. As discussed in 
the preamble section relating to itemization, the Department has 
established a broad exemption for reporting customary payments to and 
by the trust made in accord with a collective bargaining agreement in 
the case of payments to the trust or the trust's governing documents in 
the case of benefits payments by the trust. Thus, for purposes of 
Schedule 1, Individually Identified Receipts, labor organizations are 
not required to separately identify any individual or entity from which 
the trust receives receipts of $10,000 or more, individually or in the 
aggregate, during the reporting period, if the receipts derived from 
pension, health, or other benefit contributions are provided pursuant 
to a collective bargaining agreement covering such contributions.
    Similarly, for purposes of Schedule 2, Individually Identified 
Disbursements, the labor organization is not required to itemize 
benefit payments from the trust to an individual plan participant or 
beneficiary, if ``the detailed basis on which such payments are to be 
made is specified in a written agreement.'' See 29 U.S.C. 186(c). These 
exceptions apply to all section 3(l) trusts, whether jointly 
administered or not. This will ameliorate concerns about the adverse 
impact on an employer whose payments into a trust may reveal 
confidential business information. Where such payments to and by the 
trust are undertaken in conformance with governing documents, there is 
less opportunity for improper diversion of funds and evasion of the 
Act's reporting requirements than where the trust's discretion is less 
constrained such as approving the sale and purchase of investments, 
making payments to service providers, and arranging disbursements to 
parties-in-interest and other third parties. This is true of 
information regarding receipts as well, as there may be multiple 
employers who contribute to the trust pursuant to a collective 
bargaining agreement. Moreover, such information about transactions 
that are not made pursuant to a specific written agreement is not 
likely to pose the same danger of jeopardizing private and confidential 
information or violating laws designed to prevent such occurrence. As a 
result, labor organizations are only required to report such plan 
contributions made pursuant to a collective bargaining agreement and 
beneficiary payments pursuant to a written agreement specifying the 
detailed basis on which such payments are to be made, in the aggregate 
as part of Items 23 and 24.
    The Department believes that the addition of an exception 
pertaining to beneficiary payments made pursuant to a written agreement 
specifying the detailed basis on which such payments are to be made 
will also reduce the administrative burden on trusts and reporting 
labor organizations. Trusts will not have to compile information 
pertaining to the potentially thousands of beneficiaries, nor will it 
have as many complications with existing privacy and other state and 
federal laws. While the burdens of contacting service providers for 
those transactions not governed by such an agreement and of 
reprogramming computer systems to capture this data will still exist, 
the Department believes that many trusts

[[Page 57426]]

already have this information as a result of their normal business 
practices.
    As an additional protection, the Department has clarified the rule 
to ensure that information maintained by the trusts relating to HIPAA-
protected payments, subject to a non-disclosure provision in a 
settlement agreement, specifically protected against disclosure by 
state or federal law, or that potentially endangers the health or 
safety of an individual is not available to labor organization members 
under the LMRDA's ``just cause provision.'' See ; . Notwithstanding 
these exceptions, as explained in the instructions, the labor 
organization is required to describe generally the nature of any 
payments that have not been itemized, e.g., ``disbursement of payments 
on insurance claims,'' in Item 25 of the Form T-1 (Additional 
Information) and to include the payments in the total amount reported 
in Item 23 (Receipts) or Item 24 (Disbursements) of the form.
    In the NPRM, the Department proposed to provide labor organizations 
the same reporting option available under the Form LM-2 for reporting 
certain major transactions in situations where a labor organization, 
acting in good faith and on reasonable grounds, believes that reporting 
the details of the transaction would divulge information relating to 
the labor organization's prospective organizing strategy, the 
identification of individuals working as ``salts,'' or its prospective 
negotiation strategy. The Department further sought comments on whether 
the confidentiality exception from the itemized reporting requirement 
should be narrowed, clarified, or removed from the Form T-1. Under the 
proposed special procedures, the labor organization could choose not to 
report the information in itemized form provided the filer identified 
in Item 25 (Additional Information) the general types of information 
excluded. The Department outlined this procedure in the Form T-1 
Instructions for Schedules 1 and 2.
    As under the LM-2 instructions, the proposal in the NPRM recognized 
that a labor organization 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. 
Aggregation of transactions by a labor organization under the Special 
Procedures for Confidential Information 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. 73 FR 
11764. The Department invited comments on whether to narrow, clarify or 
remove this confidentiality exemption from the Form T-1 instructions.
    Several commenters specifically addressed the Special Procedure for 
Reporting Confidential Information, as set forth in the proposed rule 
and instruction. Two commenters opposed these procedures, arguing that 
agents (i.e., the labor organization and trust officials) cannot 
withhold ``secret records'' or engage in ``secret transactions,'' but 
rather the principals (i.e., the labor organization members) have a 
right to see this information. These commenters argued that the 
proposed procedure allowed labor organizations greater leeway in 
withholding information than is permitted under the discovery rules of 
federal civil procedure or the National Labor Relations Board (NLRB)'s 
application of those rules. One commenter raised concerns over the 
reporting of job targeting/market recovery fund disbursements, 
identifying instances where, in its view, unions were improperly using 
the special procedure to shield from disclosure any itemized 
disbursements relating to their job targeting program, not merely those 
that arguably would be covered by the special procedure. One commenter 
supported the confidential information exception because it protects 
organizing strategies.
    The Department's review of Form LM-2 data has indicated that the 
confidentiality exception is not used by the majority 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 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 
$360,308.00 accounted for 45% of the labor organization's total 
disbursements. A midsized local labor organization treated 
$1,011,863.00 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. Thus, an 
undisciplined use of the special procedures in many cases could result 
in the non-itemization of disbursements of millions of dollars.
    The Department understands that labor organizations have an 
interest in maintaining confidentiality in situations where disclosure 
would expose an ongoing or planned organizing or representational 
campaign. However, this interest must be balanced with the LMRDA's 
general reporting requirements. Depriving members of information about 
almost half of their labor organization's disbursements does not 
promote transparency.
    In the 2003 final rule promulgating the Form T-1, the Department 
recognized that the commenters believed that a confidentiality 
exemption was needed to protect information on certain transactions 
from immediate public disclosure. Thus the Department provided an 
exemption from the normal itemization requirement for reporting of 
information that would harm an organizing drive or contract negotiation 
and also provided that, absent unusual circumstances, this exemption 
should not be applied to information related to transactions for past 
organizing campaigns or negotiations. The Department in this final rule 
is not changing the decision that a labor organization should not be 
required to disclose information that would harm the organization's 
prospective organizing campaigns or negotiations, by disclosing 
strategy that would otherwise be confidential. However, the Department 
reiterates that labor organizations may not shield such information 
from full disclosure after the organizing or negotiations have 
concluded. Thus, the final instructions for the Form LM-2, and the 
instructions for the Form T-1, provide that ``[a]bsent unusual 
circumstances information about past organizing drives should not be 
treated as confidential.''
    For the reasons discussed, the Department adopts the Special 
Procedures for Reporting Confidential Information as presented in the 
NPRM, but reiterates that the procedures require itemized reporting of 
transactions related to organizing campaigns and negotiations after the 
confidentiality interest giving rise to the exemption from itemized 
reporting in these categories has ended. Labor organizations will 
continue to be able to use the confidentiality procedures to withhold 
itemized information ``that would expose the reporting union's 
prospective organizing strategy.'' If the strategy becomes public, the 
confidentiality privilege no longer applies to the information. Once 
the organizing campaign or negotiations have concluded, the 
confidentiality privilege is lifted absent unusual circumstances where 
disclosure of itemized information would harm an ongoing or prospective 
organizing campaign or negotiations. As provided, in part, in the Form 
LM-2 instructions,

[[Page 57427]]

under the proposal, labor organizations are permitted to withhold from 
itemization information that would ``expose the reporting union's 
prospective organizing strategy'' or would ``provide a tactical 
advantage to parties with whom the reporting union or an affiliate 
union is engaged or will be engaged in contract negotiations.'' The 
instructions direct that information should be disclosed unless the 
labor organization could demonstrate that its disclosure would cause 
harm to the organizing drive or contract negotiations; the instructions 
also advise that absent unusual circumstances information about past 
organizing drives or contract negotiations should not be treated as 
confidential.
    The Department has considered the suggestion by some commenters 
that the proposed procedure should be eliminated because of its 
perceived misuse by some Form LM-2 filers. The commenter's examples 
indicate that some labor organizations may have used, or will be 
tempted to use, the special procedure to hide disbursements that--
either at the time they occurred or at the time that the Form LM-2 was 
filed--posed no danger to the labor organization's organizing or 
negotiating strategies.
    The Department believes that there is reason to be concerned that 
the procedures may be misused by some labor organizations. Thus, 
although, the Department is retaining the Special Procedure for 
Reporting Confidential Information, the Department reemphasizes that 
this procedure is to be used sparingly and only in the limited 
circumstances for which it is provided. The Department will continue to 
review and monitor the use of the Special Procedures for Reporting 
Confidential Information. Because of the substantial interest in 
financial transparency that is compromised if certain information that 
should be disclosed is kept confidential, the Department will give 
priority in investigations of violations of the trust reporting rules 
to those reports in which the exemption is claimed. This will be done 
to insure that the exemption is not abused. The Department will 
continue to examine the use of the Special Procedure and, if evidence 
and experience indicate that it is being abused, may propose to 
eliminate or narrow it. The Department further notes that the provision 
of a confidentiality exemption for the Form T-1 does not affect other 
reporting duties under the LMRDA or other laws.

G. Exemptions and Alternative Means of Compliance

    The Department proposed an exemption from the Form T-1 reporting 
requirement for a trust established as a political action committee 
(PAC) or an organization established pursuant to Internal Revenue Code 
section 527 provided that the trust files timely, complete and publicly 
available reports with federal or state agencies, as required by 
federal or state law. The Department also proposed a partial exemption 
where an independent audit of the trust has been conducted in 
accordance with proposed standards discussed below and the audit is 
filed with the Department along with a fully completed page 1 of Form 
T-1. Each of these alternative methods for meeting the labor 
organization's Form T-1 obligation provides significant, timely 
financial information about the trust that is updated on a regular 
basis (for PAC and section 527 reports, typically more frequently than 
the Form T-1) and requires the itemization of receipts and 
expenditures. The proposed rule did not include an exemption for trusts 
that filed timely and complete Form 5500 reports under ERISA; the 
Department explained that the information reported on the Form 5500 was 
not designed to capture information for LMRDA purposes and that many 
section 3(l) trusts were not subject to ERISA or its reporting 
requirements.
    This final rule, like the proposal, includes the exemptions for 
trusts that constitute a PAC or a section 527 organization provided 
that the trusts file timely, complete and publicly available reports as 
required by federal and state law and includes the partial exemption 
for those trusts where an independent audit has been conducted as set 
forth in the instructions. This final rule, unlike the proposal, 
contains an exemption for those trusts required to file a Form 5500 
report, as defined in this rule.
1. Exemption for PAC and 527 Funds
    In proposing to exempt labor organizations from filing a Form T-1 
for trusts that constitute a PAC or a section 527 organization, the 
Department explained that the purpose of limiting the filing 
requirements in this way was to minimize any overlapping obligations 
that apply to such entities where other statutes required the filing of 
publicly available reports that contain information roughly comparable 
to that required by the Form T-1. The Department received no comments 
on the proposed exemption for a trust established as a PAC or 
established under section 527 of the Internal Revenue Code. Thus, the 
final rule retains the exemption for a trust established as a PAC or an 
organization exempt under Internal Revenue Code section 527, provided 
that the trust files timely, complete and publicly available reports 
with federal or state agencies, as required by federal or state law.
2. Audit Exemption
    Under this final rule, a labor organization may use the audit 
exemption provided the audit meets the requirements described in the 
Form T-1 Instructions. The audit requirement in this exemption is 
modeled after section 103 of ERISA, 29 U.S.C. 1023 and 29 CFR 2520.103-
1 (relating to annual reports and financial statements required to be 
filed under ERISA). As noted in the NPRM, the Department recognizes 
that the audit option may not provide the same level of detail required 
by the Form T-1. The Department nonetheless believes that this approach 
is an acceptable trade-off for reducing the overall reporting burden on 
the labor organization and the section 3(l) trust. Under the audit 
alternative, a labor organization need only complete the first page of 
the Form T-1 (Items 1-15 and the signatures of the organizations' 
officers) and submit a copy of an audit of the trust that meets all the 
following standards:
     The audit is performed by an independent qualified public 
accountant, who after examining the financial statements and other 
books and records of the trust, as the accountant deems necessary, 
certifies that the trust's financial statements are presented fairly in 
conformity with Generally Accepted Accounting Principles or Other 
Comprehensive Basis of Accounting.
     The audit includes notes to the financial statements that 
disclose:
    [ssbox] Losses, shortages, or other discrepancies in the trust's 
finances;
    [ssbox] The acquisition or disposition of assets, other than by 
purchase or sale;
    [ssbox] Liabilities and loans liquidated, reduced, or written off 
without the disbursement of cash;
    [ssbox] Loans made to labor organization officers or employees that 
were granted at more favorable terms than were available to others; and
    [ssbox] Loans made to officers and employees that were liquidated, 
reduced, or written off.
     The audit is accompanied by schedules that disclose:
    [ssbox] A statement of the assets and liabilities of the trust, 
aggregated by categories and valued at current value, and the same data 
displayed in

[[Page 57428]]

comparative form for the end of the previous fiscal year of the trust; 
and
    [ssbox] A statement of trust receipts and disbursements aggregated 
by general sources and applications, which must include the names of 
the parties with which the trust engaged in $10,000 or more of commerce 
and the total of the transactions with each party.
    The Department invited comments on the utility and workability of 
the proposed audit exemption. As with many other aspects of the 
proposed rule, most of the comments on this issue came from Taft-
Hartley trusts. These commenters generally opposed the 90-day filing 
deadline for the audit exemption because the deadline in most instances 
would expire before they completed the audits that they are required to 
perform in order to satisfy their ERISA reporting requirements to file 
a Form 5500. Under ERISA the annual reports are generally not due until 
at least 210 days after the close of the ERISA plan year. One commenter 
stated that because of the complexity of any audit required of trust 
funds, only in the rarest of instances would an auditor be able to 
timely satisfy the requirements of the proposed alternative to file the 
Form T-1. Commenters also stated that the proposal failed to reduce the 
overall reporting and recordkeeping burden because the Form T-1 
itemization requirements are not normally part of audits prepared for 
these funds.
    The Department has partially resolved these concerns by exempting 
labor organizations from any Form T-1 responsibilities for trusts that 
are required to file an annual report under ERISA, as discussed below. 
The availability of this exemption means that most of the commenters 
will not be obliged to provide information necessary to complete the 
Form T-1 and thus will be unaffected by the audit requirements that 
otherwise would remain a concern. For those trusts that are not 
required to file the Form 5500, the Department has decided to retain 
this filing exemption as an alternative means of compliance with the 
rule. The remaining types of entities that will be required to file a 
Form T-1 under this rule are typically less complex than the trusts 
required to file a Form 5500 and will have fewer transactions to 
itemize. Further, the concerns about the itemization burden are 
addressed because this final rule excepts from the itemization 
requirement any receipts by a trust made pursuant to a collective 
bargaining agreement and any benefit payments where a written agreement 
specifies the detailed basis on which such payments are to be made. As 
such, the Department anticipates that the burden imposed by using this 
filing exemption, while similar to that required for filing the full 
Form T-1, will nonetheless provide a less burdensome alternative for 
some filers. This audit exemption is not meant to be the primary means 
of compliance with the final rule, but rather, is meant as an 
alternative for those entities that have an audit performed that meets 
the standards set forth in this final rule. For these reasons, the 
Department's final rule adopts without change the audit exemption as 
proposed.
3. ERISA Covered Plans Required To File a Form 5500
    Under the 2003 and 2006 Form T-1 final rules, a labor organization 
was not required to file a Form T-1 for a section 3(l) trust if the 
trust was an employee benefit plan that filed a complete and timely 
annual report pursuant to ERISA. These rules also stated that ``a 
notice filed with the Secretary of Labor pursuant to an exemption from 
reporting and disclosure does not constitute a complete annual 
financial report.''
    The Department proposed to remove this exemption in the NPRM. The 
proposal noted that the focus of the financial reporting required on 
the Form T-1 and the Form 5500 are not identical and therefore the Form 
5500 was an unsatisfactory substitute for the reporting required under 
the LMRDA. The NPRM noted that not all section 3(l) trusts are subject 
to ERISA and thus, under the exemption as provided in the 2003 and 2006 
final rules, labor organizations, the public and OLMS investigators 
would have to spend considerable time and resources to determine 
whether a section 3(l) trust complied and timely filed the Form 5500. 
73 FR 11765. The Department also cited the difference in who was 
required to sign the Form T-1 and the Form 5500 and the difference in 
the timing for filing as reason to omit the exemption. 73 FR 11766. The 
NPRM invited comments on a number of questions related to the removal 
of the Form 5500 exemption.
    The Department received a significant number of comments concerning 
the Form 5500 and whether the Department should allow an exemption 
where a section 3(l) trust files a Form 5500. Several commenters 
asserted that the Form T-1 is duplicative of information already 
available to labor organization members on the Form 5500.
    After consideration of the comments, the Department has decided to 
include a Form 5500 exemption in the final rule. The Department 
recognizes that the Form 5500 may not provide certain details required 
by the Form T-1. In an effort to respond to concerns of commenters and 
to meet the objectives of the LMRDA, the Department has fashioned an 
exemption that differs in some respects from the exemption set forth in 
the 2003 and 2006 rules. The ERISA annual reporting requirements for a 
section 3(l) trust that is an ERISA-covered plan are generally 
satisfied where the section 3(l) trust files the Form 5500 Annual 
Return/Report of Employee Benefit Plan and any required attachments.\6\ 
Under this final rule, labor organizations will not file a Form T-1 for 
any section 3(l) trust that is required under ERISA and applicable 
Departmental regulations to file a Form 5500.
---------------------------------------------------------------------------

    \6\ The Form 5500 and governing regulations applicable beginning 
with plan years beginning in 2009 were modified on November 16, 
2007. 72 FR 64710 (final rule); 72 FR 64731 (notice of adoption of 
revisions to annual return/report forms). The final rule adopted 
changes to the Form 5500 and created the Form 5500-SF.
---------------------------------------------------------------------------

    For purposes of this Form T-1 exemption only, a trust is ``required 
to file a Form 5500'' if a plan administrator is required to file an 
annual report on behalf of the trust under 29 U.S.C. sections 1021 and 
1024. The Form T-1 exemption, however, does not apply where an ERISA 
covered section 3(l) trust is eligible for an exemption from filing a 
Form 5500 or Form 5500-SF under Department of Labor regulations. This 
includes those section 3(l) trusts that may file a notice or statement 
with the Secretary of Labor in lieu of an annual report pursuant to an 
exemption from, or as an alternative method of complying with, the 
annual reporting obligation, even if it does file a Form 5500 or Form 
5500-SF. The following sections of title 29 of the Code of Federal 
Regulations identify the types of ERISA plans that under this final 
rule would be treated as not required to file a Form 5500 for purposes 
of the Form T-1 filing requirement: Sec.  2520.104-20 (small unfunded, 
insured, or combination welfare plans), Sec.  2520.104-22 
(apprenticeship and training plans), Sec.  2520.104-23 (unfunded or 
insured management and highly compensated employee pension plans), 
Sec.  2520.104-24 (unfunded or insured management and highly 
compensated employee welfare plans), Sec.  2520.104-25 (day care center 
plans), Sec.  2520.104-26 (unfunded dues financed welfare plans 
maintained by employee organizations), Sec.  2520.104-27 (unfunded dues 
financed pension plans maintained by employee organizations), Sec.  
2520.104-43 (certain small welfare plans participating in group 
insurance arrangements), and Sec.  2520.104-44 (large

[[Page 57429]]

unfunded, insured, or combination welfare plans; certain fully insured 
pension plans). Therefore, a labor organization must file a Form T-1 
for any ERISA-covered section 3(l) trusts that are eligible under these 
regulations.
    All the labor organization and trust commenters objected to the 
Department's decision to depart from the position it had taken in 
earlier Form T-1 rulemakings whereby a labor organization was not 
required to file a Form T-1 for a trust that filed a timely and 
complete Form 5500. The commenters raised the following points in 
support of their position: (1) Title II of the LMRDA is not intended to 
regulate employee benefit plans covered by ERISA; (2) information 
reported on the Form T-1 is already available on the Form 5500; (3) the 
benefit of Form T-1 reporting does not exceed the burden it places on 
labor organizations and trusts; and (4) the Department has failed to 
show how entities that file the Form 5500 have used these trusts to 
circumvent LMRDA reporting. A number of the commenters offered 
alternatives to the complete exclusion of the Form 5500 exemption.
    Commenters reviewed the history of legislation governing employee 
benefit plans, stating their view that Congress never intended to apply 
the LMRDA's reporting and disclosure requirements to employee benefit 
plans. They cited section 302 of the LMRA in support of their 
contention that employee benefit plans are insulated from labor 
organization control. As related by these commenters, section 302 
permits employer payments to an employee benefit plan only if: (1) Such 
payments are made to a separate trust fund established for the purpose 
of providing medical or hospital care, pension or retirement benefits, 
insurance, or for other enumerated purposes; (2) such payments are held 
in trust for the sole and exclusive benefit of employees; (3) the 
detailed basis for such payments is set forth in a written agreement 
with the employer; (4) management and labor are equally represented in 
the trust's administration; and (5) an annual audit of the fund's 
assets is conducted by an independent auditor.
    Commenters also noted that Congress saw no need to include the 
transactional details that the proposed Form T-1 requires because it 
did not include them in the recent Pension Protection Act of 2006 which 
substantially amended ERISA. A number of commenters suggested that the 
Department drop the Form T-1 and work with the IRS and the Employee 
Benefits Security Administration (EBSA) to revise the Form 5500 as 
necessary to address any concerns.
    The Department has reviewed and considered the concerns expressed 
about the relationship between the LMRDA reporting requirements and 
ERISA. By adopting an exemption for section 3(l) trusts that are 
required to file a Form 5500 the Department has recognized that ERISA 
is the primary statute for regulating section 3(l) trusts that are 
covered under that statute. The Form 5500 helps ensure that employee 
benefit plans are operated and managed in accordance with certain 
prescribed standards and that participants and beneficiaries, as well 
as regulators, have sufficient information to protect the rights and 
benefits of participants and beneficiaries. While not identical in 
purpose to the Form T-1, the Form 5500 provides information on assets, 
liabilities, losses or shortages of funds or other property, 
acquisition or disposal of goods or property in a manner other than 
purchase or sale, liquidations, reductions, and write-offs.\7\ More 
importantly, the general ERISA regulatory and enforcement regime, 
through its civil and criminal provisions, reduces (although it does 
not eliminate the risk entirely) the ability of labor organizations to 
use employee welfare or pension plans to circumvent their LMRDA 
reporting obligations.
---------------------------------------------------------------------------

    \7\ The Department does not agree that the Form T-1 is entirely 
duplicative of the information available on the Form 5500. While 
both forms seek financial information about trusts, among other 
differences, a Form 5500 does not include the itemization of 
disbursements or receipts required by the Form T-1 and the persons 
requires to sign the Form T-1 and Form 5500 are not identical. Under 
the Form T-1, the form must be signed by the president and 
treasurer, or corresponding principal officers, of the labor 
organization. By comparison, the Form 5500 filed by a section 3(1) 
trust is signed by the plan's ``administrator,'' as defined in 
section 3(16) of ERISA. By requiring the labor organization's 
principal officers to certify the accuracy of the financial report, 
individuals who may be in a position to use the trust to circumvent 
their union's reporting requirements will be required to vouch under 
penalty of perjury to the accuracy of the trust report. The 
officers' incentive to use the trust to circumvent the LMRDA filing 
requirements is thereby reduced. Notwithstanding these differences, 
however, the Department, for the reasons discussed in the text, has 
determined that the Form 5500 exemption as set forth in the final 
rule is appropriate.
---------------------------------------------------------------------------

    This is a change from the 2003 and 2006 Form T-1 final rules which 
allowed for an exemption so long as the trust had filed a complete and 
timely annual report pursuant to ERISA. However, framing the exemption 
as was done in 2003 and 2006 puts the burden on OLMS to determine 
whether the Form 5500 is complete and timely in order to determine 
whether the labor organization has complied with the Form T-1 
requirement.
    The Department has not extended the Form 5500 exemption to all 
trusts that are required to file an annual report under ERISA. Rather, 
the Form T-1 5500 filing exemption will be available to only those 
section 3(l) trusts that are required to file the Form 5500. Thus, 
where ERISA or Department of Labor regulations exempt or allow the plan 
administrator to take an exemption from filing a Form 5500 or 5500-SF, 
the labor organization would need to file a Form T-1 for that trust. A 
Form T-1 would be required even if the plan administrator of such a 
fund does not take advantage of the opportunity to obtain an exemption, 
and does, in fact, file a Form 5500 or Form 5500-SF.
    The Department believes that the Form 5500 exemption as set forth 
in this final rule balances the concerns of commenters about burden and 
duplication between the Form 5500 and the Form T-1 with the 
Department's concerns regarding the enforcement difficulties associated 
with the Form 5500 exemption as set forth in the 2003 and 2006 Form T-1 
final rules. An exemption that is available to trusts that can choose, 
year-by-year, whether to file a Form 5500 creates significant 
enforcement burdens for the Department. Because of differing deadlines 
for filing the forms, it may be difficult for the Department to 
determine whether a trust that is not required to file a Form 5500 has, 
in fact, determined that it will file one for the relevant time period. 
Moreover, the Department would be required not only to determine 
whether the relevant trust may be exempt from the Form 5500 
requirement, but also would be required to determine whether such 
trust, in fact, filed anyway before determining whether the labor 
organization was required to file a Form T-1. In contrast, an exemption 
that covers only trusts that are required to file a Form 5500 is 
relatively easy to enforce. The obligation to file a Form 5500 depends 
on the characteristics of the trust, which can be objectively 
determined. As such, it is a relatively easy matter to determine 
whether a trust is required to file a Form 5500. Both OLMS and EBSA 
would have an interest in correctly identifying trusts required to file 
a Form 5500, and EBSA has considerable expertise in this area.
    In contrast, a trust that may elect to exempt itself from the Form 
5500 filing requirements creates an entirely different problem. Only 
the trust will know whether it will file a Form 5500. Until it files a 
notice that it is taking the Form 5500 exemption, or its time for

[[Page 57430]]

doing so has expired, there are no objective measurements to determine 
whether a Form 5500 will be filed. As an enforcement matter, therefore, 
OLMS will regularly be unable to predict by objectively determinable 
measures whether such a trust will be reported on a Form T-1 or not. 
This creates difficulty in providing compliance assistance to labor 
organizations and trusts, and, more significantly, responding to 
questions and requests from labor organization members about trust 
reporting. Similarly, labor organizations will not be faced with 
uncertainty about those trusts for which they must file the Form T-1. 
The labor organizations' reporting obligation will not be contingent on 
the choice a plan administrator makes about filing a Form 5500. Under 
the Form 5500 exemption as adopted by the Department in this final 
rule, a labor organization will be able at the beginning of its fiscal 
year to know with certainty whether it should prepare to file the Form 
T-1 for a particular trust.
    The Form T-1 filing exemption for filers who are required to file a 
Form 5500 responds to concerns about duplication of effort, redundant 
filing requirements, increased burden, and the discrete roles of the 
LMRDA and ERISA. The Form 5500 filing exemption adopted in this final 
rule comports with ERISA, properly takes into account the complimentary 
roles served by each statute, and reduces reporting burden while 
providing labor organization members and the public with core 
information that will help to prevent the circumvention or evasion of 
the LMRDA's reporting requirements.

H. Public Sector Funded Trusts

    As discussed above this final rule requires Form T-1 reports to be 
filed by labor organizations with receipts of at least $250,000 that 
have an interest in a section 3(l) trust, and alone, or in combination 
with other labor organizations, (1) selects or appoints the majority of 
the members of the trust's governing board, or (2) contributes more 
than 50 percent of the trust's receipts during the annual reporting 
period; contributions made pursuant to a collective bargaining 
agreement shall be considered contributions by the labor organization. 
The Department's NPRM provided no exemption from this reporting 
requirement for any specific type of section 3(l) trust, other than for 
political action committees and section 527 trusts that file timely and 
complete reports with appropriate government agencies. As a result, the 
rule as detailed in the NPRM required that Form T-1 be filed by LMRDA-
covered labor organizations with an interest in a section 3(l) trust 
that provides a benefit plan for the labor organizations' members 
employed in the public sector, and which, in some cases, is also made 
available for wider participation by public sector employees who can 
join the labor organization and enroll in its benefit plan as a result 
of their public sector employment. Based on comments received in 
response to the proposed coverage of such plans, the Department has 
decided, for the reasons that follow, to provide a specific exemption 
to the Form T-1 reporting requirements for those labor organizations 
with a reportable interest in a section 3(l) trust that is covered by 
the FEHBA. However, as explained below, this exemption applies only to 
FEHBA-covered trusts, and does not extend to labor organization-
sponsored benefit plans not otherwise regulated by the federal 
government in which state, county, special district or municipal 
employees may participate.
    Two commenters addressed the NPRM's coverage of trusts established 
to provide employee benefits to public sector employees. The first 
comment is from a national labor organization representing primarily 
federal sector postal employees, which sponsors a health benefit plan 
that is established, administered, funded and maintained by contract 
between the labor organization and the federal government's Office of 
Personnel Management (OPM) pursuant to FEHBA. Under FEHBA, the federal 
government makes an employer contribution to cover the majority of the 
premium costs of the plan, 5 U.S.C. 8906, and the remainder is paid by 
employee contributions. The FEHBA health benefits plans offer hospital, 
medical, surgical and other health benefits to enrollees and their 
covered dependants. In accordance with FEHBA, only members of a labor 
organization may enroll in that labor organization's health benefits 
plan. Therefore, the plan's enrollees are federal employees who are 
members of the labor organization or associate members who have become 
members of the labor organization in order to enroll in the health 
benefit plan sponsored by the labor organization.
    The labor organization with a FEHBA-governed plan argues that an 
exception to coverage under this rule is warranted because FEHBA plans 
are already subject to significant federal oversight and reporting 
requirements. In particular, the commenter argues, the oversight is 
equivalent to, and perhaps more than, the federal reporting 
requirements, oversight, and government regulations than are applicable 
to other entities, such as political action committees or section 527 
organizations, that were specifically exempt from compliance in the 
proposed rule. According to the commenter, FEHBA plans are subject to 
stringent requirements contained in the contracts with OPM, which are 
reviewed and approval on an annual basis. In addition, FEHBA plans must 
file detailed financial reports with OPM on a quarterly and annual 
basis, and are subject to annual auditing requirements as well as 
periodic audits by OPM and the OPM Office of the Inspector General in 
order to ensure the plan's compliance with contract requirements and 
federal law.
    The Department finds persuasive these reasons offered by the first 
commenter for an exception to compliance with this rule for FEHBA-
covered plans. The Department concludes that the interest of members of 
labor organizations in having access to meaningful information 
regarding the trusts in which their labor organization has an interest 
is served by the rigorous federal oversight already in place under 
FEHBA, without need for additional compliance with this rule. So long 
as the interests of labor organization members who want to be familiar 
with the investments and expenditures of their labor organization's 
trust is satisfied, the Department may reduce the potentially 
overlapping regulatory burden to covered entities by creating this 
exception for FEHBA-covered plans. The exception is noted both in the 
instructions for filing the Form T-1 and the regulatory text (revising 
29 CFR 403.8).
    The second comment received on this subject was from a local labor 
organization that represents municipal employees employed by the City 
of New York. This labor organization sponsors several supplemental 
employee benefits plans, which were established over the course of 
several decades pursuant to collective bargaining agreements with the 
municipal employers. Although the commenting labor organization 
represents a small number of employees employed in the private sector, 
the participants of the labor organization's employee benefits funds 
are only employees of the municipal employers.
    Like the first commenter, the local labor organization indicates 
that its employee benefit funds in which New York City municipal 
employees participate are already subject to extensive government 
oversight and control by the Comptroller of the City of New York. Also 
like the first commenter, this local labor organization

[[Page 57431]]

argues that this existing oversight scheme established under local law, 
including annual audits of which a condensed version is transmitted to 
the membership of the funds, is sufficient to accommodate any party 
interested in gathering financial information about the labor 
organization's employee benefits trusts. However, the Department notes 
that the information required by local law appears only to be required 
to be distributed to plan participants, and not labor organization 
members who belong to the labor organization sponsoring the plans and 
whose interests are at the heart of this rule. In addition, although 
the commenter's benefit plans are clearly subject to some governmental 
oversight, it is infeasible for the Department to examine every state 
or local oversight scheme to determine whether it requires the 
reporting and distribution of information sufficient to satisfy the 
Department's purpose in protecting the members of labor organizations 
sponsoring such plans. Because each state or municipality may establish 
differing oversight schemes with differing reporting requirements, 
which are subject to periodic revision by those state and local 
governments, it is impracticable for the Department to review this 
patchwork of regulation to assure the continued protection of the 
interests of labor organization members. For these reasons, the 
Department declines to create a broader exception to this rule, beyond 
the exception noted above for FEHBA plans, for employee benefit plans 
sponsored by labor organizations for the benefit of public sector 
employees.

I. Applicability to Multiple Labor Organizations Participating in a 
Single Section 3(l) Trust

    The Department proposed that each labor organization meeting the 
reporting threshold will have to submit a Form T-1 to the Department, 
even though the labor organization's interest in the trust may 
represent only a relatively small portion of the total contributions 
made to the trust by labor organizations. The Department received no 
comments on this aspect of the rule, which is set forth in this final 
rule without change.
    In the NPRM, the Department explained that it had received comments 
on its 2002 proposal to establish a Form T-1 relating to the 
participation by multiple labor organizations in a single trust. In 
response to the 2002 proposal, an international labor organization 
explained that it was not uncommon for several locals to participate in 
an apprenticeship and training fund that would be funded by payments 
from employers pursuant to negotiated agreements providing for ``a-
cents-per-hour'' contribution for hours worked by each of their 
employees. As an example, the labor organization discussed a fund with 
annual contributions over $300,000 in which seven locals participated. 
The contributions from, or on behalf of, each local ranged from about 
$10,000 to about $100,000. The fund had four employer and four labor 
trustees; three from different locals contributing to the trust and a 
fourth from the labor organizations' parent organization.
    The labor organization also explained that it was common for local 
labor organizations in different crafts (affiliated with different 
parent bodies) to participate in a fund. It explained that in these 
instances, it would be unusual for a single craft or local to represent 
a majority of the labor organization trustees. It stated that in such 
circumstances it is unrealistic to suggest that any single labor 
organization or craft controls the trust. It has also been the 
Department's experience that is not uncommon for multiple labor 
organizations to participate in a section 3(l) trust without any single 
labor organization contributing a majority of the trust's revenues. In 
some trusts, such as strike funds, labor organizations may be the sole 
contributors to the fund; in others, such as Taft-Hartley trusts, the 
trust will be funded by employers, but such funds are established 
through collective bargaining agreements, and the employer 
contributions are made for the benefit of the employees working within 
the bargaining units represented by the participating labor 
organizations or the employees' beneficiaries. Working from this 
understanding, the Department crafted its 2003 and 2006 Form T-1 final 
rules and the proposal set forth in the NPRM to require each labor 
organization participating in the trust (i.e., those meeting the 
reporting thresholds) to submit a report on the trust's financial 
operations.
    As noted, the contributions to trusts in which several labor 
organizations participate typically will consist solely of funds that 
are contributed on behalf of their members. In other situations, the 
funds will be contributed by employers on behalf of employees working 
for these employers who are represented by the participating labor 
organizations. In many instances, none of the participating labor 
organizations, by themselves or by virtue of the employers' 
contributions pursuant to a collective bargaining agreement, 
contributes a majority of the trust's receipts during a reporting 
period. As the Department explained in the NPRM, unless a reporting 
obligation is imposed on one or more of the labor organizations on some 
basis other than majority contributions, no labor organization members 
would receive information on the trust's finances. In its 2002 
proposal, the Department illustrated the need for reporting on section 
3(l) trusts with four examples in which labor organizations had evaded 
their reporting obligations through their involvement with such trusts. 
One of these examples involved the improper diversion of money from a 
strike fund in which no single labor organization held a controlling 
interest. The absence of any reporting obligation facilitated the 
improper disposition of thousands of dollars (over $60,000 per month) 
from the strike fund. As this example also demonstrates, disbursements 
from a trust of pooled labor organization funds affects the 
contributing labor organizations' financial conditions and operations 
as clearly as disbursements from a trust funded by a single labor 
organization. A rule directed to preventing a single labor organization 
from circumventing or evading the law should not permit the same 
conduct when it is undertaken by more than one labor organization.
    In fashioning this rule, the Department considered two 
alternatives: fixing the obligation on the labor organization with the 
greatest stake in the trust; or allowing one of the participating labor 
organizations to voluntarily take on this responsibility. Either of 
these approaches would create difficulties in enforcement. As the 
Department explained in the NPRM, determining which labor organization 
has the greatest stake in a trust is an uncertain inquiry. There are 
several ways that this could be calculated, such as percentage of 
contributions, gross amount of contributions over the life of the 
trust, number of members receiving benefits, etc. Further, a rule 
allowing one labor organization to volunteer to file the form (and thus 
the others to file nothing) would complicate the Department's ability 
to enforce the reporting requirement when no labor organization has 
filed a report. In addition, the reporting labor organization may not 
be the labor organization that is, in fact, using the trust to 
circumvent or evade its reporting requirement. Finally, this reporting 
gap could allow some labor organizations and individuals to evade their 
reporting obligations under the LMRDA.
    For these reasons, the Department has determined that where 
multiple labor organizations appoint a majority of the

[[Page 57432]]

members of the trust's governing board, or their contributions 
constitute greater than 50 percent of the trust's annual receipts, each 
will be required to file a Form T-1. In making this determination, the 
Department recognizes that the section 3(l) trust, not the reporting 
labor organizations, will be the source of most of the necessary 
information and that this information, in large part, will be identical 
for each participating labor organization. This will allow for 
allocation of information collection costs among the labor 
organizations, as determined by the trust, and will keep all of the 
reporting labor organization's total costs only marginally higher than 
if a Form T-1 were required to be filed by only one of the 
participating labor organizations.

J. Labor Organization's Ability To Obtain Information From Trusts To 
File the Form T-1

    Under this final rule, a labor organization is required to file a 
Form T-1 if it alone or in combination with other labor organizations 
(1) selects or appoints the majority of the members of the section 3(l) 
trust's governing board, or (2) contributes more than 50 percent of the 
section 3(l) trust's receipts during the annual reporting period.
    A number of comments were received expressing concern that it would 
be difficult for labor organizations to obtain the information 
necessary to complete the Form T-1 from the section 3(l) trust. One 
commenter recommended that the Department include a safe harbor 
provision in the final rule providing that if a labor organization made 
a demand in writing to the trust for the Form T-1 information and the 
trust failed to provide the information this would relieve the labor 
organization of the obligation to file the Form T-1. The Department 
believes that limiting the Form T-1 reporting requirement to those 
trusts over which the labor organization has managerial control or 
financial dominance, as defined in this rule, makes it unlikely that 
any participating labor organization will have difficulty in obtaining 
from the trust the information needed to complete the Form T-1. As a 
result, the Department does not believe a general safe harbor provision 
is necessary.
    However, to address those rare instances where a section 3(l) trust 
balks at providing the necessary information, which was expressed in 
many comments, the labor organization may request that the Department 
use its available investigatory authority to assist the reporting labor 
organization to obtain information necessary to complete the Form T-1.
    The Department expects that labor organizations and labor 
organization officials will take timely, reasonable, and good faith 
actions to obtain the necessary information from section 3(l) trusts 
and, where they have done so, the Department will not assert a willful 
and knowing violation of the filing requirement against the labor 
organization, its president, or its treasurer.
    Many section 3(l) trusts and labor organizations commented that 
providing the information required for labor organizations to complete 
the Form T-1 raised significant concerns regarding a breach of the 
trust's fiduciary duties owed to participants and beneficiaries, 
including concerns that individual privacy rights may be violated. With 
regard to privacy concerns, a pension fund commenter was particularly 
concerned about the required disclosure of individual benefit 
recipients by name and address and the subsequent listing of those 
individuals online. The commenter believed it would be inconsistent 
with ERISA section 404, 29 U.S.C. 1104, to provide this information to 
the labor organization so that the labor organization could forward it 
to the Department for posting on the Internet. A second commenter added 
concerns that this information could be used for identity theft. As 
noted above in section D, in this final rule the Department has 
modified the instructions to the Form T-1 so that itemization is no 
longer required for benefits disbursements made pursuant to a written 
agreement specifying the detailed basis for making the payments. The 
Department believes that this will alleviate the concerns about privacy 
and identity theft.
    A labor organization commenter addressed the potential breach of 
the trust's fiduciary duties, stating that under ERISA section 
404(a)(1)(A), 29 U.S.C. 1104(a)(1)(A), a fiduciary is required to 
discharge his duties with respect to an ERISA plan solely in the 
interest of the participants and beneficiaries and ``for the exclusive 
purpose of providing benefits to participants and their beneficiaries; 
and defraying reasonable expenses of administering the [ERISA] plan.'' 
The commenter indicated that having ERISA plans prepare information for 
labor organizations so that labor organizations can meet their 
reporting obligations raises concerns as to whether the fiduciary is 
using ERISA plan assets exclusively for the benefit of participants and 
whether preparing this information actually would interfere with the 
normal operations and administration of such ERISA plans.
    In addition to the ERISA section 404 concerns, a number of comments 
also pointed out that ERISA section 406(b), 29 U.S.C. 1106(b), 
prohibits a fiduciary and a labor organization trustee who is a labor 
organization official from acting in an ERISA plan transaction, 
including providing services, involving his or her labor organization. 
Further, they noted that a labor organization participating in an ERISA 
trust fund is a party-in-interest to that plan under ERISA. The 
commenters agreed that ERISA plans may enter into certain transactions 
with a party-in-interest if the transaction is necessary for the 
operation or administration of the ERISA plan and does not involve 
fiduciary self-dealing. However, they believed it unlikely that most 
ERISA plan fiduciaries would conclude that gathering and furnishing the 
type of information necessary for a labor organization to complete a 
Form T-1 would be necessary to operate or administer the ERISA plan. 
Some commenters suggested that the prohibited transaction issue could 
be avoided by requiring the labor organization to reimburse the ERISA 
plan for all expenses connected with the gathering of Form T-1 
information but commented that reimbursing the ERISA plan for the Form 
T-1 expenses would not eliminate the concerns relating to a violation 
of ERISA section 404.
    As a means of resolving these concerns, the Department presents two 
safeguards. First, in this final rule the Department has included a 
Form 5500 exemption for those ERISA plans required to file a Form 5500 
(Form 5500 T-1 exemption), as discussed in section G(2) above. The 
Department's inclusion of the Form 5500 T-1 exemption means that most 
of the commenters who raised concerns about sections 404 and 406 of 
ERISA will not be required to file a Form T-1, dramatically reducing 
the number of trusts from which labor organizations will need 
information. Second, EBSA has reviewed this rule and specifically 
advises that it would not consider a plan fiduciary to have violated 
ERISA's fiduciary duty or prohibited transaction provisions by 
providing officials of a sponsoring labor organization with financial 
and other information from the plan's books and records as needed to 
complete the Form T-1, provided the plan is reimbursed for any material 
costs incurred in collecting and providing the information to the labor 
organization officials. EBSA explained that the sharing of information 
in this manner is consistent with ERISA's text and purposes, and a 
contrary construction is disfavored because it would impede compliance

[[Page 57433]]

with the LMRDA and the achievement of its purposes. The Department 
expects that trusts will routinely and voluntarily comply in providing 
such information to reporting labor organizations.

K. Scope of LMRDA Section 3(l) in General

    The Department received a few comments that requested a 
clarification of the scope of section 3(l) of the LMRDA. One commenter 
requested that the Department clarify that section 3(l) trusts must be 
limited to ``trusts that are established for the primary purpose of 
providing benefits to members of such labor organization or their 
beneficiaries (for example, strike funds, credit unions, building funds 
or trust funds established pursuant to a labor organization's 
constitution to provide death benefits to members).'' This comment 
suggested that a review of the documents that establish each trust 
would help to determine whether the trust was established to benefit 
the members of a labor organization or to benefit the employees. The 
comment requested that the Department exclude from the coverage of 
section 3(l) all trusts, even if funded pursuant to a collective 
bargaining agreement, that in the documents creating the trust, 
specifically note that the trust is created for the benefit of 
employees.
    Section 3(l) provides that a ``trust in which a labor organization 
is interested'' is a trust:

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

    29 U.S.C. 402(l). The Department agrees that trust documents are 
critical to making a determination regarding a trust's status as a 
section 3(l) trust. These documents must be considered along with the 
actual operation of the trust in determining whether they will give 
rise to a Form T-1 reporting obligation. Each labor organization must 
consider the particular circumstances of a trust in evaluating whether 
the trust satisfies the definition of a section 3(l) trust and then 
must determine whether the labor organization is required to file a 
Form T-1 pursuant to this rulemaking. Though the Department is prepared 
to offer compliance assistance to labor organizations, a thorough 
review by the Department of all documents that may create a section 
3(l) trust is impracticable. Therefore, the Department declines to 
adopt this suggestion.
    With regard to the commenter's implicit conclusion that a trust 
document stating that the trust is created for the benefit of employees 
would require the conclusion that the trust would not be a section 3(l) 
trust, it is the Department's view that such a statement alone would 
not resolve the question. Section 3(l) requires an inquiry as to 
whether ``a primary purpose * * * is to provide benefits for the 
members of [a] labor organization or their beneficiaries.'' Thus, a 
trust may have more than one primary purpose. The commenter's statement 
does not provide sufficient information to either determine whether the 
trust in question is a section 3(l) trust under the LMRDA or whether a 
trust created by the labor organization for the benefit of employees of 
an employer would fall outside the scope of section 3(l). Although the 
Department does not resolve this question, the statement that a trust 
is created for the benefit of employees by itself would not deny 
section 3(l) status to the entity in question. Therefore, the 
Department declines to adopt this suggestion.
    A bank submitted comprehensive comments, arguing, in part, that (1) 
it does not come within the scope of section 3(l) because, in its view, 
section 3(l) is limited to ``health benefits, pension benefits, life-
insurance benefits or other similar kinds of concrete and individual 
benefits, and * * * not to * * * intangible collective benefits,'' as 
it characterizes the benefits it provides to the labor organizations 
creating the bank; and (2) requiring labor organizations to submit a 
Form T-1 regarding the bank's financial operations would place an 
unfair burden on the bank relative to its competitors. The bank stated 
that it believes itself to be ``the last union owned commercial bank in 
the United States,'' explaining that it was established by a labor 
organization and that almost 60% of the voting common shares of the 
bank are owned by a national labor organization subject to the LMRDA. 
The bank markets itself as ``America's Labor Bank'' and provides a one 
percentage point discount on interest rates for loans to union members. 
It also explained that labor organizations are no longer permitted to 
own banks, but that its apparently unique status exists by virtue of a 
grandfather provision in the Bank Holding Act of 1956. See 12 U.S.C. 
1843.
    The Department is persuaded that the bank's status is indeed unique 
and, for the reasons that follow, will except labor organizations from 
submitting a Form T-1 about the bank's financial operations. The bank, 
apart from its status as a labor organization-created bank, differs in 
no material respect from other commercial, for profit banking 
institutions. Given the nature of its operations, it engages in a much 
larger number of potentially reportable transactions than all but a 
few, if any, section 3(l) trusts. Like other financial institutions, it 
is subject to strict state and federal regulation that tempers somewhat 
the need for reporting obligations. The bank's commercial lending 
business is predominantly conducted with non-labor organization 
entities, a result of the bank's competitive position in the 
marketplace. Similarly, the majority of the bank's customers are not 
labor organization members. Credit unions often serve a narrower 
customer base, which, in the section 3(l) trust context, may consist 
predominantly of members of the sponsoring labor organization. While 
the bank does share some characteristics with other section 3(l) 
trusts, especially credit unions, the bank's customer base is drawn 
from a broader market, and its investment portfolio is more varied and 
diverse than a typical credit union. For these reasons the bank's 
operations are subject to greater market scrutiny than typically would 
be the case for a labor organization-established credit union. 
Moreover, as an employer, the bank is subject to the LMRDA's reporting 
provision for employers, 29 U.S.C. 433, that require it to report any 
payments to labor organization officials other than those made in the 
regular course of business. Thus, the bank will be required to disclose 
on Form LM-10 the kinds of payments that would be of the greatest 
interest to labor organization members, notwithstanding that labor 
organizations participating in this trust are excepted from filing the 
Form T-1 about the bank's financial operations. In connection with this 
matter, two additional points must be noted. First, the Department is 
not persuaded by the bank's argument that it does not constitute a 
section 3(l) trust, however, the Department does not reach this 
question in excepting labor organizations from reporting on the bank's 
financial operations. Second, the bank stated in its comments that in 
addition to its regular banking commercial services, it ``also engages 
in a large institutional trust business providing custody and 
investment management services to Taft Hartley and other employee 
benefit plans.'' By not requiring labor organizations to file a Form T-
1 about the bank's financial operations, the Department does not modify 
in any way the filing obligations

[[Page 57434]]

of any labor organizations with section 3(l) trusts that utilize the 
bank for services in administering such trusts.

L. Format of the Form T-1, Schedules, and Instructions and Electronic 
Submission of the Form

    Form T-1, as proposed and adopted by this final rule, is shorter 
and requires less information than the Form LM-2, the annual financial 
report filed by labor organizations with at least $250,000 in annual 
receipts. It includes: 15 questions on page 1 (Items 1-15) that 
basically identify the trust; five yes/no questions (Items 16-20) 
covering issues such as whether any loss or shortage of funds was 
discovered during the reporting year (Item 16), the disposition of 
property by other than market sale (Item 17), the liquidation of debts 
(Item 18), and whether the trust made any loans to officers or 
employees of the labor organizations at terms below market rates (Item 
19); and statements (Items 21-24) regarding the total amount of assets, 
liabilities, receipts and disbursements of the trust. Item 25 requires 
additional detail if a filer checks ``Yes'' to any of the yes/no 
questions in Items 16 through 20.
    The Department proposed that filers submit the Form T-1 
electronically to the Department using software provided by the 
Department and available on the OLMS Web site. As proposed, a Form T-1 
filer will be able to file a report in paper format only if it applies 
for and is granted a continuing hardship exemption of up to one year, 
but a paper format copy may be submitted initially if the filer asserts 
a temporary hardship and files electronically within 10 days 
thereafter. The Department proposed a procedure in the Form T-1 
Instructions for applying for a continuing hardship exemption, which 
was identical to that of the Form LM-2. The proposed procedure whereby 
forms must be submitted electronically with limited exceptions received 
no substantive comment and the Department adopts this procedure in this 
final rule.
    The Department received no comments about several specific items on 
the proposed form, schedules, and instructions. Thus, except as noted 
below, the final form, schedules, and instructions contain no 
substantive change from those published in the NPRM. The comments 
received on particular aspects of the form, schedules, and instructions 
are identified below. Some of these comments have been addressed in 
more detail in other sections of the preamble.
    In the NPRM, the Department specifically invited comments on 
whether the trust's employer identification number (EIN) should be 
reported on the first page of the Form T-1. The Department stated that 
the number could be used by members to cross-check the information on 
the Form T-1 with other reports submitted by the trust, such as its 
filings with the IRS. As discussed below, the Department has decided to 
require this information, which will be reported in Item 11. As 
proposed, Item 11 required filers to report the tax status of the 
trust; this information need not be reported under the final rule. The 
Department has concluded that disclosure of the tax status of the trust 
is of less utility to members than is the EIN and as such is requiring 
disclosure of the EIN in place of tax status.
    Two commenters expressed support for requiring labor organizations 
to provide the trust's EIN. In their view, this information will 
``facilitate better cross-referencing between reporting forms'' 
increasing the form's usefulness, and help ensure against fraud or 
mistake. One commenter opposed including the EIN, arguing that cross-
referencing could lead to confusion if users were to compare Form T-1 
submissions with reports filed under ERISA by the same trusts.
    The Department adopts the requirement that the labor organization 
must supply the trust's EIN. Item 11 of the form and the corresponding 
instructions have been modified accordingly. This modification imposes 
no additional burden on the trust or labor organization beyond what the 
proposal required, and it does not violate any privacy or 
confidentiality of the parties, plan participants, or their 
beneficiaries. Without the disclosure of the EIN on the Form T-1, labor 
organization members and the public could encounter difficulty finding 
this information, leaving them unable to easily cross-reference the 
Form T-1 with other reporting and disclosure forms, thus reducing the 
form's utility. The Department believes that users will recognize that 
the Form T-1 and any other reports filed by the trust, such as reports 
under the Internal Revenue Code (Form 990) do not report identical 
information. The Department expects that any potential confusion will 
be minimal and, in any event, is outweighed by the utility of comparing 
the information reported on the various forms. The ability to cross-
reference the Form T-1 with the Form 990 and other disclosure forms, 
and check for any anomalies, will help reduce the ability of labor 
organization officials to use a trust to circumvent other LMRDA 
reporting requirements.
    Item 16 of the form requires a labor organization to report the 
trust's losses, shortages, or other discrepancies in the trust's 
finances. Three commenters opposed Item 16's requirement of reporting 
whether the trust discovered a loss or shortage of funds or other 
property during the reporting period. One expressed concern over 
reporting delinquent contributions from employers as well as 
overpayment of benefits, such as payments to ineligible dependants, 
individuals who have coverage through a spouse, or when the fund does 
not know of a participant's death. This commenter also argued that 
reporting a health fund's losses would violate the fund's privacy 
obligations under HIPAA, as well as require additional work by the 
fund's staff. Additionally, this comment stated that the definition of 
``loss'' in the instructions is too vague to know what information to 
send to the labor organization. Finally, a commenter also questioned 
the lack of an adequate definition of ``loss'' or ``shortage'' in the 
instructions, which may lead to excessive and irrelevant reporting of 
transactions.
    The Department has clarified Item 16, by defining ``a loss or 
shortage of funds or other property.'' The Department has defined the 
term to exclude delinquent contributions from employers, delinquent 
accounts receivable, losses from investment decisions, and overpayments 
of benefits. Financial transparency enables members to monitor the 
affairs of their labor organization and its officers, including the 
operations of a section 3(l) trust that is dominated by the labor 
organization. While a financial loss or shortage does not, by itself, 
indicate that the trust is mismanaged or that fraudulent activity is 
occurring, it provides useful information to members regarding the use 
of their labor organization's assets and the actions of its officers.
    Item 17 of the form requires a labor organization to report the 
trust's acquisition or disposition of assets. One commenter suggested 
that it could require tracking ``thousands'' of such transactions 
annually, including all write-offs of all fixed assets (with the basis 
of those assets), all settlements or write-offs of employer 
contribution obligations (even when de minimis interest obligations are 
waived or reduced), and would require maintaining every invoice for 
furniture or equipment until disposed. Although the Department believes 
that this claim may be overstated, it has clarified the instructions in 
a way that will largely alleviate any burden. The instructions have 
been revised to apprise filers that

[[Page 57435]]

they may group similar acquired or disposed assets together, in a 
larger category, as well as grouping multiple assets acquired from or 
disposed of to the same source, which will reduce the ``expansive'' 
nature of this reporting requirement. For example, if a trust acquired 
various types of office equipment as a donation, these assets may be 
grouped together for purposes of the description in Item 25.
    Item 19 of the form requires a labor organization to report loans 
to labor organizations officers or employees made below market rates. 
No commenters objected to this provision and it is adopted as proposed.
    Items 23 and 24 of the form require a labor organization to report 
the trust's total receipts and disbursements, respectively. Recognizing 
that these terms call for reporting on a cash rather than an accrual 
basis, in contrast to the manner in which some ERISA-regulated trusts 
prepare their financial statements, one commenter expressed concern 
that the Department was effectively requiring trusts to establish a 
second recordkeeping system. The Department is not requiring section 
3(l) trusts to establish a cash basis accounting system. As is the case 
with the Form LM-2, the Department permits filers the choice of how to 
maintain their recordkeeping system. If section 3(l) trusts for which a 
labor organization files a Form T-1 choose to prepare their financial 
statements on an accrual basis, however, labor organizations may need 
to request access to the trust's books and records in order to obtain 
the information necessary to report on the Form T-1 the amount of cash 
and liabilities on hand at the start and close of each reporting 
period. See 68 FR 58374, 58380-81 (2003) (preamble to Form LM-2 final 
rule). The Department believes that it is easier for labor organization 
members to understand the trust's finances if this basic information is 
provided for their labor organization's section 3(l) trusts. In this 
regard, the Department notes that most ERISA-regulated trusts will have 
no Form T-1 reporting obligation where they submit the annual 
disclosure statements required of them under ERISA.
    One commenter sought clarification regarding the reporting of 
receipts and disbursements where employers submit contributions to 
related plans on a single check to one trust. The commenter explained 
that in such instances the trust typically acts as the depository and 
the contributions are promptly allocated to the other trusts based on 
each trust's contribution rate. The Department requires Form T-1 to 
include the total receipts and disbursements of the trust during its 
fiscal year. Therefore, Item 23, Receipts, includes all funds received 
by the trust from any employer or any other source. If a trust acts as 
a depository and promptly reallocates these receipts to other trusts, 
then such reallocation must be reported in Item 24 as a disbursement.

M. Effective Date and Reporting Deadlines

    The Department proposed that the final rule would take effect no 
less than 30 days after its publication in the Federal Register. Thus, 
under the proposal no report would be due until 15 months after the 
rule's effective date.
    Although the Department proposed that the rule could take effect on 
the 31st day after its publication, this final rule will take affect 90 
days after its date of publication and it shall apply only to labor 
organizations whose fiscal years begin on or after January 1, 2009. The 
effect of this change is to provide a small amount of additional time 
over and above that provided under the proposal before the start of the 
fiscal year for which an initial report will be due. The Department 
believes that this lead time is sufficient for affected trusts and 
labor organizations to adapt to the proposed disclosure requirements 
and make any necessary adjustments to their recordkeeping and reporting 
systems.
    As proposed and as adopted in this final rule, the Form T-1 must be 
filed within 90 days after the end of the labor organization's fiscal 
year and must cover the section 3(1) trust's most recent completed 
fiscal year, i.e., the fiscal year ending on or before the closing date 
of the labor organization's own fiscal year. This requirement is 
mandated by the LMRDA's requirement that a labor organization file its 
financial reports within 90 days after the close of the labor 
organization's fiscal year. 29 U.S.C. 437(b). By permitting a labor 
organization to file the Form T-1 within 90 days after the labor 
organization's fiscal year ending date, rather than requiring it to be 
filed within 90 days after the trust's fiscal year ending date, the 
Department has eased the reporting burden for both the trust and the 
labor organization. The instructions to Form T-1 provide examples of 
when the Form T-1 must be filed.
    Many labor organization expressed concern about their ability to 
file a Form T-1 within 90 days after the end of the labor 
organization's fiscal year in those instances where the trust and the 
reporting labor organization had the same fiscal year. The trust 
community and labor organizations also expressed concern about their 
ability to timely provide information and submit the reports, 
respectively, under those time constraints. Most of the concerns were 
contingent on the Department's proposal that only a relatively small 
number of section 3(l) trusts would be excluded from the reporting 
requirement. Other commenters expressed concern about the ability of 
multi-employer health and welfare plans to timely provide required 
information. They stated that insurance carriers and providers, not the 
trust, have the data needed for the Form T-1, which would complicate 
and delay the receipt of required information. Others stated that plans 
that have Medicare D coverage do not receive the Medicare reimbursement 
for 90 to 120 days from the date a request for reimbursement is filed. 
Further, some commenters asserted that compiling information for the 
Form T-1 would interfere with and delay the completion of their duties 
under other statutes.
    The Department has carefully considered the comments, but it 
retains the view that the rule as proposed provides sufficient time for 
labor organizations to timely submit reports. The Department's position 
is based in substantial part on the significant changes to the 
proposal. As discussed in preceding sections of the preamble, the 
Department has adopted a reporting exemption that will affect most 
Taft-Hartley trusts. Where the trust is required to file a Form 5500 
under ERISA, labor organizations participating in the trust are not 
required to file a Form T-1. Additionally, as discussed earlier in this 
preamble, the Department has established an exception to the 
itemization requirement for any payments to a trust pursuant to a 
collective bargaining agreement and any benefits payments made by the 
trust pursuant to a written agreement specifying the detailed basis on 
which such payments are made.
    As a result of these changes, the number of trusts for which a Form 
T-1 must be filed has been substantially reduced as has the number of 
transactions for which itemization is required. Many of the largest 
trusts with potentially the greatest number of receipts and 
disbursement to itemize are unaffected by the Form T-1 requirements. 
Additionally, trusts that were concerned that they would be faced with 
twice the reporting obligation (Form 5500 and Form T-1) no longer face 
this dual obligation. A trust that is required to file a Form 5500 will 
seldom, if ever, be asked by a participating labor organization to

[[Page 57436]]

compile information for the submission of a Form T-1.\8\
---------------------------------------------------------------------------

    \8\ The Department understands that plans that have Medicare D 
coverage will not receive the Medicare reimbursement until 90 to 120 
days from the date a request for reimbursement is filed. Such trusts 
typically will not be asked to provide information to labor 
organizations because such are required to file a Form 5500, 
eliminating any Form T-1 reporting obligation by the labor 
organization. However, assuming for purposes of discussion that a 
trust had to compile information for this purpose, a filer would not 
have to delay the report for the receipt of the Medicare 
reimbursement because the Form T-1 requires the reporting of 
receipts and disbursement on a cash basis. Thus, it need report 
Medicare reimbursements received as of the close of the fiscal year.
---------------------------------------------------------------------------

    A number of trusts (those with fiscal years that coincide with the 
labor organizations' fiscal years) that are not required to file a Form 
5500 or are eligible for a Form 5500 exemption, are required to 
generate and deliver financial information to the labor organization(s) 
in sufficient time for the labor organization to prepare and file the 
Form T-1 within 90 days after the close of the fiscal year. These 
trusts will not be faced with the time-consuming task of filing a Form 
5500 and will have more resources to devote to providing Form T-1 data. 
Thus, the filing deadline, even for this small subset of trusts (those 
not required to file the Form 5500 and that have fiscal years 
coinciding with the labor organization's), will be reasonable and will 
not interfere with the trust's compliance with other non-LMRDA 
statutory and regulatory requirements. Further, the Department notes 
that the most complex and large labor organizations are required to 
compile, and have proven themselves capable of compiling, financial 
data for reporting within 90 days after the close of the fiscal year. 
The Form T-1 requires less information and information of less 
complexity than required of a large labor organization in filing the 
Form LM-2.

Regulatory Procedures

Executive Order 12866

    This rule has been drafted and reviewed in accordance with 
Executive Order 12866, section 1(b), Principles of Regulation. The 
Department has determined that this rule is not an ``economically 
significant'' regulatory action under section 3(f)(1) of Executive 
Order 12866. Based on an analysis of the data, the rule is not likely 
to: (1) 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; (2) create a serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees, or loan 
programs or the rights and obligations of recipients thereof, or (4) 
raise novel legal or policy issues. As a result, the Department has 
concluded that a full economic impact and cost/benefit analysis is not 
required for the rule under section 6(a)(3) of the Executive 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.

Unfunded Mandates Reform

    For purposes of the Unfunded Mandates Reform Act of 1995, this 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 rule in accordance with Executive 
Order 13132 regarding federalism and has determined that the proposed 
rule does not have federalism implications. Because the economic 
effects under the rule will not be substantial for the reasons noted 
above and because the rule has no direct effect on states or their 
relationship to the federal government, the rule does not have 
``substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.''

Analysis of Costs for Paperwork Reduction Act and Regulatory 
Flexibility Act

    In order to meet the requirements of the Regulatory Flexibility Act 
(RFA), 5 U.S.C. 601 et seq., Executive Order 13272, and the Paperwork 
Reduction Act (PRA), 44 U.S.C. 3501 et seq., and the PRA's implementing 
regulations, 5 CFR Part 1320, the Department has undertaken an analysis 
of the financial burdens to covered labor organizations associated with 
complying with the requirements contained in this final rule. The focus 
of the RFA and Executive Order 13272 is to ensure that agencies 
``review rules to assess and take appropriate account of the potential 
impact on small businesses, small governmental jurisdictions, and small 
organizations, as provided by the [RFA].'' Executive Order 13272, Sec. 
1. The more specific focus of the PRA is ``to reduce, minimize and 
control burdens and maximize the practical utility and public benefit 
of the information created, collected, disclosed, maintained, used, 
shared and disseminated by or for the Federal government.'' 5 CFR 
1320.1.
    Compliance with the requirements of this rule involve essentially 
information recordkeeping and information reporting tasks, and the one-
time, non-recurring expenses associated with modifying information 
systems to capture and report the required information. Therefore, the 
overall impact to covered labor organizations, and in particular, to 
small labor organizations that are the focus of the RFA, is essentially 
equivalent to the financial impact to labor organizations assessed for 
the purposes of the PRA. As a result, the Department's assessment of 
the compliance costs to covered labor organizations for the purposes of 
the PRA is used as a basis for the analysis of the impact of those 
compliance costs to small entities addressed by the RFA. The 
Department's analysis of PRA costs, and the quantitative methods 
employed to reach conclusions regarding costs, are presented here 
first. The conclusions regarding compliance costs in the PRA analysis 
are then employed to assess the impact on small entities for the 
purposes of the RFA analysis, which follows.

Paperwork Reduction Act

    This statement 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

[[Page 57437]]

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 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,\9\ 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 
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.
---------------------------------------------------------------------------

    \9\ The 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).
---------------------------------------------------------------------------

    As noted above, the Department received a number of comments 
related to its analysis of the financial costs to covered labor 
organizations associated with compliance with this rule. The vast 
majority of these comments raised generalized concerns regarding the 
Department's conclusions relating to costs of compliance. 
Representative of these generalized comments is one from a 
representative of approximately 100 jointly sponsored Taft-Hartley 
trusts asserting that ``[t]he costs of compliance [stated in the NPRM] 
are grossly underestimated. Initially, review of the cost estimates is 
necessarily difficult due to the lack of sufficient detail regarding 
the reportable items. * * * The estimates * * * significantly under 
report the number of hours involved in these complex reporting 
obligations.'' In addition to general criticism regarding the 
Department's cost estimates, many comments on the subject of costs came 
from trusts asserting that the compliance costs will be borne by trusts 
rather than labor organizations, the entities with the legal obligation 
to file the Form T-1. Representative of these comments was a statement 
from a labor organization-sponsored multiemployer benefit fund, which 
noted its concern ``about the time and effort that would have to be put 
into preparing the information for the union's T-1 filing. [The trusts] 
would have to reprogram [their] computer systems, and additional staff 
time would be required to complete many of the details. The hours of 
time [the Department] suggest[s] would be needed to perform these tasks 
[is] significantly underestimate[d].'' A small number of cost-related 
comments challenged the rule based on an assessment of compliance costs 
as balanced against the benefits of the rule: ``Even a cursory review 
of the reporting requirements imposed by the Proposed Rule indicates 
that the compliance burden will be significantly greater. The Proposed 
Rule does not offer Fund participants and beneficiaries any increased 
value in terms of transparency or available information concerning the 
Funds beyond that which is already available to participants and 
beneficiaries.''
    In response to these general comments, the Department notes that 
the final cost analysis undertaken in this rule presents a more refined 
methodology than was performed in the NPRM, as noted in the discussion 
below, which has significantly improved the Department's estimates of 
overall costs of compliance with this rule by covered labor 
organizations. In addition, in response to those comments that assert 
that the Department failed to account for costs borne by trusts in 
which a labor organization has a reporting obligation, the Department 
has indicated elsewhere in this rule that labor organizations must 
reimburse trusts for the trust's costs for implementation and 
maintenance of recordkeeping and for information transmission. Thus, 
the Department's analysis below expects that while some trusts may 
perform some of the recordkeeping and other tasks related to reporting 
required by the rule, those costs will ultimately be borne by labor 
organizations with the reporting obligations contained in this rule. 
Finally, in response to those comments that call for a more traditional 
cost-benefit analysis of this rule, the Department notes that neither 
the PRA nor the RFA compels such a study.
    In addition to the general comments related to cost under-
estimation and burdens on trusts, the Department received more specific 
comments containing alternate estimates suggested for inclusion in the 
Department's assessment of the costs of compliance. For instance, a 
number of commenters stated that it would not be uncommon for even a 
modest-sized local labor organization to have multiple T-1 Forms to 
file. In addition, comments from trusts and third-party administrators 
concurred that they would have to reprogram their reporting and 
recordkeeping systems to compile the necessary information for the Form 
T-1, and one administrator estimated that it would require 
approximately 300 hours to compile the necessary information. A 
national pension fund estimated that its programmers would spend 55 
hours reprogramming the current system and staff would spend 120 hours 
compiling the necessary information. Two commenters estimated that it 
would cost, on average, anywhere from $15,000 to $18,147.81 per filer 
to comply with the Form T-1 reporting requirements. A third commenter 
concluded that compliance costs would fall in a range between $45,000 
and $82,500. Most of the alternate calculations offered by commenters 
for various data points appeared to be approximations without much, or 
any, analysis to support the figures.
    One comment was much more substantial, however. This commenter 
challenged the methodology used by the Department to arrive at its 
conclusions regarding costs, and also offered alternate methodology. 
The commenter's methodological objections were adopted by reference in 
several other comments. The commenter's critique identifies four 
separate but interrelated steps in the Department's analysis of 
compliance costs in the

[[Page 57438]]

NPRM, and argues that each step contains methodological errors that 
result in serious underestimations of costs. According to the 
commenter, the first step--the identification of tasks needed to 
complete a Form T-1 and the amount of time each task takes to 
complete--is flawed because the Department failed to capture in 
sufficient detail all tasks that the Form LM-2 filer and a trust must 
complete, failed to specify which person or job classification would 
complete the identified tasks, and failed to provide a clear 
methodology for how it arrived at the time values needed to accomplish 
the identified tasks. In challenging the Department's assumptions as to 
these data points, the commenter conducted an on-line survey of section 
3(l) trusts, which was responded to by 40 multiemployer plans. Among 
other things, the survey asked whether any information required by Form 
T-1 was currently tracked by plans, and the approximate number of 
receipts, disbursements and payments to officers and employees that 
would be reported. A number of plans indicated that they were not 
capable of providing the required information on receipts, 
disbursements, and payments to officers and employees because they 
could not track the name, address, or purpose of the receipt or 
disbursement. Of those plans currently capable of reporting the 
required Form T-1 information, on average they estimated that in the 
first year it would take 54.5 hours to generate receipt information, 
56.0 hours to generate disbursement information, and 26.1 hours to 
generate the required information on payments to officers and 
employees, for an overall total of 136.6 hours to compile required 
reportable information. This figure is almost twice (71.7 hours) the 
amount of time the Department allocated to costs of reporting and 
recordkeeping in the first year. See NPRM, 73 FR 11775, Table 3.
    The commenter also found flaws with the Department's data in the 
second part of the cost analysis--estimating the number of Form LM-2 
filers that have one or more trusts to report. Regarding this piece of 
the analysis, the commenter criticized the Department's estimates that 
10% of Tier I filers, 25% of Tier II filers, and 100% of Tier III 
filers would have trusts to report, and instead relied on actual data 
contained in the Form LM-2 reports in the Department's e.LORS 
database.\10\ Based on data contained in e.LORS databases from the 2006 
Form LM-2 reports, the commenter claimed that 2,279 filers indicated 
that they had at least one reportable section 3(l) trust, whereas the 
Department's estimates regarding percentages of filers with at least 
one reportable trust resulted in a number of filers less than half of 
the commenter's figure.
---------------------------------------------------------------------------

    \10\ As indicated in the NPRM, the Department's analysis 
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.
---------------------------------------------------------------------------

    The third step in the analysis--estimating the average number of 
Form T-1s that would be filed by Form LM-2 filers indicating an 
interest in at least one trust--the commenter argued is flawed because 
the Department makes ``undocumented assumptions'' about the number of 
trusts each Form LM-2 filer would need to report. The NPRM assumed 
that, on average, Tier I filers would need to file reports on one 
trust, Tier II filers would need to file reports on two trusts, and 
Tier III filers would file four reports. NPRM, 73 FR 11774. Rejecting 
those assumptions, the commenter instead randomly selected a subset of 
118 Form LM-2 filers of the 2,279 filers he found that indicated an 
interest in at least one trust based on a search of e.LORS data with 
2006 Form LM-2 filing information. Of these 118 randomly selected 
filers, the commenter calculated that, on average, Tier I filers 
actually reported an interest in two trusts, Tier II filers actually 
reported an interest in 3.5 trusts, and Tier III filers actually 
reported an interest in 5 trusts. Based on this sample, the commenter 
extrapolates the data to conclude that in 2006, 2,279 Form LM-2 filers 
had an interest in 7,486 trusts, which is over three times as many Form 
T-1 trusts as the Department's NPRM estimates. See NPRM, 73 FR 11774, 
Table 2.
    Finally, the commenter asserted that the fourth part of the 
Department's analysis--estimating the total burden cost--is flawed for 
several reasons. First, in assigning a value to the hours undertaken to 
complete the Form T-1 filing, the Department used only hourly wage 
rates and did not employ total compensation figures, which include 
costs associated with health insurance, pension contributions and other 
non-wage compensation and which increase wage rates by 30% generally. 
Second, the commenter contended that the Department's analysis lacked 
specificity in stating which employees in which job categories would 
perform the tasks identified as necessary to file the Form T-1. Third, 
the commenter stated that the Department's estimates do not consider 
the costs of equipment or data transfer, or amounts that trusts may 
charge labor organizations for preparing and supplying information 
required by the Form T-1. Finally, the commenter argued that the wage 
rates employed in the NPRM lack credibility, and he asserted that he 
was unable to confirm them because the Department did not indicate 
which National Compensation Survey was used in the analysis.\11\
---------------------------------------------------------------------------

    \11\ The Department notes that it specifically cited the 
National Compensation Survey: Occupational Wages in the United 
States, June 2006 (BLS July 2007, p. 5) in the NPRM. See 73 FR 11776 
n.17.
---------------------------------------------------------------------------

    The Department thoroughly analyzed the commenter's critique of the 
methods used in the NPRM to assess costs associated with compliance 
with this rule. The commenter's analysis employed several improvements 
in the methods used by the Department in the NPRM, and the analysis 
provided the Department with insights about revisions that could be 
made to the quantitative analysis of compliance costs. However, because 
of some fundamental flaws in the commenter's analysis, the Department 
declines to adopt the commenter's methods in whole, and, as a result, 
declines to adopt the commenter's ultimate conclusions regarding costs 
of compliance with this rule. For instance, a sample size of 118 Form 
LM-2 filers is insufficient to make generalizations about a population 
of 2,279 filers. Nor can a portion of the 118 filers be used to make 
generalizations about the individual tiers without accepting a very low 
confidence level. Further, the commenter focused on section 3(l) trusts 
in general, not trusts for which labor organizations would be required 
to file the Form T-1. At least some of the listed section 3(l) trusts 
would not meet the financial dominance or control elements of the Form 
T-1. At best, the commenter's estimate can be seen as the maximum 
possible number of Form T-1s required to be filed by the 118 labor 
organizations studied. Therefore, the Department cannot rely on the 
commenter's analysis to determine the number of Form T-1s that will be 
filed each year. Similarly, while the online survey of trusts provides 
an interesting snapshot of multiemployer plans, no general assumptions 
can be drawn from 40 self-selected multiemployer plans. This survey, 
like all self-selecting surveys, is subject to self-selection bias. In 
this case, it is likely that the participants' decision to participate 
is correlated with a high number of hours needed to provide the 
information to complete the Form T-1, making the participants a non-
representative sample. Further, no general assumptions

[[Page 57439]]

can be made about multiemployer plans or section 3(l) trusts from a 
sample size of 40 without accepting a very low confidence level. 
Finally, even if the sample size is accepted the information collected 
from multiemployer plans cannot be used to make general assumptions 
about all section 3(l) trusts. Multiemployer plans are one of the most 
complicated types of section 3(l) trusts. One plan can cover hundreds 
to thousands of employees working for two or more employers. Therefore, 
these trusts will have the greatest number of receipts, disbursements, 
and employees. The Department cannot rely on the commenter's analysis 
to calculate the estimated burden.
    Based upon careful consideration of the commenter's cost estimates 
and the methods employed to arrive at cost estimates, 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:
     Relied on data reported from Form LM-2 filers in 2006 
contained in the Department's e.LORS database to estimate more 
accurately the number of Form T-1s that a covered labor organization 
may file;
     Analyzed a randomly selected, statistically reliable 
sample of the 2,292 Form LM-2 filers in 2006 that indicated an interest 
in at least one trust in order to better estimate the number of trusts 
about which a labor organization may need to file Form T-1s;
     Disaggregated the tasks associated with completing the 
Form T-1 in a more detailed fashion so that the number of hours 
estimated as necessary to prepare the Form T-1 is more accurate; and
     Employed a total compensation figure to estimate the costs 
to a labor organization in preparation of the Form T-1.\12\
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    \12\ The NPRM indicated that the Department's initial PRA 
analysis employed wage rate data adjusted to reflect total 
compensation. 73 FR 11776. The use of total compensation figures is 
more apparent in this final cost analysis because, as noted in the 
discussion that follows, wage figures are adjusted upward by a 
factor of 30% to account for total compensation, and that upward 
adjustment is specifically shown in Table 4 below.
---------------------------------------------------------------------------

    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.\13\ Those 
figures are reported in the analyses that follow.
---------------------------------------------------------------------------

    \13\ This upward revision occurred despite the fact that this 
final rule reinstated the exemption for section 3(l) trusts that are 
required to file a Form 5500 under ERISA. That exemption realized a 
reduction in overall compliance costs for covered labor 
organizations, but the methodological improvements in the cost 
analysis offset those savings.
---------------------------------------------------------------------------

    Pursuant to the PRA, the information collection requirements 
contained in this final rule were submitted to OMB and received 
approval on September 29, 2008 under OMB control number (1215-0188). 
The approval will expire on September 30, 2011. The Form T-1 and its 
instructions, which are modified to reflect the new filing criteria, 
are published as an appendix to this final rule.
B. Summary of the Rule: Need and Economic Impact
    This final rule implements the Form T-1 Trust Annual Report 
required to be filed by the largest labor organizations for trusts in 
which they are interested, under conditions prescribed by the Secretary 
of Labor. See 29 U.S.C. 402(l); 431(b); 438.
    As discussed in the preamble, members have long been denied 
important information about labor organization funds that were being 
directed to other entities, presumably for the members' benefit, such 
as joint funds administered by a labor organization and an employer 
pursuant to a collective bargaining agreement, educational or training 
institutions, credit unions, and redevelopment or investment groups. 
The Form T-1 is necessary to close this gap, prevent certain trusts 
from being used to evade the Title II reporting requirements, and 
provide labor organization members with information about financial 
transactions. Trust reporting 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 labor organization members whose work obtained the 
payments to the trust. It is also necessary to prevent circumvention 
and evasion of the reporting requirements imposed on officers and 
employees of labor organizations and on employers.
    The form is designed to take advantage of technology that makes it 
possible to increase the detail of information that is required to be 
reported, while at the same time making it easier to file and publish 
the contents of the reports. Labor organization members thus will be 
able to obtain a more accurate and complete picture of their labor 
organization's financial condition and operations without imposing an 
unwarranted burden on respondents. Supporting documentation need not be 
submitted with the forms, but labor organizations are required, 
pursuant to the LMRDA, to maintain, assemble, and produce such 
documentation in the event of an inquiry from a labor organization 
member or an audit by an OLMS investigator.
    The Department's NPRM in this rulemaking contained an initial PRA 
analysis, which was also submitted to OMB. 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 after the burden on the reporting labor 
organizations is considered.
    Based upon the analysis presented below, the Department estimates 
that the total first year burden to comply with Form T-1 will be 
423,913.74 hours for all covered labor organizations. The total first 
year compliance costs associated with this burden is estimated to be 
$15.19 million for all covered labor organizations. Both the burden 
hours and the compliance costs associated with Form T-1 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 T-1 to be 345,736.92 hours per year. The total 
compliance costs associated with this burden averaged over the first 
three years are estimated to be $10.51 million for all covered labor 
organizations.\14\
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    \14\ The compliance costs for all covered labor organizations 
for the first year, and the compliance costs averaged over the first 
three years--$15.19 million and $10.51 million, respectively--are 
well below the $100,000,000 threshold that would make this rule 
economically significant under Executive Order 12866. Therefore, as 
noted earlier, the Department has determined that this rule is not 
an ``economically significant'' regulatory action under section 
3(f)(1) of Executive Order 12866.
---------------------------------------------------------------------------

C. Overview of Form T-1
    The Form T-1 in this rule is identical to the form promulgated at 
73 FR 11779, with the exception of the addition of an item requiring 
the reporting of the trust's EIN and the deletion of an item requiring 
the listing of the trust's tax status. However, as discussed in the 
preamble, the scope of the reporting requirement has been narrowed in 
order to conform the rule with the DC Circuit's decision in AFL-CIO v. 
Chao, 409 F.3d 377 (2005). This final rule provides that no Form T-1 
will be required if the trust files a report pursuant to 26 U.S.C. 527, 
or is required to file a Form 5500 pursuant to the requirements of 
ERISA (if the trust can elect to exempt itself from filing a Form

[[Page 57440]]

5500 then it must file a Form T-1 regardless of whether it takes the 
exemption or not), or if the organization files publicly available 
reports with a Federal or state agency as a PAC. Additionally, a labor 
organization may substitute an audit that meets the criteria set forth 
in the Form T-1 Instructions for the financial information otherwise 
reported on a Form T-1.
    Form T-1 consists of 15 questions on page 1 that generally identify 
the labor organization and trust; five yes/no questions covering issues 
such as whether any loss or shortage of funds was discovered during the 
reporting year and whether the trust had made any loans to officers or 
employees of the labor organizations at terms below market rates; four 
summary numbers for total assets, liabilities, receipts, and 
disbursements; a schedule for itemizing all receipts of $10,000 or 
more, individually or in the aggregate, from any entity or individual; 
a schedule for itemizing all disbursements of $10,000 or more, 
individually or in the aggregate, to any entity or individual; and a 
schedule for listing all officers of the trust and payments to them and 
all employees of the trust who received more than $10,000 from the 
trust.\15\
---------------------------------------------------------------------------

    \15\ The NPRM contained an inadvertent error stating that page 1 
of the Form T-1 contained 14 questions and 6 yes/no questions. 73 FR 
11773. These errors have been corrected here.
---------------------------------------------------------------------------

    Form T-1 and its instructions, which are modified to reflect the 
changes made to the proposal, are published as an appendix to this 
final rule. A more complete discussion of the form is set forth at 
section II.L. of the preamble.
D. 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.
1. Number of Form T-1s Filed
    The Department started by determining the population affected by 
the Form T-1. Form LM-2 Item 10 asks the reporting labor organization 
to indicate whether it created or participated in the administration of 
a trust or other fund or organization, as defined in the Form LM-2 
instructions, which provides benefits for members or their 
beneficiaries. If the labor organization indicates that it did have one 
or more section 3(l) trusts, it must list the trusts, including name, 
address, and details about the trust, in Form LM-2 Item 69. The 
Department determined that 2,292 Form LM-2 filers indicated on their 
2006 report that they had at least one section 3(l) trust.
    In order to improve the estimates concerning the number of trusts 
about which covered labor organizations would be required to provide T-
1 reports, the Department sampled a randomly selected subset of the 
2,292 Form LM-2 2006 filers that indicated an interest in at least one 
trust. 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 T-1 final burden analysis. The 
Department concluded that it needed to examine Item 69 on the reports 
of 174 of the 2,292 labor organizations to determine the average number 
of section 3(l) trusts per Form LM-2 filers that answered Item 10 
``Yes,'' indicating that it had at least one section 3(l) trust. The 
sample size of 174 LM filers was then increased by 20% to 210, 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 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 population was arranged into three 
strata based on annual receipts:
     Strata I ($250,000-$499,999 receipts): 380 Form LM-2 
filers with section 3(l) trusts
     Strata II ($500,000-$49.9 mil receipts): 1,863 Form LM-2 
filers with section 3(l) trusts
     Strata III ($50 mil and higher receipts): 49 Form LM-2 
filers with section 3(l) trusts
    The proportion of each strata to the population was then 
determined:
     Strata I ($250,000-$499,999 receipts): 16.58%
     Strata II ($500,000-$49.9 mil receipts): 81.28%
     Strata III ($50 mil and higher receipts): 2.14%
    Finally, the sample size from each strata was drawn proportionately 
to its representation in the population:
     Strata I ($250,000-$499,999 receipts): 210 x 16.58% = 35
     Strata II ($500,000-$49.9 mil receipts): 210 x 81.28% = 
171
     Strata III ($50 mil and higher receipts): 210 x 2.14% = 4
    Each labor organization that answered Form LM-2 Item 10 
affirmatively was assigned a random number. A random number generator 
was then used to select 35 labor organizations from strata I, 171 labor 
organizations from strata II, and 4 labor organizations from strata 
III. After a careful analysis of the Form LM-2 of each of those labor 
organizations, the Department determined that of the 210 labor 
organizations studied, five labor organizations (all from strata II) 
were non-responsive, i.e., either they did not list any trusts in Item 
69 or the information provided in Item 69 did not accurately indicate 
the number of section 3(l) trusts. These five labor organizations were 
removed from the sample and the burden analysis proceeded based on the 
remaining 205 labor organizations.
    Information on each trust listed in Item 69 in the sampled Form LM-
2s, including name, address, EIN, and other information, was entered on 
a worksheet. The final worksheet listed 663 trusts, including welfare 
benefit plans, building trusts, strike funds, and pension plans. The 
information was uploaded and compared to the EBSA database to determine 
which of these 663 section 3(l) trusts filed a Form 5500 in either 2004 
or 2005. It was determined that 383 or 57.77% filed a Form 5500 in 
either 2004 or 2005. A Form T-1 will not have to be filed for these 
entities because of the reinstated Form 5500 exemption. Therefore, the 
383 trusts that filed Form 5500 were removed from the sample.
    It should be noted that inconsistencies in the information reported 
in Item 69 in the sampled Form LM-2s made it difficult in some 
instances to determine whether a Form 5500 was filed by the trust. Many 
of the labor organizations did not include the trust's EIN number. 
Others did not provide the necessary detail, including incomplete or 
incorrect names, to determine whether or not a Form 5500 was filed by 
the trust. The Department surmises that at least some of the remaining 
280 trusts filed a Form 5500 in 2006, but cannot calculate the 
magnitude of the overlap because of insufficient information on the 
Form LM-2s reviewed. Further, the Department cannot determine which of 
the section 3(l) trusts meet the financial dominance or managerial 
control test based on the limited information in the Form LM-2s. 
Therefore, a Form T-1 will not have to be filed for at least some of 
the remaining 280 section 3(l) trusts because they do not meet either 
of the above tests. As a result, the Form T-1 filing estimate 
calculated in this study

[[Page 57441]]

should be seen as a high estimate, if not a maximum.
    The Department assumed that the 205 sampled labor organizations 
will be required to file a Form T-1 for the remaining 280 trusts. 
Therefore, based on the 2006 data, each labor organization that 
indicated it had a section 3(l) trust will file, on average, 1.37 Form 
T-1s each year after the implementation of this rule:
    280 (number of trusts reported by sampled labor organizations)/205 
(number of labor organizations in sample) = 1.37 average number of Form 
T-1s filed each year by all labor organizations
    which, based on extrapolation of the 2006 data, results in the 
expectation that a total of 3,130.54 Form T-1s will be filed yearly by 
all labor organizations:
    1.37 (average number of Form T-1s filed each year per labor 
organization) x 2,292 reporting labor organizations = 3,130.54 yearly 
Form T-1s.
2. Hours To Complete and File Form T-1: Recurring and Nonrecurring 
Reporting and Recordkeeping
    The Department estimated burden hours for the nonrecurring (first 
year) recordkeeping and reporting requirements, the 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.\16\
---------------------------------------------------------------------------

    \16\ As discussed previously, some labor organizations may 
request section 3(1) trusts to provide information needed by labor 
organizations to comply with their Form T-1 reporting olbligations. 
A labor organization must pay for any expenses incurred by the trust 
in providing information to the labor organization or in assisting 
with other tasks associated with the Form T-1 requirements.
---------------------------------------------------------------------------

a. Hours To Complete Page 1
    The Department estimates that, on average, labor organizations will 
expend 1.83 reporting hours each year completing page 1 of the Form T-
1, which is broken out as follows. To complete the first page of the 
Form T-1 the labor organization will have to train new staff on the 
reporting software, enter trust information, answer Items 9, 14, and 
15, provide additional information (if necessary), and sign the report. 
Items 1, 2, and 4-8 will be automatically filled by the reporting 
software when the Form T-1 is downloaded. The remaining information 
provided on the first page of the Form T-1 is very similar to the 
information provided on the first page of the Form LM-3 (10 items that 
identify the labor organization and one yes/no question addressing 
whether or not the organization's records are kept at its mailing 
address). Experience with the Form LM-3 has indicated that Form LM-3 
filers expend approximately 15 minutes each year training new staff on 
how to fill out the first page of the Form LM-3. Additionally, Form LM-
3 filers spend approximately 5 minutes on each item on the Form LM-3. 
Therefore, the Department has determined that Form T-1 filers will 
spend 50 minutes filling out the trust information and 15 minutes 
answering the 3 yes/no questions on page 1. If additional information 
is required, the Department has determined that the labor organization 
should be able to fill out the address(es) where the records of the 
trust and labor organization are maintained in 10 minutes. Finally, the 
labor organization president and treasurer will be able to sign the 
Form T-1 in 20 minutes once they have reviewed the report. The 
president and treasurer will already have the electronic signature 
software available for signing the Form LM-2, so in most cases it will 
be a matter of a click on the signature field on Form T-1 to apply the 
signature.
    There is no recordkeeping burden associated with the first page of 
the Form T-1, because the labor organization should already keep 
records on the labor organization and trusts in which it is interested 
to complete the Form LM-2, including the trust's name, address, 
purpose, and EIN. Further, neither the trust nor the labor organization 
will have to make any changes to their accounting systems to report the 
information required on page 1 of the Form T-1.
b. Hours To Complete Page 2
    The Department estimates that, on average, labor organizations will 
expend 1.33 reporting hours each year completing page 2 of the Form T-
1, broken out as follows. The labor organization will have to train new 
staff, answer five questions, enter the total assets, liabilities, 
receipts, and disbursements, and enter additional information as 
necessary. Like the first page of the Form T-1, the second page is 
relatively straightforward. The Department has determined that it will 
take, on average, 15 minutes for labor organizations to train staff to 
complete the second page of the Form T-1. The majority of the reporting 
burden is attributable to Items 16 through 20. Although rare, the types 
of losses and transactions captured by Items 16 through 20 are of 
significant importance to both labor organizations and trusts. Each of 
these losses or transactions should be tracked closely by the trust to 
ensure that the trust is properly managed and free from preferential 
insider transactions. Therefore, the trust should be able to easily 
identify and provide details on any loss or transaction that falls 
within Items 16 through 20. The Department has determined that the 
trust can provide the labor organization with answers to Items 16 
through 20 in 25 minutes, 5 minutes per question. Further, the 
Department has determined that the labor organization will spend 
approximately 30 minutes entering the required details in Item 25 for 
the items that are answered affirmatively. Due to the rare nature of 
these transactions, the Departments estimates that, on average, trusts 
will have one transaction that must be described in Item 25. Finally, 
the Department has determined that it will take 10 minutes to find and 
enter the total receipts, disbursements, assets, and liabilities in 
Items 21, 22, 23, and 24.
    There is no recordkeeping burden associated with the second page of 
the Form T-1. The answers to Items 16 through 20 are tracked by the 
trust along with receipts and disbursements. Therefore, the 
recordkeeping burden associated with Items 16 through 20 has been 
included in the recordkeeping burden for the receipts and disbursements 
schedules. Further, there is no recordkeeping burden associated with 
Items 21 through 24. Information provided in Items 21, total assets, 
and 22, total liabilities, are kept in the normal course of the trust's 
recordkeeping. Items 23, total receipts, and 24, total disbursements, 
are easily accessible from records maintained by the trust in the 
regular course of business. There is no recordkeeping burden associated 
with Items 23 and 24 as information about receipts and disbursements is 
already required for their individual schedules.
c. Hours To Revise Information Systems and Train Personnel To Collect 
Required Information
    Working from information provided by the trusts labor organizations 
will be able to utilize information systems and personnel now used by 
labor organizations in fulfilling their Form LM-2 obligations. In 2003, 
Form LM-2 filers had to change their accounting systems to capture 
information very similar to the information reported on the Form T-1. 
Experience with the Form LM-2 indicates that, on average, Form T-1 
respondents will expend 5.50 hours on each schedule or 16.51 total 
hours changing their accounting systems in the first year (non-
recurring recordkeeping burden) and 4.25 hours

[[Page 57442]]

on each schedule preparing the systems to report the information (non-
recurring reporting burden), including developing, testing, and 
reviewing revisions to the accounting software; preparing the download 
methodology (converting data into a format for submission to the 
Department); and training personnel on each of the schedules.
d. Hours To Complete Receipts, Disbursements, and Officers and 
Employees Schedules
    The reinstatement of the Form 5500 exemption has significantly 
reduced the variability of types of section 3(l) trusts for which the 
Form T-1 will need to be filed. A careful analysis of the non-exempt 
trusts, used in the analysis above, indicates that many if not most of 
the Form T-1s will be filed for building trusts, strike funds, and 
apprenticeship and training funds. Unlike pension and health plans, 
these trusts, on average, will have few disbursements, receipts, 
officers, and employees. For example, strike funds are likely to have 
no disbursements unless the labor organization is striking. Further, 
many of these trusts, including building trusts, are closely associated 
with the labor organization and function in a similar fashion. 
Therefore, the Department has estimated the number of disbursements, 
receipts, officers, and employees listed on the Form T-1 based on the 
2006 Form LM-2 data.
    The Department estimates that, on average, Form T-1 filers will 
expend 5.43 hours a year on recordkeeping to document the information 
necessary to complete the Form T-1 receipts schedule. Based on the 
sample outlined above, Form LM-2 filers, on average, itemize 11 
receipts on Schedule 14 (other receipts). The remaining receipts are 
reported as aggregates in 12 separate categories: dues, per capita tax, 
fees, sales of supplies, interest, dividends, rents, sales of 
investment and fixed assets, loans, repayment of loans, receipts held 
on behalf of affiliates for transmission to them, and receipts from 
members for disbursement on their behalf. The average number of 
itemized receipts listed on Form LM-2 Schedule 14, 11 itemized 
receipts, was multiplied by 10 to capture all itemized receipts on the 
Form T-1. The Department did not increase the number of itemized 
receipts by 13 because it does not believe trusts will have receipts 
from per capita taxes nor will they hold money for members and 
affiliates. Therefore, on average, trusts will itemize 109.86 receipts 
each year. Experience with the Form LM-2 indicates that a labor 
organization can input all the necessary information on an itemized 
receipt in 3 minutes. The total number of itemized receipts, 109.86, 
was multiplied by 3 minutes to reach the yearly recordkeeping burden, 
5.43 hours.
    For the Form T-1 disbursement schedule the Department estimates 
that, on average, filers will expend 54.13 hours a year on 
recordkeeping. The Department estimated the number of itemized 
disbursements on the Form T-1 by looking at the Form LM-2 filers in the 
original sample. The sample indicated that the average Form LM-2 has 
1,083 itemized disbursements. Like receipts, the Department estimates 
it will take 3 minutes to input all the necessary information on an 
itemized disbursement. The total number of itemized disbursements, 
1,083, was multiplied by 3 minutes to reach the yearly recordkeeping 
burden, 54.13 hours. Like labor organizations, trusts are primarily 
established to provide benefits to members and beneficiaries. 
Therefore, it is not surprising that the number of disbursements 
greatly exceeds the number of receipts.
    The Department estimates Form T-1 filers will expend 10.07 hours on 
recordkeeping to compile the information necessary to complete the 
officers and employees schedule (Schedule 3). The trust will not have 
to increase recordkeeping for officers and key employees. Trusts are 
already required to keep records on its officers and key employees for 
the IRS Form 990, including name, address, current position, salary, 
fees, bonuses, severance payments, deferred compensation, allowances, 
and taxable and nontaxable fringe benefits. The filers will have to 
begin keeping records on non-key employees. Based on the Form LM-2 
sample, the Department determined that Form LM-2 filers have, on 
average, 21.57 employees. Trusts, as employers, keep wage records for 
each of their employees. However, it is likely that the trusts will not 
keep records on each employee's allowances, expenses for official 
business, and other disbursements attributed to the employee. The Form 
LM-2 sample indicated that most employees did not receive anything in 
allowances, disbursements for official business, or other 
disbursements. Those that did receive allowances, 33.30%, received, on 
average, $6,496.80. Those that did receive disbursements for official 
business, 71.89%, received, on average, $10,308.49. Finally, those that 
did receive disbursements other than those individually itemized, 
5.17%, received, on average, $2,818.05. The Department determined that 
the trust would expend 3 minutes on each $10,000 disbursement to 
employees. The number of employees, 21.57, was multiplied by the 
average number of disbursements and the proportion of employees that 
listed each of the disbursements for a total of 10.07 recordkeeping 
hours.
e. Hours for Data Input
    Finally, the Department estimated that Form T-1 filers will spend 
3.75 hours on each schedule inputting the data. Inputting the 
information into the Form T-1 is very similar to inputting data into 
the Form LM-2. Experience with the Form LM-2 in previous rule makings 
indicates that labor organizations will spend 15 minutes a year 
training new staff, 60 minutes preparing the download, 90 minutes 
preparing and testing the data file, and 60 minutes editing, validating 
and importing the data.
f. Total Hours Spent on Recordkeeping and Reporting
    As discussed above, and as reflected in the following tables, the 
Department estimates that, on average, labor organizations will expend 
94.21 hours per Form T-1 filed on recordkeeping the first year and 
69.70 hours per Form T-1 filed on recordkeeping each subsequent year on 
each Form T-1 filed. Additionally, on average, labor organizations will 
expend 41.20 hours per Form T-1 filed on reporting the first year and 
28.28 hours per Form T-1 filed on reporting each subsequent year on 
each Form T-1 filed.

[[Page 57443]]



                                               Table 1--Non-Recurring Burden in Minutes per form T-1 Filed
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Non-recurring burden per form T-1 filed
                                                                ---------------------------------------------------------------------------
                                                                 Recordkeeping                       Reporting burden
                                                                     burden    ------------------------------------------------------------  Total non-
             Schedule              Schedule or item description ---------------                                         Document              recurring
                                                                                 Design    Develop    Test      Mgmt.      the      Train      burden
                                                                  Change acct.   report     query     query    review     query     staff
                                                                   structure                                             process
--------------------------------------------------------------------------------------------------------------------------------------------------------
Page 1...........................  General Trust Identifying              0            0         0         0         0         0         0          0
                                    Information.
Page 2...........................  Items 16 through 24.........           0            0         0         0         0         0         0          0
  1..............................  Individually Identified              330.27        60        60        45        30        45        15        585.27
                                    Receipts.
  2..............................  Individually Identified              330.27        60        60        45        30        45        15        585.27
                                    Disbursements.
  3..............................  Disbursements to Officers            330.27        60        60        45        30        45        15        585.27
                                    and Employees of the Trust.
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Non-Recurring Burden per Form T-1 Filed..............         990.82       180       180       135        90       135        45      1,755.82
                                  ======================================================================================================================
    Total Non-Recurring Burden Hours per Form T-1 Filed........          16.51      3.00      3.00      2.25      1.50      2.25      0.75         29.26
--------------------------------------------------------------------------------------------------------------------------------------------------------


  Table 2--Recurring Recordkeeping Burden in Minutes per Form T-1 Filed
------------------------------------------------------------------------
                                                            Recurring
                                 Schedule or item         recordkeeping
         Schedule                   description          burden per Form
                                                            T-1 filed
------------------------------------------------------------------------
Page 1....................  General Trust Identifying          0
                             Information.
Page 2....................  Items 16 through 24.......         0
    1.....................  Individually Identified          329.57
                             Receipts.
    2.....................  Individually Identified        3,247.93
                             Disbursements.
    3.....................  Disbursements to Officers        604.4285714
                             and Employees of the
                             Trust.
------------------------------------------------------------------------
    Total Recurring Burden per Form T-1 Filed.........     4,181.93
                           =============================================
    Total Recurring Burden Hours per Form T-1 Filed...        69.70
------------------------------------------------------------------------


                                                                Table 3--Recurring Reporting Burden in Minutes per form T-1 Filed
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Recurring reporting burden per form T-1 filed
                                                                          ------------------------------------------------------------------------------------------------------------
                                                                                                                                                   Fill in                               Total
               Schedule                    Schedule or item description     Train             Preparation    Edit/      Fill out                   assets,                             recurring
                                                                             new     Prepare    of test/   validate/   trust/labor    Answer    liabilities,    Additional  Signature  reporting
                                                                            staff   download   data file     import   organization  questions  disbursements,  information               burden
                                                                                                           data file   information              and receipts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Page 1................................  General Trust Identifying               15         0          0           0           50          15             0            10          20        110
                                         Information.
Page 2................................  Items 16 through 24..............       15         0          0           0            0          25            10            30           0         80
  1...................................  Individually Identified Receipts.       15        60         90          60            0           0             0             0           0        225
  2...................................  Individually Identified                 15        60         90          60            0           0             0             0           0        225
                                         Disbursements.
  3...................................  Disbursements to Officers and           15        60         90          60            0           0             0             0           0        225
                                         Employees of the Trust.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Recurring Burden per Form T-1 Filed............................       75       180        270         180           50          40            10            40          20        865
                                       =========================================================================================================================================================
    Total Recurring Burden Hours per Form T-1 Filed......................     1.25      3.00       4.50        3.00         0.83        0.67          0.17          0.67        0.33      14.42
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3. Cost of Personnel To Complete and File Form T-1
    The Department assumes that, on average, the completion by a labor 
organization of Form T-1 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.\17\ BLS has 
estimated that the total compensation cost is approximately 30.2% 
higher than wages. Therefore, the Department adjusted 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 T-1.
---------------------------------------------------------------------------

    \17\ The wage and salary data is based on information contained 
in Bureau of Labor Statistics, Occupational Employment Statistics 
Survey, 2007.
---------------------------------------------------------------------------

    The Department estimated the average annual salaries of labor 
organization officers needed to complete tasks for compliance with this 
rule--the president and treasurer--from responses to salary inquiries 
contained in the sample of 205 labor organizations that filed a Form 
LM-2 in 2006 and indicated an interest in at least one section 3(l) 
trust, as discussed above. See, supra, section D.1. These average 
annual salary figures were then adjusted to include the additional 
30.2% attributed to benefits to reflect total

[[Page 57444]]

compensation cost for each officer, which the Department calculated as 
$35.66 per hour for labor organization president and $45.24 per hour 
for labor organization treasurer.\18\
---------------------------------------------------------------------------

    \18\ The study determined that labor organization presidents 
make $24.89 an hour. The Department knows that 69.8% of compensation 
cost is attributed to salary and 30.2% of compensation cost is 
attributed to benefits. Salary = 69.8% (Compensation Cost) or 
Compensation Cost = Salary/69.8%. If we apply the preceding equation 
to the president's salary we come up with a compensation cost of 
$35.66 (35.66 = 24.89/.698). The same equation was used to calculate 
compensation cost for accountants, computer software engineers, 
bookkeepers, and treasurers.

                                        Table 4--Compensation Cost Table
----------------------------------------------------------------------------------------------------------------
                                                                                                  Compensation
                           Title                             Salary: hourly    Salary: yearly     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.................................................             24.89         51,770.35             35.66
Treasurer.................................................             31.58         65,680.48             45.24
----------------------------------------------------------------------------------------------------------------

    Once the compensation costs were calculated, the Department applied 
those costs to each of the Form T-1 tasks computed in the previous 
section. Each task was evaluated separately to determine which 
individual from a particular job category would be needed to complete 
the task. For instance, as indicated above, the Department determined 
that trusts will expend 16.51 hours changing their accounting 
structure. As part of that total, an accountant will spend 
approximately 3.3 hours of the total 16.51 hours, or 20 percent of the 
time allotted for this task, updating and changing the accounting 
structure. The remaining 12.21 burden hours, 80 percent of the total 
time allotted for this task, will be completed by a computer software 
engineer. The computer software engineer will have to write the program 
to track and accept accounting entries specific to the reporting 
requirements of the Form T-1, i.e., itemization of all receipts and 
disbursements over $10,000 including name, address, and purpose of 
receipt or disbursement.
    As demonstrated by this example, all tasks identified by the 
Department above as necessary for compliance with the requirements of 
this rule were analyzed to determine which personnel would conduct 
those tasks. The following table presents this analysis of which 
personnel are needed to perform each task, and the hours that such 
personnel will spend completing each task.

                                              Table 5--Cost by Task
----------------------------------------------------------------------------------------------------------------
                                                          Individual(s)                   Hours to
           Burden type                    Task            participating    Hourly cost    complete    Total cost
----------------------------------------------------------------------------------------------------------------
Non-Recurring Recordkeeping.....  Install/Setup        Computer Software        $59.00         8.00      $471.98
                                   Hardware.            Engineer.
Non-Recurring Recordkeeping.....  Change Acct.         Computer Software         55.90        16.51       923.11
                                   Structure.           Engineer and
                                                        Accountant.
Non-Recurring Reporting.........  Obtain Trust Number  Bookkeeper........        22.58         0.17         3.76
Non-Recurring Reporting.........  Design Report......  Computer Software         51.25         3.00       153.76
                                                        Engineer and
                                                        Accountant.
Non-Recurring Reporting.........  Develop Query......  Computer Software         55.90         3.00       167.70
                                                        Engineer and
                                                        Accountant.
Non-Recurring Reporting.........  Test Query.........  Computer Software         54.08         2.25       121.68
                                                        Engineer,
                                                        Bookkeeper, and
                                                        Accountant.
Non-Recurring Reporting.........  Mgmt. Review.......  Treasurer.........        45.24         1.50        67.86
Non-Recurring Reporting.........  Document the Query   Bookkeeper........        22.58         2.25        50.80
                                   Process.
Non-Recurring Reporting.........  Train Staff........  Computer Software         41.70         0.75        31.27
                                                        Engineer,
                                                        Bookkeeper, and
                                                        Accountant.
Recurring Recordkeeping.........  Input Records......  Bookkeeper........        22.58        69.70     1,573.72
Recurring Reporting.............  Train New Staff....  Computer Software         41.70         1.25        52.12
                                                        Engineer,
                                                        Bookkeeper, and
                                                        Accountant.
Recurring Reporting.............  Information on Form  Accountant........        43.51         2.40       104.42
                                   T-1 Provided to
                                   Trust.
Recurring Reporting.............  Review Form T-1 and  Computer Software         51.25         4.30       220.39
                                   Instructions.        Engineer and
                                                        Accountant.
Recurring Reporting.............  Review by Trust....  Accountant........        43.51         2.00        87.02
Recurring Reporting.............  Form/Information     Bookkeeper........        22.58         1.00        22.58
                                   Sent to Labor
                                   Organization.
Recurring Reporting.............  Obtain Pre-Filled    Bookkeeper........        22.58         0.17         3.76
                                   Form T-1.
Recurring Reporting.............  Prepare Download...  Bookkeeper........        22.58         3.00        67.74
Recurring Reporting.............  Preparation of Test/ Accountant and            26.77         4.50       120.44
                                   Data File.           Bookkeeper.
Recurring Reporting.............  Edit/Validate/       Accountant and            26.77         3.00        80.30
                                   Import Data File.    Bookkeeper.
Recurring Reporting.............  Fill Out Trust/      Accountant........        43.51         0.83        36.26
                                   Labor Organization
                                   Information.
Recurring Reporting.............  Answer Questions...  Accountant........        43.51         0.67        29.01
Recurring Reporting.............  Fill In Assets and   Accountant........        43.51         0.17         7.25
                                   Liabilities.
Recurring Reporting.............  Fill Additional      Accountant........        43.51         0.67        29.01
                                   Information.
Recurring Reporting.............  Management Review..  President and             40.45         4.00       161.80
                                                        Treasurer.

[[Page 57445]]

 
Recurring Reporting.............  Signature..........  President and             40.45         0.33        13.48
                                                        Treasurer.
----------------------------------------------------------------------------------------------------------------
    Total Non-Recurring Recordkeeping and Reporting...................................        37.43     1,991.92
                                 ===============================================================================
    Total Recurring Recordkeeping and Reporting Burden................................        97.98     2,609.29
----------------------------------------------------------------------------------------------------------------

4. Calculation of Total Costs to Labor Organizations Filing a Form T-1
    Based on the analysis reflected in the table above, the average 
cost per Form T-1 filed is estimated at $4,851.20 in the first year and 
$2,609.29 in each subsequent year. The total cost for all Form T-1s 
filed is estimated at $15,186,874.46 in the first year and 
$8,168,474.74 in each subsequent year. The Department believes that 
most of the section 3(l) trusts covered by the Form T-1 will have the 
necessary hardware to compile the information required by the Form T-1 
and provide it to the labor organization(s). However, some of the 
smallest plans might choose to upgrade their systems. Therefore, the 
Department has included in these final figures a one-time cost of $250 
in the burden analysis to account for any hardware or software 
purchases. These results are reflected in the table below.

                                           Table 6--Reporting and Recordkeeping Burden Hours and Costs for T-1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Total
                                    Number of  Reporting     Total     Recordkeeping      Total        burden      Total      Average
               Form                 form T-1s  hours per   reporting     hours per    recordkeeping  hours per     burden     cost per     Total cost
                                      filed     form T-1     hours        form T-1        hours       form T-1     hours      form T-1
                                                 filed                                                 filed                   filed
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form T-1:
    First Year....................   3,130.54      41.20   128,978.11        94.21      294,935.64      135.41   423,913.74  $4,851.20    $15,186,874.46
    Second Year...................   3,130.54      28.28    88,542.01        69.70      218,194.92       97.98   306,736.92   2,609.29      8,168,474.74
    Third Year....................   3,130.54      28.28    88,542.01        69.70      218,194.92       97.98   306,736.92   2,609.29      8,168,474.74
                                   ---------------------------------------------------------------------------------------------------------------------
Three Year Average................   3,130.54      32.59   102,020.71        77.87      243,775.16      110.46   345,795.86   3,356.59     10,507,941.31
--------------------------------------------------------------------------------------------------------------------------------------------------------

Final Regulatory Flexibility Analysis

    The Department's NPRM in this rulemaking contained initial 
Regulatory Flexibility Act 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 significant 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.
    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
requires agencies to consider the impact of their regulatory proposals 
on small entities, analyze effective alternatives that minimize small 
entity impacts, and make initial analyses available for public comment. 
5 U.S.C. 603, 604. If an agency determines that its rule will not have 
a significant economic impact on a substantial number of small 
entities, it must certify that conclusion to the Small Business 
Administration (SBA). 5 U.S.C. 605(b).
    In the 2003 and 2006 Form T-1 rules, the Department undertook 
regulatory flexibility analyses, utilizing the SBA's ``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 has been used for the 
Department's regulatory flexibility analysis in 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. In this regard, the affiliation 
between a local labor organization and a national or international 
labor organization, a widespread practice among labor organizations 
subject to the LMRDA, presents a unique circumstance in determining 
whether and, if so, how, receipts of labor organizations should be 
aggregated, if at all, in assessing whether a regulatory flexibility 
analysis is required and how it should be conducted. The Department has 
concluded, however, that it would be inappropriate, given the past 
rulemaking concerning the Form T-1 and the Form LM-2, to depart from 
the

[[Page 57446]]

$6.5 million receipts standard in preparing this regulatory flexibility 
analysis.
    All numbers used in this analysis are based on 2006 data taken from 
the Office of Labor-Management Standards e.LORS database, which 
contains data from annual financial reports filed by labor 
organizations with the Department pursuant to the LMRDA, and BLS wage 
data.
1. Statement of the Need for, and Objectives of, the Rule
    The following is a summary of the need for and objectives of the 
rule. A more complete discussion is found in the preamble.
    The objective of this rule is to increase the transparency of labor 
organization financial reporting by creating a new form for labor 
organization trust reporting (Form T-1) to enable members 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 Form T-1 is designed to 
close a reporting gap where labor organization finances in relation to 
LMRDA section 3(l) trusts were not disclosed to members, the public, or 
the Department.
    One of the LMRDA's primary reporting obligations (Forms LM-2, LM-3, 
and LM-4) applies to labor organizations, as institutions; other 
important reporting obligations apply to officers and employees of 
labor organizations (Form LM-30), requiring them to report any 
conflicts or potential conflicts between their personal financial 
interests and the duty they owe to the labor organization they serve, 
and to employers who must report payments to labor organizations and 
their representatives (Form LM-10). See 29 U.S.C. 432, 433. Requiring 
labor organizations to report the information required by the Form T-1 
provides an essential check for labor organization members and the 
Department to ensure that labor organizations, labor organization 
officials, and employers are accurately and completely fulfilling their 
reporting duties under the Act, obligations that can easily be ignored 
without fear of detection if reports relating to trusts are not 
required.
    Under the Department's former LM-2 rule (superseded by the revised 
2003 Form LM-2), a reporting obligation concerning section 3(l) trusts 
would arise only if the trust was a ``subsidiary'' of the reporting 
labor organization and met other requirements previously set by the 
Department. See Form LM-2 instructions in effect prior to the 2003 
final rule; see also 68 FR 58413. Thus, the former LM-2 rule, which was 
crafted shortly after the Act's enactment, required reporting by only a 
portion of the labor organizations that contributed to section 3(l) 
trusts. During the intervening decades, the financial activities of 
individuals and organizations have increased exponentially in scope, 
complexity, and interdependence. 67 FR 79280-81. For example, many 
labor organizations manage benefit plans for their members, maintain 
close business relationships with financial service providers such as 
insurance companies and investment firms, operate revenue-producing 
subsidiaries, and participate in foundations and charitable activities. 
67 FR 79280. The complexity of labor organization financial practices, 
including business relationships with outside firms and vendors, 
increases the likelihood that labor organization officers and employees 
may have interests in, or receive income from, these businesses. As 
more labor organizations conduct their financial activities through 
sophisticated trusts, increased numbers of businesses have commercial 
relationships with such trusts, creating financial opportunities for 
labor organization officers and employees who may operate, receive 
income from, or hold an interest in such businesses. In addition, 
employers also have fostered multi-faceted business interests, creating 
further opportunities for financial relationships between labor 
organizations, labor organization officials, employers, and other 
entities, including section 3(l) trusts.
    Such trusts ``pose the same transparency challenges as `off-the-
books' accounting procedures in the corporate setting: Large scale, 
potentially unattractive financial transactions can be shielded from 
public disclosure and accountability through artificial structures, 
classification and organizations.'' 67 FR 79282. The Department's 
former rule required labor organizations to report on only a subset of 
such trusts. This approach allowed a gap in the reporting of financial 
information concerning these trusts. The trust funds, if they had been 
retained by the labor organization, would have appeared on the labor 
organization's Form LM-2. Despite the close relationship between the 
labor organization and the trust and the purpose of the funds to 
benefit the members of the labor organization, transparency ended once 
the funds left the labor organization and thereby limited 
accountability. Thus, Form T-1 will essentially follow labor 
organization funds that remain in closely connected trusts, but which 
would otherwise go unreported. As a result of non-disclosure of these 
funds, members have long been denied important information about labor 
organization funds that were being directed to other entities, 
presumably for the members' benefit, such as joint trusts administered 
by a labor organization and an employer pursuant to a collective 
bargaining agreement, educational or training institutions, credit 
unions, and redevelopment or investment groups. See 67 FR 79285.
    The Form T-1 is necessary to close this gap, and to prevent certain 
trusts from being used to evade the Title II reporting requirements. 
The Form T-1 will identify the trust's significant vendors and service 
providers. A labor organization member who is aware that a labor 
organization official has a financial relationship with one or more of 
these businesses will be able to determine whether the business and the 
labor organization official have made required reports. The purpose of 
the LMRDA disclosure requirements is to prevent financial malfeasance 
of labor organization money. 67 FR 79282-83. This purpose is 
demonstrably frustrated when existing reporting obligations fail to 
disclose, for example, opportunities for fraud. (Examples of situations 
where money in section 3(l) trusts was being used to circumvent or 
evade the reporting requirements can be found in the preamble and at 67 
FR 79283.)
    As explained in the preamble, additional trust reporting 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 labor organization 
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 labor organization members with financial 
information concerning their labor organization's trusts when the labor 
organization, alone or in combination with other labor organizations, 
selects the majority of the directors or provides the majority of the 
trust's receipts.
2. Legal Basis for Rule
    The legal authority for this final rule is section 208 of the 
LMRDA. Section 208 provides that the Secretary of Labor shall have 
authority to issue, amend, and rescind rules and regulations

[[Page 57447]]

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 3(l) of the Act, 29 U.S.C. 402(l), defines a ``trust in which a 
labor organization is interested.''
3. Number of Small Entities Covered Under the Rule
    The e.LORS database shows that 4,452 labor organizations filed the 
Form LM-2 in 2006. Based on an analysis of annual receipts reported by 
Form LM-2 filers in 2006, the Department estimates that of the 4,452 
labor organizations subject to this rule, 4,228 of these, or 94.96 
percent of all Form LM-2 filers, have receipts less than $6.5 million, 
the SBA small business size standard for ``Labor Unions and Similar 
Labor Organizations.'' These labor organizations have annual average 
receipts of $1.3 million. Based on e.LORS data, the Department has 
determined that only 2,009 of these 4,228 labor organizations have an 
interest in a section 3(l) trust and will have to file Form T-1 
reports. The Department estimates that these organizations will file 
approximately 2,752.33 reports annually (on average about 1.37 reports 
per labor organization). See PRA analysis, supra.
    The affiliation among labor organizations 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). 
Section 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.'' However, for purposes of analysis 
here and for ready comparison with the RFA analyses in its earlier Form 
T-1 rulemakings, 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.
4. Relevant Federal Requirements Duplicating, Overlapping or 
Conflicting With the Rule
    To the extent that there are federal rules that duplicate, overlap, 
or conflict with this rule, some specific exemptions from the 
requirements of this rule have been provided. First, no Form T-1 need 
be filed for a trust that is required to file a Form 5500 with EBSA. In 
addition, no Form T-1 must be filed for a trust that is covered by the 
Federal Employees Health Benefits Act, 5 U.S.C. 8901 et seq. Finally, a 
labor organization is not required to report a Political Action 
Committee (PAC) fund, if publicly available reports on the PAC's funds 
are filed with federal or state agencies, nor must a labor organization 
file a Form T-1 for a political organization for which reports are 
filed with the IRS under 26 U.S.C. 527.
5. Differing Compliance or Reporting Requirements for Small Entities
    Under the rule, the reporting, recordkeeping, and other compliance 
requirements apply equally to all labor organizations that are required 
to file a Form T-1 under the LMRDA.
6. Clarification, Consolidation and Simplification of Compliance and 
Reporting Requirements for Small Entities
    OLMS has updated the e.LORS system to allow labor organizations to 
file Form T-1 as they file Form LM-2. Under the rule, labor 
organizations are directed to use an electronic reporting format to 
maintain financial information. This information can then be 
electronically compiled in the proper format for electronic filing.
    OLMS will provide compliance assistance for any questions or 
difficulties that may arise from using the reporting software. A toll-
free help desk is staffed during normal business hours and can be 
reached by telephone 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.
7. The Use of Performance Rather Than Design Standards
    The Department considered a number of alternatives to the rule that 
could minimize the impact on small entities. One alternative would be 
not to create a Form T-1. As stated above, this alternative was 
rejected because OLMS case files and experience demonstrate that the 
goals of the Act are not being met with regard to the finances of labor 
organizations held in section 3(l) trusts. As explained further in the 
preamble, labor organization members have no information on their labor 
organization's section 3(l) trusts. Labor organization members need 
this information to make informed decisions on labor organization 
governance.
    Another alternative would be to limit the proposed 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 a far greater impact 
on and relevance to labor organization members, 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 labor organization members. Of the estimated 4,452 labor 
organizations subject to Form T-1 filing requirements under the 
proposal, just 101 are national and international labor organizations. 
Requiring only national and international organizations to file Form T-
1 would not effectively increase labor organization transparency nor 
provide any deterrent to fraud and embezzlement by local and regional 
officials.
    Another alternative would be to propose a phase-in of the effective 
date of the Form T-1, which would provide some labor organizations 
additional time to modify their recordkeeping systems in order to 
comply with the new reporting requirement. The Department has 
concluded, however, that the rule allows all Form T-1 filers sufficient 
time to adapt to the disclosure requirements and make any necessary 
adjustments to their recordkeeping and reporting systems. OLMS also 
plans to provide compliance assistance to any labor organization or 
section 3(l) trust that requests it. The Department believes it has 
minimized the economic impact of the form on small labor organizations 
to the extent possible while recognizing members' and the Department's 
need for information to protect the rights of labor organization 
members under the LMRDA.

[[Page 57448]]

8. Reporting, Recording and Other Compliance Requirements of the Rule 
\19\
---------------------------------------------------------------------------

    \19\ The estimated burden on labor organizations is discussed in 
detail in the section concerning the Paperwork Reduction Act, supra. 
The figures discussed in the text are derived from the figures 
explained in that section.
---------------------------------------------------------------------------

    This analysis only considers labor organizations with annual 
receipts between $250,000 and $6.5 million. Labor organizations with 
less than $250,000 in annual receipts are not required to file the Form 
T-1 and those with annual receipts greater than $6.5 million are 
outside the coverage of the Regulatory Flexibility Act. This 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 of the 
final rule will be the cost of obtaining and reporting required 
information.
    Because the Form T-1 requires the provision of the same trust 
information regardless of the size of the reporting labor organization, 
the burden for completing and filing each Form T-1 is the same 
regardless of the size of the labor organization. In 2006, there were 
380 labor organizations with annual receipts between $250,000 and 
$499,999 who indicated on their Form LM-2 that they were interested in 
at least one section 3(l) trust. As explained above, these labor 
organizations will spend, on average, $4,851.20 in the first year per 
Form T-1 filed, or, on average for all labor organizations in this 
group, 1.35% of its annual receipts. The cost per Form T-1 filed in 
each subsequent year will drop to $2,609.29 or, on average for all 
labor organizations in this group, 0.72% of its annual receipts.
    The Department has determined that the impact on the 1,629 labor 
organizations with annual receipts between $500,000 and $6,500,000 that 
indicated that they were interested in at least one section 3(l) trust 
will be significantly smaller than the impact on labor organizations 
with between $250,000 and $499,999 in annual receipts. Like the smaller 
labor organizations, these labor organizations will spend, on average, 
$4,851.20 in the first year per Form T-1 filed and $2,609.29 each 
subsequent year. However, these costs will only require the labor 
organization to spend, on average for all labor organizations in this 
group, 0.28% of its annual receipts in the first year and, on average 
for all labor organizations in this group, 0.15% of its annual receipts 
in the second year.

         Table 7--Summary of T-1 Regulatory Flexibility Analysis
------------------------------------------------------------------------
                                           Total burden
  For labor organizations that meet the      hours per    Total cost per
       SBA small entities standard        respondent per  respondent per
                                             T-1 filed       T-1 filed
------------------------------------------------------------------------
First Year Cost of Form T-1:
    For Labor Organizations with                  135.41     $4,851.20
     $250,000 to $499,999 in Annual
     Receipts...........................
    Percent of Average Annual Receipts..            n.a.          1.35%
Second Year Cost of Form T-1:
    For Labor Organizations with                   97.98      2,609.29
     $250,000 to $499,999 in Annual
     Receipts...........................
    Percent of Average Annual Receipts..            n.a.          0.72%
    Percentage Reduction in Cost From               n.a.         46.21%
     Previous Year......................
First Year Cost of Form T-1:
    For Labor Organizations with                  135.41      4,851.20
     $500,000 to $6,500,000 in Annual
     Receipts...........................
    Percent of Average Annual Receipts..            n.a.          0.28%
Second Year Cost of Form T-1:
    For Labor Organizations with                   97.98      2,609.29
     $500,000 to $6,500,000 in Annual
     Receipts...........................
    Percent of Average Annual Receipts..            n.a.          0.15%
    Percentage Reduction in Cost From               n.a.         46.21%
     Previous Year......................
------------------------------------------------------------------------

9. 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.
    In this case, as shown in the table above, the Department has 
determined that the costs of compliance with this rule in the first 
year will consist of between 0.28% and 1.35% of the revenue of all 
small labor organizations, those with annual receipts between $250,000 
and $6.5 million. In the subsequent years, compliance costs for those 
labor organizations will be between 0.15% and 0.72% of their annual 
receipts. The Department concludes that this economic impact 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 
concludes that the final rule will not have a significant economic 
impact on a substantial number of small entities.

Electronic Filing of Forms and Availability of Collected Data

    Appropriate information technology is used to reduce burden and 
improve efficiency and responsiveness. The current forms can be 
downloaded from the OLMS Web site. OLMS has also implemented a system 
to require Form LM-2 and Form T-1 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.
    The OLMS Internet Disclosure site at http://www.unionreports.gov is 
available for public use. The site contains a copy of each labor

[[Page 57449]]

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. Form T-1 
filings will be available on the Web site.
    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.
    Information about this system can be obtained on the OLMS Web site 
at http://www.olms.dol.gov. Digital signatures ensure the authenticity 
of the reports.

List of Subjects in 29 CFR Part 403

    Labor unions, Trusts, Reporting and recordkeeping requirements.

Text of Rule

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

PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS

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

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


0
2. In Sec.  403.2, paragraph (d) is revised to read as follows:


Sec.  403.2  Annual financial report.

* * * * *
    (d)(1) Every labor organization with annual receipts of $250,000 or 
more shall file a report on Form T-1 for each trust that meets the 
following conditions:
    (i) The trust is of the type defined by section 3(l) of the LMRDA, 
i.e., the trust was created or established by the labor organization or 
the labor organization appoints or selects a member of the trust's 
governing board; and the trust has as a primary purpose to provide 
benefits to the members of the labor organization or their 
beneficiaries (29 U.S.C. 402(1)); and the labor organization, alone or 
with other labor organizations, either:
    (A) Appoints or selects a majority of the members of the trust's 
governing board; or
    (B) Makes contributions to the trust that exceed 50 percent of the 
trust's receipts during the trust's fiscal year; and
    (ii) None of the exemptions discussed in paragraph (d)(3) of this 
section apply.
    (iii) For purposes of paragraph (d)(1)(i)(B), contributions by an 
employer pursuant to a collective bargaining agreement with a labor 
organization shall be considered contributions by the labor 
organization.
    (2) A separate report shall be filed on Form T-1 for each such 
trust within 90 days after the end of the labor organization's fiscal 
year in the detail required by the instructions accompanying the form 
and constituting a part thereof, and shall be signed by the president 
and treasurer, or corresponding principal officers, of the labor 
organization.
    (3) No Form T-1 should be filed for any trust
    (i) that meets the statutory definition of a labor organization and 
already files a Form LM-2, Form LM-3, or Form LM-4,
    (ii) that the LMRDA exempts from reporting, such as an organization 
composed entirely of state or local government employees or a state or 
local central body,
    (iii) established as a Political Action Committee (PAC) if timely, 
complete and publicly available reports on the PAC are filed with a 
Federal or state agency,
    (iv) established as a political organization under 26 U.S.C. 527 if 
timely, complete, and publicly available reports are filed with the 
Internal Revenue Service,
    (v) constituting a federal employee health benefit plan subject to 
the provisions of the Federal Employees Health Benefits Act (FEHBA)
    (vi) required to file a Form 5500. For purposes of this section 
only, a trust is ``required to file a Form 5500'' if a plan 
administrator is required to file an annual report on behalf of the 
trust under 29 U.S.C. section 1021 and/or 1024. A trust on whose behalf 
such annual report is required to be filed that is eligible for an 
exemption from filing the annual report, the Form 5500, or the Form 
5500-SF is not included within this exemption and is deemed for 
purposes of this section only not to be a trust ``required to file a 
Form 5500,'' even if a Form 5500 is filed on behalf of that trust. A 
trust eligible to file a notice or statement with the Secretary of 
Labor in lieu of an annual report pursuant to an exemption from, or as 
an alternative method of complying with, the annual reporting 
obligation is not included within this exemption, even if it does file 
a Form 5500 or Form 5500-SF.
    (4) A labor organization may complete only Items 1 through 15 and 
Items 26 through 27 (Signatures) of Form T-1 if annual audits prepared 
according to standards set forth in the Form T-1 instructions and a 
copy of the audit is filed with the Form T-1.
    (5) If such labor organization is in trusteeship on the date for 
filing the annual financial report, the labor organization that has 
assumed trusteeship over such subordinate labor organization shall file 
such report as provided in Sec. 408.5 of this chapter.

0
3. Amend Sec.  403.5 by revising paragraph (d) to read as follows:


Sec.  403.5.  Terminal financial report.

* * * * *
    (d) If a labor organization filed or was required to file a report 
on a trust pursuant to Sec. 403.2(d) and that trust loses its identity 
during its subsequent fiscal year through merger, consolidation, or 
otherwise, the labor organization shall, within 30 days after such 
loss, file a terminal report on Form T-1, with the Office of Labor-
Management Standards, signed by the president and treasurer or 
corresponding principal officers of the labor organization. For 
purposes of the report required by this paragraph, the period covered 
thereby shall be the portion of the trust's fiscal year ending on the 
effective date of the loss of its reporting identity.

0
4. In Sec.  403.8, revise paragraph (c)(3) to read as follows:


Sec.  403.8  Dissemination and verification of reports.

* * * * *
    (c) * * *
    (3) 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.
* * * * *


[[Page 57450]]


    Signed in Washington, DC, this 24th day of September 2008.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.
Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.

Appendix

    Note: This appendix, which will not appear in the Code of 
Federal Regulations, contains Form T-1 and instructions.

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[FR Doc. E8-22853 Filed 10-1-08; 8:45 am]
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