2020-21685. Labor Organization Annual Financial Reports: LM Form Revisions

AGENCY:

Office of Labor-Management Standards, Department of Labor.

ACTION:

Proposed rule and request for comments.

SUMMARY:

The Department of Labor (Department) proposes to promulgate a rule that updates and revises our regulations in order to improve the Form LM-2 and establish a Form LM-2 Long Form (LF), in the interest of labor organization financial integrity and transparency. The proposed rule would apply prospectively.

DATES:

Submit written comments on or before December 14, 2020.

ADDRESSES:

You may submit comments, identified by RIN 1245-AA10, only electronically, through the Federal eRulemaking Portal http://www.regulations.gov. To locate the proposed rule, use key words such as “Labor-Management Standards” or “Labor Organization Annual Financial Reports.”. Follow the instructions for submitting comments. Please be advised that comments received will be posted without change to http://www.regulations.gov,, including any personal information provided. All comments must be received by 11:59 p.m. on the date indicated for consideration in this rulemaking.

FOR FURTHER INFORMATION CONTACT:

Andrew Davis, Chief of the Division of Interpretations and Standards, Office of Labor-Management Standards, U.S. Department of Labor, 200 Constitution Avenue NW, Room N-5609, Washington, DC 20210, [phone] (this is not a toll-free number), [phone] (TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Statutory Authority

The Department's statutory authority is set forth in sections 201 and 208 of the Labor- Management Reporting and Disclosure Act of 1959, as amended (LMRDA or Act), 29 U.S.C. 431, 438. Section 208 of the LMRDA provides that the Secretary of Labor shall have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under Title II of the Act and such other reasonable rules and regulations as he may find necessary to prevent the circumvention or evasion of the reporting requirements. 29 U.S.C. 438. Section 201, discussed in more detail below, sets out the substantive reporting obligations.

The Secretary has delegated his authority under the LMRDA to the Director of the Office of Labor-Management Standards and permitted redelegation of such authority. See Secretary's Order 03-2012 (Oct. 19, 2012), published at 77 FR 69376 (Nov. 16, 2012).

II. Background

A. Introduction

The Department proposes to introduce a new Form LM-2 Long Form (Form LM-2 LF), and update and revise Form LM-2 labor organization annual financial disclosure report to provide additional valuable information to union members, the Department, and the public. This proposal is part of the Department's continuing effort to better effectuate the reporting requirements of the LMRDA. The LMRDA's various reporting provisions are designed to empower labor organization members by providing them the means to maintain democratic control over their labor organizations and ensure a proper accounting of labor organization funds. Labor organization members are better able to monitor their labor organization's financial affairs and to make informed choices about the leadership of their labor organization and its direction when labor organizations provide financial information required by the LMRDA in an easily accessible way. By reviewing the reports, a member may ascertain the labor organization's priorities and whether they are in accord with the union's constitution and purposes, the member's own priorities, and those of fellow members. At the same time, this transparency promotes the labor organization's own interests as a democratic institution as well as 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.

B. Statutory Background

In 1959, Congress found that “in the labor and management fields * * * there have been a number of instances of breach of trust, corruption, disregard of the rights of individual employees, and other failures to observe high standards of responsibility and ethical conduct which require further and supplementary legislation that will afford necessary protection of the rights and interests of employees and the public generally as they relate to the activities of labor organizations, employers, labor relations consultants, and their officers and representatives.” 29 U.S.C. 401(b). The LMRDA was designed to remedy these various ills through a set of integrated provisions aimed largely at labor organization governance and management. These include a “bill of rights” for labor organization members, which provides for equal voting rights, freedom of speech and assembly, and other basic safeguards for labor organization democracy, see 29 U.S.C. 411-415; financial reporting and disclosure requirements for labor organizations, their officers and employees, employers, labor relations consultants, and surety companies, see 29 U.S.C. 431-436, 441; detailed procedural, substantive, and reporting requirements relating to labor organization trusteeships, see 29 U.S.C. 461-466; detailed procedural requirements for the conduct of elections of labor organization officers, see 29 U.S.C. 481-483; safeguards for labor organizations, including bonding requirements, the establishment of fiduciary responsibilities for labor organization officials and other representatives, criminal penalties for embezzlement from a labor organization, a prohibition on certain loans by a labor organization to officers or employees, prohibitions on individuals convicted of certain crimes from holding union office or employment or serving in other prohibited capacities, and prohibitions on payments for prohibited purposes by an employer or labor relations consultant to employees, labor organizations, and labor organization officers and employees, see 29 U.S.C. 501-505; and prohibitions against extortionate picketing, retaliation for exercising protected rights, and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529, 530. The LMRDA was a bipartisan bill. It originally passed the Senate 90-1 on April 25, 1959. The conference report, which set forth the version of the bill negotiated between the House and Senate, passed the Senate 95-2 on September 3, 1959. The bill passed the House 352-52 on September 4, 1959.

The LMRDA was the direct outgrowth of a congressional investigation conducted by the Select Committee on Improper Activities in the Labor or Management Field, commonly known as the McClellan Committee, chaired by Senator John McClellan of Arkansas. Senators John F. Kennedy, Sam Ervin, Karl Mundt, Patrick McNamara, Carl Curtis, Irving Ives, and Barry Goldwater also sat on the committee. Future U.S. Attorney General Robert Kennedy served as Chief Counsel and led Senator McClellan's staff. 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 the bipartisan enactment of the LMRDA's remedial provisions. The committee heard from 1,526 witnesses over 270 days of hearings, creating a record of over twenty thousand pages. See generally Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of 1959, 73 Harv. L. Rev. 851, 851-55 (1960); and R. Alton Lee, Eisenhower & Landrum-Griffin (1990). 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 have been organized by them. Similar arrangements were also found between labor organization officials and the companies that handled matters relating to the administration of labor organization benefit funds. See generally Interim Report of the Select Committee on Improper Activities in the Labor or Management Field, S. Report No. 85-1417 (1957); see also William J. Isaacson, Employee Welfare and Benefit Plans: Regulation and Protection of Employee Rights, 59 Colum. L. Rev. 96 (1959).

Financial reporting and disclosure were conceived as a means of combatting improper practices. As noted in a key Senate Report on the legislation, disclosure would discourage questionable practices (“The searchlight of publicity is a strong deterrent.”); aid labor organization governance (labor organizations will be able “to better regulate their own affairs. The members may vote out of office any individual whose personal financial interests conflict with his duties to members.”); facilitate legal action by members against “officers who violate their duty of loyalty to the members;” and create a record (the reports will furnish a “sound factual basis for further action in the event that other legislation is required”). S. Rep. No. 187, at 16 (1959), reprinted in 1 NLRB Legislative History of the Labor-Management Reporting and Disclosure Act of 1959, at 412.

As the House Report disclosed, “It is the purpose of this bill to insure that full information concerning the financial and internal administrative practices and procedures of labor organizations shall be, in the first instance available to the members of such organizations. In addition, this information is to be made available to the Government, and through the Secretary of Labor, is to be open to inspection by the general public. By such disclosure, and by relying on voluntary action by members of labor organizations, it is hoped that a deterrent to abuses will be established.” House Report No. 741 (86th Cong., 1st Sess., 2 U.S. Code Cong. & Admin. News, 1959, p. 2424).

C. Regulatory Background

The Department has developed forms for implementing the LMRDA's financial reporting requirements. The annual reports required by section 202(b) of the Act, 29 U.S.C. 432(b) (Form LM-2, Form LM-3, and Form LM-4), contain information about a labor organization's assets, liabilities, receipts, disbursements, loans to officers and employees and business enterprises, payments to each officer, and payments to each employee of the labor organization paid more than $10,000 during the fiscal year. The reporting detail required of labor organizations, as the Secretary has established by rule, varies depending on the amount of the labor organization's annual receipts. 29 CFR 403.4.

Labor organizations with annual receipts of at least $250,000 and all labor organizations in trusteeship (without regard to the amount of their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4. The Form LM-2 requires certain receipts and disbursements to be reported by functional categories, such as representational activities; political activities and lobbying; contributions, gifts, and grants; union administration; and benefits. Further, the form requires labor organizations to allocate the time their officers and employees spend according to functional categories, as well as the payments that each of these officers and employees receive, and it requires the itemization of certain transactions totaling $5,000 or more. This form must be electronically signed and filed with the Department. Form LM-2 is filed by approximately 22 percent of the reporting labor organizations. If a labor organization has less than $250,000 in total annual receipts, it will file either a Form LM-3 or Form LM-4, both of which require significantly less detail than the Form LM-2. Form LM-3 is filed by approximately 45 percent of the reporting labor organizations, i.e., those with less than $250,000 in total annual receipts but $10,000 or more. Labor organizations with receipts of less than $10,000 file the Form LM-4. They constitute 29 percent of the filers. The remaining 5 percent are subject to an even more simplified report, which is available to labor organizations with no assets, liabilities, receipts, or disbursements. The reforms the Department now proposes to make would affect only Form LM- 2 filers and thus only 22 percent of the reporting labor organization community.

The labor organization's president and treasurer (or its corresponding officers) are personally responsible for filing the reports and for any statement in the reports known by them to be false. 29 CFR 403.6. These officers are also responsible for maintaining records in sufficient detail to verify, explain, or clarify the accuracy and completeness of the reports for not less than five years after the filing of the forms. 29 CFR 403.7. A labor organization “shall make available to all its members the information required to be contained in such reports” and “shall * * * permit such member[s] for just cause to examine any books, records, and accounts necessary to verify such report[s].” 29 CFR 403.8(a).

The reports are public information. 29 U.S.C. 435(a). The Secretary is charged with providing for the inspection and examination of the financial reports, 29 U.S.C. 435(b). For this purpose, OLMS maintains (1) a public disclosure room where copies of such reports may be reviewed and (2) an online public disclosure site (https://www.dol.gov/​olms/​regs/​compliance/​rrlo/​lmrda.htm), where reports filed since the year 2000 are available for the public's review.

On December 27, 2002, the Department issued a notice of proposed rulemaking, 67 FR 79820, proposing revisions of the Form LM-2 (and other proposals for reforms of reports), expanding LMRDA coverage, and a newly created form.

On October 9, 2003, the Department issued a final rule, 68 FR 58373, with an effective date of January 4, 2004. The rule put into effect the NPRM-proposed changes to the Form LM-2 with modifications. The key changes put into place by the final rule were as follows:

1. $5,000 Itemization Threshold: Form LM-2 filers itemize certain categories of receipts and disbursements of $5,000 or more, as well as receipts and disbursements to a single entity that total $5,000 or more in the reporting year.

2. Confidentiality Exemption: Labor organizations (hereinafter also referred to as “labor unions” or “unions”) may take advantage of special procedures for reporting confidential information, such as information that would expose the reporting union's prospective organizing strategy and information that would provide a tactical advantage to parties with whom the union engages in contract negotiations. Such information is not specifically reported or publicly disclosed.

3. Functional Reporting: Disbursements are reported in five specified categories (Representational Activities; Political Activities and Lobbying; Contributions, Gifts and Grants; General Overhead; and Union Administration).

4. Functional Reporting of Work Time: The Form LM-2 requires unions to estimate the time spent by each union officer and union employee (collectively, “union officials”) on different duties, based on the categories of activities represented by the Form LM-2 schedules and represented as percentage of work time totaling 100 percent. Unions then report the portion of gross salaries for each schedule based on the percentage of time estimates.

5. Accounts Payable/Receivable: The Form LM-2 includes schedules designed for reporting delinquent accounts payable and receivable (with the typical Form LM-2 itemization threshold of $5,000).

6. Reporting of Investments: The Form LM-2 requires unions to report all investments that both have a book value greater than $5,000 and represent five percent or more of the union's investments.

7. Membership Categories: The Form LM-2 requires unions to report their number of members by aggregate categories. The union may determine the categories. Common categories include active members, retirees, full retirees, apprentices, etc.

Approximately four and a half years later, on May 12, 2008, the Department issued a notice of proposed rulemaking, 73 FR 27345, to further revise the Form LM-2 in a number of ways. A major piece required an expanded number of schedules to itemize receipts further.

On January 21, 2009, the Department issued a final rule, 74 FR 3677, with an effective date of February 20, 2009. The rule was ultimately rescinded before any reports were filed. The following were the key changes in the 2009 rule:

1. Additional information on Schedules 3 and 4: Had it become applicable, the rule would have required additional information on Form LM-2 Schedule 3—Sales of Investments and Fixed Assets, and Schedule 4—Purchase of Investments and Fixed Assets, disclosing the party buying or selling union assets.

2. Additional information on Schedules 11 and 12: The rule would have required additional information on Form LM-2 Schedule 11—All Officers and Disbursements to Officers, and Schedule 12—Disbursements to Employees, disclosing the total value of the benefits received by union officers and union employees (i.e., it would have required unions to include the value of union officer/employee benefits in Schedules 11/12 rather than aggregated in a lump sum figure in Schedule 20).

3. Itemization of Receipts: The rule added itemization schedules corresponding to additional categories of receipts.

On April 21, 2009, the Department issued a notice of proposed rulemaking, 74 FR 18172, to rescind the Form LM-2 changes made by the January 2009 final rule.

The NPRM expressed concern that the January 2009 final rule failed to consider the utility of increased reporting and its attendant burdens, which may have resulted in a reporting regime that lacked what the NPRM stated was a required balance between the need for transparency in union financial reporting and the need to protect unions from excessive burdens attendant to such reporting. 74 FR 18173, 18175. The Department also stated that the January 2009 rule was not informed by an adequate review of the Department's experience under the “relatively recent” revisions to Form LM-2 in 2003. Id.

On October 13, 2009, the Department issued a final rule, 74 FR 52401, which rescinded the Form LM-2 changes made by the January 2009 final rule. As to the perceived failure to adequately balance burden with benefit, the Department concluded that the annual reports need not disclose “every bit of probative financial information,” id. at 52406 (internal quotation marks omitted).

Second, the Department rescinded the January 2009 rule on the view that it had promulgated the rule “too soon after the 2003 changes” and “without an adequate review of the benefits and costs of the changes.” Id. The Department stated that “a more comprehensive review” was needed to measure the benefits of the 2003 revisions against their costs; the Department suggested as two potential options “a survey of all Department investigators or a documented review of the thousands of filings received by the Department under the 2003 rule.” Id. at 52408.

III. Proposal

A. Introduction

The Department now proposes to introduce a new Form LM-2 Long Form (LF) and modify the Form LM-2 for the purpose of providing additional information to labor organization members, the Department, and the public about the financial activities of labor organizations.

Today's labor organizations are more like modern corporations in their structure, scope, and complexity than the labor organizations of 1959. The balance between wages/salaries paid to workers and their “other compensation” has changed significantly during this time. For example, in 1966, more than 80 percent of total compensation consisted of wages and salaries, with less than 20 percent representing benefits. U.S. Department of Labor, Report on the American Workforce 76, 87 (2001).^[1] By 2019, wages had dropped to 70.1 percent of total compensation and benefits had grown to 29.9 percent of the compensation package. U.S. Department of Labor, Bureau of Labor Statistics Chart on Total Benefits, available at https://data.bls.gov/​cgi-bin/​surveymost?​cu. Moreover, labor organization members today are better educated, more empowered, and more familiar with financial data and transactions than ever before. Labor organization members, no less than consumers, citizens, or creditors, expect access to relevant and useful information in order to make fundamental investment, career, and retirement decisions, evaluate options, and exercise legally guaranteed rights.

The revisions to the Form LM-2 made by the Department in 2003 have helped to fulfill the LMRDA's reporting mandate. However, based upon the Department's experience since 2003 and after input from OLMS field offices, the Department believes that further enhancements to the Form LM-2 are necessary.

Union and management corruption remains a problem today. For example, a recent investigation of auto industry corruption involving the United Auto Workers International Union (UAW) in Detroit, Michigan and a Detroit automaker produced multiple criminal convictions in the United States District Court for the Eastern District of Michigan.^[2] The joint investigations conducted by OLMS, the Department's Office of Inspector General, the Federal Bureau of Investigation, and the Internal Revenue Service centered on a conspiracy involving Fiat Chrysler executives bribing labor officials to influence labor negotiations. Violations included conspiracy to violate the Labor Management Relations Act for paying and delivering more than $1.5 million in prohibited payments and things of value to UAW officials, receiving prohibited payments and things of value from others acting in the interest of Fiat Chrysler, failing to report income on individual tax returns, conspiring to defraud the United States by preparing and filing false tax returns for the UAW-Chrysler National Training Center that concealed millions of dollars in prohibited payments directed to UAW officials, and deliberately providing misleading and incomplete testimony in the federal grand jury.

OLMS cases illustrate the link between reporting and disclosure and criminal conduct. A strictly enforced reporting regime deters and reveals legal violations and aids in the enforcement of the LMRDA's civil and criminal penalties. For example, on February 12, 2020, in the United States District Court for the Central District of California, after a six-day trial, a jury found John S. Romero, former President of United Industrial Services Worker of America (UISWA), located in Colton, California, guilty of 1 count of conspiracy to commit theft or embezzlement in connection with health care (18 U.S.C. 371), 12 counts of theft or embezzlement of approximately $800,000 in connection with health care (18 U.S.C. 669), and 1 count of filing a false LM financial report with the Department, in which he failed to properly report more than $100,000 in receipts and disbursements (18 U.S.C. 1001). Romero's family members, who were co-defendants (son John J. Romero, former UISWA Secretary-Treasurer; daughter Danae Romero, former UISWA Trustee; and ex-wife Evelyn Romero, former UISWA President), had each previously pleaded guilty to counts under the indictment and testified at trial on behalf of the government. The guilty verdict followed an investigation by the OLMS Los Angeles District Office, Department of Labor's Office of Inspector General, and the Employee Benefits Security Administration. https://www.justice.gov/​usao-cdca/​pr/​former-labor-union-president-convicted-conspiracy-embezzling-union-health-plan-funds.

On December 18, 2019, in the United States District Court for the Southern District of West Virginia, Eric Childress, former Secretary-Treasurer of Communications Workers of America Local 2276 (located in Bluefield, West Virginia), pleaded guilty to one count of making a false entry in a union record, in violation of 29 U.S.C. 439(c). The guilty plea followed an investigation by the OLMS Philadelphia-Pittsburgh District Office. https://www.dol.gov/​olms/​regs/​compliance/​enforce_​2019.htm.

On January 29, 2019, in the United States District Court for the Eastern District of Pennsylvania, John Dougherty, Business Manager of International Brotherhood of Electrical Workers Local 98 (located in Philadelphia, Pennsylvania), was charged in an indictment with 1 count of conspiracy to embezzle from a labor union and employee benefits plan (18 U.S.C. 371), 34 counts of embezzlement of union funds (29 U.S.C. 501(c)), 23 counts of wire fraud theft from the union (18 U.S.C. 1343), 2 counts of wire fraud theft from political action committee (18 U.S.C. 1343), 2 counts of filing a false LM report (29 U.S.C. 439(b)), 2 counts of falsifying union records (29 U.S.C. 439(c)), 5 counts of filing false federal income tax returns (26 U.S.C. 7206(1)), 1 count of conspiracy to accept unlawful payments from an employer (18 U.S.C. 371), 8 counts of accepting unlawful payments from an employer (29 U.S.C. 186(a)(2),(b)(1) & (d)(2)), 1 count of conspiracy to commit honest services fraud and federal program bribery (18 U.S.C. 371), 11 counts of honest services wire fraud (18 U.S.C. 1343, 1346), and 1 count of honest services mail fraud (18 U.S.C. 1341, 1346). The charges followed an investigation by the OLMS Philadelphia-Pittsburgh District Office, the Employee Benefits Security Administration, the Department of Labor's Office of Inspector General, the Federal Bureau of Investigation, the Internal Revenue Service, the Pennsylvania State Police, and the Pennsylvania Attorney General's Office. https://www.dol.gov/​olms/​regs/​compliance/​enforce_​2019.htm.

On September 21, 2017, in the United States District Court for the Northern District of Illinois, Bobby Buford, former President of UAW Local 2419 (located in Danville, Illinois), was sentenced to 21 months of incarceration and 3 years of supervised release, and he was ordered to pay restitution of $129,723 and a $100 special assessment. On November 10, 2016, Buford pled guilty to one count of mail fraud, in violation of 18 U.S.C. 1341, for diverting over $129,723 in unions funds for personal use. While he served as president of the union, Buford made cash withdrawals and issued cashier's checks from the accounts for his own personal benefit. Buford then covered up his scheme by mailing false annual reports to the Department. The false reports underreported the amount of dues and fees collected from union members, inflated the balance of the union's accounts, and omitted his personal withdrawals from the accounts. https://www.justice.gov/​usao-cdil/​pr/​former-president-uaw-local-2419-danville-sentenced-prison-embezzling-union-funds' https://www.dol.gov/​olms/​regs/​compliance/​enforce_​2017.htm.

Those are just a handful of examples. The proposed enhancements, as more fully described below, would also ensure that information is reported in such a way as to meet the objectives of the LMRDA by providing labor organization members with useful data that will enable them to be responsible and effective participants in the democratic governance of their labor organizations. The proposed changes are designed to provide members of labor organizations with additional and more detailed information about the financial activities of their labor organization than is available through the current reporting.

These proposed revisions are consistent with the goals of the LMRDA and its purposes as discussed above and in connection with the Department's 2002 NPRM and 2003 Final Rule, as well as the 2008 NPRM and 2009 Final Rule, which ultimately did not go into effect but put forward similar revisions.^[3] This proposed rule is considered to be an Executive Order (E.O.) 13771 regulatory action. Details on the estimated costs of this final rule can be found in the rule's economic analysis.

The OLMS Electronic Forms System (EFS) makes it simpler to complete LM reports than it was at the time of previous updates to the Form LM-2. This web-based system enables labor organizations, their officials, employers, and labor relations consultants to complete and submit LM reports to OLMS. Currently, EFS can be used by filers of Forms LM-2, LM-3, LM-4, LM- 10 Employer Report, LM-20 Agreement and Activities Report, LM-21 Receipts and Disbursements Report, LM-30 Labor Organization Officer and Employee Report, and Form T-1 Trust Report.^[4] The filer accesses EFS to register for an EFS User ID and password, obtain a union PIN, as well as edit account information or retrieve existing passwords or User IDs. By accessing EFS, the filer can also obtain, work on, or sign and submit an LM form. EFS allows anyone with a web-enabled computer to complete, sign, and electronically file a Form LM-2, LM-3, LM-4, LM-10, LM-20, LM-21, and LM-30 without purchasing a digital signature or downloading special software. EFS performs all calculations for the LM reports and completes a form error check prior to submission. EFS also allows unions that maintain electronic accounting records to import financial data from their accounting programs directly into the Form LM-2 or LM-3 they are completing.^[5]

B. Canvassing OLMS Field Investigators

i. Field Investigators Response on Benefits and Drawbacks of Form LM-2

In July and September of 2019, the Department sought information from its OLMS field investigators on the benefits or drawbacks of the changes made to the Form LM-2 by the 2003 rulemaking. This is in keeping with the 2009 rule's suggestion for additional study of the 2003 changes, such as by reviewing them with OLMS staff. As discussed below, this review has been helpful to the Department by confirming disclosure requirements' helpful role in ensuring union democracy and transparency under the LMRDA. Indeed, some of the comments provided by OLMS staff are directly implemented as proposed revisions to the LM forms. The Department of does not, however, view itself as restricted to these comments when deciding how to revise the LM forms. The staff's comments demonstrate that many of the reforms accomplished in 2003 have been helpful to OLMS in uncovering and deterring wrongdoing. Further reforms, including those suggested by the staff, are intended to further protect union members' rights and enhance compliance with the LMRDA.

For these same reasons, the Department is of the view that this proposed rule is an appropriate exercise of its discretion in administering the LMRDA. See Ala. Educ. Ass'n v. Chao, 539 F. Supp. 2d 378, 384 (D.D.C. 2008). The Department's October 2009 rule stated that the Department should consider the utility of increased reporting against the burdens it imposes, citing various types of legislative history about the need for government to not impede union self-governance. The LMRDA weights that balance heavily in favor of “necessary protection of the rights and interests of employees and the public generally as they relate to the activities of labor organizations, employers, labor relations consultants, and their officers and representatives.” 29 U.S.C. 401(b). The LMRDA “is necessary to eliminate or prevent improper practices on the part of labor organizations” and others. Id. 401(c). While this rule would incur some new burdens on labor unions, the Department views those burdens as necessary and appropriate to ensure transparency and prevent malfeasance before it happens. The Department views this as especially important now given the massive UAW criminal scheme and a smaller but steady stream of criminal misconduct despite the Department's vigorous enforcement of the LMRDA. Other aspects of this rule propose reducing reporting obligations where those have proved to be unhelpful in effecting the LMRDA's purposes.

Further, the LMRDA's comprehensive reporting regime, including as enhanced by this proposed rule, does not impede but furthers union self-governance. The changes to the LM forms proposed in this rule give union members more information about how their elected leaders are using their funds, allowing them to better hold them accountable and better ensuring that the LMRDA is followed. Robust reporting regimes are the norm under the securities laws, in lobbying and in contributions to political candidates, and in many other areas where voters select officials who are charged with their trust. Accounting ensures accountability. “Sunlight is said to be the best of disinfectants,” and that is true here as well. Louis D. Brandeis, Other People's Money 92 (1914).

A questionnaire summarized the changes made in 2003 and asked “whether the changes made to the Form LM-2 in 2003 have aided or hindered OLMS in its enforcement activities.” ^[6] Field personnel were advised that “[w]e are looking to determine whether the changes OLMS made to the Form LM-2 in 2003 have proven beneficial. The document LM Form Benefits of 2003 Changes contains a description of the changes made in 2003. Please ask your district directors to meet with their staff. I envision each office holding a 30 minute brainstorming session. The idea is to determine whether the new parts of the Form LM-2, like itemization or functional categories, have helped with investigations.”

For the convenience of the investigators, the changes were summarized as follows:

1. $5,000 Itemization threshold: Form LM-2 filers itemize certain categories of receipts and disbursements of $5,000 or more, as well as receipts and disbursements to a single entity that total (aggregate to) $5,000 or more in the reporting year.

2. $5,000 Itemization Confidentiality Exemption: Provides labor organizations with a procedure to avoid itemizing disbursements that would reveal the following types of information:

• Information that would identify individuals paid by the union to work in a non-union bargaining unit in order to assist the union in organizing employees;
• Information that would expose the reporting union's prospective organizing strategy;
• Information that would provide a tactical advantage to parties with whom the reporting union or an affiliated union is engaged or will be engaged in contract negotiations;
• Information pursuant to a settlement that is subject to a confidentiality agreement, or that the union is otherwise prohibited by law from disclosing; and
• Information in those situations where disclosure would endanger the health or safety of an individual.

3. Disbursements are reported in specified categories (Representational Activities; Political Activities and Lobbying; Contributions, Gifts and Grants; General Overhead; and Union Administration).

4. Functional Reporting: The LM-2 requires unions to estimate the time spent by each union officer and employee on different duties, based on the categories of activities represented by the LM-2 schedules and represented as percentage of work time totaling 100 percent. Unions then report the portion of gross salaries for each schedule based on the percentage of time estimates.

5. Accounts Payable/Receivable: The LM-2 includes schedules designed for reporting delinquent accounts payable and receivable (with the typical LM-2 itemization threshold of $5,000).

6. Reporting of Investments: The LM-2 requires unions to report all investments that both have a book value greater than $5,000 and represent five percent or more of the union's investments.

7. Membership Categories: The LM-2 requires unions to report their number of members by aggregate categories (unions can determine the categories for reporting).

First, with regard to the $5,000 itemization threshold, the field investigators noted that itemization aided in determining whether Form LM-30 and Form LM-10 cases should be opened, aided in embezzlement investigations, and was an important case targeting tool.^[7] One office stated, “Of the seven changes to the Form LM-2 in 2003, the consensus is that the [existing] $5,000 itemization threshold was the best of the seven as it provides more transparency to the membership and can be utilized for targeting special report investigations.” Itemization is important because it can reveal unlawful payments to identified individuals. It can reveal conflicts of interest that are reportable on other LMRDA forms.^[8] Absent itemization, this information would not be known.

Second, with regard to the confidentiality exemption, one investigator wrote that it “has been a hindrance in case targeting because it allows unions to hide transactions under the guise that it will hurt their organizational strategy.” Others felt that it likely benefited only unions but they could also see how some reporting might be harmful to the unions. The confidentiality exemption attempts to protect important labor union interests, but it reduces transparency by eliminating itemization.

Third, with regard to functional categories (reporting of disbursements in specified categories i.e., Representational Activities, Political Activities and Lobbying; Contributions, Gifts and Grants; General Overhead; and Union Administration), the field offered examples of being able to target audits “based on unusual categorization patterns.” They also “traced categorized transfers between affiliates that indicated reporting or other potential LMRDA violations.” On the other hand, investigators noted that the $5,000 itemization occurs only within each category so that disbursements of more than $5,000 might not be itemized if the disbursement fell under more than one category. Functional reporting aids in understanding the purposes of labor union spending but it can cloak individual transactions because of the $5,000 itemization threshold.

Another investigator felt that two of the categories, Schedule 18—General Overhead and Schedule 19—Union Administration, were similar and were confused by labor organizations.^[9]

Fourth, with regard to union officers and employees allocating their time by functional categories, the investigators stated that the reporting of time in categories could not be audited, could not be enforced, and did not lead to other enforcement activity. One field office stated, “It provides unverifiable disclosure information to the public.” Another stated flatly that “this information offers no valuable insight for case targeting and has provided no benefit in criminal investigations or compliance audits.” Another wrote, “It is and will always be a ballpark guess and the categories are confusing to the union and to OLMS field staff.” Functional reporting, which discloses the amount of time union officers and employees spend on different functions, arguably does not provide investigators with useful information in enforcing or administering the LMRDA.

Fifth, with regard to accounts payable/receivable aging schedules, one field office wrote that the information is “necessary to determine how much the union is owed/owes.” Another thought it was “useful to encounter embezzlements.” This schedule can reveal the financial health of the labor union and can disclose delinquent or troubled accounts or questionable financial transactions.

Sixth, with regard to reporting of investments, one office found it necessary for tracking purposes on investments from year to year. Another determined that it “can be useful to the field and to members.” Another said, “This is useful to the extent the unions are able to figure out how to report it. We have found corroborating information reported here that has been useful in a criminal investigation as well as a union officer reports case.” Another office concluded that the information was “good for union members.” The schedule enables a union member to learn about the performance of union investments. Further, it assists in other aspects of union reporting. As described above, union officers and employees must file a Form LM-30 if they or their spouses or minor children received certain payments, held certain interests, or engaged in certain transactions involving, for example, the represented employer. The Form LM-30 also covers payments from businesses, such as vendors and service providers, that buy from or sell to such employers, the official's union, or the union's trust. A union investment in a union official's business would necessitate a Form LM-30 and this schedule would reveal such an interest.

Seventh, with regard to membership categories, investigators found it helpful in that the categories many times include agency fee payers and that it assists in determining the active dues paying members, as it corresponds to dues receipts. This is particularly helpful in trade unions where there are different levels of memberships. Another investigator felt that it was helpful to estimate dues receipts and very useful in union election cases.

In summary, field investigators were in favor of itemization, believing it provides both transparency and aids investigations. The investigators recognized the need for some confidentiality for labor unions but also believed the confidentiality exemption detracted from transparency. With regard to functional categories, the field investigators believed that it helped in selecting unions for audit but reduced transparency by limiting the number of itemized transactions. The field discerned no value in union officers and union employees allocating their time by functional categories. The investigators believed the accounts payable/receivable aging schedules, as well as reporting of investments, aided in the enforcement of the LMRDA. With regard to membership categories, the investigators found it helpful when targeting audits, estimating dues receipts, and in running supervised elections.

ii. Field Investigators' Responses on Items To Be Added to the Reporting Forms

The investigators were also asked to identify any information that is not currently available on the Form LM-2 but would be useful to OLMS in its mission or to union members interested in their union's financial conditions, operations, and activities. They were also asked to identify any unnecessary information now reported on the annual disclosure forms. The regional directors were directed to “canvas your district directors to identify any changes that could be made to the Form LM-2/3/4 annual financial disclosure form. The idea is to consider what additional information would be useful to OLMS in its mission or to union members interested in their union's financial conditions, operations, and activities. Conversely, if you believe that certain information now reported on the annual disclosure forms is unnecessary, please let us know.”

Two responses advocated removing three of the special procedures for reporting confidential information. Under these procedures, the following information is subject to special reporting privileges under the confidentiality exception: (1) Information that would identify individuals paid by the union to work in a non-union facility in order to assist the union in organizing employees, provided that such individuals are not employees of the union who receive more than $10,000 in the aggregate from the union in the reporting year; (2) information that would expose the reporting union's prospective organizing strategy; (3) information that would provide a tactical advantage to parties with whom the reporting union or an affiliated union is engaged or would be engaged in contract negotiations; (4) information pursuant to a settlement that is subject to a confidentiality agreement, or that the union is otherwise prohibited by law from disclosing; and (5) information in those situations where disclosure would endanger the health or safety of an individual. The investigator would eliminate the first three of these exceptions. As mentioned above, the confidentiality exemption attempts to protect important labor union interests, but eliminating itemization provides a means for unscrupulous filers to avoid scrutiny of questionable transactions.

A district director recommended that the forms identify whether the labor union filing the report is under trusteeship. This would allow easy and immediate recognition of trusteeship, the district director concluded. Under the LMRDA, a labor organization that has imposed a trusteeship over a subordinate labor organization must file an initial trusteeship report on Form LM-15, including a Statement of Assets and Liabilities, within 30 days after the date of the imposition of the trusteeship. By requiring Form LM-2 filers to disclose their trusteeship status, OLMS would be better able to enforce the Form LM-15 filing obligation.

A district director suggested a question that would identify officers and employees who were paid $10,000 or more by the filing labor organization and other labor organizations. Similarly, an investigator suggested that OLMS add the following question to the Form LM-2: “Has any officer who received $10,000 or more by your organization also received $10,000 or more as an officer or employee of another labor organization or of an employee benefit plan?” If the answer is “yes,” the union would be required to complete a table listing the name of the officer, the amount paid, and the file number of any filing affiliate. This query would provide union members with more complete information about their union officials' compensation and would assist in determining whether officials are receiving compensation twice for the same expenses or same work.

A regional director asked for a change in wording on a question on the Form LM-2. Instead of asking whether the labor organization had “discovered” a shortage of funds, the labor organization would be asked whether the labor organization has “experienced” a shortage of funds. Specifically, Item 13 asks, “During the reporting period did the labor organization discover any loss or shortage of funds or other assets?” The regional director would change this sentence to read, “[d]uring the reporting period did the labor organization experience any loss or shortage of funds or other assets?” The regional director reasoned, “Since the person embezzling funds is often the same person that completes the LM report, to ensure [false reporting] can be used as an alternative violation/charge, these questions should ask if the union experienced and/or discovered a loss.”

An investigator recommended revising the Form LM-3 to add a schedule requiring the labor union to identify disbursements to employees. Similarly, the investigator recommended that the Form LM-4 require the labor union to complete a schedule of all officers and disbursements to officers. To minimize burden for labor unions with fewer financial resources, the Form LM-3 currently does not require unions to identify disbursements to employees. Similarly, the Form LM-4 does not require filers to identify disbursements to employees or to identify officers.

An investigator opined that OLMS should add a column to the schedule of compensation to officers and employees. This would affect Schedule 11—All Officers and Disbursements to Officers and Schedule 12—Disbursements to Employees. The column would identify disbursements for benefits paid to the officers. The investigator recommended that, in light of these changes, Schedule 20—Benefits, could be eliminated.^[10]

One investigator offered that labor organizations that file Form LM-4 should disclose the date of their next scheduled election of officers. Form LM-2 and Form LM-3 filers already report election dates. Requiring election dates on Form LM-4 reports would assist union members in participating in the governance of their union. It would aid OLMS in the enforcement of Title IV election provisions of the LMRDA.

With regard to Schedule 4—Purchase of Investments and Fixed Assets, an investigator proposed adding a column to show credit received on purchases, such as a trade-in of an automobile. Absent such information, the “cash paid” column on Schedule 4—Purchase of Investments and Fixed Assets, will appear misleadingly low.

With regard to Item 46—On Behalf of Affiliates for Transmittal to Them and its counterpart Item 63—To Affiliates of Funds Collected on Their Behalf, one investigator proposed to require a description of the types of funds being withheld and transmitted. That investigator had the same suggestion with regard to Item 47—From Members for Disbursements on Their Behalf and Item 64—On Behalf of Individual Members. Currently, the filer must enter the total receipts from members that are specifically designated by them for disbursement on their behalf. For example, contributions from members for transmittal by the labor organization to charities would be reported. Requiring a description of the types of funds being withheld and transmitted would enable members to know which of their funds were being channeled and where the funds ultimately went. It would also require a new schedule.

A regional director recommended that (1) LM forms and instructions should be translated into Spanish, (2) reports should list the principal employers of the union members, along with the city and state, (3) the fiscal year should appear on top of each page of the reports, (4) the report should disclose distributions to PAC funds and PAC fund payees, (5) the report should disclose if an officer or employee of a union also receives compensation from another labor union. A Spanish version of the instructions would be helpful for Spanish-speaking union officers but would make the report inaccessible to non-Spanish speakers. A list of the principal employers would be helpful in criminal investigations but would be difficult to administer as the phrase “principal employers” is not clear. A list of PAC fund payees would be redundant to other election-related reporting.

An investigator recommended that OLMS require reporting of transactions if an officer or employee, or a spouse or minor child of the officer or employee, either directly or indirectly held any legal or equitable interest, received any payments, or engaged in transactions or arrangements (including loans) of the types described in the Form LM-30 instructions. Under the Form LM-30, union officers or employees (except employees performing exclusively clerical or custodial services) must file a Form LM-30 if they or their spouses or minor children (less than 21 years of age) either directly or indirectly received certain payments, held certain interests, or engaged in certain transactions involving (1) the employers whose employees the union represents or actively seeks to represent (i.e., the represented employer); (2) businesses, such as vendors and service providers, that buy from or sell to such employers, the official's union, or the union's trust; and (3) other employers from which a payment could create a conflict. The investigator's work on a complex case involving the UAW in Detroit led this investigator to believe that this information would be valuable in identifying such cases, and having them prosecuted.

An investigator endorsed using the IRS Principal Business or Professional Activities Codes to answer the “Type or Classification (B)” column Schedules 14 through 19. As background, the instructions for the Form LM-2 require labor organizations to “[e]nter in Column (B) the type of business or job classification of the entity or individual.” The instructions for the Annual Report Form 5500 includes a chart of the codes, which are available online. General Instructions to Form 5500-SF, p. 23. The investigator opined that these codes would help get more uniform answers and prevent some of the vague and deficient answers.

An investigator recommended that union vendors should be listed with their Employer Identification Number (EIN), a nine-digit number that the IRS assigns to identify the tax accounts of employers and certain others who have no employees. EINs are used by employers, sole proprietors, corporations, partnerships, non-profit associations, trusts, estates of decedents, government agencies, and other business entities. The investigator explained that sham businesses often do not have an EIN.

For the Form LM-4, a supervisory investigator recommended requiring labor unions to list the names of officers, as well as identifying whether the officer is continuing in office, is a past officer, or is a new officer. This would allow OLMS to better be able to locate and contact officers of a union other than the signers of its previous LM-4, should both of those signers leave office. That supervisory investigator also recommended adding the date of next election of officers to the Form LM-4, allowing OLMS to determine any turnover in officers in a union and to aid in locating/contacting officers of a union. It would also enable OLMS to avoid scheduling an audit at a time close to a labor union officer election.

A district director recommended eliminating a reporting exception applicable to Item 24 of the Form LM-3. The reporting exception is also applicable to Schedule 11—All Officers and Disbursements to Officers and Schedule 12—Disbursements to Employees of the Form LM-2. This exception covers “indirect disbursements for temporary lodging (room rent charges only) or transportation by public carrier necessary for conducting official business while the officer is in travel status away from his or her home and principal place of employment with [the labor] organization if payment is made by [the] organization directly to the provider or through a credit arrangement.” The district director explained that the exception is cumbersome to follow (and even for OLMS representatives to explain to the regulated community), unnecessary for accurate disclosure, and contrary to the procedures applied to disclosure for the remainder of transactions reportable in Item 24 and Schedules 11 and 12. By disclosing those transactions as payments to officers or employees (rather than in more general categories elsewhere on the reports), the public would know who really benefited from them, the district director concluded.

With regard to Schedule 3—Sale of Investments and Fixed Assets and Schedule 4—Purchase of Investments and Fixed Assets, a regional director proposed separation into two different schedules. This would, it was asserted, more easily allow for a reconciliation of investments and fixed assets by using beginning of year figures plus sales, minus receipts, and comparing to end of year figures. This cannot currently be done using electronic data because investments and fixed assets are combined. This would arguably provide better transparency for evaluation of the performance of investments.

An investigator suggested that automobiles purchased and sold should be specifically identified either with a VIN or by detailed description, similar to the requirement for land and buildings. This would provide better transparency for vehicles as the current schedules require labor organizations report only the cost, book value, sales price, and amount received. Any extraordinary handling of a vehicle such as, for example, a sale well below book value would be obvious.

A district director proposed removing Line (I) (estimated percentage of time spent by the officer/employee on activities that fall within Schedules 15 through 19) from Schedule 11—All Officers and Disbursements to Officers and Schedule 12—Disbursements to Employees. In lieu of these time estimates, the district director recommended the addition of a more detailed breakdown of disbursements reported to officers and employees in (1) the salaries reported in Column D; (2) the allowances reported in Column E; (3) the reimbursed expenses reported in Column F; and (4) other disbursements reporting in Column G.

For example, the district director continued, the report of salaries paid to an officer/employee would be broken down and reported in the following categories: (1) Salary, (2) lost wages, and (3) bonuses. In another example, the reporting of reimbursed expenses paid to an officer/employee could be reported in the following categories: (1) Disbursements for meal expenses/entertainment', (2) disbursements for mileage, (3) disbursements for travel expenses, and (4) disbursements for union vehicle expenses. This additional information on salary, allowances, reimbursed expenses, and other disbursements would provide better transparency to union members and the public on how union funds are being spent. Further, this would provide OLMS additional data for targeting potential compliance audits and/or criminal cases, it was asserted.

Other suggestions included a requirement that the union report contact phone numbers and/or email addresses for all executive officers, require Form LM-3 filers to list all employees, and require LM-4 filers to list all officers. This would make it easier for OLMS investigators to contact the correct union officials, in the event of an investigation or audit.

The union, an investigator recommended, should provide the date of the most recent constitution and bylaws. This would assist the members in participating in the governance of their union and would aid OLMS in administering the Title IV election provisions of the LMRDA.

Taking the field's observations under consideration, along with OLMS' experiences in the administration of current reporting requirements, the Department makes the following proposals to establish a Form LM-2 Long Form (LF), and revise the Form LM-2.

C. Proposed Form LM-2 LF

In light of the Department's experience and observations, and to increase transparency for the benefit of union members, the public, and the Department, the Department proposes a long form version of the Form LM-2, the Form LM-2 LF. This form will be applicable to labor organizations with annual receipts of $8,000,000 or more. The $8,000,000 threshold is based on the Small Business Administration's definition of a small entity, as identified by North American Industry Classification System (NAICS) codes. 13 CFR 121.201. Some small-entity thresholds are lower, and some are higher; the Department has sought a threshold that ensures proper coverage of large unions while not overburdening smaller unions. By setting this threshold, the Department will bring additional transparency to the largest and most prominent labor unions.

When practicable, the changes to the form are set out in this section in the order in which they would appear on the form. When no change to an item is proposed, that fact is also noted. New material, added by this proposal, will be discussed in the order it would appear in a revised form. A facsimile of the current LM-2 is available at https://www.dol.gov/​olms/​regs/​compliance/​GPEA_​Forms/​forms/​Form_​LM2_​2021.pdf. And the full proposed LM-2 LF is available on the rulemaking docket on www.regulations.gov.

The Department invites comment on all aspects of the proposed changes to the forms. In particular, the Department seeks comments on the following questions:

• Are there other changes to the LM forms that would help deter or expose potential misuse of union members' funds or other violations of the LMRDA?
• Are there other problematic practices involving, for instance, wastes of union funds, conflicts of interest, or failures to discharge fiduciary duties faithfully that potentially could be deterred or exposed by revisions to the LM forms?
• Are there other changes to the form that would help ensure transparency and accountability to the public, to union members, and to the Department regarding uses of union members' funds?
• Are there other means for union members to obtain the information sought in the proposal that would decrease the reporting burden on unions or maintain union confidentiality without sacrificing transparency and accountability?

Item 1—File Number. The Department proposes no change to this item.

Item 2—Period Covered. The Department proposes no change to this item.

Item 3—Amended, Hardship Exempted, Terminal, or Trusteeship Report. The Department proposes to add “(d) TRUSTEESHIP” with a checkbox to Item 3. The checkbox would indicate that the report is being filed by a labor organization for a subordinate labor organization that it has placed in trusteeship. This would assist the Department to determine whether a labor union is in trusteeship to ensure that the appropriate trusteeship reports (Form LM-15, Form LM-15A, or Form LM-16) are also filed.^[11] The Form LM-2 LF is only for labor organizations in trusteeships with $8,000,000 or more in annual receipts. Other trusteeships would be reported on the Form LM-2.

Item 4—Affiliation or Organization Name. The Department proposes no change to this item.

Item 5—Designation. The Department proposes no change to this item.

Item 6—Designation Number. The Department proposes no change to this item.

Item 7—Unit Name. The Department proposes no change to this item.

Item 8—Mailing Address. The Department proposes no change to this item.

Item 9—Records Kept. The Department proposes no change to these items.

Item 10—Trust or Other Fund. The Department proposes to redesignate the current Item 10 as Item 10(a).

The Department also proposes a new Item 10(b), concerning payments from more than one union. Item 10(b) would ask whether, during the reporting period, an officer or employee who was paid $10,000 or more by the reporting organization also received $10,000 or more as an officer or employee of another labor organization in gross salaries, allowances, and other direct and indirect disbursements during the reporting period. If the answer is “Yes,” the labor organization would provide additional information in Item 75—Additional Information.^[12] This additional information would require the union to list the name of the officer, amount paid, labor organization that made the payment, and file number of the labor organization. This change would promote union democracy and accountability by helping members understand whether officers and employees are also receiving money from another union. This change would also help identify conflicts of interest and make it easier to track funds flowing from union to union.

Item 11—Political Action Committee (PAC) Funds, Subsidiary Organizations, and Strike Funds. The Department proposes no changes to current Items 11(a) (Political Action Committee funds) and 11(b) (Subsidiary organization). The Department proposes a new Item 11(c), in which the union would be required to report if it has a separate strike fund. If the answer is “Yes,” the union must provide, in Item 75—Additional Information, the amount of funds in the strike fund as of the close of the reporting period.

Strike funds are meant to help meet the basic needs of striking workers. Union members likely would be interested in knowing the financial strength of the strike fund. This knowledge would help union members when considering strategies for dealing with employers.

Unions promote strike funds to their members and make the case that members must contribute to a fund. If the strike fund is not as healthy as advertised, this could be a warning sign for members.

Strike funds are also subject to embezzlement. For example, on March 30, 2009, in the United States District Court for the Northern District of West Virginia, Steven Snyder, former Financial Secretary of Steelworkers Local 5724 (located in Clarington, Ohio), was sentenced to five months' incarceration after pleading guilty to embezzling $78,893.47 in union strike fund benefits. In another example, a former president of Steelworkers Union Local 5000 was indicted for submitting more than $185,000 in vouchers to receive Strike Fund benefits for his family's expenses between 2010 and 2012. He and his wife had nearly $160,000 in income during the same time period. While collecting Strike Fund benefits, he made and caused to be made numerous retail purchases of non-necessity items, such as dining out at several restaurants and the purchase of Carrie Underwood concert tickets. On October 18, 2017, in the United States District Court for the Northern District of Ohio, the defendant was sentenced and ordered to pay restitution. https://www.justice.gov/​usao-ndoh/​pr/​former-president-steelworkers-union-local-5000-charged-stealing-hundreds-thousandshttps://www.dol.gov/​olms/​regs/​compliance/​enforce_​2017.htm

The Department acknowledges that employers may benefit from knowing the extent of their employees' union strike fund during negotiations or a labor impasse. There is further a potential cost to individual members associated with public disclosure. Once publicly-available, the information may lead to less favorable contracts, harming the members. Given, nevertheless, that strike funds may hold substantial sums that otherwise would not be available for public inspection—and thus more opportunity for the detection of financial improprieties, as has happened in the past—and that public disclosure would make it easier for union members to review this information, the Department believes the benefits of disclosure outweigh competing considerations. The Department requests comment on this item and how it can best ascertain the proper and transparent use of union funds, including through strike funds.

Item 12—Audit or Review of Books and Records. The Department proposes no change to this item.

Item 13—Loss or Shortages. The Department proposes to revise Item 13 to clarify that reporting is required if the filer is aware the labor organization has experienced a shortage of funds. Currently Item 13 asks, “During the reporting period did the labor organization discover any loss or shortage of funds or other assets?” Yet, the person filling out the report may not report anything if he caused the loss through embezzlement, on the argument that he always knew of the loss. As revised, Item 13 would provide, “During the reporting period did the labor organization experience and/or discover any loss or shortage of funds or other assets?” Currently, reporting is required only when the shortage has been discovered. An individual responsible for filing the form may be responsible for, and therefore know of, an undiscovered embezzlement. The change in wording from “discover” to “experience and/or discover” would clarify that all shortages are reportable, even if the labor union itself has not discovered the loss, and that the union is on inquiry notice to take reasonable steps to uncover losses or shortages. This is more in keeping with typical financial certifications in which the filer must make reasonable inquiries as to things the filer knows or should know. So long as the officer filing the report is aware of the shortage, the shortage must be reported.

Item 14—Fidelity Bond. The Department proposes no change to this item.

Item 15— Acquisition or Disposition of Assets. The Department proposes no change to this item.

Item 16—Pledged or Encumbered Assets. The Department proposes no change to this item.

Item 17—Contingent Liabilities. The Department proposes no change to this item.

Item 18—Changes in Constitution and Bylaws. The Department proposes to re-designate the current Item 18 as Item 18(a). The Department proposes a new Item 18(b). This item would require labor organizations to provide the date of the labor organizations' current constitution and bylaws. This would aid the Department, when conducting investigations of union elections and when supervising rerun elections, to ensure that the most current and correct provisions are applied. It would also aid union members in their efforts to follow the most current and accurate union procedures.

Item 19—Next Regular Election. The Department proposes no change to this item.

Item 20—Number of Members. The Department proposes no change to this item. This item is supported by Schedule 13—Membership Status. Schedule 13 would be renumbered Schedule 15—Membership Status, without any substantive change.

Item 21—Dues and Fees. The Department proposes no change to this item.

Statement A—Assets and Liabilities

This statement contains two primary sections, “Assets” and “Liabilities.” Under each heading are items listed that describe categories of assets or liabilities that should be reported. There are no proposed changes to the items listed under “Assets” and “Liabilities.” Two of the schedules (Schedule 1—Accounts Receivable Aging Schedule and Schedule 8—Accounts Payable Aging Schedule) that support these items would be revised. Specifically, the Department proposes to raise the $5,000 reporting threshold to a $7,500 threshold. This thresholds reflects that inflation has occurred since 2003, when the $5,000 threshold was promulgated. Further, with fewer transactions to itemize, the reporting burden would be reduced.^[13]

Item 22—Cash. The Department proposes no change to this item.

Item 23—Accounts Receivable. The Department proposes no change to this item. Item 23 remains supported by Schedule 1. On its supporting schedule (Schedule 1—Accounts Receivable Aging Schedule), the Department proposes to raise the $5,000 reporting threshold to a $7,500 threshold. Accounts Receivable of less than $7,500 need not be reported. This 50 percent increase in the threshold would reduce the reporting burden.

Item 24—Loans Receivable. The Department proposes no change to this item. Item 24 remains supported by Schedule 2.

Item 25—U.S. Treasury Securities. The Department proposes no change to this item.

Item 26—Investments. The Department proposes no change to this item. This item is supported by Schedule 5—Investments. Schedule 5 would be renumbered Schedule 7—Investments, without substantive change.

Item 27—Fixed Assets. The Department proposes no change to this item. This item is supported by Schedule 6—Fixed Assets. Schedule 6 would be renumbered Schedule 8—Fixed Assets, without substantive change.

Item 28—Other Assets. The Department proposes no change to this item. This item is supported by Schedule 7—Other Assets. Schedule 7 would be renumbered Schedule 9—Other Assets, without substantive change.

Item 29—Total Assets. The Department proposes no change to this item.

Item 30—Accounts Payable. The Department proposes no change to this item. This item is currently supported by Schedule 8—Accounts Payable Aging Schedule. Schedule 8 would be renumbered Schedule 10—Accounts Payable Aging Schedule. The Department proposes to raise the $5,000 reporting threshold for that schedule to a $7,500 threshold. Accounts payable of less than $7,500 need not be reported.

Item 31—Loans Payable. The Department proposes no change to this item. This item is supported by Schedule 9—Loans Payable. Schedule 9 would be renumbered Schedule 11— Loans Payable, without substantive change.

Item 32—Mortgages Payable. The Department proposes no change to this item.

Item 33—Other Liabilities. The Department proposes no change to this item. This item is supported by Schedule 10—Other Liabilities. Schedule 10 would be renumbered Schedule 12— Other Liabilities, without substantive change.

Item 34—Total Liabilities. The Department proposes no change to this item.

Item 35—Net Assets. The Department proposes no change to this item.

Statement B—Receipts and Disbursements

This statement contains two sections, “Cash Receipts” and “Cash Disbursements.” Under each heading are items listed that describe categories of receipts or disbursements that should be reported. There is one proposed change to the items listed under “Cash Receipts.” Specifically, Item 43—Sale of Investments and Fixed Assets would be divided into two items, Item 43—Sale of Investments and Item 44—Sale of Fixed Assets. Subsequent items would be renumbered sequentially.

There are two proposed changes to the items listed under “Cash Disbursements.” First, Item 50—Political Activities and Lobbying would be renumbered and separated into Item 51—Political Activities and Item 52—Lobbying. Subsequent items would be renumbered sequentially.

Further, as discussed below, the Department proposes additional schedules to correspond to certain items listed under “Cash Receipts” that currently have no schedules. The Department also proposes additional schedules to correspond to items listed under “Cash Disbursements.”

Cash Receipts

Item 36—Dues and Agency Fees. The Department proposes no change to this item. The Department proposes adding a new Schedule 16, discussed below.

Item 37—Per Capita Tax. The Department proposes no change to this item. The Department proposes adding a new Schedule 17, discussed below.

Item 38—Fees, Fines, Assessments, Work Permits. The Department proposes no change to this item. The Department proposes adding a new Schedule 18, discussed below.

Item 39—Sale of Supplies. The Department proposes no change to this item. The Department proposes adding a new Schedule 19, discussed below.

Item 40—Interest. The Department proposes no change to this item.

Item 41—Dividends. The Department proposes no change to this item.

Item 42—Rents. The Department proposes no change to this item. The Department proposes adding a new Schedule 20.

Item 43—Sale of Investments and Fixed Assets. The Department proposes to divide Item 43—Sale of Investments and Fixed Assets into two items. Item 43 would be renamed Item 43—Sale of Investments. Item 43 is currently supported by Schedule 3—Sale of Investments and Fixed Assets. It would be supported by a new Schedule 3, which would be Schedule 3—Sale of Investments. The Department proposes a new Item 44—Sale of Fixed Assets. It would be supported by a new Schedule 4—Sale of Fixed Assets.

In doing so, the Department proposes to divide the Sale of Investments and Fixed Assets schedule into two schedules. On one schedule, Schedule 3—Sale of Investments, labor organizations would report receipts from the sale of investments. On another schedule, Schedule 4—Sale of Fixed Assets, the labor organization would report receipts from the sale of fixed assets.

Item 44—Loans Obtained. The Department proposes no substantive change to this item. Item 44 would be renumbered Item 45. It is currently supported by Schedule 9. It would now be supported by Schedule 11—Loans Obtained, without substantive change.

Item 45—Repayments of Loans Made. The Department proposes no substantive change to this item. Item 45 would be renumbered Item 46. The item remains supported by Schedule 2.

Item 46—On Behalf of Affiliates for Transmittal to Them. The Department proposes no substantive change to this item. Item 46 would be renumbered Item 47. Item 47—On Behalf of Affiliates for Transmittal would be supported by a new Schedule 21—On Behalf of Affiliates for Transmittal to Them.

Item 47—From Members for Disbursement on Their Behalf. The Department proposes no substantive change to this item. Item 47 would be renumbered Item 48. Item 48—From Members for Disbursement on Their Behalf would be supported by a new Schedule 22—From Members for Disbursement on Their Behalf.

Item 48—Other Receipts. The Department proposes no substantive change to this item. Item 48 would be renumbered Item 49. This item would no longer be supported by schedule 14. Item 48—Other Receipts would be supported by a new Schedule 23—Other Receipts.

Item 49—Total Receipts. The Department proposes no substantive change to this item. Item 49 would be renumbered Item 50.

Cash Disbursements

Item 50—Representational Activities. The Department proposes to divide Item 50—Representational Activities into two items. Item 50 would be renumbered Item 51 and renamed Item 51—Contract Negotiation and Administration. There would be a new Item 52—Organizing. Schedule 15 would be divided in two and designated Schedule 24—Contract Negotiation and Administration and Schedule 25—Organizing.

Item 51—Political Activities and Lobbying. The Department proposes to divide Item 51— Political Activities and Lobbying into two items. Item 51 would be renumbered Item 53, and renamed Item 53—Political Activities. There would be a new Item 54—Lobbying. The schedule, currently Schedule 16—Political Activities and Lobbying, would be split. It would be supported by a new Schedule 26—Political Activities and a new Schedule 27—Lobbying.

In doing so, the Department proposes to break the Political Activities and Lobbying schedule into two schedules. On Schedule 26, labor organizations would report disbursements for political activities. On Schedule 27, the labor organization would report lobbying disbursements.

Item 52—Contributions, Gifts, and Grants. The Department proposes no substantive change to this item. This item would be renumbered Item 55—Contributions, Gifts, and Grants. The item would be supported by a renumbered Schedule 28—Contributions, Gifts, and Grants, without substantive change.

Item 53—General Overhead. The Department proposes no substantive change to this item. This item would be renumbered Item 56—General Overhead. The Item would be supported by a renumbered Schedule 29—General Overhead, without substantive change.

Item 54—Union Administration. The Department proposes no substantive change to this item. This item would be renumbered Item 57—Union Administration. This Item would be supported by a renumbered Schedule 30—Union Administration, without substantive change.

Item 55—Benefits: This item would be renumbered Item 58—Benefits. The item would be supported by a renumbered and revised Schedule 31—Benefits, without substantive change.

Item 56—Per Capita Tax. The Department proposes no substantive change to this item. This item would be renumbered Item 59—Per Capita Tax.

Item 57—Strike Benefits. The Department proposes no substantive change to this item. This item would be renumbered Item 60—Strike Benefits.

Item 58.—Fees, Fines, Assessments, etc. The Department proposes no substantive change to this item. This item would be renumbered Item 61— Fees, Fines, Assessments, etc.

Item 59—Supplies for Resale. The Department proposes no substantive change to this item. This item would be renumbered Item 62—Supplies for Resale.

Item 60—Purchase of Investments and Fixed Assets. The Department proposes to divide Item 60—Purchase of Investments and Fixed Assets into Item 63—Purchase of Investments and Item 64—Purchase of Fixed Assets.

The current Item 60 is supported by Schedule 4—Purchase of Investments and Fixed Assets. The Department proposes to divide the Purchase of Investments and Fixed Assets schedule into two new schedules. On one schedule, proposed Schedule 5—Purchase of Investments, labor organizations would report disbursements for the purchase of investments. On another schedule, proposed Schedule 6—Purchase of Fixed Assets, labor organizations would report disbursements for the purchase of fixed assets.

Item 61—Loans Made. The Department proposes no substantive change to this item. This item would be renumbered Item 65—Loans Made. It would continue to be supported by Schedule 2— Loans Receivable.

Item 62—Repayment of Loans Obtained. The Department proposes no substantive change to this item. This item would be renumbered Item 66— Repayment of Loans Obtained. This item was previously supported by Schedule 9—Loans Payable and would now be supported by renumbered Schedule 11—Loans Payable, without substantive change.

Item 63—To Affiliates of Funds Collected on Their Behalf. The Department proposes no substantive change to this item. This item would be renumbered Item 67—To Affiliates of Funds Collected on Their Behalf.

Item 64—On Behalf of Individual Members. The Department proposes no substantive change to this item. This item would be renumbered Item 68—On Behalf of Individual Members.

Item 65—Direct Taxes. The Department proposes no substantive change to this item. This item would be renumbered Item 69—Direct Taxes.

Item 66—Subtotal. The Department proposes no substantive change to this item. This item would be renumbered Item 72—Subtotal.

Item 67—Withholding Taxes and Payroll Deductions. The Department proposes no substantive change to this item. This item would be renumbered Item 73—Withholding Taxes and Payroll Deductions.

Item 67a—Total Withheld. The Department proposes no substantive change to this item. This item would be renumbered Item 73a—Total Withheld.

Item 67b—Less Total Disbursed. The Department proposes no substantive change to this item. This item would be renumbered Item 73b—Less Total Disbursed.

Item 67c—Total Withheld But Not Disbursed. The Department proposes no substantive change to this item. This item would be renumbered Item 73c—Total Withheld But Not Disbursed.

Item 68—Total Disbursements. The Department proposes no substantive change to this item. This item would be renumbered Item 74—Total Disbursements.

Item 69—Additional Information. The Department proposes no substantive change to this item. This item would be renumbered Item 75—Additional Information.

Item 70—Signed. The Department proposes no substantive change to this item, which requires the signature of the union president or equivalent officer. This item would be renumbered Item 76—Signed.

Item 71—Signed. The Department proposes no substantive change to this item, which requires the signature of the union treasurer or equivalent officer. This item would be renumbered Item 77—Signed.

Schedule 1—Accounts Receivable Aging Schedule. The Department proposes no substantive change to this schedule. Under this schedule, a labor organization must report (1) all accounts with an entity or individual that aggregate to a value of $5,000 or more and that are 90 days or more past due at the end of the reporting period or were liquidated, reduced, or written off during the reporting period and (2) the total aggregated value of all other accounts receivable. The Department proposes to reduce the burden by raising the threshold to $7,500. Accounts below this threshold need not be individually reported.

Schedule 2—Loans Receivable. The Department proposes no substantive change to this schedule.

Schedule 3—Sale of Investments and Fixed Assets. Under this schedule, currently, a labor organization must report details of the sale or redemption of U.S. Treasury securities, marketable securities, other investments, and fixed assets, including those fixed assets that were expensed. The assets and the investments are totaled and the result is entered in Item 43.

As discussed above, under this proposed rule, Item 43 would be renamed Item 43—Sale of Investments. A new Item 44—Sale of Fixed Assets would be established.

The current Schedule 3—Sale of Investments and Fixed Assets does not allow the user to easily distinguish between investments and assets and does not allow the Department to electronically compare beginning-of-year investments, add purchases, and subtract sales, to determine end-of-year investments. The schedule does not include adequate information to determine whether a particular sale of an investment or asset was at fair market value and at arm's length.

To address this lack of transparency, the Department proposes to divide this schedule into new Schedule 3—Sale of Investments and new Schedule 4—Sale of Fixed Assets.

In the new Schedule 3—Sale of Investments, the Department proposes to add two new columns. The first new column, entitled “Name and Address of Purchaser or Financial Management Firm (A),” would disclose the purchasers of investments from the labor organization. A second column “Date (C)” would disclose the date of the sale. The other columns (Description (if land or buildings, give location); Cost; Book Value; Gross Sales Price; and Amount Received) would remain the same but would be designated with different letters, to accommodate the two new columns. The columns would thus read: “Name and Address of Purchaser or Financial Management Firm (A); Description (B); Date of Sale (C); Cost (D); Book Value (E); Gross Sales Price (F); and Amount Received (G).” These additions would enable members to determine, in conjunction with other publicly-available information, that a sale was transacted at fair market value and at arm's length, thereby helping to prevent interested parties from unjustly enriching themselves by purchasing labor organization investments at below-market price.^[14]

The book value of an asset is the value at which the investment or fixed asset is shown on the labor organization's books. The value of certain investments such as stocks can vary greatly within the fiscal year. Because the date of sale is not listed on the current Form LM-2, it cannot be determined whether the labor organization received fair market value on the sale transaction.

The stock on the day of the sale may have been worth more than its book value. In this scenario, it is impossible to determine whether the stocks were sold by the labor organization at market value. The labor organization's financial report filed on the current Form LM-2 would show this transaction as a profit for the labor organization, but the transaction could also have in fact been less favorable to the labor organization if the investment was sold at a price below current market value. The proposed changes would also help ensure disclosure of any potential conflicts of interest between the purchaser and the labor organization. The schedule would total all individually itemized transactions and would provide the sum of the sales by itemized individual purchasers and the sum of all non-itemized sales of investments, as well as the total of all sales.

The second of the two divided schedules would be the new Schedule 4—Sale of Fixed Assets.

As in the case of new Schedule 3, the Department proposes to add two new columns to Schedule 4—Sale of Fixed Assets. The first new column entitled “Name and Address of Purchaser (A)” would disclose the purchasers of fixed assets from the labor organization. A second column “Date (C)” would disclose the date of the sale. The other columns (Description (if land or buildings, give location); Cost; Book Value; Gross Sales Price; and Amount Received) would remain the same but would be designated with different letters, to accommodate the two new columns. The columns would thus read “Name and Address of Purchaser (A); Description (if land or buildings, give location) (B); Date of Sale (C); Cost (D); Book Value (E); Gross Sales Price (F); and Amount Received (G).” These additions would provide members with information necessary to determine that the sale was transacted at fair market value and at arm's length, thereby helping prevent interested parties from unjustly enriching themselves by purchasing labor organization assets at below-market price.

With regard to fixed assets, the Department proposes that the union be required to identify automobiles individually by make, model, year, and Vehicle Identification Number (VIN). This information would be listed under existing Column A (Description). This would allow the union members and the Department to know, when considered in light of other publicly-available information, if the sale of these assets is consistent with fair market value.

In reports filed, there is often ambiguity as to the asset itself and the terms of its sale. For instance, one labor organization in its latest Form LM-2 reported that it had sold “automobiles” for $14,700. The (unknown number of) automobiles had a cost of $85,996 and a book value of $76,397. Another labor organization sold an automobile with a cost of $62,645 and a book value of $43,850 for $14,000. In these situations, it cannot be determined whether the labor organization received fair market value for the items that it sold, whether an insider benefited from these transactions, or whether the union's officials are properly managing the labor organization's finances.

Schedule 4—Purchase of Investments and Fixed Assets. Under this schedule, a labor organization currently must report details of the purchases by the labor organization of U.S. Treasury securities, marketable securities, other investments, and fixed assets, including those fixed assets that were expensed.

The Department proposes to divide this schedule into new Schedule 5—Purchase of Investments and new Schedule 6—Purchase of Fixed Assets.

The current Schedule 4—Purchase of Investments and Fixed Assets does not allow the user to easily distinguish between investments and assets and does not allow the Department to electronically compare beginning-of-year investments, add purchases and subtract sales, to determine end-of-year investments. The schedule does not provide labor organization members with adequate information to enable them to determine whether a particular purchase of an investment or asset was transacted at fair market value and at arm's length. As with sales of investments and fixed assets, the Department proposes to break this schedule into two: Schedule 5—Purchase of Investments and Schedule 6—Purchase of Fixed Assets.

In the new Schedule 5—Purchase of Investments, the Department proposes to add two new columns. The first new column entitled “Name and Address of Seller or Financial Management Firm (A)” would disclose the identity of the seller of investments to the labor organization. A second new column would disclose the date of the purchase. The column titled: (Description (if land or buildings, give location) would be changed to “Description.” The remaining columns (Cost; Book Value; Gross Sales Price; and Cash Paid) would remain the same but would be designated with different letters, to accommodate the two new columns.

Likewise, to new Schedule 6—Purchase of Fixed Assets, the Department proposes to add two new columns. The first new column entitled “Name and Address of Seller (A)” would disclose the identity of the seller of investments to the labor organization. A second new column would disclose the date of the purchase. The other columns (Description (if land or buildings, give location)); Cost; Book Value; Gross Sales Price; and Amount Received) would remain the same but would be designated with different letters, to accommodate the two new columns.

These changes would provide information that, coupled with publicly-available information, can be used to determine that all such purchases were transacted at fair market value and at arm's length, thereby helping to prevent parties from unjustly enriching themselves by selling investments to a labor organization at above-market price. The Department's review of data filed on the current Form LM-2 has demonstrated that the current form does not provide labor organization members with a clear understanding of the entities that are receiving, in some cases, hundreds of thousands of dollars of the labor organization members' money. For instance, one labor organization listed on one line of its report disbursements of $259,173,494, another labor organization reported disbursements of $94,353,190, and another labor organization reported disbursements of $90,037,862. These reports provide only a description of the asset or investment, its cost, book value, and cash paid. None of the reports, however, disclosed the identity of the parties that sold these assets to these labor organizations. As a result, the members of these labor organizations are not in a position to know whether these sums of money were well-spent. The proposed changes help ensure the disclosure of any potential conflicts of interest between the seller and the labor organization.

The schedules would total all individually itemized transactions and would provide the sum of the purchases from itemized individual sellers and the sum of all other purchases of investments and fixed assets as well as the total of all purchases. This would allow the union members and the Department to know if purchase of these assets is consistent with fair market value.

Schedule 5—Investments. The Department proposes no substantive change to this schedule. The schedule would be renumbered to Schedule 7—Investments.

Schedule 6—Fixed Assets. The Department proposes no substantive change to this schedule. The schedule would be renumbered to Schedule 8—Fixed Assets.

Schedule 7—Other Assets. The Department proposes no substantive change to this schedule. The schedule would be renumbered to Schedule 9—Other Assets.

Schedule 8—Accounts Payable Aging Schedule. The Department proposes no substantive change to this schedule. The schedule would be renumbered to Schedule 10—Accounts Payable Aging Schedule. Under this schedule, currently, the labor organization must report (1) individual accounts that are valued at $5,000 or more and that are 90 days or more past due or were liquidated, reduced, or written off during the reporting period; and (2) the total aggregated value of all other accounts. The Department proposes to reduce the burden by raising the threshold to $7,500. Accounts below this threshold need not be individually reported. This change would decrease the burden on the filing party.

Schedule 9—Loans Payable. The Department proposes no substantive change to this schedule. The Department proposes to renumber this schedule to Schedule 11—Loans Payable.

Schedule 10—Other Liabilities. The Department proposes no substantive change to Schedule 10. The Department proposes to renumber this schedule to Schedule 12—Other Liabilities.

Schedule 11—All Officers and Disbursements to Officers. Under this schedule, the labor organization currently must list all the labor organization's officers and report all salaries and other direct and indirect disbursements to officers during the reporting period. The filer must also report the percentage of time spent by each officer in the functional categories provided, e.g., “representational activities,” “union administration,” etc.

The Department proposes to renumber this schedule to Schedule 13—All Officers and Disbursements to Officers.

The Department proposes two revisions to this schedule. First, the Department proposes to eliminate functional reporting of union officer time. This would increase the readability of the form and reduce the burden on the regulated community. The Form LM-2 requires unions to report total disbursements in five functional categories and then itemize those disbursement if they reach a $5,000 threshold. Unions estimate the time spent by each union officer and employee on different duties, based on the categories of activities represented by the Form LM-2 schedules and reported as a percentage of work time, totaling 100 percent. For example, a union officer may report that 60 percent of her time went to “Representational Activities,” 30 percent went to “Union Administration,” and 10 percent went to “Political Activities and Lobbying.” The Department proposes to eliminate the functional disbursement categories in the current Schedule 11, but will maintain the $5,000 threshold. Eliminating functional reporting for union officers would be accomplished by eliminating Line (I) from Schedule 11—All Officers and Disbursements to Officers.

When the Department imposed this requirement, “[t]he Department believe[d] that requiring unions to report the estimated amount of time expended by their officers and employees will provide useful information to their members.” 68 FR 58405. With the benefit of experience, the Department now understands that functional reporting of this sort provides the agency little value with respect to enforcing and administering the LMRDA, as the canvassing of the investigators revealed. The Department did not foresee that the data would be difficult to audit.

By removing officer and employee functional reporting, total disbursements to officers and employees would not show on Statement B. To address this, the Department proposes to add two new items, in which these sums would be reported. Item 70—Officers. This item will report on one line the total disbursed to officers. The software will automatically enter into this item the total from Schedule 13—All Officers and Disbursements to Officers. Previously the total from Schedule 13 was divided among the functional disbursements categories in proportion to the percentage of time reported to have been spent on those categories.

Item 71—Employees. This item will report on one line the total disbursed to employees. The software will automatically enter into this item the total from Schedule 14—Disbursements to Employees. Previously the total from Schedule 14 was divided among the functional disbursements categories in proportion to the percentage of time reported to have been spent on those categories.

Second, the Department proposes to eliminate the reporting exception for indirect disbursements for travel-related expenses when payment is made by the labor organization directly to the provider or through a credit arrangement. For example, when a union, through its credit arrangements, is billed directly and pays the airline bills of an officer, the union currently does not have to include this amount as part of the disbursements made to the particular officer. See current Form LM-2 Instructions at p. 18. Eliminating this exception would provide a more accurate picture of total disbursements received by labor organization officers and employees.

More specifically, a labor organization does not need to report a certain type of disbursement in current Schedule 11—All Officers and Disbursements to Officers. To be specific, a labor organization does not need to report “[i]ndirect disbursements for temporary lodging (room rent charges only) or transportation by public carrier necessary for conducting official business while the officer is in travel status away from his or her home and principal place of employment with the labor organization if payment is made by the labor organization directly to the provider or through a credit arrangement.” Current Form LM-2 Instructions at p. 18.

A “direct disbursement” to an officer is a payment made by the labor organization to the officer in the form of cash, property, goods, services, or other things of value. An “indirect disbursement” to an officer is a payment made by the labor organization to another party for cash, property, goods, services, or other things of value received by or on behalf of the officer. Such payments include those made through a credit arrangement under which charges are made to the account of the labor organization and are paid by the labor organization.

The distinction between reporting of direct and indirect disbursements has existed for more than 40 years. The distinction, which was not in the first set of Form LM-2 instructions, was established because of the difficulties then faced by unions in reconstructing documentation for certain payments for their prior fiscal year. Because of this difficulty, organizations were allowed to report such disbursements as functional expenses of the organization rather than as disbursements to particular officials. This distinction remained in the instructions and was not revisited by the Department despite changes in data reporting and record retention methods over the intervening decades that substantially reduced the burden of tracking and reporting disbursements. This issue was not addressed in the 2002-2003 rulemaking. In the 2009 rulemaking, this exception was eliminated. See 74 FR 3678, 3687. The Department proposes to again eliminate this distinction.

That payment for an official's travel and lodging expenses is made by credit card does not reduce the significance of the expense to a labor organization member, yet the current Form LM-2 treats the method of payment as significant. Travel and lodging expenses for a particular officer may raise questions among the membership for various reasons. The choice of transportation by public carrier (airplane, train, or bus) and the level of accommodation (first-class or coach) may be significant to a member. Lodging choices may run from a motor inn to a five-star hotel.

Where options are available, the officer's choice of accommodation may be significant to a member. However, the mode of payment now controls whether a labor organization member knows the full extent of disbursements made for a particular official of the labor organization. Although the specifics of the travel would not appear on the Form LM-2 LF, members would have a better understanding of the total amount of disbursements made to or on behalf of a particular official. Through this more complete reporting, members of the labor organization would be better able to determine whether such disbursements warrant further scrutiny, including review of the underlying documentation maintained by the labor organization.

Schedule 12—Disbursements to Employees. Under this schedule, a labor organization must report all direct and indirect disbursements to employees of the labor organization during the reporting period. The union must also report the percentage of time spent by each employee in provided categories. Disbursements to individuals other than officers who receive lost time payments are also included even if the labor organization does not otherwise consider them to be employees or does not make any other direct or indirect disbursements to them.

The Department proposes to renumber this schedule to Schedule 14—Disbursements to Employees. The proposed substantive changes to this schedule are identical to two of the changes to Schedule 11 for all officers and disbursements to officers, above, and the supporting reasons for the proposed changes are the same as described above for those changes. The Department, however, does not propose to obtain contact information for union employees.

The Department proposes two revisions to this schedule. First, the Department proposes to eliminate functional reporting of union-employee time. This would increase the readability of the form and reduce burden on the regulated community. Second, the Department proposes to eliminate a currently available reporting exception. This exception is for indirect disbursements for temporary lodging or public transportation necessary for conducting official business while the employee is in travel status when payment is made by the labor organization directly to the provider or through a credit arrangement. See current Form LM-2 Instructions at p.18. This would provide a more accurate picture of total compensation received by labor organization employees.

Schedule 13—Membership Status. On Schedule 13, a union currently must report in Column (A) the categories of membership tracked by the reporting labor organization. The union must define each category of membership in Item 69 (Additional Information). The union should include a description of the members covered by the category and indicate whether the members pay full dues. In Column (B), the labor organization must enter the number of members for each of the membership categories listed in column (A).

The Department proposes to renumber Schedule 13—Membership Status to Schedule 15— Membership Status. The union would define each category of membership in renumbered Item 75 (Additional Information).

The Department also proposes to require reporting of retired members. Retired members do not necessarily share the same interests nor have the same voting rights as working members. Separately identifying this membership status would aid the members in understanding the composition of their union and assist the Department when supervising elections.

Detailed Summary Page: The current detailed summary page contains information from Schedule 14 through Schedule 19. The summary page provides members with a snapshot of the labor organization's activities. Members may then use this snapshot to determine whether further analysis of the individual itemized schedules is required. There is no burden associated with the summary page because the software would automatically enter the totals in the appropriate lines of the summary schedules as the labor organization fills out the individual itemization schedules.

The proposed detailed summary pages will reflect the order and the contents of the schedules they summarize. The first set of detailed summary pages reflect receipts and will consist of Schedule 16—Dues and Agency Fees (Item 36); Schedule 17—Per Capita Tax (Item 37); Schedule 18—Fees, Fines, Assessments, Work Permits (Item 38); Schedule 19—Sales of Supplies (Item 39); Schedule 20—Rents (Item 42); Schedule 21—On Behalf of Affiliates for Transmittal to Them (Item 47); Schedule 22—From Members for Disbursement on Their Behalf (Item 48); and Schedule 23—Other Receipts (Item 49).

The second set of detailed summary pages reflect disbursements and will consist of Schedule 24—Contract Administration and Negotiation (Item 51); Schedule 25—Organizing (Item 52); Schedule 26—Political Activities (Item 53); Schedule 27—Lobbying (Item 54); Schedule 28— Contributions, Gifts, and Grants (Item 55); Schedule 29—General Overhead (Item 56); and Schedule 30—Union Administration (Item 57).

Schedule 14—Other Receipts. The Department proposes to renumber this schedule to schedule 23—Other Receipts, with no substantive change.

Schedule 15—Representational Activities. As discussed above, the Department proposes to divide Schedule 15—Representational Activities into two schedules: Schedule 24—Contract Negotiation and Administration and Schedule 25—Organizing.

Under current Schedule 15—Representational Activities, a labor organization must report its direct and indirect disbursements to all entities and individuals during the reporting period associated with preparation for, and participation in, the negotiation of collective bargaining agreements and the administration and enforcement of the agreements made by the labor organization. The union must also report disbursements associated with efforts to become the exclusive bargaining representative for any unit of employees, or to keep from losing a unit in a decertification election or to another labor organization, or to recruit new members.

The Department proposed in 2002 the use of two schedules, one for contract negotiation and administration and one for organizing. See 67 FR 79280, 79288 (2002). Specifically, the NPRM proposed a Schedule 15 (Contract Negotiation and Administration) and a separate Schedule 16 (Organizing).

The 2002 proposed schedule for contract negotiation and administration called for reporting of disbursements for preparation for, and participation in, the negotiation of collective bargaining agreements and the administration and enforcement of collective bargaining agreements, including the administration and arbitration of union member grievances.

The 2002 proposed schedule for organizing required reporting of disbursements for activities in connection with becoming the exclusive bargaining representative for any unit of employees, or to keep from losing a unit in a decertification election or to another labor organization, or to recruit new members.

Based on comments received from labor organizations and others, the Department decided in the 2003 final rule not to include the separate category for reporting organizing disbursements and to require that disbursements for organizing be reported in combination with contract negotiation and administration disbursements in a single Schedule entitled “Representational Activities.”

The Department consolidated the two schedules because it agreed with the commenters that organizing strategies deserve a level of protection. By combining the categories, the Department also met the concerns expressed by the building trades unions that they would be unable to allocate precise amounts to contract negotiations and organizing efforts. Specifically, several labor organizations, including the Building and Construction Trades Department of the AFL- CIO (BCTD), commented that it simply is not possible in the construction industry to separate disbursements made in connection with organizing efforts from disbursements made for contract negotiations and administration.^[15] In this regard, they referred to section 8(f) of the National Labor Relations Act (29 U.S.C. 158(f)). This section provides, inter alia, that it is not an unfair labor practice for a construction industry employer to enter into pre-hire collective bargaining agreements with a labor organization whose majority status has not previously been established and which agreement requires membership in the union as a condition of employment. In these “top down” bargaining situations, the BCTD explained, the terms and conditions of employment are negotiated and agreed upon before any employees express support for or actually become members of the union.

The BCTD and others expressed the view that it is not possible in these situations to separate disbursements into contract negotiations differentiated from organizing. Further complicating the situation for building trades unions, these unions assert, is the fact that often these same unions also engage in traditional “bottom up” organizing. For such purposes, these unions would have to separately allocate disbursements for organizing and contract negotiations. Several commenters who supported the proposal to establish the organizing schedule argued that union members needed detailed information on their union's organizing activities to enable them to accurately assess their union's overall success or failure in its organizing efforts. The commenters argued that if separate allocations cannot be made in the pre-hire situation arising pursuant to section 8(f) of the NLRA, but separate allocations could be made for other traditional organizing efforts by the same union, a member would at best get an incomplete picture and at worst an inaccurate and misleading impression of the union's disbursements and overall effectiveness in organizing.

The Department believes it should not have consolidated these two schedules. Organizing and contract negotiation and administration are discrete activities. Arguably, one is akin to sales to new customers and the other to service for existing ones. Contract negotiation and administration benefit directly the members at the organized worksite. Organizing may generally strengthen the union but its benefits to the organized members are attenuated. Union members would benefit from knowing how much in disbursements goes to organizing, as compared to how much goes to contract administration and negotiation. Reasonable minds might differ over which should be the union's priority: Organizing or contract negotiation and administration. But absent information as to what balance among the two the union is striking, debate becomes largely academic. By breaking out these two discrete activities into two discrete schedules, however, union members can better determine whether the priorities the union accords to each is consistent with the opinion of the members.

Contrary to the Department's 2003 conclusion, consolidating into a single schedule may not be necessary to protect organizing. Specifically, labor unions currently disclose union organizing activity on the Form LM-2. Labor unions regularly report itemized disbursements on organizing activity on Schedule 14—Other Receipts, Schedule 15—Representational Activities, and Schedule 18—General Overhead. Within these schedules, Column B requires labor unions to identify the type of business or job classification of the entity or individual to which the union disbursed $5,000 or more during the reporting period. In Schedules 14, 15, and 18, labor unions frequently report “organizing services” as the type of business or job classification to which the union disbursed funds. Organizing disbursements are already disclosed by reporting unions.

Furthermore, in 2003 the Department implemented a special procedure for reporting confidential information on the Form LM-2, which, in part, was created to protect organizing efforts. When reporting confidential information labor organizations need not itemize the receipt or disbursement of certain expenditures that would be adverse to the union's legitimate interests. Labor unions may use the confidentiality exemption to avoid itemizing receipts or disbursements for the following information involving organizing: (1) Information that would identify individuals paid by the union to work in a non-union bargaining unit in order to assist the union in organizing employees, provided that such individuals are not employees of the union who receive more than $10,000 in the aggregate in the reporting year from the union and (2) information that would expose the reporting union's prospective organizing strategy. The confidentiality exemption provides an additional layer of protection to labor unions from disclosing itemized disbursements that could be detrimental to the success of organizing efforts.

In order to minimize any impact of reporting on the success of organizing efforts, however, neither the name of the employer nor the specific bargaining unit that is the subject of the organizing activity would need to be identified in the proposed schedule.

The Department also believes that in 2003 it should have recognized that a pre-hire agreement is merely a unique form of a collective bargaining agreement. As with section 9(a) collective bargaining agreements, a pre-hire agreement is a contract that is the result of a negotiation between a union and employer, which establishes the terms and conditions of employment for bargaining unit employees.

The principal difference between the two types of agreements is that an 8(f) pre-hire agreement permits collective bargaining activity prior to a union obtaining majority support from employees. In addition, an employee may be required to join the 8(f) union within seven days from the start of work.

These distinct qualities of pre-hire agreements show there is minimal need for a labor union to disburse funds to recruit new members or become the exclusive bargaining representative by obtaining majority support of the employees—key characteristics of organizing expenses. Pre-hire agreements are agreed upon by unions and employers via the collective bargaining process, not the organizing efforts of a labor union.

For the purposes of reporting disbursements on the Form LM-2 LF, the Department proposes that labor unions must consider the negotiation of 8(f) pre-hire agreements as collective bargaining activity.

Schedule 16—Political Activities and Lobbying. As discussed above, the Department proposes to divide Schedule 16—Political Activities and Lobbying into two schedules: Schedule 26— Political Activities and Schedule 27—Lobbying.

Under current Schedule 16—Political Activities and Lobbying, the labor organization must report its direct and indirect disbursements to all entities and individuals during the reporting period associated with political disbursements or monetary contributions. A political disbursement or contribution is one that is intended to influence the selection, nomination, election, or appointment of anyone to a federal, state, or local executive, legislative, or judicial public office, or office in a political organization, or the election of presidential or vice presidential electors, and support for or opposition to ballot referenda. It does not matter whether the attempt succeeds. The labor organization must include disbursements for communications with members (or agency fee paying nonmembers) and their families for registration, get-out-the vote, and voter education campaigns; the expenses of establishing, administering, and soliciting contributions to union segregated political funds (or PACs); disbursements to political organizations as defined by the IRS in 26 U.S.C. 527; and other political disbursements.

Political activities differ considerably from lobbying in terms of their purpose and their significance to union members. Political activities, in the form of campaign contributions, may be more likely to be subject to abuse because of the amount of money changing hands. It further stands to reason that there may be internal, and rank-and-file, disagreements with union-backed political positions on candidates. Cf. Janus v. AFSCME, Council 31, 138 S. Ct. 2448, 2461 (2018) (“Janus refused to join the Union because he opposes many of the policy positions that it advocates” (internal punctuation omitted)). Combining lobbying with political activities masks the total spent on lobbying and the total spent on political activity and campaigning. If a union spends $1,000,000 on lobbying and political activities, the $1,000,000 could be perceived or characterized by the union as monies well spent on representing members. The union might not be able to make that argument, however, if it spent $50,000 on lobbying and $950,000 on political activity.

Lobbying is more germane to the core function of a labor organization: improving working conditions. Members have the right to know how much of their dues monies are going to political activities and how much are going to lobbying. The current consolidated schedule obscures this information, to the detriment of interested union members.

The 2002 Notice of Proposed Rulemaking, which introduced functional reporting categories, proposed to have separate schedules for political activities and lobbying. Upon review of the comments received, the Department instead combined the categories in its final rule. 68 FR 58374, 58397 (2005). One reason for combining the two categories was a prediction that little money would otherwise be reported in each schedule: “Further, the Department's decision to combine the two Schedules will increase the likelihood that the Schedule will be used to report a sufficient amount of information to prove useful to union members.” Id. at 58398. This prediction proved untrue. The total amount of disbursements reported in Schedule 16—Political Activities and Lobbying for all FY16 filers was $741,357,982. For FY17, the total was $628,643,192. For FY18, the figure was $747,169,805. In a review of 20 major unions, several unions reported spending more on political activities and lobbying than on union administration. These 20 unions spent $218,205,729 on political activities and lobbying, while spending $155,815,458 on contributions, gifts, and grants, and $281,824,428 on union administration. One union reported spending more on political activities and lobbying, $17,764,359, than on representational activities, $3,791.442. All told, 9.7 percent of the spending on the five functional categories (Representational Activities; Political Activities and Lobbying; Contributions, Gifts, and Grants; General Overhead, and Union Administration) of these 20 unions was spent on political activities and lobbying. There are strong indications, therefore, that substantial sums are disbursed for political activities and for lobbying.

The 2003 final rule also chose to consolidate into a single schedule the two activities because requiring the separate reporting of “political activity” and “lobbying” is made difficult by the requirement that time estimates of union officials be recorded in 10 percent increments of total work time. 68 FR 58398.This objection is no longer well-founded because the Department proposes to eliminate functional reporting of union officer and union employee time.

The Department based its previous decision to consolidate the schedule on the perception that distinguishing between “political activities,” in the election-specific sense of that term, and “lobbying” is “not always easy.” 68 FR 58398. The Department still agrees with this sentiment, but now posits that it cuts in favor of dividing the schedules. Having reviewed the “purpose” line of numerous reports over the years, the Department has found that the purpose and nature of the disbursement are often not discernable. A union member's inability to determine the purpose of an expenditure and whether an expenditure is lobbying or political activity is a failure of transparency that this proposed rule would address. As between the union and its members, the union is in a better position to know and disclose the nature of the disbursement. Additionally, separate regimes exist for reporting political activities versus lobbying activities at both the state and federal level showing that these categories are in fact distinct and could be separated for reporting purposes.^[16]

Federal law treats lobbying as a discrete activity. At the federal level, the Lobbying Disclosure Act (LDA) imposes registration and reporting obligations on individuals and entities that lobby various federal officials once certain thresholds have been exceeded. 2 U.S.C. 1601 et seq. The LDA applies to any entity that lobbies, whether 501(c)(3), 501(c)(4), union or for-profit. The term “lobbying activities” means lobbying contacts and efforts in support of such contacts, including preparation and planning activities, research, and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others. 2 U.S.C. 1602(7). The term “lobbying contact” means any oral or written communication (including an electronic communication) to a covered executive branch official or a covered legislative branch official that is made on behalf of a client with regard to—(i) the formulation, modification, or adoption of federal legislation (including legislative proposals); (ii) the formulation, modification, or adoption of a federal rule, regulation, Executive Order, or any other program, policy, or position of the United States Government; (iii) the administration or execution of a federal program or policy (including the negotiation, award, or administration of a federal contract, grant, loan, permit, or license); or (iv) the nomination or confirmation of a person for a position subject to confirmation by the Senate. 2 U.S.C. 1602(8). As labor organizations already must separately report lobbying activities under the LDA, they should be able to separate out this activity from other activities, like political activities.

Schedule 17—Contributions, Gifts, and Grants. The schedule would be renumbered to Schedule 28—Contributions, Gifts, and Grants, with no substantive changes.

Schedule 18—General Overhead. The schedule would be renumbered to Schedule 29— General Overhead, with no substantive changes.

Schedule 19—Union Administration. The schedule would be renumbered to Schedule 30— Union Administration, with no substantive changes.

Schedule 20—Benefits. The schedule would be renumbered to Schedule 31—Benefits. The schedule would no longer contain benefits information for union officers and union employees, as this information would appear next to their names, as discussed above, in proposed Schedule 11—All Officers and Disbursements to Officers and proposed Schedule 12—Disbursements to Employees.

New Schedules. The Department proposes to add new schedules that coincide with the items of cash receipts listed on Statement B—Receipts and Disbursements. These schedules represent new requirements that labor organizations itemize the individual categories of receipts aggregated to $5,000 from any one source. The labor organization would be required to complete a separate itemization schedule for each individual or entity from which the labor organization has received $5,000 or more. Each transaction from that individual or entity would be accompanied by information about the individual, the purpose of the payment, the date of the payment, and the amount of the payment. The total amount received from the individual or entity, both itemized and non-itemized, would be included at the bottom of the itemized schedule. The totals from each itemized schedule would then be added together and that number would be entered in the appropriate item on Statement B.

These proposed additional schedules correspond to the following categories of receipts:

• Dues and Agency Fees (Item 36);
• Per Capita Tax (Item 37);
• Fees, Fines, Assessments, Work Permits (Item 38);
• Sales of Supplies (Item 39);
• Rents (Item 42);
• On Behalf of Affiliates for Transmittal to Them (Item 47); and
• From Members for Disbursement on Their Behalf (Item 48).

These schedules will provide additional information, by these receipt categories, of aggregated receipts of $5,000 or more. This proposed change is consistent with the information currently provided on disbursements.

Currently, Form LM-2 filers report on Statement B only the total amount received from dues and agency fees; per capita taxes; fees, fines, assessments, work permits; sales of supplies; interest; dividends; rents; receipts on behalf of affiliates for transmittal to them; and receipts from members for disbursement on their behalf. In some instances, these line items exceed $30 million. For example, one labor organization stated that it received over $298 million in per capita taxes and another received over $33 million in rent. Little useful information can be discerned from these totals alone. The new Form LM-2 LF would require itemization of certain of these categories from the largest unions.

The lack of itemization of most receipts on the current Form LM-2 makes it easier for wrongdoers to embezzle money from labor organization accounts. In one case, an eight-count felony indictment charged a union treasurer with taking the union's dues checks from the employer of the union members. Instead of depositing the checks into the union's bank account, the union treasurer endorsed the checks and deposited them into his own personal bank account under false pretenses. According to the indictment, the combined value of the property stolen amounted to $18,720. Even if the individual checks had been in amounts of $5,000 or more, however, rank and file members would have been unable to detect the conversion because the current Form LM-2 requires the disclosure of only the yearly total received in dues checks, not the reporting of individual checks received from employers. The proposed form would contain itemized information for each check that is $5,000 or more and disclose whether other checks aggregate to $5,000 or more. If receipt checks, either alone or in combination, aggregate to $5,000 or more, the labor organization would disclose this on the form. The change would address this problem, which extends to all the various reporting categories on the current form and not merely the receipt of dues payments, because now receipts-side embezzlements would be harder to hide.

By providing itemization of receipts, labor organizations would better disclose to their members and the public a full accounting of all funds received and the identity of individuals and entities with whom the labor organization does business. The Department could use this information to determine the purpose of any receipt from one source in an amount of $5,000 or more. Knowing the purpose of a receipt would help identify possible diversion. Labor organization members could ensure that money they paid to the organization for disbursements on their behalf is accounted for on the Form LM-2 LF. If there is no itemized receipt in new Schedule 22—From Members for Disbursement on their Behalf for payments of $5,000 or more or the receipt is less than expected, then the member would know that the money was not properly reported and may pursue other avenues to determine what has happened to the funds. The new Schedules 16 through 22 would be as follows:

Schedule 16—Dues and Agency Fees (new schedule);

Schedule 17—Per Capita Tax (new schedule);

Schedule 18—Fees, Fines, Assessments, and Work Permits (new schedule);

Schedule 19—Sale of Supplies (new schedule);

Schedule 20—Rents (new schedule);

Schedule 21—Receipts on Behalf of Affiliates for Transmittal to Them (new schedule); and

Schedule 22—Receipts from Members for Disbursement on Their Behalf (new schedule).

Under the current Form LM-2, receipts listed under the above-listed categories on Statement B are not itemized on a separate schedule for aggregate amounts that meet or exceed the threshold. The only itemized receipts are “Other Receipts.” “Other Receipts” that meet or exceed the threshold are itemized on the current Schedule 14. Proposed Schedules 16 through 22 would include the same information that is currently required on Schedule 14 for “Other Receipts.”

New Schedule 32—Foreign Transactions. The Department seeks comment on whether to establish a Schedule 32—Foreign Transactions on the Form LM-2 LF if the labor union engages in a transaction with a foreign entity or a foreign individual. The labor organization would report any individual receipt of $5,000 or more, or total receipts from any single entity or individual that aggregate to $5,000 or more during the reporting period, derived from a foreign entity or individual. These transactions would also appear in the functional categories of Schedules 24 through 31 but this schedule would permit the union members to know whether the union is conducting transactions with foreign entities or individuals. It is a growing concern for many American workers to have their jobs outsourced overseas. Union members and prospective members have a right to know if their collective bargaining representative has an interest in a non-American workforce. In 2019 alone, one national union sent $931,830 to unions, law firms, and consultants at foreign addresses. Although the payees were identified by functional category, there is not one single location where a union member can find out whether the labor union is engaging in significant foreign transactions.^[17] The Department requests comments from interested parties in union transactions with foreign entities or individuals.

The confidentiality exemption. Additionally, the Department requests comments on whether to modify, narrow, or eliminate the confidentiality exception in the Form LM-2 instructions. Currently, the following information is subject to special reporting privileges under the confidentiality exception: (1) Information that would identify individuals paid by the union to work in a non-union facility in order to assist the union in organizing employees, provided that such individuals are not employees of the union who receive more than $10,000 in the aggregate from the union in the reporting year; (2) information that would expose the reporting union's prospective organizing strategy; (3) information that would provide a tactical advantage to parties with whom the reporting union or an affiliated union is engaged or would be engaged in contract negotiations; (4) information pursuant to a settlement that is subject to a confidentiality agreement, or that the union is otherwise prohibited by law from disclosing; and (5) information in those situations where disclosure would endanger the health or safety of an individual. If the receipt or disbursement fits within one of the above broad categories, then the labor organization need not itemize the receipt or disbursement. Instead it may include the receipt or disbursement in the aggregated total on Line 3 of Summary Schedules 23—Other Receipts, 24—Contract Negotiations and Administration, 25—Organizing, or 30—Union Administration, as appropriate.

There are legitimate reasons why a union may wish to utilize these five categories. But the current broad confidentiality exception makes it impossible to ascertain from reviewing the form the actual purpose and payer/payee of many receipts and disbursements. For example, one labor organization did not identify the name of the payee, date of disbursement, or the amount of the transaction for more than 46 percent of its disbursements. This labor organization reported $5,931,513 in disbursements on Schedule 15, Line 5 (All Other Disbursements). In Item 69, the labor organization stated that it had excluded certain confidential information from Schedule 15, but included the information in the totals. This same labor organization's total disbursements were $12,811,076. On a related matter, the Department's review of Form LM-2 filings has found that many major receipts and disbursements that do not qualify for the confidentiality exception, 68 FR 58499-500, are being included on Line 3 (total All Other Receipts) of Summary Schedule 14—Other Receipts or on Line 5 (total All Other Disbursements) of Summary Schedules 15—Representational Activities or 19—Union Administration. Labor organizations are usually describing the general type of information that was omitted from the schedule in Item 69—Additional Information, but the name of the payer/payee, date, and amount of the transaction(s) are not included. A member now can obtain specific information about these confidential transactions only by requesting such information directly from the labor organization.

The Department seeks comment on whether all transactions greater than $5,000 should be identified by amount and date in the relevant schedules. If, on the other hand, a confidentiality exemption should be retained, the Department seeks comments on the scope of the exemption. Commenters can provide their views on whether the five current categories should be retained in their current form, modified, or eliminated.

Employer Identification Number. The Department invites comment on whether to require the disclosure of the EIN for vendors that received payments that trigger itemized disclosure ($5,000 or more) on new schedules 24 through 30. This would require an additional column on these schedules and would give the Department and the members visibility into year-over-year payments to the same organizations. The use of “Doing Business As” designations and name changes would no longer hinder a member from determining the union's involvement with the same vendors year after year. It would allow a member to determine whether a vendor or payee is a business affiliated with a union officer, for example, because the business could be identified.

Whistleblower Provisions. The Department seeks comment on whether to add an item asking, “Does the Organization have a written whistleblower policy?” to the informational items. Federal law prohibits tax exempt organizations from retaliating against employees who expose wrongdoing with regard to their employer's financial management and accounting practices. In Form 990, the IRS asks if the organization has written policies on the handling of whistleblowers. See Exempt Organizations Annual Reporting Requirements—Governance (Form 990, Part VI). Many states have also enacted laws to protect whistleblowers from retaliation at the workplace.^[18] Employers, including labor organizations, benefit from a process for addressing complaints, as it provides an opportunity for the union to improve its practices. Also, adopting a whistleblower protection policy signals to employees and to union members that the union values transparency and accountability. The Department generally invites comments on whether other good governance questions should be asked.

D. Proposed Revisions to Form LM-2

To increase transparency, the Department proposes revisions to the Form LM-2, which would be applicable to labor organization with annual receipts of $250,000 to $7,999,999. Many of the changes and rationale mirror those of the Form LM-2 LF, described above. For brevity, the Department refers to those changes and rationales, and incorporates them by reference, rather than repeating them verbatim.^[19]

On the Form LM-2, the Department proposes to add “(d) TRUSTEESHIP” with a checkbox to Item 3. The checkbox would indicate that the report is being filed by a labor organization for a subordinate labor organization that it has placed in trusteeship.

With regard to Item 10—Trust or Other Fund, the Department proposes to redesignate the current Item 10 as Item 10(a).

The Department also proposes a new Item 10(b), concerning payments from more than one union. Item 10(b) would ask whether, during the reporting period, an officer or employee who was paid $10,000 or more by the reporting organization also received $10,000 or more as an officer or employee of another labor organization in gross salary, allowances, and other direct and indirect disbursements during the reporting period. If the answer is “Yes,” the labor organization would provide additional information in Item 75—Additional Information. This additional information would require the union to list the name of the officer, amount paid, entity that made the payment, and file number of the entity.

The Department proposes to revise Item 13 (Losses or Shortages) to clarify that reporting is required if the filer is aware the labor organization has experienced and/or discovered a shortage of funds. Currently Item 13 asks, “During the reporting period did the labor organization discover any loss or shortage of funds or other assets?” As revised, Item 13 would provide, “During the reporting period did the labor organization experience and/or discovered any loss or shortage of funds or other assets?”

With regard to Item 18 (Changes in Constitution and Bylaws), the Department proposes to redesignate the current Item 18 as Item 18(a). The Department proposes a new Item 18(b). This item would require labor organizations to provide the dates of their constitution and bylaws.

Statement A—Assets and Liabilities

Items 22 through 35 listed under Statement A—Assets and Liabilities will adopt the same schedules proposed in the LM-2 LF.

Statement B—Receipts and Disbursements

With regard to Items 36 through 50 listed under “Cash Receipts,” the Department does not propose additional schedules to those items that currently do not have schedules. This will avoid imposing the burden of itemizing cash receipts on smaller unions, which have fewer resources to invest in tracking and reporting financial information. However, items with schedules will adopt the schedule numbers proposed in the LM-2 LF.

The Department proposes to divide Item 43—Sale of Investments and Fixed Assets into two items. Item 43 would be renamed Item 43—Sale of Investments. Item 43 is currently supported by Schedule 3—Sale of Investments and Fixed Assets. It would be supported by a new Schedule 3—Sale of Investments. The Department proposes a new Item 44—Sale of Fixed Assets, which would be supported by a new Schedule 4—Sale of Fixed Assets.

On Schedule 3—Sale of Investments, labor organizations would report receipts from the sale of investments. On, Schedule 4—Sale of Fixed Assets, the labor organization would report receipts from the sale of fixed assets.

In the new Schedule 3—Sale of Investments, the Department proposes to add two new columns. The first new column, entitled “Name and Address of Purchaser or Financial Management Firm (A),” would disclose the purchasers of investments from the labor organization. A second column “Date (C)” would disclose the date of the sale. The other existing columns would remain the same but would be designated with different letters. The columns would thus read, in order, “Name and Address of Purchaser or Financial Management Firm (A); Description (B); Date of Sale (C); Cost (D); Book Value (E); Gross Sales Price (F); and Amount Received (G).”

The Department proposes to add two new columns to new Schedule 4—Sale of Fixed Assets. The first new column entitled “Name and Address of Purchaser (A)” would disclose the purchasers of fixed assets from the labor organization. A second column “Date (C)” would disclose the date of the sale. The columns would thus read “Name and Address of Purchaser (A); Description (if land or buildings, give location) (B); Date of Sale (C); Cost (D); Book Value (E); Gross Sales Price (F); and Amount Received (G).” With regard to fixed assets, the Department proposes that the union would be required to identify automobiles individually by make, model, year, and Vehicle Identification Number (VIN). This information would be listed under existing Column A (Description).

Proposed Items 51 through 72 listed under “Cash Disbursements” will adopt the same schedules proposed in the LM-2 LF, except where indicated below.

The Department proposes to divide Item 50—Representational Activities into two items. Item 50 would be renumbered Item 51 and renamed Item 51—Contract Negotiation and Administration. There would be a new Item 52—Organizing. The schedule, currently numbered Schedule 15, would be split in two and renumbered Schedule 17 and Schedule 18. The first would be designated Schedule 17—Contract Negotiation and Administration. The second would be Schedule 18—Organizing.

The Department proposes to divide Item 51—Political Activities and Lobbying into two items. Item 51 would be renumbered Item 53 and renamed Item 53—Political Activities. There would be a new Item 54—Lobbying. Current Schedule 16—Political Activities and Lobbying would be split. It would be replaced by a new Schedule 19—Political Activities and a new Schedule 20—Lobbying. On Schedule 19, labor organizations would report disbursements for political activities. On Schedule 20, the labor organization would report lobbying disbursements.

The Department proposes no substantive change to Item 52, which would be renumbered Item 55—Contributions, Gifts, and Grants. This item was previously supported by Schedule 17 and would now be supported by renumbered Schedule 21—Contributions, Gifts, and Grants, without substantive change.

The Department proposes no substantive change to Item 53, which would be renumbered Item 56—General Overhead. This item was previously supported by Schedule 18 and would now be supported by renumbered Scheduled 22—General Overhead, without substantive change.

The Department proposes no substantive change to Item 54, which would be renumbered Item 57—Union Administration. This item was previously supported by Schedule 19 and would now be supported by renumbered Schedule 23—Union Administration, without substantive change.

Item 55 would be renumbered Item 58—Benefits, and not substantively changed. This item was previously supported by Schedule 20 and would now be supported by renumbered Schedule 24—Benefits, without substantive change.

The Department proposes to divide Item 60—Purchase of Investments and Fixed Assets into two items: Item 63—Purchase of Investments and Item 64—Purchase of Fixed Assets. The Department proposes to divide Schedule 4—Purchase of Investments and Fixed Assets into two. The first would be a new Schedule 5—Purchase of Investments. The second would be a new Schedule 6—Purchase of Fixed Assets.

The Department proposes to add two new columns to new Schedule 5—Purchase of Investments. The first new column entitled “Name and Address of Seller or Financial Management Firm (A)” would disclose the identity of the seller of investments to the labor organization. A second column “Date (C)” would disclose the date of the purchase. The other columns ((Cost (B); Book Value (C); Gross Sales Price (D); and Amount Received (E)) would remain the same but would be designated with different letters, to accommodate the two new columns. The columns would thus read “Name and Address of seller or Financial Management Firm (A); Description (B); Date of Purchase (C); Cost (D); Book Value (E); Gross Sales Price (F); Cash Paid (G).”

The Department proposes to add two new columns to Schedule 6—Purchase of Fixed Assets. The first new column entitled “Name and Address of Purchaser (A)” would disclose the identity of the seller of investments to the labor organization. A second column “Date (C)” would disclose the date of the purchase. The columns would thus read “Name and Address of Seller (A); Description (if land or buildings, give location) (B); Date of Purchase (C); Cost (D); Book Value (E); Gross Sales Price (F); and Amount Received (G).” The Department proposes that the union would be required to identify automobiles individually by make, model, year, and Vehicle Identification Number (VIN). This information would be listed under existing Column A (Description).

Schedule 11—All Officers and Disbursements to Officers would be renumbered Schedule 13— All Officers and Disbursements to Officers. In this schedule, the Department proposes to eliminate functional reporting of union officer time by removing Line (I).

Schedule 12—Disbursements to Employees will be renumbered Schedule 14—Disbursements to Employees. The Department proposes to eliminate functional reporting of union employee time by removing Line (I).

The Department also proposes to renumber Schedule 13—Membership Status to Schedule 15—Membership Status. The Department proposes to require reporting of retired members.

The confidentiality exemption. Similar to the discussion above, in section C. Proposed Form LM-2 LF the Department requests comments on whether modify, narrow, or eliminate the confidentiality exemption in the Form LM-2 instructions. The Department seeks comment on whether all transactions greater than $5,000 should be identified by amount and date in the relevant schedules. If, on the other hand, a confidentiality exemption should be retained, the Department seeks comments on the scope of the exemption. Commenters can provide their views on whether the five current categories should be retained in their current form, modified, or eliminated.

Filing Threshold. The Department seeks comment on whether to raise the threshold for filing the Form LM-2 from its current $250,000 level. Shortly after the LMRDA was enacted in 1959, the threshold for filing the Form LM-2 was set by the Secretary at $20,000. The threshold was raised by the Secretary in 1962 to $30,000 and again in 1981 to $100,000. It was set at $250,000 by regulation in 2003. If any of these levels were now adjusted for inflation, the amount would be greater than the current threshold of $250,000. The Department seeks comment on whether to raise the threshold to $300,000. Although the overwhelming majority (78.5%) of all reporting labor organizations are currently exempt from filing Form LM-2, changing the threshold to $300,000 would reduce the recordkeeping and reporting burden for approximately 273 labor organizations. Taking such action, would however, reduce the amount of information available to their 441,247 members.

The Department will continue its past practice of periodically assessing the appropriateness of the filing threshold to ensure that it is relevant in terms of the current economy and universe of labor organizations. The Department invites comments on the proposal to raise the threshold for filing the Form LM-2 to $300,000.

E. Effective Date

The Department proposes that its rule take effect 30 days after publication and apply prospectively to labor organizations' fiscal years beginning on or after the effective date of a final rule promulgated after this notice of proposed rulemaking.

IV. Regulatory Procedures

Executive Orders 12866 (Regulatory Planning and Review) and 13563 (Improving Regulation and Review)

Under Executive Order (E.O.) 12866, the Office of Management and Budget (OMB)'s Office of Information and Regulatory Affairs (OIRA) determines whether a regulatory action is significant and, therefore, subject to the requirements of the E.O. and OMB review.^[20] Section 3(f) of E.O. 12866 defines a “significant regulatory action” as an action that is likely to result in a rule that (1) has an annual effect on the economy of $100 million or more, or adversely affects in a material way a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities (also referred to as economically significant); (2) creates serious inconsistency or otherwise interferes with an action taken or planned by another agency; (3) materially alters the budgetary impacts of entitlement grants, user fees, or loan programs, or the rights and obligations of recipients thereof; or (4) raises novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the E.O. OMB has determined that this rule is significant under section 3(f) of E.O. 12866.

E.O. 13563 directs agencies to propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; the regulation is tailored to impose the least burden on society, consistent with achieving the regulatory objectives; and in choosing among alternative regulatory approaches, the agency has selected those approaches that maximize net benefits. E.O. 13563 recognizes that some benefits are difficult to quantify and provides that, where appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.

A. Background and Need for Regulatory Action

Every labor organization subject to the LMRDA, the Civil Service Reform Act (CSRA) standards of conduct regulations, or the Foreign Service Act (FSA) must file a financial report, Forms LM-2, LM-3, or LM-4 Labor Organization Annual Report. The three forms vary in the level of financial details that must be reported. The filing requirements are determined by the total annual receipts of the union. The Forms LM-2, LM-3, and LM-4 Labor Organization Annual Report serve as the primary means by which the operations of unions can be monitored by union members and the general public. Accordingly, the Forms LM-2, LM-3, and LM-4 Labor Organization Annual Report are essential to the Department's enforcement, research, and policy formulation programs and are a source of information and data for use by other federal agencies, Congress, and the private sector in assessing union economic trends and policies.

As discussed earlier in this preamble, the Forms were last revised in 2003. The revisions to the Form LM-2 made by the Department in 2003 helped to fulfill the LMRDA's reporting mandate. However, based upon the Department's experience since 2003 and after input from OLMS field offices, the Department believes that further modifications to Form LM-2 and the introduction of the Form LM-2 LF are necessary. The proposed enhancements, as more fully described elsewhere in this preamble, would ensure that information is reported in such a way as to meet the objectives of the LMRDA by providing labor organization members with useful data that will enable them to be responsible and effective participants in the democratic governance of their labor organizations. The proposed changes are designed to provide the Department, members of labor organizations, and the public with additional and more detailed information about the financial activities of labor organizations than is available through the current reporting.

B. Costs of the Form LM-2 LF and LM-2 Reports for Labor Organizations

As discussed below in the Paperwork Reduction Act section, the Forms LM-2 LF, and LM-2 reports will be filed by existing Forms LM-2 report filing labor organizations. The Department estimates that it receives annually 4,850 Form LM-2 reports. The proposed rule would not add any new filing labor organizations to this universe, although the Department does expect to see a change in the number of Form LM-2 reports received, with the addition of the Form LM-2 LF for those filers with total annual receipts of $8 million or more. The Department expects to see a decrease in Form LM-2 reports, to 4,440 reports, since 410 of the current Form LM-2 reports derive from filers with $8 million or more in total annual receipts. Consequently, the Department expects to see 410 Form LM-2 LF and 4,440 Form LM-2 reports.

In the first year, the Department estimates that all 4,850 filers, including both the 410 Form LM-2 LF filers, who were previously required to file a Form LM-2, and the remaining 4,440 LM-2 filers will spend 15 minutes familiarizing themselves with the revised and new forms.^[21] They will also face 32.5 hours in nonrecurring recordkeeping burden and 44.3 in nonrecurring reporting burden hours, in order to adapt accounting systems for new and revised schedules.^[22]

On an annual basis, including the first year, the 410 Form LM-2 LF filers will spend an additional 66.5 hours on average filing the new Form LM-2 LF. The remaining 4,440 Form LM-2 filers, who will continue to file a Form LM-2, will spend an additional 16.5 hours on average annually filing the revised Form LM-2.

Using FY 18 Form LM-2 filings, inflated to 2019 dollars,^[23] and 2019 BLS statistics,^[24] the weighted average hourly wage for Form LM-2 filers includes: $38.23 for an accountant, $20.65 for a bookkeeper or clerk, $25.85 for a Form LM-2 filing union secretary-treasurer or treasurer, and $30.03 for the Form LM-2 filing president, respectively. The weighted average hourly wage is $36.77.^[25] To account for fringe benefits and overhead costs, as well as any other unknown costs or increases in the wage average, the average hourly wage has been multiplied by 1.63, so the fully loaded hourly wage is $59.94 ($36.77 × 1.63).^[26]

Applying the above average wage rates to the burden hour changes, the Department estimates that the new Form LM-2 LF will produce $3,527,799 in new costs during the first year and $1,634,264 in new costs each subsequent year. For the revised Form LM-2, the Department estimates that filers will incur $24,896,798 in new costs during the first year and $4,391,204 in new costs each subsequent year.

C. Summary of Costs

The Department projects that this rule will produce total first-year costs of $28,424,597 and total subsequent year costs of $6,025,469. The Department projects that the 10-year annualized cost will be $8,574,848 using a 3 percent discount rate and $9,005,965 using a 7 percent discount rate. As required under E.O. 13771, the Department projects that the annualized perpetual cost in 2016 dollars using a 7 percent discount rate is $5,027,703 beginning in 2021.

D. Benefits

As explained more fully elsewhere in the preamble to this proposed rulemaking, the Department proposes enhancements to the Form LM-2, and proposes to introduce the Form LM-2 LF, to provide additional information to labor organization members, the Department, and the public about the financial activities of labor organizations. Specifically, the proposed enhancements seek to protect union assets from union and management corruption, and to aid union members in the governance of their unions.

The complexity of labor organizations has increased considerably since the LMRDA was originally passed in 1959. This increase in complexity warrants enhanced reporting and disclosure. The balance between wages/salaries paid to workers and their “other compensation” has changed significantly during this time. For example, in 1966, more than 80 percent of total compensation consisted of wages and salaries, with less than 20 percent representing benefits. U.S. Department of Labor, Report on the American Workforce (2001) 76, 87. By 2019, wages had dropped to 70.1 percent of total compensation and benefits had grown to 29.9 percent of the compensation package. U.S. Department of Labor, Bureau of Labor Statistics Chart on Total Benefits, available at https://data.bls.gov/​cgi-bin/​surveymost?​cu.

This increased complexity heightens the risk for union and management corruption. For example, a recent investigation of auto industry corruption involving the United Auto Workers International Union (UAW) in Detroit, Michigan, and a city automaker produced multiple criminal convictions in the United States District Court for the Eastern District of Michigan. The joint investigations conducted by OLMS, the Department of Labor's Office of Inspector General, the Federal Bureau of Investigation, and the Internal Revenue Service centered on a conspiracy involving Fiat Chrysler executives bribing labor officials to influence labor negotiations. Violations included conspiracy to violate the Labor Management Relations Act for paying and delivering over $1.5 million in prohibited payments and things of value to UAW officials, receiving prohibited payments and things of value from others acting in the interest of Fiat Chrysler, failing to report income on individual tax returns, conspiring to defraud the United States by preparing and filing false tax returns for the UAW-Chrysler National Training Center that concealed millions of dollars in prohibited payments directed to UAW officials, and deliberately providing misleading and incomplete testimony in the federal grand jury.

While labor organizations have grown more complex, heightening the need for more detailed or in-depth financial reporting, labor organization members today are better educated, more empowered, and more familiar with financial data and transactions than ever before. Labor organization members, no less than consumers, citizens, or creditors, expect access to relevant and useful information in order to make fundamental investment, career, and retirement decisions, evaluate options, and exercise legally guaranteed rights.

By increasing and enhancing the reporting requirements, the Department can reduce the risk of corruption, while improving the informed decision making of labor organizations' members.

E. Regulatory Alternatives

The Department considered a number of alternatives to the proposed rule. One alternative, not to engage in this rulemaking, was rejected because the Act's goals are not being met. As explained in the preamble, members of labor organizations cannot accurately determine from the current Form LM-2 the value of the benefits officials of labor organizations are receiving. OLMS cannot readily tell whether a union is in trusteeship and cannot cross check for compliance with filing a Form LM-15 Trusteeship Report. Forgoing this rulemaking would mean union members would not gain a full understanding of all the compensation union officers are receiving, including from other labor organizations. The financial condition of the union's strike fund would remain undisclosed. Labor organization disbursements would be comingled, rather than separated and itemized, making the disbursements more difficult to understand. Specifically, these disbursements include purchases and sales of fixed assets (and names of such purchasers and sellers); political activities and lobbying; and contract administration and organizing. Finally, certain receipts of the largest labor organizations would not be itemized, diminishing the utility of the information reported. Members need this information to make informed decisions on the governance of their labor organizations.

Another alternative would be to limit all the new reporting requirements to labor organizations with receipts over $8,000,000. But this would hinder the members of 4,440 smaller unions from accurately determining the value of the benefits officials of labor organizations are receiving. It would prevent OLMS from readily telling whether a union is in trusteeship or from cross checking for compliance with filing a Form LM-15 Trusteeship Report. It would not give union members a full understanding of all the compensation union officers are receiving, including from other labor organizations. Finally, it would comingle information that is best understood when viewed separately; specifically, purchases and sales of fixed assets (and names of such purchasers and sellers); political activities and lobbying; and contract administration and organizing.

Another alternative would be to phase in the effective date for the Form LM-2 changes and provide smaller Form LM-2 filers with additional lead time to modify their recordkeeping systems to comply with the new reporting requirements. The Department has concluded that a three-month period for all Form LM-2 filers to adapt to the new reporting requirements should provide sufficient time to make the necessary adjustments. OLMS also plans to provide compliance assistance to any labor organization that requests it.

Initial Regulatory Flexibility Analysis

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the business, organizations, and governmental jurisdictions subject to regulation.” Public Law 96-354. To achieve that objective, the RFA requires agencies promulgating proposed and final rules to prepare a certification and a statement of the factual basis supporting the certification, when drafting regulations that will not have a significant economic impact on a substantial number of small entities. The RFA requires the consideration of the impact of a regulation on a wide range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a proposed or final rule would have a significant economic impact on a substantial number of small entities. See 5 U.S.C. 603. If the determination is that it would, the agency must prepare a regulatory flexibility analysis as described in the RFA. Id. However, if an agency determines that a proposed or final rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. See 5 U.S.C. 605. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

According to the Small Business Administration, organizations under NAICS 813930 are considered small entities if they have average annual receipts of less than $8 million.^[27] For this analysis, based on previous standards utilized in other regulatory analyses, the threshold for significance is 3 percent of annual receipts, while a substantial number of small entities would be 20 percent.

The Department certifies that this proposed rule will not have a significant impact on a substantial number of small entities. The analysis that follows serves as the factual basis for this certification. The Department invites interested persons to submit comments and data that may further inform this analysis.

All numbers used in the analysis were based on 2019 data taken from the Office of Labor-Management Standards e.LORS data base, which contains records of all labor organizations that have filed LMRDA reports with the Department and Bureau of Labor Statistics wage data.

(1) Reasons for and Objectives of the Proposed Rulemaking

As discussed in the “Background and Need for Regulatory Action” section of the Regulatory Impact Analysis above, this rule seeks to enhance the Form LM-2 Labor Organization Annual Report to improve the quality of the data collected and ensure that information is reported in such a way as to meet the objectives of the LMRDA by providing labor organization members with useful data that will enable them to be responsible and effective participants in the democratic governance of their labor organizations. The proposed changes, including the introduction of the Form LM-2 LF, are designed to provide the Department, members of labor organizations, and the public with additional and more detailed information about the financial activities of labor organization than is available through the current reporting. These changes are tailored to minimize reporting costs for small unions, while collecting the most information from the largest and most financially complex unions.

(2) Description and Estimate of the Number of Small Entities

For this analysis, a small union is defined as one in which annual receipts are less than $8 million. The Department estimates that it receives annually 22,175 Forms LM-2, LM-3, and LM-4 reports (4,850 Form LM-2 reports, 10,600 Form LM-3 reports, and 6,725 Form LM-4 reports), of which 410 filings come from unions with $8 million or more in receipts and 21,765 filings come from unions with less than $8 million in receipts. This proposed rule impacts 4,850 labor organizations subject to the LMRDA, CSRA standards of conduct regulations, or FSA, who currently file a Form LM-2. Of these organizations, 4,440 have annual receipts of less than $8 million. The remaining 17,325 unions with annual receipts of less than $8 million file the Forms LM-3 or LM-4, to which this rule does not propose changes. The data cited for the following calculations came from a query of the Department's database containing all submitted Form LM-2, Form LM-3, and Form LM-4 union financial disclosure reports for FY 2015-2019. It returned a list of each such filer along with various discrete informational fields, including each filer's annual receipts information, which was used to identify all of the filers with less than $8 million in annual receipts that inform this RFA analysis.

(3) The Projected Reporting and Recordkeeping Costs and Requirements

As discussed previously in the “Costs of the Form LM-2 LF and LM-2 Reports for Labor Organizations” section of the Regulatory Impact Analysis and in the Paperwork Reduction Act analysis above, this rule introduces a new Form LM-2 LF for the 410 filers with $8 million or more in annual receipts, and adds new provisions and reporting requirements to the existing Form LM-2 for the 4,440 filers with less than $8 million in annual receipts.

Using FY 18 Form LM-2 filings, inflated to 2019 dollars,^[28] and 2019 BLS statistics,^[29] the weighted average hourly wage for Form LM-2 filers includes: $38.23 for an accountant, $20.65 for a bookkeeper or clerk, $25.85 for a Form LM-2 filing union secretary-treasurer or treasurer, and $30.03 for the Form LM-2 filing president, respectively. The weighted average hourly wage is $36.77.^[30] To account for fringe benefits and overhead costs, as well as any other unknown costs or increases in the wage average, the average hourly wage has been multiplied by 1.63, so the fully loaded hourly wage is $59.94 ($36.77 × 1.63).^[31]

The average cost per respondent to complete the Form LM-2 is $5,607 in the first year and $989 in each subsequent year.

As mentioned earlier, for this analysis, a small union is defined as one in which annual receipts are less than $8 million.

A threshold of 3 percent of revenues has been used in prior rulemakings for the definition of significant economic impact. See, e.g., 79 FR 60634 (October 7, 2014, Establishing a Minimum Wage for Contractors) and 81 FR 39108 (June 15, 2016, Discrimination on the Basis of Sex). This threshold is also consistent with thresholds used by other agencies. See, e.g., 79 FR 27106 (May 12, 2014, Department of Health and Human Services rule stating that, under its agency guidelines for conducting regulatory flexibility analyses, actions that do not negatively affect costs or revenues by more than three percent annually are not economically significant). The Department believes that its use of a 3 percent of revenues significance criterion is appropriate.

The Department believes that its use of a 20 percent of affected small business entities substantiality criterion is appropriate given prior rulemakings.

As demonstrated by the tables below, this rule will not have a substantial impact on a significant number of small entities.

Significant Impact on Small Unions in the First Year—$8 Million Size Standard

Size (by receipts)	Number of small unions affected	Average annual receipts	Average new burden per union	New burden as % of annual receipts	% of small unions affected	Number of small unions subject to significant impact *	% of small unions subject to significant impact **
$5M-$8M	240	$6,303,788	$5,607	0.09	1.1
$2.5M-$4.99M	584	3,527,359	5,607	0.16	2.7
$1M-$2.49M	1,094	1,596,511	5,607	0.35	5.0
$500K-$999,999	1,107	719,143	5,607	0.78	5.1
$250K-$499,999	1,173	357,283	5,607	1.57	5.4
$10K-$249,999	10,796	61,856	102	0.16	49.6
Less than $10K	6,771	2,790	38	1.377	31.1
Total	21,765				100	0	0.0
* The Revenue test for significant impact on small unions is set at 3% for this rule.
** The standard for substantial number is set at 20% of small unions overall for this rule.

Significant Impact on Small Unions in Subsequent Years—$8 Million Size Standard

Size (by receipts)	Number of small unions affected	Average annual receipts	Average new burden per union	New burden as % of annual receipts	% of small unions affected	Number of small unions subject to significant impact *	% of small unions subject to significant impact **
$5M-$8M	240	$6,303,788	$989	0.02	1.1
$2.5M-$4.99M	584	3,527,359	989	0.03	2.7
$1M-$2.49M	1,094	1,596,511	989	0.06	5.0
$500K-$999,999	1,107	719,143	989	0.14	5.1
$250K-$499,999	1,173	357,283	989	0.28	5.4
$10K-$249,999	10,796	61,856	18	0.03	49.6
Less than $10K	6,771	2,790	7	0.24	31.1	0
Total	21,765				100	0	0.0
* The Revenue test for significant impact on small unions is set at 3% for this rule.
** The standard for substantial number is set at 20% of small unions overall for this rule.

(4) Duplicative, Overlapping, and Conflicting Rules

The Department is aware of a proposed rule that would, if promulgated, overlap with the provisions contained in this proposed rule. On December 17, 2019, the Department proposed a rule governing intermediate bodies that are composed of public sector organizations but are subordinate to national or international labor organizations covered by the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA or Act). See 84 FR 68842. Under the proposal such intermediate bodies would be covered by the LMRDA and be required to file the applicable annual union financial reports. If that proposal were to become final, those intermediate bodies—as newly regulated entities—would be affected by the instant rulemaking.

Small Business Regulatory Enforcement Fairness Act of 1996

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

Paperwork Reduction Act

This statement is prepared in accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 (PRA). See 5 CFR 1320.9. The 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 are written in plain language that will be understandable by reporting labor organizations; (5) the disclosure requirements are implemented in ways consistent and compatible, to the maximum extent practicable, with the existing reporting and recordkeeping practices of labor organizations that must comply with them; (6) this preamble informs labor organizations of the reasons that the information will be collected, the way in which it will be used, the Department's estimate of the average burden of mandatory compliance, 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.” See 5 CFR 1320.9; 44 U.S.C. 3506(c).

Concurrent with the publication of this proposed rule, the Department is submitting an associated information collection request to the Office of Management and Budget for approval.

A. Summary

The Department proposes to promulgate a rule that updates and revises 29 CFR part 403 in order to establish a Form LM-2 LF, and to improve the Form LM-2 Annual Report in the interest of labor organization financial integrity and transparency.

Currently, unions must file one of three types of annual financial reports based on the total annual receipts of the union. The annual financial reports vary in the level of detail that must be reported. Form LM-2 is the most detailed report. Unions with total annual receipts of $250,000 or more and subordinate labor organizations held in trusteeship file this report, which discloses certain information items and financial activities in separate line items under assets, liabilities, receipts, and disbursements. Supporting schedules detail loans, investments, payments to officers and employees, and other data. Disbursements are reported in specified categories (Representational Activities; Political Activities and Lobbying; Contributions, Gifts and Grants; General Overhead; and Union Administration). Certain transactions that equal or aggregate to $5,000 are separately itemized.

Form LM-3, a less-detailed report, may be filed by unions with total annual receipts of less than $250,000 (if not in trusteeship). It requires the reporting of certain information items, has fewer financial items than the Form LM-2, and has no supporting schedules or itemization.

Form LM-4, an abbreviated two-page report, may be filed by unions with annual financial receipts of less than $10,000 (if not in trusteeship). It requires the reporting of a limited number of information items and five financial details.

Simplified annual financial reports may be filed by parent unions on behalf of subordinate labor organizations with no assets, liabilities, receipts, or disbursements and that meet certain other conditions.

The Secretary has authority to implement the reporting provisions by regulation. “The Secretary shall have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under this title and such other reasonable rules and regulations (including rules prescribing reports concerning trusts in which a labor organization is interested) as he may find necessary to prevent the circumvention or evasion of such reporting requirements.” See 29 U.S.C. 438.

B. Form LM-2 LF

The Department proposes a new Form LM-2 LF. It would track the existing Form LM-2 except as follows. In new Item 3(d), the union would report whether it was in trusteeship. New Item 10(b) would require the labor organization to report whether certain officers or employees received payment from another labor organization. New Item 11(c) would ask whether the union has a separate strike fund and, if so, provide information on the fund. New Item 18(b) would require reporting of the date of the labor organization's current constitution and bylaws.

Under the proposal, four schedules would be divided in two and become eight schedules. Specifically, the Department proposes to divide Schedule 3—Sale of Investments and Fixed Assets into two schedules. The first would be a new Schedule 3—Sale of Investments. The second would be new Schedule 4—Sale of Fixed Assets.

In the new Schedule 3—Sale of Investments, the Department proposes to add two new columns. The first new column, entitled “Name and Address of Purchaser or Financial Management Firm (A),” would disclose the purchasers of investments from the labor organization. A second column “Date (C)” would disclose the date of the sale. The other columns (Description (if land or buildings, give location); Cost; Book Value; Gross Sales Price; and Amount Received) would remain the same but would be designated with different letters, to accommodate the two new columns.

The second part of the divided schedule would be the new Schedule 4—Sale of Fixed Assets. As in the case of new Schedule 3, the Department proposes to add two new columns to Schedule 4—Sale of Fixed Assets. The first new column entitled “Name and Address of Purchaser” would disclose the purchasers of fixed assets from the labor organization. A second column “Date (C)” would disclose the date of the sale. In addition, the Department proposes that the union would be required to identify automobiles individually by make, model, year, and Vehicle Identification Number (VIN). This information would be listed under existing Column A (Description).

Current Schedule 4 will also be divided. Under current Schedule 4—Purchase of Investments and Fixed Assets, a labor organization must report details of the purchases by the labor organization of U.S. Treasury securities, marketable securities, other investments, and fixed assets, including those fixed assets that were expensed. As with sale of investments and fixed assets, the Department proposes to break this schedule into two: New Schedule 5—Purchase of Investments and new Schedule 6—Purchase of Fixed Assets.

In the new Schedule 5—Purchase of Investments, the Department proposes to add two new columns. The first new column entitled “Name and Address of Seller or Financial Management Firm (A)” would disclose the identity of the seller of investments to the labor organization. A second new column “Date (C)” would disclose the date of the purchase.

Likewise, to new Schedule 6—Purchase of Fixed Assets, the Department proposes to add two new columns. The first new column entitled “Name and Address of Seller (A)” would disclose the identity of the seller of fixed assets to the labor organization. A second new column “Date (C)” would disclose the date of the purchase. In addition, the Department proposes that the union would be required to identify automobiles individually by make, model, year, and VIN. This information would be listed under existing Column A (Description).

The Department proposes to divide Schedule 15—Representational Activities into two and renumber them Schedule 24 and Schedule 25. The first would be designated new Schedule 24—Contract Negotiation and Administration. The second would be new Schedule 25—Organizing.

In addition, Schedule 16—Political Activities and Lobbying would be renumbered and divided into two schedules. On new Schedule 26, labor organizations would report disbursements for political activities. On new Schedule 27, the labor organization would report lobbying disbursements.

The Department proposes to add new schedules that coincide with the items of cash receipts listed on Statement B. Stated otherwise, seven categories of receipts are currently reported as seven aggregate, lump sums. Under this proposal, they would by supported by schedules. These schedules represent new requirements that labor organizations itemize the individual categories of receipts aggregated to $5,000 or more from any one source. The labor organization would be required to complete a separate itemization schedule for each individual or entity from which the labor organization has received $5,000 or more. Each transaction from that individual or entity would be accompanied by information about the individual, the purpose of the payment, the date of the payment, and the amount of the payment. The total amount received from the individual or entity, both itemized and non-itemized, would be included at the bottom of the itemized schedule. The totals from each itemized schedule would then be added together and that number would be entered in the appropriate item on Statement B.

These additional schedules correspond to the following categories of receipts:

• Dues and Agency Fees;
• Per Capita Tax;
• Fees, Fines, Assessments, Work Permits;
• Sales of Supplies;
• Rents;
• On Behalf of Affiliates for Transmittal to Them; and
• From Members for Disbursement on Their Behalf.

The Department seeks comment on whether to require for Form LM-2 LF a Schedule 32—Foreign Transactions. It would require reporting if the labor union engages in a transaction with a foreign entity or a foreign individual. The labor organization would report any individual receipt of $5,000 or more or total receipts from any single entity or individual that aggregate to $5,000 or more during the reporting period derived from a foreign entity or individual.

The Department proposes to retain its current itemization transaction threshold. Specifically, schedules 14 through 19 on the Form LM-2 are currently subject to itemization. These schedules reflect various services provided to union members by the union. All “major” disbursements during the reporting period in the various schedules must be separately itemized. A major disbursement includes (1) any individual disbursement of $5,000 or more; or (2) total disbursements to any single entity or individual that aggregate to $5,000 or more during the reporting period. All other disbursements in these schedules are aggregated.

The Department proposes to renumber schedules 14 through 19 as schedules 23 through 30. (The two extra schedules are the result of dividing into two the schedules for Representational Activities and Political Activities and Lobbying.) As in the current Form LM-2, under these newly renumbered schedules, all “major” disbursements during the reporting period in the various categories would be separately identified. As proposed, a major disbursement would include (1) any individual disbursement of $5,000 or more or (2) total disbursements to any single entity or individual that aggregate to $5,000 or more during the reporting period. All other disbursements in these schedules would continue to be aggregated.

The Department seeks comment on whether to narrow, modify or eliminate a confidentiality exemption for reporting certain information.

C. Form LM-2 Revised

The Department proposes to revise Form LM-2. It would mirror the existing Form LM-2 except as follows. In new Item 3(d), the union would report whether it was in trusteeship. In new Item 10(b), the union would provide whether it has a trust and, if so, provide information on the trust. New Item 10(c) would require the labor organization to report whether certain officers or employees received payment from another labor organization. New 18(b) would require reporting of the date of the labor organization's constitution and bylaws.

Under this proposal, four schedules would be divided in two and become eight schedules. The Department proposes to divide Schedule 3—Sale of Investments and Fixed Assets into two schedules: New Schedule 3—Sale of Investments and new Schedule 4—Sale of Fixed Assets.

In the new Schedule 3—Sale of Investments, the Department proposes to add two new columns. The first new column, entitled “Name and Address of Purchaser or Financial Management Firm (A),” would disclose the purchasers of investments from the labor organization. A second column “Date (C)” would disclose the date of the sale. The other columns (Description (if land or buildings, give location); Cost; Book Value; Gross Sales Price; and Amount Received) would remain the same but would be designated with different letters, to accommodate the two new columns. The other columns (Description (if land or buildings, give location) (A); Cost (B); Book Value (C); Gross Sales Price (D); and Amount Received (E)) would remain the same but would be designated with different letters, to accommodate the two new columns.

The second of the two divided schedules would be the new Schedule 4—Sale of Fixed Assets. As in the case of new Schedule 3, the Department proposes to add two new columns to Schedule 4—Sale of Fixed Assets. The first new column entitled “Name and Address of Purchaser (A)” would disclose the purchasers of fixed assets from the labor organization. A second column “Date (C)” would disclose the date of the sale. In addition, the Department proposes that the union would be required to identify automobiles individually by make, model, year, and VIN. This information would be listed under existing Column A (Description).

Current Schedule 4 will also be divided. The Department proposes to divide Schedule 4—Purchase of Investments and Fixed Assets into two schedules: New Schedule 5—Purchase of Investments and new Schedule 6—Purchase of Fixed Assets. Under current Schedule 4—Purchase of Investments and Fixed Assets, a labor organization must report details of the purchases of U.S. Treasury securities, marketable securities, other investments, and fixed assets, including those fixed assets that were expensed. As with sale of investments and fixed assets, the Department proposes to break this schedule into two: New Schedule 5—Purchase of Investments and new Schedule 6—Purchase of Fixed Assets.

In the new Schedule 5—Purchase of Investments, the Department proposes to add two new columns. The first new column entitled “Name and Address of Seller or Financial Management Firm (A)” would disclose the identity of the seller of investments to the labor organization. A second new column “Date (C)” would disclose the date of the purchase.

Likewise, to new Schedule 6—Purchase of Fixed Assets, the Department proposes to add two new columns. The first new column entitled “Name and Address of Seller (A)” would disclose the identity of the seller of fixed assets to the labor organization. A second new column “Date (C)” would disclose the date of the purchase. In addition, the Department proposes that the union would be required to identify automobiles individually by make, model, year, and VIN. This information would be listed under existing Column A (Description).

The Department proposes to divide Schedule 15—Representational Activities into two, and renumber them Schedule 24 and Schedule 25. The first would be designated new Schedule 24—Contract Negotiation and Administration. The second would be new Schedule 25—Organizing.

In addition, Schedule 16—Political Activities and Lobbying would be renumbered and divided into two schedules. On new Schedule 26, labor organizations would report disbursements for political activities. On new Schedule 27, the labor organization would report lobbying disbursements.

The Department seeks comment on whether to raise the threshold for filing the Form LM-2 from its current $250,000 level to $300,000. Although the overwhelming majority (78.5%) of all reporting labor organizations are currently exempt from filing Form LM-2, changing the threshold to $300,000 would reduce the recordkeeping and reporting burden for approximately 273 labor organizations.

D. Hours To Complete and File Form LM-2 LF and LM-2 Reports

In sum, the proposed rule would create a new Form LM-2 LF, which the Department estimates would impose an additional 66.5 burden hours, for a total of 596.75 burden hours; the Form LM- 2 changes would impose an additional 16.5 burden hours, for a total of 546.5 hours.^[32]

The Form LM-2 LF

As explained, the Form LM-2 LF would establish 12 new schedules. In the 2003 Form LM-2 final rule, the Department estimated that the new disbursement schedules would result in 5 hours of new burden, 4.4 hours of recordkeeping burden, and 0.6 hours of reporting burden. See 68 FR 58439, Table 4 (Summary of Average Additional First Year Burden for the Revised Form LM-2). The Department applies this 5 hours per schedule burden to each of the 12 new schedules in the Form LM-2 LF, resulting in 60 additional reporting hours for the form. Additionally, while the proposed Form LM-2 LF would create new columns for benefits on the officer and employee schedules, the proposed changes would also remove the functional reporting requirements, resulting in no net gain in burden for those schedules.

In new Item 10(b), the union will provide whether it has a trust and, if so, provide information on the trust. New Item 10(c) will require the labor organization to report whether certain officers or employees received payment from another labor organization. New Item 11(c) will ask whether the union has a separate strike fund and, if so, provide information on the fund. New Item 18(b) will require reporting of the dates of the labor organization's current constitution and bylaws. Each one of these items will add .25 hours to the burden, resulting in an additional hour of burden.

In each of two new schedules, two new columns will be added. Each of these columns will add 0.50 hours of burden, for a total of two hours of additional burden.

Finally, experience with the Form LM-2 in previous rulemakings indicates that a labor organization 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. See the Form T-1 final rule, 85 FR 13435. In total, the Department estimates 596.75 burden hours for the new Form LM-2 LF (the 530 hours associated with the current Form LM-2 and the 66.75 hours associated with the additional schedules and reporting requirements).

Form LM-2

For the Form LM-2, the Department proposes adding four new schedules, at an estimated five burden hours per schedule or 20 total hours. However, the Department also proposes to eliminate functional reporting for the officer disbursements Schedule 11 and employee disbursement Schedule 12. The Department estimates that these changes result in 5 hours of burden savings per each of these forms, for a total of 10 hours of savings. Subtracting these 10 hours from the 20 hours resulting from the new schedules equals an estimated 10 additional burden hours for the Form LM-2.

In each of two schedules, two new columns will be added. Each of these columns will add 0.50 hours of burden, for a total of two hours of additional burden.

In new Item 10(b), the union will provide whether it has a trust and, if so, provide information on the trust. New Item 10(c) will require the labor organization to report whether certain officers or employees received payment from another labor organization. New 18(b) will require reporting of the dates of the labor organization's current constitution and bylaws. Each one of these items will add .25 hours to the burden, resulting in an additional 0.75 hours of burden.

Further, experience with the Form LM-2 in previous rulemakings indicates that a labor organization 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. See the Form T-1 final rule, 85 FR 13435. In total, the Department estimates an additional 16.5 burden hours for a total of 546.5 hours for the revised Form LM-2 (the 530 hours associated with the current Form LM-2 and the 16.5 hours associated with the additional schedules and reporting requirements).

E. Estimated Number of Form LM-2 LF, LM-2, LM-3, and LM-4 Reports

The Department currently estimates that it receives annually 22,175 Form LM-2, LM-3, and LM-4 reports (4,850 Form LM-2 reports, 10,600 Form LM-3 reports, and 6,725 Form LM-4 reports).^[33] The proposed rule would not add any new reports to this universe, although the Department does expect to see a change in the number of Form LM-2 reports received, with the addition of the Form LM-2 LF for those filers with total annual receipts of $8 million or more. The Department would expect to see a decrease in Form LM-2 reports, to 4,440 reports, since 410 of the current Form LM-2 reports derive from filers with $8 million or more in total annual receipts. Consequently, the Department would expect 410 Form LM-2 LF reports.

F. Total Burden Hours

The current Form LM-2 requires 530 burden hours; the current Form LM-3 requires 103 hours; and the current Form LM-4 requires 9 hours.^[34] In sum, the proposed rule would create a new Form LM-2 LF, which the Department estimates would impose 66.75 new burden hours, for a total of 596.75 additional burden hours; and the Form LM-2 changes would impose an additional 16.5 burden hours.

For the new Form LM-2 LF, since the Department estimates 410 reports submitted, the total recurring burden hours comes to 244,667.5 hours (410 reports × 596.75 hours per report). For the Form LM-2, since the Department estimates 4,440 revised reports submitted, the total additional, recurring burden hours comes to 73,260 hours (4,440 × 16.5).

The total additional, recurring burden hours imposed by the proposed rule is 317,927.5.

G. Conclusion

As the proposed rule requires an information collection, the Department is submitting, contemporaneous with the publication of this notice, an information collection request (ICR) to revise the Paperwork Reduction Act (PRA) clearance to address the clearance term. A copy of this ICR, with applicable supporting documentation, including among other items a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the RegInfo.gov website at http://www.reginfo.gov/​public/​do/​PRAViewICR?​ref_​nbr=​201907-1245-001 (this link will only become active on the day following publication of this document) or from the Department by contacting Andrew Davis on 202-693-0123 (this is not a toll-free number)/email: [e-mail].

Type of Review: Revision of a currently approved collection.

Agency: Office of Labor-Management Standards.

Title: Labor Organization and Auxiliary Reports.

OMB Number: 1245-0003.

Affected Public: Private Sector—labor organizations.

Total Estimated Number of Responses: 31,686.

Frequency of Response: Varies.

Estimated Total Annual Burden Hours: 4,472,819.

Estimated Total Annual Other Burden Cost: $0.

List of Subjects in 29 CFR Parts 402, 403, and 408

• Labor organization
• Trusts
• Reporting and recordkeeping requirements

Accordingly, for the reasons discussed in the preamble, the Department proposes to amend parts 402, 403, and 408 of title 29, chapter IV of the Code of Federal Regulations as set forth below:

PART 402—LABOR ORGANIZATION INFORMATION REPORTS

1. The authority citation for part 402 continues to read as follows:

Authority: Secs. 201, 207, 208, 73 Stat. 524, 529 (29 U.S.C. 431, 437, 438); Secretary's Order No. 03-2012, 77 FR 69376, November 16, 2012.

2. Amend § 402.5 by revising paragraph (a) to read as follows:

§ 402.5

Terminal reports.

(a) Any labor organization required to file reports under the provisions of this part, which ceases to exist by virtue of dissolution or any other form of termination of its existence as a labor organization, or which loses its identity as a reporting labor organization through merger, consolidation or otherwise, shall file a report containing a detailed statement of the circumstances and effective date of such termination or loss of reporting identity, and if the latter, such report shall also state the name and mailing address of the labor organization into which it has been consolidated, merged, or otherwise absorbed. Such report shall be submitted on Form LM-2 or Form LM-2 LF in connection with the terminal financial report required by § 403.5 and shall be signed by the president and treasurer, or corresponding principal officers, of the labor organization at the time of its termination or loss of reporting identity and, together with a copy thereof, shall be filed with the Office of Labor-Management Standards within 30 days of the effective date of such termination or loss of reporting identity, as the case may be.

* * * * *

PART 403—LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS

3. The authority citation for part 403 continues to read as follows:

Authority: Secs. 201, 207, 208, 301, 73 Stat. 524, 529, 530 (29 U.S.C. 431, 437, 438, 461); Secretary's Order No. 03-2012, 77 FR 69376, November 16, 2012.

4. Amend § 403.2 by revising paragraphs (d)(2), (d)(3) introductory text, and (d)(3)(i) through (iii) to read as follows:

§ 403.2

Annual financial report.

* * * * *

(d) * * *

(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. Only the parent labor organization (i.e., the national/international or intermediate labor organization) must file the Form T-1 report for covered trusts in which both the parent labor organization and its affiliates satisfy the financial or managerial domination test set forth in paragraph (d)(1)(i) of this section. The affiliates must continue to identify the trust in their Form LM-2 Labor Organization Annual Report or Form LM-2 LF Labor Organization Annual Report Long Form, and include a statement that the parent labor organization will file a Form T-1 report for the trust.

(3) No Form T-1 should be filed for any trust (or a plan of which the trust is part) that:

(i) Meets the statutory definition of a labor organization and already files a Form LM-2, LM-2 LF, Form LM-3, Form LM-4, or simplified LM report;

(ii) The LMRDA exempts from reporting;

(iii) Meets the definition of a subsidiary organization pursuant to Part X of the instructions for the Form LM-2 Labor Organization Annual Report or Part (X) of the instructions for the Form LM-2 LF Labor Organization Annual Report Long Form;

* * * * *

5. Revise § 403.3 to read as follows:

§ 403.3

Form of annual financial report—detailed report.

(a) Every labor organization shall, except as expressly provided otherwise in this part, file an annual financial report as required by § 403.2, prepared on United States Department of Labor Form LM-2, “Labor Organization Annual Report,” in the detail required by the instructions accompanying the form and constituting a part thereof.

(b) If a labor organization has gross annual receipts totaling $8,000,000 or more for its fiscal year it shall file the annual financial report called for in section 201(b) of the Act on United States Department of Labor Form LM-2 LF entitled “Labor Organization Annual Report Long Form,” in accordance with the instructions accompanying such form and constituting a part thereof.

6. Amend § 403.5 by revising paragraphs (a) and (b) to read as follows:

§ 403.5

Terminal financial report.

(a) Any labor organization required to file a report under the provisions of this part, which during its fiscal year loses its identity as a reporting labor organization through merger, consolidation, or otherwise, shall, within 30 days after such loss, file a terminal financial report with the Office of Labor-Management Standards, on Form LM-2, LM-2 LF, LM-3, or LM-4, as may be appropriate, signed by the president and treasurer or corresponding principal officers of the labor organization immediately prior to the time of its loss of reporting identity.

(b) Every labor organization which has assumed trusteeship over a subordinate labor organization shall file within 90 days after the termination of such trusteeship on behalf of the subordinate labor organization a terminal financial report with the Office of Labor-Management Standards, on Form LM-2 or Form LM-2 LF and in conformance with the requirements of this part.

* * * * *

7. Amend § 403.8 by revising paragraph (b)(1) to read as follows:

§ 403.8

Dissemination and verification of reports.

* * * * *

(b)(1) If a labor organization is required to file a report under this part using the Form LM-2 or Form LM-2 LF and indicates that it has failed or refused to disclose information required by the Form concerning any disbursement, or receipt not otherwise reported on Statement B, to an individual or entity in the amount of $5,000 or more, or any two or more disbursements, or receipts not otherwise reported on Statement B, to an individual or entity that, in the aggregate, amount to $5,000 or more, because disclosure of such information may be adverse to the organization's legitimate interests, then the failure or refusal to disclose the information shall be deemed “just cause” for purposes of paragraph (a) of this section.

* * * * *

PART 408—LABOR ORGANIZATION TRUSTEESHIP REPORTS

8. The authority to part 408 continues to read as follows:

Authority: Secs. 202, 207, 208, 73 Stat. 525, 529 (29 U.S.C. 432, 437, 438); Secretary's Order No. 03-2012, 77 FR 69376, November 16, 2012.

9. Revise § 408.5 to read as follows:

§ 408.5

Annual financial report.

During the continuance of a trusteeship, the labor organization which has assumed trusteeship over a subordinate labor organization, shall file with the Office of Labor-Management Standards on behalf of the subordinate labor organization the annual financial report and any Form T-1 reports required by part 403 of this chapter, signed by the president and treasurer or corresponding principal officers of the labor organization which has assumed such trusteeship, and the trustees of the subordinate labor organization on Form LM-2 or Form LM-2 LF.

10. Revise § 408.7 to read as follows:

§ 408.7

Terminal trusteeship financial report.

Each labor organization which has assumed trusteeship over a subordinate labor organization shall file within 90 days after the termination of such trusteeship on behalf of the subordinate labor organization a terminal financial report, and one copy, with the Office of Labor-Management Standards, on Form LM-2 or Form LM-2 LF and in conformance with the requirements of part 403 of this chapter.

Andrew D. Auerbach,

Acting Director, Office of Labor-Management Standards.

Note:

The following forms will not appear in the Code of Federal Regulations.

Footnotes

1.  In 2003, more than 71 percent of total compensation consisted of wages and salaries, with less than 29 percent representing benefits. See News Release on Employer Costs for Employee Compensation December 2003, Bureau of Labor Statistics, available at https://www.bls.gov/​news.release/​archives/​ecec_​02262004.pdf.

2.  U.S. v. Durden, Case No.17-cr-20406, 2018 WL 6198288 (E.D. Mich. Nov. 13, 2018), judgment amended 2020 WL 2151149 (E.D. Mich. Mar. 25, 2020); U.S. v. Iacobelli, Case No. 17-cr-20406, 2018 WL 4567268 (E.D. Mich. Sept. 13, 2018); U.S. v. Morgan, Case No. 17-cr-20406, 2018 WL 4567269 (E.D. Mich. July 19, 2018); U.S. v. King, Case No.17-cr-20406, 2018 WL 10667957 (E.D. Mich. Nov. 21, 2018), judgment amended 2019 WL 255638 (E.D. Mich. Jan. 2, 2019); U.S. v. Mickens, Case No. 17-cr-20406, 2018 WL 6198290 (E.D. Mich. Nov. 13, 2018); U.S. v. Johnson, Case No. 17-cr-20406, 2018 WL 7075322 (E.D. Mich. Dec. 28, 2018); U.S. v. Brown, Case No. 17-cr-20406, 2018 WL 6198289 (E.D. Mich. Nov. 13, 2018), judgment amended 2020 WL 1079963 (E.D. Mich. Jan. 8, 2020); U.S. v. Jewell, Case No.19-cr-20146, 2019 WL 4722945 (E.D. Mich. Aug. 7, 2019); U.S. v. Grimes, Case No. 19-cr-20520, 2020 WL 1942424 (E.D. Mich. Feb. 24, 2020); U.S. v. Pietrzyk, Case No. 19-cr-20630, 2019 WL 7667054 (E.D. Mich. Oct. 22, 2019); U.S. v. Ashton, Case No. 19-cr-20738, 2019 WL 7625626 (E.D. Mich. Nov. 6, 2019); U.S. v. Robinson, Case No. 19-cr-20726, 2020 WL 2612988 (E.D. Mich. Mar. 2, 2020); U.S. v. Pearson, Case No. 19-cr-20726, 2020 WL 2612990 (E.D. Mich. Feb. 7, 2020); U.S. v. Jones, Case No. 19-cr-20726, 2020 WL 1910242 (E.D. Mich. Feb. 27, 2020).

3.  The Department has recently created a new form, the Form T-1, for certain labor organization trusts as another means to combat union and management corruption and to prevent circumvention or evasion of the LMRDA reporting requirements. https://www.govinfo.gov/​content/​pkg/​FR-2020-03-06/​pdf/​2020-03958.pdf.

4.  As discussed, Forms LM-2, LM-3 and LM-4 are labor organization annual financial disclosure forms. The Form LM-10 Employer Report requires employers to file annual reports to disclose certain specified financial dealings with their employees, unions, union agents, and labor relations consultants.

The Form LM-20 Agreement and Activities Report requires that every person, including a labor relations consultant, who enters into an arrangement with an employer under which he or she undertakes activities where an object thereof is, directly or indirectly, to persuade employees about exercising their rights to organize and bargain collectively, or obtain information about the activities of employees or a union in connection with a labor dispute involving the employer (except information solely for administrative, arbitral, or court proceedings) must file an Agreement and Activities Report, Form LM-20.

Every person required to file a Form LM-20 also must file the annual Receipts and Disbursements Report, Form LM-21, if any payments were made or received during the fiscal year as a result of arrangements of the kind requiring the Form LM-20.

Pursuant to the instructions for the Form LM-30 Union Officer and Employee Report, labor organization officers or employees (other than exclusively clerical or custodial employees) who have directly or indirectly held any legal or equitable interest in, received any payments from, or engaged in any transactions or arrangements with certain employers or businesses must file a report with OLMS.

The Form T-1 was published, on March 6, 2020, and requires annual reporting by Form LM-2 filing labor organizations on financial information pertinent to “trusts in which a labor organization is interested” (“section 3(l) trusts”). See: https://www.govinfo.gov/​content/​pkg/​FR-2020-03-06/​pdf/​2020-03958.pdf. The rule requires a labor organization with total annual receipts $250,000 or more to file a Form T-1, under certain circumstances, for each section 3(l) trust, as defined by 29 U.S.C. 402(l) of the LMRDA. Under this rule, the Form T-1 reporting requirements are triggered where the labor organization during the reporting period, either alone or in combination with other labor organizations, (1) selects or appoints the majority of the members of the trust's governing board, or (2) contributes more than 50 percent of the trust's receipts.

5.  The current Form LM-4 does not contain schedules. Therefore, EFS does not have a function for importing electronic data into the Form LM-4.

6.  This questionnaire and the responses to it have been made part of the administrative record and will be available at the start of the comment period, along with the comments that will be filed by the public. Note: The first response included in the questionnaire was included as an example to demonstrate to the investigators what type of information was being sought.

7.  Pursuant to the instructions for the Form LM-10 Employer Report, employers must file annual reports to disclose certain specified financial dealings with their employees, unions, union agents, and labor relations consultants. Pursuant to the instructions for the Form LM-30 Union Officer and Employee Report, labor organization officers or employees (other than exclusively clerical or custodial employees) who have directly or indirectly held any legal or equitable interest in, received any payments from, or engaged in any transactions or arrangements with certain employers or businesses must file a report with OLMS. This report is submitted on a Form LM-30 and is required to make public any actual or likely conflict between the personal financial interests of union officers or employees and their obligations to the union and its members. Form LM-10 and LM-30 cases, along with several other case types, are called “special reports” cases.

8.  See prior footnote for discussion of the type of transactions that might trigger other LMRDA reports.

9.  In reflecting on this assertion, OLMS reviewed the instructions and finds that there is an adequate distinction between union administration (“includes disbursements relating to the nomination and election of union officers, the union's regular membership meetings, intermediate, national and international meetings, union disciplinary proceedings, the administration of trusteeships, and the administration of apprenticeship and member education programs”) and general overhead (“support personnel at the labor organization's headquarters, such as building maintenance personnel and security guards, and other overhead costs”).

10.  The investigator's recommendation is based on a faulty premise. Reporting of disbursements to employees and officers and the schedule next to their names would not eliminate the need for a schedule of benefits. The benefits schedule would still be needed to allow the labor organization to report its disbursements associated with benefits of members and their beneficiaries.

11.  The Form LM-15 Trusteeship Report requires both initial and semiannual reports. Initial reports are due within 30 days after a labor union imposes a trusteeship over a subordinate union. The form is filed by the parent union and it discloses the reasons for the trusteeship, when it was established, the financial condition of the trusteed union at the time the trusteeship was established, and other required information. Semiannual reports are due within 30 days after the end of each 6-month period for the duration of the trusteeship. The parent union must file a semiannual report, on Form LM-15, explaining its reasons for continuing the trusteeship.

Form LM-15A must be filed with a semiannual or terminal trusteeship report if, during the period covered by the report, there was any convention or other policy-determining body to which the subordinate union sent delegates or would have sent delegates if not in trusteeship, or any election of officers of the union that imposed the trusteeship over the subordinate union.

Within 90 days after the termination of the trusteeship, or the loss of identity as a reporting organization by the trusteed union, the parent union must file a Terminal Trusteeship Report, Form LM-16.

12.  Current Item 69—Additional Information is proposed to be renumbered Item 75—Additional information, with no substantive change. For clarity, we use the proposed numbering here.

13.  The Department's threshold increase to $7,500 will apply only to Schedule 1—Accounts Receivable Aging Schedule and Schedule 8 (proposed to be renumbered as Schedule 10)—Accounts Payable Aging Schedule. The other schedule thresholds will remain at $5,000.

14.  For investments sold over a registered exchange, no purchaser identity would be required. This exception is for bona fide market transactions over a registered securities exchange.

15.  The BCTD is now known as NABTU, for the North America's Building Trades Union.

16.  A 501(c)(3) tax exempt organization is subject to restrictions on lobbying and political activities. 26 U.S.C. 501(c)(3). Engaging in any political activities may result in revocation of tax-exempt status, and imposition of certain excise taxes. Lobbying may not represent a “substantial part” of the activities of an organization exempt under Section 501(c)(3). Under the substantial part test, codified in part in Section 1.501(c)(3)-1(c)(3)(ii) of the Treasury Regulations, an organization's tax-exempt status will not be at risk because of lobbying unless it exceeds the “substantial part” limitation.

17.  Form 990, Schedule F, is used by an organization that files Form 990, Return of Organization Exempt From Income Tax, to provide information on its activities conducted outside the United States by the organization at any time during the tax year. Activities conducted outside the United States include grants and other assistance, program-related investments, fundraising activities, unrelated trade or business, program services, investments, or maintaining offices, employees, or agents for the purpose of conducting any such activities in regions outside the United States. See Instructions for Form 990, Schedule F.

18.  See e.g., Ala. Code §§ 25-8-57, 36-26A-1 to -26A-7; Alaska Stat. Ann. §§ 18.60.089, 18.60.095, 39.90.100-150; Ariz. Rev. Stat. Ann. §§ 23-425, 38-531-534; Ark. Code Ann. § 16-123-108; Cal. Lab. Code § 1102.5-1106; Colo. Rev. Stat. §§ 24-50.5-101 to -107, 24-114-101 to-103; Conn. Gen. Stat. §§ 4-61dd(e), 31-51m; Del. Code Ann. §§ 5115, 1701-1708; Fla. Stat. §§ 112.3187-.31895; Ga. Code Ann. § 45-1-4; Haw. Rev. Stat. §§ 378-61 to -69; Idaho Code Ann. § 6-2101 to -2109; 20 Ill. Comp. Stat. 415/19c.1, 740 Ill. Comp. Stat. 174/10-174/40; Ind. Code §§ 4-15-10-4, 22-5-3-3, 36-1-8-8; Iowa Code Ann. §§ 70A.28-.29; Kan. Stat. Ann. § 75-2973; Ky. Rev. Stat. Ann. §§ 61.101-.103, 338.121, 338.991; La. Rev. Stat. §§ 30:2027, 42:1169; Me. Rev. Stat. Ann. tit. 26 §§ 831-840; Md. Code Ann. State Personnel and Pensions §§ 5-301 to -314, State Finance and Procurement § 11-301 to -306; Mass. Gen. Laws ch. 149 § 185; Mich. Comp. Laws § 15.361-.369; Miss. Code Ann. §§ 25-9-171 to -177; Mo. Rev. Stat. § 105.055; Neb. Rev. Stat. §§ 81-2701 to -2711, 48-1114; Nev. Rev. Stat. §§ 281.611-.671, 618.445; N.H. Rev. Stat. Ann. §§ 98-E:1-4, 275-E:1-9; N.J. Stat. Ann. §§ 34:19-1 to -14; N.M. Stat. Ann. § 50- 9-25, 10-16C-1 to -6; N.Y. Labor Law §§ 740, 741, N.Y. Civ. Serv. Law § 75-b(2); N.C. Gen. Stat. §§ 126-84 to -88; N.D. Cent. Code § 34-11.1-04; Ohio Rev. Code §§ 124.341, 4113.52; Okla. Stat. tit. 74 § 840-2.5; Or. Rev. Stat. §§ 654.062, 659A.199-.236; R.I. Gen. Laws §§ 28-50-1 to -9; S.C. Code Ann. §§ 8-27-10 to -60, 41-15-510 to -520; Tenn. Code Ann. §§ 50-1-304, 50-3-106, 50-3-106, 8-50-116; Tex. Gov't Code Ann. §§ 554.001-.010, Tex. Lab. Code Ann. § 21.055; Utah Code Ann. §§ 67-21-1 to -10; Vt. Stat. Ann. tit. 3, §§ 971-978, tit. 21, § 231; Wash. Rev. Code §§ 42.40.010-.910, 49.60.210(2); W. Va. Code § 6C-1-1 to -8, 21-3A-13; Wis. Stat. §§ 230.80-.89; Wyo. Stat. Ann. §§ 9-11-103, 27-11-109(e). See Robert J. Nobile, Human Resources Guide, § 5:169 (selected state whistleblower statutes) (July 2020 update).

19.  The Department notes below where variations between the proposed Form LM-2 LF and the proposed Form LM-2 exist.

20.  See 58 FR 51735 (October 4, 1993).

21.  In estimating “familiarization” time, an individual is not expected to read the instructions to the form, which would take more than 15 minutes. Rather, the individual would need only determine what the rule does, generally, and whether it applies to a particular organization. This information will be easily gleaned from the OLMS website and other compliance assistance materials. The non-recurring reporting and recordkeeping burden (e.g., for the LM-2 LF, the 32.5 hours in nonrecurring recordkeeping burden and 44.3 in nonrecurring reporting burden hours) would include time reading the instructions.

22.  For more details, see the Paperwork Reduction Act section below.

23.  According to the Employment Cost Index, total compensation increased by approximately 2.8 percent annually from 2018 to 2019, see https://data.bls.gov/​timeseries/​CIU1010000000000A.

24.  See 2019 Bureau of Labor Statistics (BLS) data available at: https://www.bls.gov/​oes/​2019/​may/​oes_​nat.htm.

25.  The weighted average calculates the wage rate per hour weighted according to the percentage of time that the Form LM-2's completion will demand of each official/employee: 90 percent of the Form LM-2 burden hours will be completed by an accountant, 5 percent by the bookkeeper, 4 percent by the union's treasurer/secretary-treasurer, and 1 percent by the union president.

26.  The use of 1.63 accounts for 17 percent for overhead and 46 percent for fringe. In the case of the 46 percent for fringe, see the following link to BLS data showing that wages and salaries represent 68.6 percent (.686) of compensation (https://www.bls.gov/​news.release/​ecec.t02.htm). Dividing total compensation by the 68.6 percent represented by wages and salaries is equivalent to a 1.46 multiplier. Adding a 17 percent multiplier (.17) for overhead equals 1.63.

27.  See https://www.sba.gov/​document/​support--table-size-standards.

28.  According to the Employment Cost Index, total compensation increased by approximately 2.8 percent annually from 2018 to 2019, see https://data.bls.gov/​timeseries/​CIU1010000000000A.

29.  See 2019 Bureau of Labor Statistics (BLS) data available at: https://www.bls.gov/​oes/​2019/​may/​oes_​nat.htm.

30.  The weighted average calculates the wage rate per hour weighted according to the percentage of time that the Form LM-2's completion will demand of each official/employee: 90 percent of the Form LM-2 burden hours will be completed by an accountant, 5 percent by the bookkeeper, 4 percent by the union's treasurer/secretary-treasurer, and 1 percent by the union president.

31.  The use of 1.63 accounts for 17 percent for overhead and 46 percent for fringe. In the case of the 46 percent for fringe, see the following link to BLS data showing that wages and salaries represent 68.6 percent (.686) of compensation (https://www.bls.gov/​news.release/​ecec.t02.htm). Dividing total compensation by the 68.6 percent represented by wages and salaries is equivalent to a 1.46 multiplier. Adding a 17 percent multiplier (.17) for overhead equals 1.63.

32.  Additionally, the Department estimates that all Form LM-2 and Form LM-2 LF filers would face a one-time 15-minute familiarization burden. See the Form T-1 final rule at 85 FR 13437. Further, the Department estimates that these filers would face 32.5 hours in nonrecurring recordkeeping burden and 44.3 in nonrecurring reporting burden hours, in order to adapt accounting systems for new and revised schedules. See the 2003 Form LM-2 final rule, 68 FR 58439, Table 4.

33.  See OLMS Historical Filing Data at https://www.dol.gov/​olms/​regs/​compliance/​filing_​data.htm. The Department averaged reports received over the five-year period, FYs 15-19.

34.  See the Form LM-2, LM-3, and LM-4 Instructions at https://www.dol.gov/​olms/​regs/​compliance/​LM2_​3_​4.htm.