E8-10151. Labor Organization Annual Financial Reports

AGENCY:

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

ACTION:

Notice of proposed rulemaking; request for comments.

SUMMARY:

The Department of Labor's Employment Standards Administration (“ESA”) proposes to: make several revisions to the current Form LM-2 (used by the largest labor organizations to file their annual financial reports) that will provide additional information on Schedules 3, 4, 11 and 12, clarify reporting under certain functional categories and add itemization schedules corresponding to categories of receipts; and establish a procedure and standards by which the Secretary of Labor may revoke a particular labor organization's privilege to file a simplified annual report, Form LM-3, where appropriate, after investigation, due notice, and opportunity for a hearing. The proposed changes are made pursuant to section 208 of the Labor-Management Reporting and Disclosure Act (“LMRDA”). The proposed rule will apply prospectively.

DATES:

Comments must be received on or before June 26, 2008.

ADDRESSES:

You may submit comments, identified by RIN 1215-AB62, only by the following methods:

Internet—Federal eRulemaking Portal. Electronic comments may be submitted through http://www.regulations.gov. To locate the proposed rule, use key words such as “Labor-Management Standards” or “Labor Organization Annual Financial Reports” to search documents accepting comments. 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.

Mail: Mailed comments should be sent to: Kay H. Oshel, Director of the Office of Policy, Reports and Disclosure, Office of Labor-Management Standards, U.S. Department of Labor, 200 Constitution Avenue, NW., Room N-5609, Washington, DC 20210.

Because of security precautions the Department continues to experience delays in U.S. mail delivery. You should take this into consideration when preparing to meet the deadline for submitting comments.

The Office of Labor-Management Standards (“OLMS”) recommends that you confirm receipt of your mailed comments by contacting [phone] (this is not a toll-free number). Individuals with hearing impairments may call [phone] (TTY/TDD).

Only those comments submitted through http://www.regulations.gov, hand-delivered, or mailed will be accepted.

Comments will be available for public inspection during normal business hours at the above address.

FOR FURTHER INFORMATION CONTACT:

Kay H. Oshel, Director of the Office of Policy, Reports and Disclosure, at: Kay H. Oshel, U.S. Department of Labor Employment Standards Administration, Office of Labor-Management Standards, 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

This proposed rule is issued pursuant to section 208 of the LMRDA, 29 U.S.C. 438. Section 208 authorizes the Secretary of Labor to issue, amend, and rescind rules and regulations to implement the LMRDA's reporting provisions. Secretary's Order 4-2007, issued May 2, 2007, and published in the Federal Register on May 8, 2007 (72 FR 26159), contains the delegation of authority and assignment of responsibility for the Secretary's functions under the LMRDA to the Assistant Secretary for Employment Standards and permits re-delegation of such authority. The proposal implements section 201 of the LMRDA, which requires covered labor organizations to file annual, public reports with the Department, identifying the labor organization's assets and liabilities, receipts, salaries and other direct or indirect disbursements to each officer and all employees receiving $10,000 or more in aggregate from the labor organization, direct or indirect loans (in excess of $250 aggregate) to any officer, employee, or member, loans (of any amount) to any business enterprise, and other disbursements during the reporting period. 29 U.S.C. 431(b). The statute requires that such information shall be filed “in such detail as may be necessary to disclose [a labor organization's] financial conditions and operations.” Id.

Section 208 authorizes the Secretary to establish “simplified reports for labor organizations or employers for whom [s]he finds that by virtue of their size a detailed report would be unduly burdensome.” Section 208 also authorizes the Secretary to revoke this privilege for any labor organization or employer if the Secretary determines, after such investigation as she deems proper and due notice and opportunity for a hearing, that the purposes of section 208 would be served by revocation.

II. Background

A. Introduction

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 and information to maintain democratic control over their labor organizations and ensure a proper accounting of labor organization funds. Labor organization members are better able to monitor their labor organization's financial affairs and to make informed choices about the leadership of their labor organization and its direction when they receive the financial information required by the LMRDA. By reviewing the reports, a member may ascertain the labor organization's priorities and whether they are in accord with the member's own priorities and those of fellow members. At the same time, this transparency promotes both the labor organization's own interests as democratic institutions and the interests of the public and the government. Furthermore, the LMRDA's reporting and disclosure provisions, together with the fiduciary 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 making improper use of such funds or embezzling assets.

In its continuing effort to achieve these goals, the Department proposes: first, to modify and improve the Form LM-2 by requiring additional information about the receipt and disbursement of labor organization funds; and second, to establish standards and procedures for revoking, where appropriate, the privilege afforded some labor organizations to file simplified annual reports, after investigation, due notice, and opportunity for a hearing.

The proposed rule brings the reporting requirements for labor organizations in line with contemporary expectations for the disclosure of financial information. Today labor organizations are more like modern corporations in their structure, scope, and complexity than the labor organizations of 1959.^[1] Further, as benefits have become a larger component of compensation, information about such benefits has become more important to members.^[2] Moreover, labor organization members today are better educated, more empowered, and more familiar with financial data and transactions than ever before. As labor organization members, no less than as consumers, citizens, or creditors, they expect access to relevant and useful information in order to make fundamental investment, career, and retirement decisions, evaluate options, and exercise legally guaranteed rights.

In August and September of 2007, Department officials met with representatives of the community that would be affected by the proposed changes, including officials of labor organizations and their legal counsel, to hear their views on the need for reform and the likely impact of changes that might be made. The Department developed its proposal with these discussions in mind and it requests comments from this community and other members of the public on any and all aspects of the proposal.

B. The LMRDA's Reporting and Other Requirements

In enacting the LMRDA in 1959, a bipartisan Congress made the legislative finding that in the labor and management fields “there have been a number of instances of breach of trust, corruption, disregard of the rights of individual employees, and other failures to observe high standards of responsibility and ethical conduct which require further and supplementary legislation that will afford necessary protection of the rights and interests of employees and the public generally as they relate to the activities of labor organizations, employers, labor relations consultants, and their officers and representatives.” 29 U.S.C. 401(a). The statute was designed to remedy these various ills through a set of integrated provisions aimed at labor organization governance and management. These include a “bill of rights” for labor organization members, which provides for equal voting rights, freedom of speech and assembly, and other basic safeguards for labor organization democracy, see 29 U.S.C. 411-15; financial reporting and disclosure requirements for labor organizations, their officers and employees, employers, labor relations consultants, and surety companies, see 29 U.S.C. 431-36, 441; detailed procedural, substantive, and reporting requirements relating to labor organization trusteeships, see 29 U.S.C. 461-66; detailed procedural requirements for the conduct of elections of labor organization officers, see 29 U.S.C. 481-83; safeguards for labor organizations, including bonding requirements, the establishment of fiduciary responsibilities for labor organization officials and other representatives, criminal penalties for embezzlement from a labor organization, a prohibition on certain loans by a labor organization to officers or employees, prohibitions on employment and officeholding of certain convicted felons in a labor organization, and prohibitions on payments to employees, labor organizations, and labor organization officers and employees for prohibited purposes by an employer or labor relations consultant, see 29 U.S.C. 501-05; and prohibitions against extortionate picketing, retaliation for exercising protected rights, and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529, 530.

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. In 1957, the committee began a highly publicized investigation of labor organization racketeering and corruption; and its findings of financial abuse, mismanagement of labor organization funds, and unethical conduct provided much of the impetus for enactment of the LMRDA's remedial provisions. See generally Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of 1959, 73 Harv. L. Rev. 851, 851-55 (1960). During the investigation, the committee uncovered a host of improper financial arrangements between officials of several international and local labor organizations and employers (and labor consultants aligned with the employers) whose employees were represented by the labor organizations in question or might be organized by them. See generally Interim Report of the Select Committee on Improper Activities in the Labor or Management Field, S. 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 was conceived as a partial remedy for these improper practices. As noted in a key Senate Report on the legislation, disclosure would discourage questionable practices (“The searchlight of publicity is a strong deterrent.”); aid labor organization governance (Labor organizations will be able “to better regulate their own affairs. The members may vote out of office any individual whose personal financial interests conflict with his duties to members.”); facilitate legal action by members against “officers who violate their duty of loyalty to the members”; and create a record (The reports will furnish a “sound factual basis for further action in the event that other legislation is required.”). S. Rep. No. 187 (1959), at 16, reprinted in 1 NLRB Legislative History of the Labor-Management Reporting and Disclosure Act of 1959, at 412.

The Department has developed several forms for implementing the LMRDA's financial reporting requirements. The annual reports required by section 201(b) of the Act, 29 U.S.C. 431(b) (Form LM-2, Form LM-3, and Form LM-4), 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.^[3] The reporting detail required of labor organizations, as the Secretary has established by rule, varies depending on the amount of the labor organization's annual receipts. 29 CFR 403.4.

Labor organizations with annual receipts of at least $250,000 and all labor organizations in trusteeship (without regard to the amount of their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4. This form may be filed voluntarily by any other labor organization. The Form LM-2 requires receipts and disbursements to be reported by functional categories, such as representational activities; political activities and lobbying; contributions, gifts, and grants; union administration; and benefits. Further, the form requires filers to allocate the time their officers and employees spend according to functional categories, as well as the payments that each of these officers and employees receive, and it compels the itemization of certain transactions totaling $5,000 or more. This form must be electronically signed and filed with the Department.^[4]

Forms LM-3 and LM-4 were developed by the Secretary to meet the LMRDA's charge that she develop “simplified reports for labor organizations and employers for whom [s]he finds by virtue of their size a detailed report would be unduly burdensome,” 29 U.S.C. 438. A labor organization not in trusteeship that has total annual receipts less than $250,000 for its fiscal year may elect, “subject to revocation of the privilege,” to file Form LM-3 instead of Form LM-2. See 29 CFR 403.4(a)(1).^[5] The Form LM-3 is a five-page document requiring labor organizations to provide particularized information by certain categories, but in less detail than Form LM-2. A labor organization not in trusteeship that has total annual receipts less than $10,000 for its fiscal year may elect, “subject to revocation of the privilege,” to file Form LM-4 instead of Form LM-2 or Form LM-3. 29 CFR 403.4(a)(2). The Form LM-4 is a two-page document that requires a labor organization to report only the total aggregate amounts of its assets, liabilities, receipts, disbursements, and payments to officers and employees.

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 at its national office in Washington, DC ^[6] where copies of such reports filed with OLMS may be reviewed and; (2) an online public disclosure site, www.unionreports.gov,, where copies of such reports filed since the year 2000 are available for the public's review.

III. Proposal

A. Proposal To Improve the Form LM-2

1. Introduction

The Department is proposing further enhancements to the Form LM-2 for the purpose of clarifying reporting and providing additional information to labor organization members and the public about the financial activities of labor organizations. The proposed enhancements provide additional information in Schedule 3 (Sale of Investments and Fixed Assets) and Schedule 4 (Purchase of Investments and Fixed Assets) that will allow verification that these transactions are performed at arm's length and without conflicts of interest. Schedules 11 and 12 will be revised to include the value of benefits paid to and on behalf of officers and employees. This will provide a more accurate picture of total compensation received by labor organization officers and employees. In addition, the proposed changes will require the reporting on Schedules 11 and 12 of travel reimbursements indirectly paid on behalf of labor organization officers and employees.

This proposed change will provide more accurate information on travel disbursements for labor organization officers and employees. The proposed enhancements also include additional schedules corresponding to the following categories of receipts: Dues and Agency Fees; Per Capita Tax; Fees, Fines, Assessments, Work Permits; Sales of Supplies; Interest; Dividends; Rents; On Behalf of Affiliates for Transmittal to Them; and From Members for Disbursement on Their Behalf. These schedules will provide additional information, by receipt category, of aggregated receipts of $5,000 or more. The $5,000 threshold for itemization is used throughout the Form LM-2. This proposed change is consistent with the information currently provided on disbursements. The Department also requests comment from the public regarding the appropriateness of the current functional disbursement categories in the Form LM-2. Comment is sought on whether changes should be made to these sections in order to improve their usability to members of labor organizations and the public. Form LM-2 is filed by approximately 18.5 percent of the reporting labor organizations, i.e., those with $250,000 or more in total annual receipts. Finally, the Department proposes to amend the Form LM-2 instructions to conform to the requirements for the proposed Form T-1.

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 reviewing data from reports filed on the revised form, the Department believes that further enhancements to Form LM-2 are necessary. The proposed enhancements, as more fully described below, will ensure that information is reported in such a way as to meet the objectives of the LMRDA by providing labor organization members with useful data that will enable them to be responsible and effective participants in the democratic governance of their labor organizations. The proposed changes are designed to provide members of labor organizations with additional and more detailed information about the financial activities of their labor organization that is not currently available through the Form LM-2 reporting. Moreover, experience with the software and technology developed for the 2003 revisions show that it is possible to provide the level of detail necessary to give labor organization members a more accurate picture of their labor organization's financial condition and operations without imposing an unwarranted burden on reporting labor organizations. When a final rule is promulgated based on this notice of proposed rulemaking the Department will revise the Form LM-2 software currently in use by Form LM-2 filers to conform to any changes made in the final rule and will make it available to filers without charge.

These proposed changes are consistent with the goals of the LMRDA and its legislative history as discussed above and in connection with the Department's 2002 NPRM and 2003 Final Rule. The reasons underlying the proposed revisions to the Form LM-2 are discussed section by section below.

2. The Proposed Revisions to the Form LM-2 and Instructions

The following is a “section-by-section” discussion of the sections, items and schedules on the proposed revised Form LM-2 and instructions:

Items 1-21. These sections on the form are unchanged.^[7]

Statement A. This statement is unchanged.

Statement B. Receipts and Disbursements: This statement currently contains two primary columns, one with the heading “Cash Receipts” and one with the heading “Cash Disbursements.” Under each heading are items listed that describe categories of receipts or disbursements that should be reported. There are no proposed changes to the items listed under “Cash Receipts.” As discussed below, however, the Department proposes additional schedules to correspond to items listed under “Cash Receipts” for which currently no schedules exist. As a result of these changes, the remaining cash disbursement items will be renumbered on Statement B. The proposed new form, including the new numbering system for the cash disbursement items can be found in the appendix to this proposed rule.

Schedules 1-2. These schedules are unchanged.

Schedule 3—Sale of Investments and Fixed Assets: The Department proposes to add two new columns to Schedule 3. The first new column entitled “Name and Address of Purchaser (A)” will disclose the purchasers of investments and fixed assets from the labor organization, if in the aggregate the sales amount to $5,000 or more per purchaser. A second column “Date (C)” will disclose the date of the sale. These additions will provide members with information necessary to verify that the sale was transacted at market price and at arm's length, thereby helping prevent interested parties from unjustly enriching themselves by purchasing labor organization assets at below-market price. The Department believes that Schedules 3 and 4 of the current Form LM-2 (the latter discussed below) do not provide labor organization members with adequate information to enable them to determine whether a particular purchase or sale of an investment or asset was transacted at market price and at arm's length. For instance, one labor organization in its latest Form LM-2 reported that it had sold a “John Deere Lawn Tractor, Trailer and Mower” for $678, even though this asset had a book value and cost of $18,000. Another labor organization reported that it had sold automobiles that had a book value of $57,997, a “real estate investment trust” that had a book value of $25,735, and furniture and equipment with a book value of $7,634. For each of these items, the union listed the sale price as $0. This same labor organization sold corporate stocks with a book value of $29,570,505 for $34,297,627. Another union sold a Ford Explorer for $9,252 that had a book value of $23,471. In all these situations, labor organization members would be unable to determine whether the labor organization received fair market value for the items that it sold, whether an insider benefited from these transactions, or whether the union's officials are properly managing the labor organization's finances. The book value of an asset is the value at which the investment or fixed asset was shown on the labor organization's books. The value of certain assets such as stocks can vary greatly within the fiscal year. Because the date of sales is not listed on the current Form LM-2, a labor organization member is unable to determine whether the labor organization received good value on the sale transaction. The stock on the day of the sale may have been worth much more than its book value. In this scenario, a labor organization member would be unable to determine whether the stocks were sold by the labor organization at market value. The labor organization's financial report filed on the current Form LM-2 would show this transaction as a profit for the labor organization, but the transaction could also have been detrimental to the labor organization if the asset was sold at a price below current market value. The proposed changes will help ensure disclosure of any potential conflicts of interest between the purchaser and the labor organization. The schedule will total all individually itemized transactions and will provide the sum of the sales by itemized individual purchasers and the sum of all non-itemized sales of investments and fixed assets, as well as the total of all sales. The Department estimates that this proposed change would impose a recurring burden on labor organizations of .51 hours per year. See the Department's initial Paperwork Reduction Act (“PRA”) analysis below; see also Table 2 below.

Schedule 4—Purchase of Investments and Fixed Assets: The Department proposes to add two new columns to Schedule 4. The first new column entitled “Name and Address of Seller” will disclose the identity of the seller of investments and fixed assets to the labor organization, if in the aggregate the sales amount to $5,000 or more per seller. A second new column will disclose the date of the purchase. These changes will provide information to allow members to verify that all such sales were transacted at market price and at arm's length, thereby helping to prevent parties from unjustly enriching themselves by selling assets 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 millions of dollars of the labor organization members' money. For instance, one labor organization listed on one line of its report disbursements of $789,369,139, another labor organization reported disbursements of $313,978,214, and another labor organization reported disbursements of $156,544,561. Labor organizations also report smaller amounts on this schedule. For instance, three labor organizations reported disbursements of $5,353, $5,350, and $6,952 on this schedule. None of the reports disclose the parties that sold these assets to these labor organizations. As such, the members of these labor organizations are not in a position to know whether these sums of money were well spent. The proposed changes help ensure the disclosure of any potential conflicts of interest between the seller and the labor organization. The schedule will total all individually itemized transactions and will 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. As discussed below in the Department's initial PRA analysis, the Department estimates that this proposed change would impose a recurring burden on labor organizations of .56 hours per year. See Table 2 below.

Schedules 5-10. These schedules are unchanged.

Schedule 11—All Officers and Disbursements to Officers: The Department proposes two substantive changes to the categories of disbursements reported on this schedule. First, an exception to the reporting of indirect disbursements will be eliminated and, therefore, both direct and indirect payments on behalf of the officer for travel expenses will be reported on Schedule 11. 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. For example, when a union, through its credit arrangements, is billed directly and pays the airline bills of an officer, the union will have to include this amount as part of the disbursements made to the particular officer.

The instructions to the current Form LM-2 except from reporting on Schedule 11:

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 labor organization directly to the provider or through a credit arrangement and these disbursements are reported in disbursement Schedules 15 through 19.

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 faced by unions in then reconstructing documentation for certain payments for their prior fiscal year. Because of this difficulty, organizations were allowed to report such disbursements as functional expenses of the organization rather than as disbursements to particular officials. This distinction remained in the instructions and was not revisited by DOL despite changes in data reporting and record retention methods over the intervening decades. This issue was not addressed in the 2002-2003 rulemaking. The Department proposes to eliminate this distinction. Disbursements for temporary lodging and transportation made directly to the labor organization officer by the labor organization are reported on Schedule 11; however, the exemption applies if the labor organization pays the vendor directly for the travel. This distinction does not serve the purpose of section 201(b)(3) of the LMRDA, 29 U.S.C. 431(b)(3), which calls for reporting of “other direct or indirect disbursements (including reimbursed expenses) to each officer and also to each employee. * * *” Under the current instructions, however, these indirect disbursements are not attributed to the labor organization officer.

That payment for an official's travel and lodging expenses is made by credit card and 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 will not appear on the Form LM-2, members will have a better understanding of the total amount of disbursements made to or on behalf of a particular official. Through this more complete reporting, members of the labor organization will be better able to determine whether such disbursements warrant further scrutiny, including review of the underlying documentation maintained by the labor organization.

As discussed below in the Department's initial PRA analysis, the Department believes that the proposed elimination of this exception will result in a recurring burden of .19 hours per respondent.

Second, a new column will be added to Schedule 11 to allow disclosure of benefits disbursements for the labor organization official. Columns “(A)” through “(E)” will remain unchanged. Column “(F)” will be redesignated “Benefits.” This is the only new column on the schedule requiring disclosure of additional information. Column “(G)” will be redesignated “Disbursements for Official Business.” Column “(H)” will be redesignated “Other Disbursements not reported in (D) through (G).” Column “(I)” will be added for “Total.”

The current Form LM-2 does not provide sufficient information on disbursements made to or on behalf of officers. Benefit disbursements include, for example, disbursements for life insurance, health insurance, and pensions. Labor organization members should be provided information on benefits disbursed to or on behalf of officers because benefits received by officers may be an important part of the compensation package provided by the labor organization. Reporting benefits disbursed in the aggregate on Schedule 20 does not provide labor organization members and the public with a complete picture of compensation received by labor organization officers. For example, one local in its 2005 Form LM-2 listed $491,252 for “Officer's Union Fringes” even though the labor organization had fewer than ten full-time officers. Unfortunately, a member of a labor organization has no way of knowing, for example, if these benefits were evenly distributed among the officers, or if one officer received $400,000 and the other eight officers split the remaining $91,252. Under the proposal, rather than report fringe benefits in the aggregate on the current Schedule 20, the labor organization will report the benefits on Schedule 11 by individual labor organization officer.

In another instance, a labor organization reported payments of $49,542 to “Various Companies” for “Benefits Administration” and payments of $64,219 to “Various School Districts” for “Benefits paid on behalf of officers.” Another labor organization reported on its Form LM-2 total disbursements of $461,971, $460,203, and $244,780 to certain individual officers. This disclosure did not take into account that these same officers and employees also received $181,297, $184,397, and $161,240 respectively as contributions to their employee benefit plans. These benefits payments were disclosed to the IRS but do not appear itemized by officers and employees on the Form LM-2. While labor organization members aware of the IRS data may be able to obtain this information about the compensation packages received by labor organization officers and employees, the Department's proposal will provide all members with ready access to this information in a single database.

Under the current Form LM-2, such benefits payments are not required to be reported as having been made to or on behalf of a specific officer. Requiring that the aggregate amounts of benefits disbursements appear next to the name of each labor organization officer and employee, when applicable, will result in labor organizations better informing their members how their monies have been spent. The above examples demonstrate that the current Form LM-2 fails to provide a full accounting of labor organizations' disbursements to their officials. The current Form LM-2 allows benefits payments made to or on behalf of officers to be lumped together with general benefits paid to members in Schedule 20. With such large disbursements listed in one category, it is impossible for labor organization members to ascertain what benefits are being paid to labor organization officers and employees. The Department believes that combining these disbursements into a single schedule does not adequately inform labor organization members and the public regarding benefits paid to labor organization officers, and thus in this area the full reporting mandate of the LMRDA is not fulfilled.

As discussed below in the Department's initial PRA analysis, the Department believes that the addition of the benefits column to Schedule 11 will add an estimated recurring burden of .49 hours for officers See Table 3 below. Currently, labor organizations track benefit disbursements to officers for the IRS Form 990. Therefore, the only additional burden labor organizations will incur for Schedule 11 is the time required to enter the sum each officer received in benefits next to each officer's name on the Form LM-2. Furthermore, the proposed changes are consistent with the level of disclosure required in other contexts for executive and employee compensation.^[8] Moreover, the need for greater transparency in compensation packages applies equally well to employees and not simply officers. Accordingly, the reasons discussed above apply to Schedule 12 below as well.

The Department recognizes that in the 2003 Form LM-2 Final Rule a decision was made to aggregate the benefits on Schedule 20 (Benefits) citing privacy considerations. See 68 FR 58374, 58387, 58399, 58426 (Oct. 9, 2003). The Department believes that its proposal to add a benefits column to Schedule 11 (and 12) in the manner described above will preserve the privacy of the individuals. Recognizing privacy implications, the Department in this NPRM is not proposing to require labor organizations to itemize individual payments made to their officers and employees. Rather the Department proposes that labor organizations disclose the total sum paid directly or indirectly to each officer and employee. This level of disclosure balances the need to disclose total compensation packages against the need to protect the privacy of individuals receiving certain payments.

The balance struck by this proposal will ensure that proper disclosure occurs, without disclosing private information to the general public, such as whether a particular officer or employee received an indirect payment for medical treatment. In fact, under the proposal a labor organization member reading the report will not be able to ascertain what types of benefits labor organization officers and employees receive, only the total value of these benefits. For instance, if a labor organization officer received a matching contribution to a 401(k) plan in the amount of $5,000, indirect payment of health insurance premiums in the amount of $6,700, and a health club membership in the amount of $1,200, the labor organization's Form LM-2 would disclose that this officer received a total of $12,900 in benefits. The individual payments will not be itemized, thus protecting the official's privacy interests. The labor organization, however, is required to provide such information to the Department of Labor upon its request or to permit a member of the labor organization for just cause to examine records necessary to verify the report, the latter pursuant to 29 U.S.C. 431(c).

Schedule 12—Disbursements to Employees: The proposed substantive changes to Schedule 12 are identical to the changes in Schedule 11 and the supporting reasons for the proposed changes are the same as described above for the changes to Schedule 11. One of the exceptions to the reporting of indirect disbursements will be eliminated and, therefore, both direct and indirect payments for travel expenses will be reported on Schedule 12. The reporting labor organization will be required to report aggregate benefits disbursements made to or on behalf of each of the employees listed on Schedule 12. A new column will be added to Schedule 12 to allow disclosure of benefits expenditures. Columns “(A)” through “(E)” will remain unchanged. Column “(F)” will be redesignated “Benefits.” This is the only new column on the schedule requiring disclosure of additional information. Column “(G)” will be redesignated “Disbursements for Official Business.” Column “(H)” will be redesignated “Other Disbursements not reported in (D) through (G).” Column “(I)” will be added for “Total.”

As discussed below, the Department believes that the proposed elimination of the exception will result in a recurring burden of .38 hours and the addition of the benefits column to Schedule 12 will add an estimated recurring burden of .88 hours. See discussion of Schedule 12 in the PRA analysis below (figures here derived from the recordkeeping burden associated with benefits and travel).

Schedule 13—Membership Status: This schedule is unchanged.

Detailed Summary Page: The current detailed summary page contains information from Schedule 14 through Schedule 19. The new detailed summary page will include information from Schedule 14 through Schedule 29. These summary pages will provide 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 additional burden associated with these summary schedules because the software will automatically enter the totals in the appropriate lines of the summary schedules as the labor organization fills out the individual itemization schedules.

Schedules 14-22. Currently, Form LM-2 filers only report the total amount received from dues and agency fees, per capita taxes, fees, fines, assessments, and work permits, sales of supplies, interest, dividends, rents, receipts on behalf of affiliates for transmittal to them, and receipts from members for disbursement on their behalf on Statement B. In some instances, these line items exceed $20 million. For example, one labor organization stated that it received over $298 million in per capita taxes and another received over $28 million in rent. Little useful information can be discerned from these totals alone.

The lack of itemization of most receipts on the current Form LM-2 makes it easier for criminals to embezzle money coming to labor organization accounts. In one case, the president and treasurer of a local labor organization converted over $184,129 in dues checks. However, the rank and file members, even if the individual checks had been in amounts of $5,000 or more, would have been unable to detect the conversion because the current Form LM-2 only requires the disclosure of the yearly total received in dues checks, not the reporting of individual checks received from employers. The proposed form will contain itemized information for each check that is $5,000 or more and disclose whether other checks aggregate to $5,000 or more. In those instances where the receipt checks, either alone or in combination aggregate to $5,000 or more, the labor organization will disclose this on the form. The change will address this problem, which extends to all the various reporting categories on the current form and not merely the receipt of dues payments, because now receipts-side embezzlements like the embezzlement of $184,129 mentioned above will be harder to hide.

The Department proposes to add new schedules that coincide with the items of cash receipts listed on Statement B. 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 will be required to complete a separate itemization schedule for each individual or entity from which the labor organization has received $5,000 or more. Each transaction from that individual or entity will include information about the individual, the purpose of the payment, the date of the payment, and the amount of the payment. The total amount received from the individual or entity, both itemized and non-itemized, will be included at the bottom of the itemized schedule. The totals from each itemized schedule will then be added together and that number will be entered in the appropriate item on Statement B.

By providing itemization of receipts, labor organizations will 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 can use this information to determine the purpose of any receipt from one source in an amount of $5,000 or more, which will help identify possible diversion to unintended purposes. Members will be able to determine that money received by the labor organization is actually accounted for. For example, labor organization members can ensure that money they paid to the organization for disbursement on their behalf is accounted for on the Form LM-2. If there is no itemized receipt in new Schedule 22 for payments of $5,000 or more or the receipt is less than expected, then the member will know that the money was not properly reported and may pursue other avenues to determine what has happened to the money. The current Schedules 14 through 20 will be re-numbered as described herein. Schedules 14 through 22 will now provide itemized disclosure in the following areas of receipts:

Schedule 14—Dues and Agency Fees,

Schedule 15—Per Capita Tax,

Schedule 16—Fees, Fines, Assessments, and Work Permits,

Schedule 17—Sale of Supplies,

Schedule 18—Interest,

Schedule 19—Dividends,

Schedule 20—Rents,

Schedule 21—Receipts on Behalf of Affiliates for Transmittal to Them,

Schedule 22—Receipts from Members for Disbursement on Their Behalf.

Under the current form, receipts listed under the above listed categories on Statement B are not itemized on a separate schedule for aggregate amounts of $5,000 or more. The only itemized receipts are “Other Receipts.” “Other Receipts” of $5,000 or more are itemized on the current Schedule 14. Proposed Schedules 14 through 22 will include the same information that is currently required on Schedule 14 for “Other Receipts.” As discussed below in the Department's initial PRA analysis, the Department's estimates that the proposed changes will increase the recurring recordkeeping burden, per schedule, an additional .21 hours per year. The Department estimates that the total additional reporting burden for all the revised schedules will be .47 hours per year. See Table 2 below.

Additionally, the Department requests comments on whether to narrow, clarify, or remove the confidentiality exception from 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 will 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 Schedule 23 (Other Receipts) or on Line 5 of Summary Schedules 24 (Representational Activities) or 28 (Union Administration), as appropriate.

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, nor the amount of the transaction for over 46% 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, OLMS 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) is not included. The Department believes that narrowing, clarifying, or removing the confidentiality exception will provide labor organization members with clearer information regarding these receipts and disbursements. A member now can only obtain specific information about these confidential transactions by requesting such information directly from the labor organization.

The Department specifically invites comments on whether all transactions greater than $5,000 should be identified by amount and date in the relevant schedules, permitting, however, labor organizations, where acting in good faith and on reasonable grounds, to withhold information that otherwise would be reported, in order to prevent the divulging of information relating to the labor organization's prospective organizing or negotiation strategy.

Schedule 23—Other Receipts: This schedule, currently numbered Schedule 14, will be renumbered Schedule 23. No other changes will be made to this schedule.

Schedule 24—Representational Activities: This schedule, currently numbered Schedule 15, will be renumbered Schedule 24. No other changes will be made to this schedule.

Schedule 25—Political Activities and Lobbying: This schedule, currently numbered Schedule 16, will be renumbered Schedule 25. No other changes will be made to this schedule.

Schedule 26—Contributions, Gifts and Grants: This schedule, currently numbered Schedule 17, will be renumbered Schedule 26. No other changes will be made to this schedule.

Schedule 27—General Overhead: This schedule, currently numbered Schedule 18, will be renumbered Schedule 27. No other changes will be made to this schedule.

Schedule 28—Union Administration: This schedule, currently numbered Schedule 19, will be renumbered Schedule 28. No other changes will be made to this schedule.

Schedule 29—Benefits: This schedule, currently numbered Schedule 20, will be renumbered Schedule 29. As described above in the discussion regarding the proposed changes to Schedule 11 and Schedule 12, those benefits inuring to officers and employees of the labor organization will be listed next to the corresponding officer's or employee's name. Apart from this change, the same disbursements that were disclosed on Schedule 20 will be disclosed on the new Schedule 29. These include direct and indirect disbursements associated with direct and indirect benefits to members and members' beneficiaries.

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

Even though the Department is proposing at this time to change only the specific schedules identified above, it specifically requests comment on the appropriateness of the current functional categories and whether modifications to these categories are needed in order to provide labor organization members and the public with additional useful information.

B. Proposed Procedure and Standards to Revoke the Simplified Reporting Option Where Appropriate in Particular Circumstances

1. Introduction

The Department proposes to establish standards and procedures for revoking the simplified report filing privilege provided by 29 CFR 403.4(a)(1) for those labor organizations that are delinquent in their Form LM-3 filing obligation, fail to cure a materially deficient Form LM-3 report after notification by OLMS, or where other situations exist where revoking the Form LM-3 filing privilege furthers the purposes of LMRDA section 208. The Department anticipates that the vast majority of situations where revocation occurs will be for delinquency or material deficiency. (See Regulatory Flexibility Analysis below; the Department there estimates that of the 96 cases per year in which the simplified reporting privilege will be revoked all but two will be for delinquency or deficiency.) In granting the Secretary the authority to establish simplified forms, section 208 also authorizes the Secretary to revoke a labor organization's privilege to file such forms when the Secretary determines, after investigation, due notice, and an opportunity for a hearing, “that the purposes of this section would be served [by revocation].” The Department's primary method of enforcement to obtain a timely and complete report, a civil action seeking a court order that the labor organization file an adequate report, is a time-consuming process that permits the evasion of the reporting requirements to continue for lengthy periods, denying members the timely disclosure of this financial information, without which they are unable to properly oversee the operations of their labor organization and, where they believe appropriate, to timely change its leadership, policies, or both.

The proposed procedure will effectuate the Department's authority to revoke a labor organization's existing Form LM-3 filing privilege if it fails to timely file a Form LM-3 or files a Form LM-3 that is materially deficient. A delinquent filer has, by definition, failed to accurately disclose its financial condition and operations, as required by section 201(b). A materially deficient filing that remains uncorrected also violates section 201(b). The Department proposes that Form LM-2, rather than the less detailed Form LM-3, is the appropriate level of financial disclosure for labor organizations whose Form LM-3 filings are delinquent or materially deficient. The Form LM-2 not only requires more detail in general than the Form LM-3, but the Form LM-2 requires information that may be particularly pertinent to situations where possible financial mismanagement or embezzlement is suspected.

In the absence of an established procedure, the Department's ability to revoke a labor organization's privilege to file a simplified report has been hindered—no matter how egregious a labor organization's noncompliance with its reporting obligations, or obvious the indications of financial mismanagement, embezzlement, or corruption within that organization. The procedures set forth in this proposal will remedy this shortcoming in the Department's reporting system.^[9]

The Department's goal in revoking the filing privilege is to promote greater financial transparency. The proposed rule fulfills that goal by requiring the affected labor organizations to file the standard reporting form, Form LM-2, which requires more detailed financial information than the Form LM-3. This additional financial information will assist members of labor organizations and OLMS investigators in reviewing the labor organization's funds and assets during the reporting period and enable them to determine whether additional scrutiny of the labor organization's finances is in order, for example, by requesting an explanation of the accounting, examining the underlying records of various transactions, or both.^[10]

2. Reason for the Proposal

The Department's enforcement experience has shown that the failure of labor organizations to file the annual Form LM-3 on time and without material deficiencies is often an indicator of larger problems about the way such organizations maintain their financial records, and may be an indicator of more serious financial mismanagement. For example, the labor organization may delay filing a Form LM-3 to avoid making timely public disclosures about financial improprieties of officers, such as the diversion of funds for personal use. Even if the Department eventually succeeds in encouraging a delinquent labor organization to file the required form, the lack of specificity in Form LM-3 may permit significant management problems to remain undetected. The greater detail required by the Form LM-2 makes it more difficult to hide such problems.

The Department's enforcement experience reveals various reasons for delinquent filings, such as a labor organization's failure to maintain the records required by the LMRDA; inadequate office procedures; frequent turnover of labor organization officials and their often part-time status; uncertainty of first-time officers about their reporting responsibilities under the LMRDA and their inexperience with bookkeeping, recordkeeping, or both; an “inherited bookkeeping mess;” an inattention generally to “paperwork;” overworked or under-trained officers; an officer's unwillingness to question or report apparent irregularities due to the officer's own inexperience or concern about the repercussions of reporting such matters; or a conscious effort to hide embezzlement or the misappropriation of funds by the officers, other members of the organization, or third parties associated with the labor organization. Many of these causes of delinquency, including pre-existing bookkeeping problems, inattention, overwork, insufficient training, and an unwillingness to confront or report financial irregularities, demonstrate that the labor organization members, the public, and the Department would benefit from a more detailed accounting of the organization's financial conditions and operations. Moreover, OLMS review of data indicates that labor organizations that are repeatedly delinquent are more likely than other labor organizations to suffer embezzlement, or related crime. For instance, in one recent case an investigation of a labor organization that was delinquent in its reports for two years showed that the labor organization had been the victim of a serious embezzlement. Its former president plead guilty to embezzling $112,525 and received a prison sentence of 33 months, and was ordered to pay back the $112,525 he had stolen. In another case a former financial secretary of a labor organization that had been delinquent in filing its reports for several years plead guilty to embezzlement and was ordered to pay restitution of $103,248 and also received a sentence including confinement for eight months, home detention for four months, and probation for three years. Many of the reasons that contribute to delinquent filings also result in the filing of reports that omit or misstate material information about the labor organization's finances. The members of a labor organization that fails to correct a material reporting deficiency after being notified by the Department and being given an opportunity to address the error would also benefit from the increased transparency.

3. Form LM-2 and Form LM-3 Compared

As discussed above, the reporting requirements apply to all labor organizations covered by the LMRDA. The Form LM-2 is the standard form for such purposes. It requires more detail than Forms LM-3 and LM-4, the simplified forms developed by the Secretary. The difference between the forms has been accentuated by the substantial revisions to the Form LM-2 implemented by the Department in 2003. As the Department explained in the preamble to the 2003 Form LM-2 rule, the broad aggregated categories on the old Form LM-2 enabled officials of labor organizations to potentially hide embezzlements and financial mismanagement. 68 FR 58420. The more detailed reporting required of all financial transactions covered by Form LM-2 was designed, in part, to discourage and reduce corruption by making it more difficult to hide financial irregularities from members and the Department's investigators and thereby strengthen the effective and efficient enforcement of the LMRDA. 68 FR 58402. Requiring labor organizations to file a Form LM-2, after a determination that revocation of the privilege of filing a Form LM-3 is warranted, will make it more difficult to hide fraud.

The Form LM-2 requires labor organizations to provide more specific information than the Form LM-3 in several areas relating to labor organization finances including, in part, the following: Investments, fixed assets, loans payable and owed, contributions, grants and gifts, overhead expenses, union administration, and receipts. With regard to labor organization receipts, Form LM-2 filers are explicitly required to report all receipts including: “receipts from fundraising activities, such as raffles, bingo games, and dances; funds received from a parent body, other labor organizations, or the public for strike assistance; and receipts from another labor organization which merged into the labor organization.” See p. 29 of Instructions to Form LM-2, as reproduced at 68 FR 58501

Form LM-2 requires filers to itemize receipts from and disbursements to any individual or business or other entity that exceed $5,000 in a fiscal year either in a single transaction or aggregated over the year. Aggregation prevents a labor organization from “hiding” significant receipts from or disbursements to the same individual or entity, a possibility that exists under the Form LM-3. The name, address, and other information must be provided for any such entity or individual. This information, which is not required by the Form LM-3, enables members of a labor organization to detect payments to individuals or entities that are out of the ordinary (given information that is known to the member but would not appear irregular to someone without such information). Thus, this information enables members to identify situations which may reflect a breach of the labor organization's duties to its members or provide a reasonable basis for inquiry to determine whether officials of the labor organization are improperly diverting funds for their own benefit or the shared benefit of others. Additionally, a member who is aware that the labor organization has a financial relationship with one or more of these businesses will be in a better position to determine whether the business has made any required reports (Form LM-10). The itemization of payments at or above $5,000 also puts members in a better position to determine whether any of the recipients of the payments are businesses in which a labor organization official (or the official's spouse or minor child) holds an interest, a circumstance that will require a report to be filed by the official (Form LM-30).

The Form LM-2, unlike the Form LM-3, requires filers to provide a list of accounts receivable and payable (involving a particular individual or entity in an amount of $5,000 or greater, singly or aggregated) that are past due by more than 90 days. As explained in the 2003 Form LM-2 rulemaking, such itemized disclosure can provide a vital early warning signal of financial improprieties. In the case of an already overdue report, the delinquency demonstrates that such improprieties already may exist.

4. The Proposed Standards and Procedures for Revocation

Section 208 authorizes the Secretary to revoke a labor organization's privilege to file simplified reports when the Secretary determines after investigation, due notice, and an opportunity for a hearing, “that the purposes of this section would be served [by revocation].” The Department's proposal effectuates this provision in a manner that safeguards the interests of labor organizations, which, by virtue of their size, ordinarily would be able to satisfy their annual reporting obligation by filing the Form LM-3. The procedure will ensure that revocation determinations are not made for arbitrary reasons. To implement this procedure and standards for revocation, the Department proposes to modify section 403.4 of its regulations, 29 CFR 403.4, and to amend the instructions to the Form LM-3 in order to fully apprise filers of the procedure and standards. The Form LM-3 instructions will remain unchanged except for a new paragraph that discusses the revocation standards and procedures and quotes from the language proposed for section 403.4. The Department proposes to add the following as a new paragraph at the end of section II of the Form LM-3 instructions:

Filers are advised that the privilege to file the Form LM-3 instead of the Form LM-2 may be revoked if a labor organization fails to file the Form LM-3 on or before the date it is due; a labor organization files a Form LM-3 with a material deficiency and fails to timely remedy this deficiency after notification by the Department of Labor; or other circumstances exist that warrant revocation of the labor organization's privilege to file the Form LM-3. Section 208 of the LMRDA authorizes the Secretary to revoke this privilege if the Secretary determines, after such investigation as she deems proper and due notice and opportunity for a hearing, that the purposes of section 208 would be served by revocation. 29 U.S.C. 438. Such revocation is governed by the standards just mentioned, which are set forth in section 403.4 of the Department's regulations (29 CFR 403.4), and the procedure also set forth in that section. Where the privilege to file the Form LM-3 is revoked, a labor organization will be required to file the Form LM-2. Section 403.4 provides in relevant part:

(b) The Secretary may revoke a labor organization's privilege to file the Form LM-3 simplified annual report . . . and require the labor organization to file the Form LM-2 as provided in § 403.3, if the following conditions are met:

(1) The Secretary has undertaken an investigation revealing:

(i) The labor organization failed to file the Form LM-3 on or before the date it was due; or

(ii) The labor organization filed the Form LM-3 with a material deficiency; and failed to timely remedy this deficiency after notification by the Secretary that the report was deficient; or

(iii) Other circumstances exist that warrant revocation of the labor organization's privilege to file the Form LM-3.

(2) The Secretary has provided notice to the labor organization of the proposed decision to revoke the filing privilege, the reason for such revocation, and an opportunity for the labor organization to submit in writing a position statement with relevant factual information and argument regarding:

(i) The existence of the delinquency or the deficiency (including whether it is material) or other circumstances alleged in the notice;

(ii) The reason for the delinquency or deficiency and whether it was caused by factors reasonably outside the control of the labor organization; and

(iii) Any other factors that should be considered in mitigation of revoking the labor organization's privilege to file the Form LM-3.

(3) The Secretary, after review of all the information provided, shall issue a determination in writing to the labor organization, stating the reasons for the determination, and, as appropriate, informing the labor organization that it must file the Form LM-2 for such reporting periods as the Secretary finds appropriate.

(c) A labor organization that receives a notice as set forth in 403.4(c)(2) must submit its written statement of position and any supporting facts and argument by mail, hand delivery or by alternative means specified in the notice to the Office of Labor-Management Standards at the address provided in the notice within 30 days after the date of the letter proposing revocation. If the 30th day falls on a Saturday, Sunday, or Federal holiday, the submission will be timely if received by OLMS on the first business day after the 30th day. Absent a timely submission to OLMS, the proposed revocation shall take effect automatically unless the Secretary in his or her discretion determines otherwise.

(d) The Secretary shall make the determinations provided for in the foregoing paragraphs of this section. The determination shall be the Department's final agency action on the revocation.

(e) For purposes of this section, a deficiency is “material” if in the light of surrounding circumstances, the inclusion or correction of the item in the report is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced.

Where there appear to be grounds for revoking a labor organization's privilege to file the Form LM-3, such as where the labor organization has failed to timely file the Form LM-3, files a Form LM-3 that lacks material information,^[11] or OLMS has received information that provides a reasonable basis to suspect financial irregularities, the Department will conduct an investigation to confirm the facts relating to the delinquency or other possible ground for revocation. The depth of the investigation will depend upon the particular circumstances. For example, where OLMS has no record of receiving a timely Form LM-3, the investigation may be limited to confirming that the labor organization did not timely submit the report. In other circumstances, an investigation may be needed to review the labor organization's books, to review documents, and to interview subjects and obtain statements from individuals with knowledge about a labor organization's finances and their reporting to determine whether or not the deficiencies on the Form LM-3 are material.

If the Department finds grounds for revocation after the investigation, the Department will send the labor organization a notice of the proposed Form LM-3 revocation stating the reason for the proposed revocation and explaining that revocation, if ordered, will require the labor organization to file the more detailed annual financial report, Form LM-2. The letter will also provide notice that the labor organization has the right to a hearing if it chooses to challenge the proposed revocation; and that the hearing will be limited to written submissions due within 30 days of the date of the notice. The submissions and any supporting facts and argument must be received by the Office of Labor-Management Standards at the address provided in the notice within 30 days after the date of the letter proposing revocation. The letter will also advise that the labor organization's failure to timely respond within 30 days will waive such labor organization's opportunity to request a hearing and the proposed revocation shall take effect automatically unless the Secretary in his or her discretion determines otherwise.

In its written submission, the labor organization must present relevant facts and arguments that address whether: (1) The report was delinquent or deficient or other grounds for the proposed revocation exist; (2) whether the deficiency, if any, was material; (3) whether the circumstances concerning the delinquency or other grounds for the proposed revocation were caused by factors reasonably outside the control of the labor organization; and (4) any factors exist that mitigate against revocation. The proposed definition for “material” is derived from Financial Accounting Standards Board, Statement of Financial Accounting Concepts No. 2 (SFAC No. 2), at 132 (“The omission or misstatement of an item in a financial report is material if, in light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.”) and TSC Industries Inc. v. Northway Inc., 426 U.S. 438, 449 (1976) (“A substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable [person]. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by [a] reasonable [person] as having significantly altered the `total mix' of information made available.”). Factors reasonably outside the control of a labor organization could include, for example, natural disasters that destroyed the records necessary to complete a Form LM-3, or the death or serious illness of the labor organization's president or treasurer while the form was being prepared for filing. Mitigating factors could also include, for example, that the form was timely completed but was mailed to an incorrect address or an attachment was inadvertently omitted from the filing.

After review of the labor organization's submission, the Secretary (or her designee who will not have participated in the investigation) will issue a written determination stating the reasons for the determination, and, as appropriate, informing the labor organization that it must file the Form LM-2 for such reporting periods as he or she finds appropriate. Where a labor organization has failed to timely respond to the notice of proposed revocation, the Secretary will notify the labor organization in writing that its privilege has been revoked (or in an exercise of his or her discretion that revocation is unnecessary). The determination by the Secretary shall be the Department's final agency action on the revocation.

The revocation of the Form LM-3 filing privilege will ordinarily only apply to the fiscal year for which the labor organization was delinquent or failed to file a properly completed amended report after notification of a material deficiency and the fiscal year during which the revocation determination is issued. In other cases, the revocation will apply to the fiscal years that the Department finds appropriate, but no labor organization will be required to submit a Form LM-2 for any past fiscal year for which the labor organization already has properly and timely filed a Form LM-3. If the revocation is for a longer period of time, the Department's reasons will be included in its written determination. As discussed below in the PRA analysis, the Department believes that current LM-3 filers who have had their privilege revoked under the current proposed rule will incur an additional 95.45 hour burden for each year in which they must file a Form LM-2. See Table 1. Labor organizations that are required to file a Form LM-2 because their Form LM-3 filing privilege has been revoked will not be required to submit the Form LM-2 electronically.

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

IV. Regulatory Procedures

Executive Order 12866

This proposed rule has been drafted and reviewed in accordance with Executive Order 12866, section 1(b), Principles of Regulation. The Department has determined that this proposed rule is not an “economically significant” regulatory action under section 3(f)(1) of Executive Order 12866. Based on a preliminary analysis of the data the rule is not likely to: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues. As a result, the Department has concluded that a full economic impact and cost/benefit analysis is not required for the rule under Section 6(a)(3) of the Order. However, because of its importance to the public the rule was treated as a significant regulatory action and was reviewed by the Office of Management and Budget.

Unfunded Mandates Reform

For purposes of the Unfunded Mandates Reform Act of 1995, this proposed rule does not include a federal mandate that might result in increased expenditures by state, local, and tribal governments, or increased expenditures by the private sector of more than $100 million in any one year.

Executive Order 13132 (Federalism)

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

Initial Regulatory Flexibility Analysis

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., requires agencies to prepare regulatory flexibility analyses, and to develop alternatives wherever possible, in drafting regulations that will have a significant impact on a substantial number of small entities. To evaluate whether this proposed rule will have a significant economic impact on a substantial number of small entities, the Department has conducted an Initial Regulatory Flexibility Analysis (“IRFA”) as a component of this rulemaking.

In the 2003 Form LM-2 rule, the Department's regulatory flexibility analysis utilized the Small Business Administration's (“SBA”) “small business” standard for “Labor Unions and Similar Labor Organizations.” Specifically, the Department used the $5 million standard established in 2000 (as updated in 2005 to $6.5 million) for purposes of its regulatory flexibility analyses. See 65 FR 30836 (May 15, 2000); 70 FR 72577 (Dec. 6, 2005). This same standard, which has also been used in rulemakings involving the Form T-1, has been used in developing the initial regulatory flexibility analysis for this proposed rule.

The Department recognizes that the SBA has not established fixed, financial thresholds for “organizations,” as distinct from other entities. See A Guide for Federal Agencies: How to Comply with the Regulatory Flexibility Act, Office of Advocacy, U.S. Small Business Administration at 12-13, available at www.sba.gov. The Department further recognizes that under SBA guidelines, the relationship of an entity to a larger entity with greater receipts is a factor to be considered in determining the necessity of conducting a regulatory flexibility analysis. Thus, the affiliation between a local labor organization and a national or international labor organization, a widespread practice among labor organizations subject to the LMRDA, may have an impact on the number of organizations that should be counted as “small organizations” under section 601(4) of the RFA, 5 U.S.C. 601(4). Section 601(4) provides in part: “the term ‘small organization' means any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Affiliation of labor organizations presents a unique circumstance in determining whether and, if so, how, receipts of particular labor organizations should be aggregated, if at all, in assessing whether a regulatory flexibility analysis is required and how it should be conducted. However, for purposes of analysis here and for ready comparison with the RFA analysis in its earlier Form LM-2 rulemaking, the Department has used the $6.5 million receipts test for “small businesses,” rather than the “independently owned and operated and not dominant” test for “small organizations.” Application of the latter test likely would reduce the number of labor organizations that would be counted as small entities under the RFA. It is the Department's view, however, that it would be inappropriate, given the past rulemaking concerning the Form T-1 and the Form LM-2, to depart from the $6.5 million receipts standard in preparing this initial regulatory flexibility analysis. Comments are invited to address this question of whether the use of the $6.5 million figure, without aggregation among affiliated labor organizations, is appropriate and if not, to suggest alternative approaches for this purpose. Accordingly, the following analysis assesses the impact of these regulations on small entities as defined by the applicable SBA size standards.

All numbers used in this analysis are based on 2005 data taken from the OLMS electronic labor organization reporting (“e.LORS”) database, which includes all records of labor organizations that have filed LMRDA reports with the Department.

A. Statement of the Need for, and Objectives of, the Proposed Rule

The following is a summary of the need for and objectives of the proposed rule. A more complete discussion is found in the preamble.

The objective of this proposed rule is to increase the transparency of financial reporting by revising the current LMRDA disclosure Form LM-2 to enable workers to be responsible, informed, and effective participants in the governance of their labor organizations; discourage embezzlement and financial mismanagement; prevent the circumvention or evasion of the statutory reporting requirements; and strengthen the effective and efficient enforcement of the Act by the Department. Form LM-2 is filed by the largest reporting labor organizations, i.e., those with $250,000 or more in total annual receipts.

The revisions to the Form LM-2 made by the Department in 2003 have helped to fulfill the mandate of full reporting set forth in the LMRDA. However, based upon the Department's experience since 2003 and after reviewing data from reports filed on the revised form, the Department believes that further enhancements to the Form LM-2 are necessary. The proposed enhancements will ensure that information is reported in such a way as to meet the objectives of the LMRDA by providing labor organization members with useful data that will enable them to be responsible and effective participants in the democratic governance of their labor organizations. The proposed changes are designed to provide members of labor organizations with additional and more detailed information about the financial activities of their labor organization that is not currently available through the Form LM-2 reporting.

The proposed enhancements provide additional information in Schedule 3 (Sale of Investments and Fixed Assets) and Schedule 4 (Purchase of Investments and Fixed Assets) that will allow verification that these transactions are performed at arm's length and without conflicts of interest. Schedules 11 and 12 will be revised to include the value of benefits paid to and on behalf of officers and employees. This will provide a more accurate picture of total compensation received by these labor organization officials. In addition, the proposed changes will require the reporting in Schedules 11 and 12 of travel reimbursements indirectly paid these officials. This proposed change will provide more accurate information on travel disbursements made to them by their labor organizations. The proposed enhancements also include additional schedules corresponding to categories of receipts, which will provide additional information, by receipt category, of aggregated receipts of $5,000 or more. This proposed change is consistent with the information currently provided on disbursements.

The Department's enforcement experience has shown that the failure of small labor organizations to file the annual Form LM-3 on time and the filing of reports with material deficiencies is often an indicator of larger problems about the way such organizations maintain their financial records, and may be an indicator of more serious financial mismanagement. The Department's enforcement experience reveals various reasons for delinquent filings, such as a labor organization's failure to maintain the records required by the LMRDA; inadequate office procedures; frequent turnover of labor organization officials and their often part-time status; uncertainty of first-time officers about their reporting responsibilities under the LMRDA and their inexperience with bookkeeping, recordkeeping, or both; an “inherited bookkeeping mess;” an inattention generally to “paperwork;” overworked or under-trained officers; an officer's unwillingness to question or report apparent irregularities due to the officer's own inexperience or concern about the repercussions of reporting such matters; or a conscious effort to hide embezzlement or the misappropriation of funds by the officers, other members of the organization, or third parties associated with the labor organization. Many of these causes of delinquency, including pre-existing bookkeeping problems, inattention, overwork, insufficient training, and an unwillingness to confront or report financial irregularities, demonstrate that the labor organization members, the public, and the Department would benefit from a more detailed accounting of the organization's financial conditions and operations. Moreover, OLMS experience indicates that labor organizations that are repeatedly delinquent are more likely than other labor organizations to suffer embezzlement, or related crime. Many of the reasons that contribute to delinquent filings also result in the filing of reports that omit or misstate material information about the labor organization's finances. The members of a labor organization that fails to correct a material reporting deficiency after being notified by the Department and being given an opportunity to address the error would benefit from the increased transparency of the Form LM-2.

As explained in the preamble, additional reporting by labor organizations is necessary to ensure, as intended by Congress, the full and comprehensive reporting of a labor organization's financial condition and operations, including a full accounting to members from whose work the payments were earned. 67 FR 79282-83. The proposed rule will prevent circumvention and evasion of these reporting requirements by providing members of labor organizations with financial information concerning their labor organization.

B. Legal Basis for Rule

The legal authority for the notice of proposed rulemaking is provided by sections 201 and 208 of the LMRDA, 29 U.S.C. 431, 438. Section 201 requires labor organizations to file annual financial reports and to disclose certain financial information, including all assets, receipts, liabilities, and disbursements of the labor organization. Section 208 provides that the Secretary of Labor shall have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under title II of the Act, including rules prescribing reports concerning trusts in which a labor organization is interested, and such other reasonable rules and regulations as she may find necessary to prevent the circumvention or evasion of the reporting requirements. Section 208 also authorizes the Secretary to establish “simplified reports for labor organizations and employers for whom [s]he finds by virtue of their size a detailed report would be unduly burdensome.” Section 208 authorizes the Secretary to revoke this privilege for any labor organization or employer if the Secretary determines, after such investigation as she deems proper and due notice and opportunity for a hearing, that the purposes of section 208 would be served by revocation.

C. Number of Small Entities Covered Under the Rule

The primary impact of this proposed rule will be on those labor organizations that have $250,000 or more in annual receipts. There are approximately 4,452 labor organizations of this size that are required to file Form LM-2 reports under the LMRDA. See n. 1 above and Table 1 below. The Department estimates that 4,228 of these labor organizations, or 94.97%, are considered small under the current SBA standard (annual receipts less than $6.5 million). These labor organizations have annual average receipts of $1.26 million.^[12] See Table 1. The Department estimates that about 96 labor organizations with annual receipts of less than $250,000 will be affected by the proposed rule. These 96 labor organizations have annual average receipts of $68,939. See Table 1. Although these estimates may not be predictive of the exact number of small labor organizations that will be impacted by this proposed rule in the future, the Department believes these estimates to be sound and they are derived from the best available information.

D. Relevant Federal Requirements Duplicating, Overlapping or Conflicting With the Rule

There are no federal rules that duplicate or conflict with this proposed rule. There is some overlap, however, between the proposed rule and documents required by the Internal Revenue Service (“IRS”). Labor organizations are currently required to report some similar information to the IRS on Form 990 or Form 990-EZ if they are exempt from taxation under 26 U.S.C. 501 (c)(5). A copy of the labor organization's filed Form LM-2 may currently be submitted to the IRS in lieu of answering certain questions on Form 990. However, under longstanding practice under the Form LM-2 and Form LM-3 rules, a Form 990 may not be submitted to OLMS for the Form LM-2.

E. Differing Compliance or Reporting Requirements for Small Entities

Under the proposal, the reporting, recordkeeping, and other compliance requirements apply equally to all labor organizations that are required to file a Form LM-2 under the LMRDA, including labor organizations which have had their Form LM-3 filing privilege revoked. The Department expects that only the largest labor organizations will have to make significant changes in the level of detail with which financial activity is reported in order to comply with the requirements of the proposed rule. Differences between the smaller labor organizations that are large enough to be required to file Form LM-2 and the largest labor organizations are more likely to result from differences in the financial practices of the labor organizations themselves. Only the largest filers, those that have annual receipts in the millions, are likely to have extensive financial transactions that will require substantial changes in their accounting practices in order to report these transactions on the revised Form LM-2. Labor organizations with receipts of between $250,000 and $2 million, which account for over 3,441 of the estimated 4,452 Form LM-2 filers, are likely to have less difficulty using the revised Form LM-2 than the organizations with greater annual receipts.

F. Clarification, Consolidation and Simplification of Compliance and Reporting Requirements for Small Entities

OLMS will update the e.LORS system to coincide with any changes embodied in a final rule promulgated after this notice of proposed rulemaking.

OLMS will provide compliance assistance for any questions or difficulties that may arise from using the reporting software. A help desk is staffed during normal business hours and can be reached by telephone toll free at 1-866-401-1109.

The use of electronic forms makes it possible to download information from previously filed reports directly into the form; enables officer and employee information to be imported onto the form; makes it easier to enter information; and automatically performs calculations and checks for typographical and mathematical errors and other discrepancies, which reduces the likelihood of having to file an amended report. The error summaries provided by the software, combined with the speed and ease of electronic filing, will also make it easier for both the reporting labor organization and OLMS to identify errors in both current and previously filed reports and to file amended reports to correct them.

As discussed in the preamble, labor organizations that are required to file a Form LM-2 because their Form LM-3 filing privilege has been revoked are not required to comply with the electronic submission requirement.

G. The Use of Performance Rather Than Design Standards

The Department considered a number of alternatives to the proposed rule that could minimize the impact on small entities. One alternative would be not to change the existing Form LM-2. This alternative was rejected because OLMS experience demonstrates that the goals of the Act are not being met. As explained further in the preamble, members of labor organizations cannot accurately determine from the current Form LM-2 what benefits officials of labor organizations are receiving. Members need this information to make informed decisions on the governance of their labor organizations.

Another alternative would be to limit the new reporting requirements to national and international parent labor organizations. However, the Department has concluded that such a limitation would eliminate the availability of meaningful information from local and intermediate labor organizations, which may have far greater impact on and relevance to members of labor organizations, particularly since such lower levels of labor organizations generally set and collect dues and provide representational and other services for their members. Such a limitation would reduce the utility of the information to a significant number of members. Of the 4,452 labor organizations that are required to file Form LM-2, just 101 are national or international labor organizations. Requiring only national and international organizations to file more detailed reports would not provide any deterrent to fraud and embezzlement by local and intermediate body officials nor would it increase transparency in local and intermediate bodies.

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

A review of the proposed revisions was undertaken to reduce paperwork burden for all Form LM-2 filers and an effort was made during the review to identify ways to reduce the impact on small entities. The Department believes it has minimized the economic impact of the form revision on small labor organizations to the extent possible while recognizing workers' and the Department's need for information to protect the rights of members of labor organizations under the LMRDA.

H. Reporting, Recording and Other Compliance Requirements of the Rule ^[13]

This proposed rule is not expected to have a significant economic impact on a substantial number of small entities. The LMRDA is primarily a reporting and disclosure statute. Accordingly, the primary economic impact will be the cost of obtaining and reporting required information.

For the estimated 4,228 Form LM-2 filers with between $250,000 and $6,500,000 in annual receipts, the estimated average annual reporting and recordkeeping burden for the current Form LM-2 is $14,811.32 or 1.17% of their average annual receipts. See Table 1, which provides a more complete list of the burden estimates.^[14] The average additional first year cost (including first year non-recurring implementation costs) to these organizations is estimated at less than $4,164.44, or 0.33% of average annual receipts. Id. The average total first year cost of the revised Form LM-2 on these labor organizations is estimated at $18,975.77, or 1.50% of total annual receipts. Id. The Department believes that it is unlikely that the smallest subset of these labor organizations (those with between $250,000 and $499,999 in annual receipts) would incur many of the costs incurred by the typical Form LM-2 filer (those with receipts between $500,000 and $6.5 million). The labor organizations with the least annual receipts are likely to have less complicated accounts covering fewer transactions than the typical, larger Form LM-2 filer. However, to assess the “maximum” or “worst-case” impact on this subset of labor organizations, the Department considered the unlikely event that the labor organizations in this subset could incur the same compliance burden as the average for labor organizations with annual receipts of $500,000 to $49.9 million. Under this unlikely scenario, the total additional cost of the proposed rule on such labor organizations is estimated at $4,274.60 in the first year, or 0.34% of the annual receipts of all organizations with receipts of $250,000 to $6.5 million, and $260.27 in the second year, or .02% of annual receipts. Id. For a small labor organization with $250,000 to $499,999 in annual receipts, the estimated maximum additional cost of the proposed rule would be 2.82% of receipts in the first year and 2.23% in the second year.^[15] Id.

The average annual reporting and recordkeeping burden for the current Form LM-3 is estimated at $1,404.00 or 2.04% of average annual receipts for Form LM-3 filers. See Table 1. The Department assumes that Form LM-3 filers will spend the same amount on labor as Tier 1 Form LM-2 filers or approximately $15.89 per hour. See Table 4. The additional cost of filing a Form LM-2 rather than a Form LM-3 is $1,955.92 or 2.84% of average annual receipts for Form LM-3 filers. The Department estimates that on average 96 Form LM-3 filers annually will have their Form LM-3 filing privilege revoked and thus incur this additional burden. The Department arrived at this figure by examining the number of deficiency and delinquency cases processed by the Department. In the latest fiscal year, the Department processed 684 deficiency cases for Form LM-3 filers and 1,187 cases for delinquent Form LM-3 filers. The Department assumes that it will examine one half of the deficiency and delinquency cases for possible revocation (935.5 per year) and that 10% of the cases examined will ultimately lead to revocation of the Form LM-3 filing privilege (93.55). Further the Department assumes that in another 2 cases per year it will find “other circumstances exist that warrant revocation” for a total of 96 revocations per year (rounded up).

Table 1.—Summary of Regulatory Flexibility Analysis ¹⁶

For unions that meet the SBA small entities standard	Total burden hours per respondent	Total cost per respondent
Weighted Average Cost of Current Form LM-2	507.62	$14,811.32
Percentage of Average Annual Receipts	n.a.	1.17%
Average Cost of Current Form LM-3	116.00	$ 1,404.00
Percentage of Average Annual Receipts	n.a.	2.04%
Weighted Average First Year Cost of Revised Form LM-2	650.34	$18,975.77
Percent of Average Annual Receipts	n.a.	1.50%
Weighted Average Second Year Cost	516.81	$15,079.59
Percent of Average Annual Receipts	n.a.	1.19%
Weighted Average Increase in Cost of Proposed Rule, First Year	142.72	$4,146.44
Percent of Average Annual Receipts	n.a.	0.33%
Weighted Average Increase in Cost of Proposed Rule, Second Year	9.19	$268.27
Percent of Average Annual Receipts	n.a.	0.02%
Maximum First Year Cost of Revised Form LM-2 for Unions with $250,000 to $499,999 in Annual Receipts	654.12	$10,393.92
Percentage of Average Annual Receipts	n.a.	2.82%
Maximum Second Year Cost	516.54	$8,207.77
Percentage of Average Annual Receipts	n.a.	2.23%
Maximum Increase in Cost of Proposed Rule, First Year	146.50	$4,274.60
Percent of Annual Receipts for $250,000 to $499,999 Union	n.a.	0.36%
Percent of Annual Receipts for $500,000 to $6,500,000 Union	n.a.	0.18%
Percent of Annual Receipts for $250K to $6.5M Union	n.a.	0.34%
Maximum Increase in Cost of Proposed Rule, Second Year	8.92	$260.27
Percent of Annual Receipts for $250,000 to $499,999 Union	n.a.	0.02%
Percent of Annual Receipts for $500,000 to $6,500,000 Union	n.a.	0.01%
Percent of Annual Receipts for $250K to $6.5M Union	n.a.	0.02%
Average Cost of Revised Form LM-2	211.45	$ 3,359.92
Union with between $10K and $249,999 in Annual Receipts	n.a.	4.87%
Average Increase in Cost of Form LM-2	95.45	$ 1,955.92
Unions with between $10K and $249,999 in Annual Receipts	n.a.	2.84%
Total 2005 Filers between $250K & $6.5M		4228
Total 2005 Filers between $250K & $499,999		1317
Total 2005 Filers between $500K & $6.5		2911
Total 2005 Filers between $500K & $49.9M		3083
Number of Form LM-2 Filers with Annual Receipts between $250K & $2M		3441
Total 2005 Form LM-3 Filers		9658
Total 2005 Form LM-2 Filers		4452
Total 2005 Union Filers		24065
Percentage of All Union Filers that File Form LM-2		18.50%
Percentage of all Union Filers with Annual Receipts between $250K & $6.5M		18.0%
Percentage of Union Filers with Annual Receipts between $250K & $499,999		5.5%
Percentage of Form LM-2 Filers with Annual Receipts between $250K & $6.5M		94.97%
Percentage between $250K & $499,999		31.15%
Percentage between $500K & $6.5M		68.85%
Percentage of Form LM-3 Filers that will File Form LM-2		.99%
2005 Average Annual Receipts for Unions between $250K & $6.5M		$1,262,627.09
2005 Average Annual Receipts for Unions between $250K & $499,999		$368,597.23
2005 Average Annual Receipts for Unions between $500K & $6.5M		$1,667,105.73
2005 Average Annual Receipts for Unions between $10K and $249,999		$68,939.34
2005 Average Number of Employees Employed by Unions with Annual Receipts between $250K & $6.5M		4
2005 Average Number of Officers Employed by Unions with Annual Receipts between $250K & $6.5M		12
16 Note: some of the figures used in this table and other figures mentioned in this document may not add due to rounding.

I. Conclusion

As noted above, the proposed rule will apply to 4,228 Form LM-2 filers and approximately 96 Form LM-3 filers that meet the SBA standard for small entities, about 18% of all labor organizations that must file an annual financial report under the LMRDA. Further, the Department estimates that just 1,317 labor organizations with annual receipts from $250,000 to $499,999, or 5.5% of all labor organizations covered by the LMRDA, would be affected by this rule. Even less (5.5% of the total) would incur the maximum additional costs of the proposed rule described above. Finally, the Department estimates that approximately 96 Form LM-3 filers, or 1% of all Form LM-3 labor organizations covered by the LMRDA, would be affected by this rule.

For the estimated 4,228 Form LM-2 filers with between $250,000 and $6,500,000 in annual receipts, the estimated average annual reporting and recordkeeping burden for the current Form LM-2 is $14,811.32 or 1.17% of their average annual receipts. The average additional first year cost (including first year non-recurring implementation costs) to these organizations is estimated at less than $4,164.44, or 0.33% of average annual receipts. The average total first year cost of the revised Form LM-2 on these labor organizations is estimated at $18,975.77, or 1.50% of total annual receipts. The Department believes that it is unlikely that the smallest subset of these labor organizations (those with between $250,000 and $499,999 in annual receipts) would incur many of the costs incurred by the typical Form LM-2 filer (those with receipts between $500,000 and $6.5 million). Under this “worst case” scenario for these organizations, the total additional cost of the final rule on such labor organizations is estimated at $4,274.60 in the first year, or 0.34% of the annual receipts of all organizations with receipts of $250,000 to $6.5 million, and $260.27 in the second year, or .02% of annual receipts.

The average annual reporting and recordkeeping burden for the current Form LM-3 is estimated at $1,404.00 or 2.04% of average annual receipts for Form LM-3 filers. For the estimated 96 Form LM-3 filers that would have their privilege to file Form LM-3 revoked (all of which meet the SBA standard for small entities), the additional cost of filing a Form LM-2 rather than a Form LM-3 is $1,955.92 or 2.84% of average annual receipts for Form LM-3 filers.

To evaluate whether this proposed rule will have a significant economic impact on a substantial number of small entities, the Department has conducted this IRFA as a component of this rulemaking. Although the Department acknowledges that there will be a substantial number of small entities impacted by this proposed rule, it does not believe that these entities will incur a significant economic impact. The Department seeks comment on all aspects of this IRFA, particularly on the numbers of small entities that may be impacted by this rulemaking and the potential economic impacts to these small entities.

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. As discussed in the preamble to this proposed rule, the analysis under the Regulatory Flexibility Act, and the analysis that follows, 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 unions that must provide the information, including small labor organizations; (4) the form, instructions, and explanatory information in the preamble are written in plain language that will be understandable by reporting labor organizations; (5) the disclosure requirements are implemented in ways consistent and compatible, to the maximum extent practicable, with the existing reporting and recordkeeping practices of labor organizations that must comply with them; (6) this preamble informs labor organizations of the reasons that the information will be collected, the way in which it will be used, the Department's estimate of the average burden of compliance, which is mandatory, the fact that all information collected will be made public, and the fact that they need not respond unless the form displays a currently valid OMB control number; (7) the Department has explained its plans for the efficient and effective management and use of the information to be collected, to enhance its utility to the Department and the public; (8) the Department has explained why the method of collecting information is “appropriate to the purpose for which the information is to be collected”; and (9) the changes implemented by this rule make extensive, appropriate use of information technology “to reduce burden and improve data quality, agency efficiency and responsiveness to the public.” See 5 CFR 1320.9; 44 U.S.C. 3506(c).

As part of its continuing effort to reduce paperwork and respondent burden, the Department of Labor conducts a pre-clearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the PRA. This helps to ensure that the public understands the Department's collection instructions, respondents can provide the requested data in the desired format, the reporting burden (time and financial resources) is minimized, and the Department can properly assess the impact of collection requirements on respondents.

In this proposed rulemaking, the Department has sought to improve the usefulness and accessibility of information to members of labor organizations subject to the LMRDA. The LMRDA reporting provisions were devised to protect the basic rights of labor organization members and to guarantee the democratic procedures and financial integrity of labor organizations. The 1959 Senate report on the version of the bill later enacted as the LMRDA stated clearly that “the members who are the real owners of the money and property of the organization are entitled to a full accounting of all transactions involving their property.” A full accounting was described as “full reporting and public disclosure of union internal processes and financial operations.”

As labor organizations have become more multifaceted and have created hybrid structures for their various activities, the form used to report financial information with respect to these activities had until recently remained relatively unchanged and had become a barrier to the complete and transparent reporting of labor organizations' financial information intended by the LMRDA. By providing members of labor organizations with more complete, understandable information about their labor organizations' financial transactions, investments, and solvency, this proposal will put them in a much better position than they are today to protect their personal financial interests and to exercise their rights of self-governance. The information collection achieved by this rule is integral to this purpose. The paperwork requirements associated with the proposed rule are necessary to enable workers to be responsible, informed, and effective participants in the governance of their labor organizations; discourage embezzlement and financial mismanagement; prevent the circumvention or evasion of the statutory reporting requirements; and strengthen the effective and efficient enforcement of the LMRDA by the Department.

This PRA analysis is based largely on the PRA analysis prepared by the Department in connection with its 2003 final rule that substantially revised the Form LM-2.^[17] The PRA analysis was approved by the Office of Management and Budget. The PRA analysis utilizes the same basic methodology and data (the latter updated with more current information) as used in the 2003 rule.

1. Form LM-2 Proposed Rulemaking

This proposed rule modifies the annual reports required to be filed by the largest labor organizations, as required by section 201 of the LMRDA, 29 U.S.C. 431, and prescribed by the Secretary of Labor. As discussed above and throughout the preamble, the revised paperwork requirements are necessary to effectuate the purposes of the LMRDA by providing members of labor organizations with information about their labor organizations that will enable them to be responsible, informed, and effective participants in the governance of those organizations; discourage embezzlement and financial mismanagement; prevent the circumvention or evasion of the statutory reporting requirements; and strengthen the effective and efficient enforcement of the LMRDA by the Department. The manner in which the collected information will serve these purposes is discussed throughout the preamble to this proposed rule.

The proposed revisions to Form LM-2 are designed to take advantage of technology that reduces the burden to report information, while at the same time making it easier to file and publish the contents of the reports. Members of labor organizations thus will be able to obtain a more accurate and complete picture of their labor organization's financial condition and operations without imposing an unwarranted burden on reporting labor organizations. In the 2003 rule, the Department estimated the total first year compliance costs associated with the Form LM-2 at $116,000,000. 68 FR 58428.

For the proposed Form LM-2, the total first year compliance costs are estimated to be $89.5 million ($70.4 million (total cost to complete current Form LM-2) + $19.1 million (total cost to complete proposed changes to Form LM-2) = $89.5 million). This reflects an increased burden of $19.1 million ($29.50 (weighted average cost per hour) × 650,407 (total burden hours to complete proposed changes to Form LM-2); this increase is chiefly the result of an adjustment in the number of expected filers, the addition of proposed schedules, and higher contemporary labor costs. Both the estimated burden hours and the compliance costs associated with the revised Form LM-2 will decline in subsequent years. The Department estimates that the total burden averaged over the first three years to comply with the revised Form LM-2 to be 249,868 hours. The total compliance costs associated with the proposed changes to the Form LM-2, averaged over the first three years, are estimated to be $7.4 million per year.

a. Background on Current Form LM-2

Every labor organization whose total annual receipts are $250,000 or more and those organizations that are in trusteeship must currently file an annual financial report using the current Form LM-2, Labor Organization Annual Report, within 90 days after the end of the labor organization's fiscal year, to disclose its financial condition and operations for the preceding fiscal year. The current Form LM-2 is also used by covered labor organizations with total annual receipts of $250,000 or more to file a terminal report upon losing their identity by merger, consolidation, or other reason.

The current Form LM-2 consists of 21 questions that identify the labor organization and provide basic information (in primarily a yes/no format); a statement of 11 financial items on different assets and liabilities; a statement of receipts and disbursements; and 20 supporting schedules. The information that is reported includes: whether the labor organization has any trusts; whether the labor organization has a political action committee; whether the labor organization discovered any loss or shortage of funds; the number of members; rates of dues and fees; the dollar amount for seven asset categories, such as accounts receivable, cash, and investments; the dollar amount for four liability categories, such as accounts payable and mortgages payable; the dollar amount for 13 categories of receipts such as dues and interest; and the dollar amount for 16 categories of disbursements such as payments to officers and repayment of loans obtained. Four of the supporting schedules include a detailed itemization of loans receivable and payable and the sale and purchase of investments and fixed assets. There are also 10 supporting schedules for receipts and disbursements that provide members of labor organizations with more detailed information by general groupings or bookkeeping categories to identify their purpose. Labor organizations are required to track their receipts and disbursements in order to correctly group them into the categories on the current form.

The Department also has developed an electronic reporting system for labor organizations, e.LORS, which uses information technology to perform some of the administrative functions for the current forms. The objectives of the e.LORS system include the electronic filing of current Forms LM-2, LM-3, and LM-4, as well as other LMRDA disclosure documents; disclosure of reports via a searchable Internet database; improving the accuracy, completeness and timeliness of reports; and creating efficiency gains in the reporting system. Effective use of the system reduces the burden on reporting organizations, provides increased information to members of labor organizations, and enhances LMRDA enforcement by OLMS. The OLMS Online Public Disclosure site is available for public use at http://www.unionreports.gov. The site contains a copy of each labor organization's annual financial report for reporting year 2000 and thereafter as well as an indexed computer database of the information in each report.

Filing labor organizations have several advantages with the current electronic filing system. With e.LORS, information from previously filed reports and officer or employee information can be directly imported into Form LM-2. Not only is entry of the information eased, the software also makes mathematical calculations and checks for errors or discrepancies.

b. Overview of Changes to Form LM-2

The proposed Form LM-2 includes: the same number of questions (21) as the current form that identify the labor organization and provide basic information (in the same general yes/no format); the same (11) financial items on assets and liabilities in Statement A; an updated Statement B that asks for information in the same categories of receipts (13) as the current Form LM-2 and ten additional supporting schedules (for a total of 23 instead of 13).

Under the proposal, several of the current supporting schedules would change. The schedules for “Sale of Investments and Fixed Assets” and “Purchase of Investments and Fixed Assets” would be modified by the inclusion of the name of the party transacting with the labor organization in the purchase or sale. The schedule for “Benefits” would be modified and the disbursements for benefits to labor organization officers and employees would be reported in the schedules for disbursements to officers and employees.

Under the proposal, the Form LM-2 would be revised to require labor organizations to individually identify receipts within supporting schedules for all of the current categories of receipts.

c. Methodology for the Burden Estimates

In reaching its estimates, the Department considered both the onetime and recurring costs associated with the proposed rule. Separate estimates are included for the initial year of implementation as well as the second and third years. For filers, the Department included separate estimates, based on the relative size of labor organizations as measured by the amount of their annual receipts. The size of a labor organization, as measured by the amount of its annual receipts, will affect the burden on reporting labor organizations. For example, larger labor organizations have more receipts and disbursements to itemize and more employees who have to estimate their time allocation.

In 2005, there were approximately 4,452 labor organizations that were required to file Form LM-2 reports under the LMRDA (approximately 18.5 percent of all labor organizations covered by the LMRDA). Although these estimates may not be predictive of the exact number of labor organizations that will be impacted by this rule in the future, the Department believes these estimates to be sound and derived from the best available information.

The Department's estimates include costs incurred by the labor organization for both labor and equipment. The labor costs reflect the Department's assumption that the labor organizations will rely upon the services of some or all of the following positions (either internal or external staff, including the labor organization's president, secretary-treasurer, accountant, bookkeeper, computer programmer, lawyer, consultant) and the compensation costs for these positions, as measured by wage rates and employer costs published by the Bureau of Labor Statistics or derived from data reported in e.LORS.

The Department also made assumptions relating to the amount of time that particular tasks or activities would take. The activities occur during the distinct “operational” phases of the rule: First, tasks associated with modifying bookkeeping and accounting practices, including the modification or purchase of software, to capture data needed to prepare the required reports; second, tasks associated with recordkeeping; and third, tasks associated with sending or exporting the data in an electronic format that can be processed by the Department's import software. Since the analysis is designed to provide estimates for a “representative” labor organization the Department's estimates largely reflect weighted averages. Where an estimate depends upon the number of labor organizations subject to the LMRDA or included in one of the tier groups, the Department has relied upon data in the e.LORS system (for the years stated for each example in the text or tables).

The following methodology and assumptions underlie the Department's burden estimates:

• The size of a labor organization, as measured by the amount of its annual receipts, will affect the burden on reporting labor organizations. Larger labor organizations have more receipts and disbursements to itemize and more employees who have to estimate their time allocation. Three tiers, based on annual receipts, have been constructed to differentiate the burdens among Form LM-2 filers.
• A labor organization's use of computer technology, or not, to maintain its financial accounts and prepare annual financial reports under the current rule, will affect the burden on reporting labor organizations. Although few Form LM-2 filers do not have computers, the larger the labor organization the greater likelihood that it will be using a specialized accounting program instead of commercial-off-the-shelf accounting software.
• Relative burden associated will correspond to the following predictable stages: Review of the rule, instructions, and forms; adjustments to accounting software and computer hardware; installation, testing, and review of the Department's reporting software; changing accounting structures and developing, testing, reviewing, and documenting accounting software queries as well as designing query reports; training officers and employees involved in bookkeeping and accounting functions; training officers and employees to maintain information relating to transactions and estimating the amount of time they expend in prescribed categories; the actual recordkeeping of data under the revised procedures associated with itemizing receipts and disbursements and allocating them by functional categories; preparing a download methodology to either submit electronic reports using “cut and paste” methods or the import/ export technology allowing for a more automated transfer of data to the Department; the development, testing, and review of any translator software that may be required between a labor organization's accounting software and the Department's reporting software; and completing a continuing hardship exemption request if necessary.
• Burden can be categorized as recurring or non-recurring, with the latter primarily associated with the initial implementation stages. Recordkeeping burden, as distinct from reporting burden, will predominate during the first months of implementation.
• Burden can be reasonably estimated to vary over time with the greatest burden in the initial year, decreasing in later years as users gain experience. Estimates for each of the first three years and a three-year average will provide useful information to assess the burden. A weighted average provides a “snapshot” of the burden associated with the form for an individual reporting labor organization.
• Burden can be usefully reported as an overall total for all filers in terms of hours and cost. This burden, for most purposes, can be differentiated for each individual form. The Federal burden cannot be reasonably estimated by form.
• The estimated burden associated with the current Form LM-2 and Form LM-3 is the appropriate baseline for estimating the burden and cost associated with the proposed rule.

d. Baseline Adjustments: Current Form LM-2

Prior to the 2003 revision, the Department assumed that 5,038 local labor organizations would take 200 hours and 141 national and international labor organizations would take 1,500 hours to collect and report their information on the current Form LM-2 for a weighted average of approximately 240.0 hours for each of the 5,179 respondents. In addition, the Department assumed at that time that Form LM-2 filers would take an average 24.0 hours for accounting, 16.0 hours for programming, 8.0 hours for legal review, and 4.0 hours for consulting assistance to complete the current form for an average total burden of 292.0 hours per respondent. Further, the Department previously estimated that 160.0 hours of the total is for recordkeeping burden and 132.0 hours is for reporting burden. In 2003, the Department estimated that on average, labor organizations would spend 536.0 hours to comply with the recordkeeping and reporting requirements.

In 2003 the Department estimated that the average annual cost of complying with the current Form LM-2 recordkeeping and reporting requirements per respondent would be $24,271. The total annual cost for all respondents (based on the more recent estimate of 4,452 reporting labor organizations rather than the 5,038 estimate used in 2003) is estimated to be $116.0 million for the current Form LM-2.

e. Revised Form LM-2

To estimate the burden hours and costs for the proposed revisions to Form LM-2, the Department, as it did in connection with the 2003 rule, divided the Form LM-2 filers into three groups or tiers, based on the amount of the labor organizations' annual receipts. As discussed, the Department estimates that there are 4,452 such filers. In Tier I, the Department estimates there are 1,317 labor organizations with annual receipts from $250,000 to $499,999.99. The Department assumes that labor organizations within this tier probably use some type of commercial off-the-shelf accounting software program and will most likely use the “cut and paste” feature of the reporting software (see Table 3). In Tier II, the Department estimates there are 3,083 labor organizations with annual receipts from $500,000 to $49.9 million. The Department assumes that labor organizations within this tier most likely use some type of commercial off-the-shelf accounting software program and will use all of the electronic filing features of the reporting software. Id. Finally, in Tier III, the Department estimates there are 52 labor organizations with annual receipts of $50.0 million or more. Id. The Department assumes that labor organizations within this tier most likely will use some type of specialized accounting software program and also will use all of the electronic filing features of the reporting software.

For each of the three tiers, the Department estimated burden hours for the additional nonrecurring (first year) recordkeeping and reporting requirements, the additional recurring recordkeeping and reporting burden hours, and a three-year annual average for the additional nonrecurring and recurring burden hours associated with the proposed rule.

The proposal will revise Form LM-2 to improve financial disclosure and clarity within categories of receipts and disbursements. Under the proposal, receipts will have to be disclosed in the same manner that disbursements are currently disclosed and certain disbursements (e.g., benefit payments, travel reimbursements, and transactions involving investment and fixed assets) will have to be reported in greater detail. To accomplish this result, additional schedules will be required, which will add to the burden associated with each Form LM-2 filed.

For this analysis the Department has used an approach that largely replicates the approach used in 2003, i.e., estimating the burden and costs by the size of labor organizations as measured by the amount of their annual receipts. However, the current approach differs somewhat from the 2003 approach. Since the basic information required on the new and revised schedules is already needed to complete the current Form LM-2, the Department assumes that most of the burden associated with the proposed changes will occur in the first year due to needed changes to the accounting software and staff training. Like it did in 2003, the Department has estimated burden hours and costs for the additional nonrecurring (first year) recordkeeping and reporting requirements, the additional recurring recordkeeping and reporting burden hours, and a three-year annual average for the additional nonrecurring and recurring burden hours. As in 2003, the Department assumes that Tier I and Tier II labor organizations use commercial off-the-self accounting packages and Tier III labor organizations use customized accounting software.

For proposed revised Schedules 3 and 4 (Sale of Investments and Fixed Assets and Purchase of Investments and Fixed Assets), the Department estimates that labor organizations shall spend, on average, an additional, nonrecurring 10.38 hours per schedule to change their accounting structures; develop, test, review, and document accounting software queries; design query reports; and train accounting personnel. See Table 2 below. This estimated burden is derived from the 2003 Form LM-2 PRA estimate for the first year nonrecurring burden associated with Schedule 17 (Contributions, Gifts, and Grants). The changes to that schedule under the 2003 rule (the addition of date, name and address of payer or payee) are the same changes that are proposed for Schedules 3 and 4 in this NPRM. In 2003, the Department determined that in order to provide this information it would take Tier I and II labor organizations 5.3 hours to change their accounting systems and Tier III labor organizations 13.3 hours. Again, as in 2003, the Department estimates that it will take Tier I, II and III labor organizations 1 hour to design the report, 1 hour to develop a query, .75 hours to test the query, .5 hours for management review, .75 hours to document the query process, and .25 hours to train staff. The Department estimates that Tier II and III labor organizations will spend an additional hour preparing download methodology. The average burden was computed by taking the burden in each tier and weighting it by the number of unions in each tier.

To record the date of the transaction and address of the payee on Schedule 4, the Department estimates, using a weighted average based on the number of labor organizations within each tier, that labor organizations will spend an additional (recurring) .03 hours of recordkeeping burden and .48 hours on reporting. To record the date of the transaction and address of the payer on Schedule 3, the Department estimates, using a weighted average based on the number of labor organizations within each tier, that labor organizations will spend an additional (recurring) .07 hours of recordkeeping burden, and .49 hours on reporting burden. Based on extensive public comment and analysis, the Department in 2003 made the following underlying assumptions in determining its final burden numbers. First, that it would take the average Form LM-2 filer approximately .05 hours of additional recordkeeping time per receipt/disbursement to record the name and address of the payer/payee. Second, Tier I labor organizations would incur an additional recordkeeping burden from training (.25 hours) and preparing the report (.33 hours) to record the name and address of the payer/payee. Third, that approximately one-half of the Tier II labor organizations already kept these records, and all Tier III labor organizations kept these records. Therefore, all Tier I labor organizations would be subject to the additional recordkeeping burden, and one-half the Tier II labor organizations would be subject to the additional recordkeeping burden. The Department has adopted these underlying assumptions for its current analysis.

The number of receipts and disbursements on Schedules 3 and 4 for 2006 was compiled from the e.LORS database, which showed that Tier I labor organizations report, on average, less than 1 receipt in Schedule 3 and slightly more than 1 disbursement in Schedule 4. Further, Tier II labor organizations report, on average, 1.5 receipts in Schedule 3 and less than 3.5 disbursements in Schedule 4. Therefore, the additional recordkeeping burden for Tier I and Tier II filers is .06 hours and .13 hours respectively (average number of disbursements/receipts per tier on Schedules 3 and 4 times .05 hours; then divided by two for the Tier II estimate).^[18]

Based on the same assumptions underlying the Department's 2006 estimates, the Department assumes that 75% of Tier I filers will use the cut and paste method to enter their data on the Form LM-2 (.08 hour burden per schedule) and 25% will manually enter the data on the Form LM-2 (.016 hour burden per disbursement or receipt) and that all Tier II and III filers will import or attach their data to the Form LM-2 for an additional reporting burden of .42 hours per schedule. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

For proposed Schedules 11 (All Officers and Disbursements to Officers) and 12 (Disbursements to Employees), the Department estimates that labor organizations will spend, on average, 10.38 hours to change their accounting structures; develop, test, review, and document accounting software queries; design query reports; and train accounting personnel. As explained below, this estimated burden was reached by analyzing the 2003 burden estimates from the Form LM-2 final rule for Schedules 11 and 17 and applying that data to the Form LM-2 officer and employee entries on Form LM-2 reports filed with the Department in 2006. As in 2003, the Department assumes that the time required to add a column to one schedule is the same for any schedule. To download the relevant information from their records, programmers will only have to designate an appropriate location on their electronic filing system for collecting and reporting this information. Therefore, each labor organization would require, on average, approximately 5.2 hours to add the benefits column to Schedules 11 and 12 (one-half the time required to add two columns to Schedules 3 and 4). The Department has applied the same nonrecurring burden to the Disbursements for Official Business revision as to the benefits revision, 5.2 hours.^[19] The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

As explained below, the Department estimates that, on average, labor organizations will take an additional (recurring) .19 hours of recordkeeping burden and .49 hours of reporting burden to enter the amount officers receive in benefits on Schedule 11 and track the indirect disbursements for temporary lodging or transportation. Again, these estimates are calculated using the recurring burden estimates from 2003 for Schedules 11 and 17. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

The proposed changes to Schedule 11 involve individual columns, not entire schedules. Nevertheless, the Department has assumed that labor organizations will expend about the same amount of time keeping records and entering data required by the new proposed columns on Schedule 11 (using the same methodology, as discussed above, for Schedules 3 and 4). To report the additional information required by the proposed schedule, labor organizations will have to report the amount each of its officers receives in benefits from the labor organization. The labor organization must keep records of the benefits each officer receives, like an itemized schedule, then aggregate the payments and place the aggregate amount next to the officer's name. Although the individual disbursements of $5,000 or more need not be entered on the Form LM-2, the labor organization must track all the disbursements for benefits so that a final lump sum total can be entered for each officer on Schedule 11. Currently, labor organizations are required to keep records of all benefits they provide to officers on the IRS Form 990. Therefore, there is no recurring recordkeeping burden associated with the new benefits column. However, there is a slight recurring reporting burden, on average, of .49 hours. The Department assumes that 75% of Tier I filers would use the cut and paste method to enter their data on the Form LM-2 (.08 hour burden per column entering data, .25 hours on training, .33 hours preparing the report), and 25% would manually enter the data on the Form LM-2 (.016 hour burden per officer, .25 hours on training, .33 hours preparing the report). Tier II and III filers will import or attach their data to the Form LM-2 for an additional reporting burden of .42 hours. Further, there is no new recurring reporting burden for indirect disbursements for temporary lodging or transportation. This information is currently required to be reported in Schedules 15 through 20, as appropriate; thus, as only the location on the form is changed, there is no additional reporting burden. The only burden associated with this proposed change is estimated to be about the same amount of time required for a new itemized schedule (.19 hours). The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

Compared to the proposed revised Schedule 11, the Department estimates that, on average, labor organizations will spend slightly more time on the proposed revised Schedule 12. Labor organizations, on average, will spend an additional (recurring) .75 hours of recordkeeping burden and .5 hours of reporting burden to track and enter the amount employees receive in benefits on Schedule 12 and track the indirect disbursements for temporary lodging or transportation. Unlike benefits to officers (which are reported on Schedule 11), labor organizations do not have to track benefits paid to employees for the IRS Form 990 unless those employees are “key employees.” Further, labor organizations have not had to track by individual employee the indirect disbursements to employees for lodging or travel under the current Form LM-2.

There is no way to determine the amount or number of benefits or indirect disbursement for lodging or travel being paid to employees from the current Form LM-2. To estimate the additional burden associated with these tasks, the Department assumes that labor organizations will expend the same amount of time keeping records of benefits and indirect disbursements for lodging or travel for data entry on Schedule 12 as they do on Schedules 3 and 4. The Department assumes that labor organizations already keep some records of benefits paid to employees and indirect disbursements for lodging and travel. However, it is unlikely that these benefits or disbursements appear next to the name of the person who received them. Therefore, like Schedules 3 and 4, the labor organizations will now have to track the name of the person to whom (or on whose behalf) the disbursement is made. Unlike Schedules 3 and 4, where the burden is based on the estimated number of disbursements, Schedule 12's recordkeeping burden is based on the estimated number of employees. Tier I labor organizations will spend approximately 3 minutes (.05 hours) per employee keeping records of benefits paid to each employee and 3 minutes (.05 hours) per employee keeping records of indirect disbursements for lodging or travel made to employees. On average, Tier I labor organizations have 9.67 employees listed on their Form LM-2. As on Schedule 3 and 4, the Department assumes that one half of the Tier II labor organizations will already keep data on benefits and indirect disbursements for lodging or travel made to employees, but the other one half will spend approximately 3 minutes (.05 hours) per employee keeping records of benefits paid to each employee and 3 minutes (.05 hours) per employee keeping records of indirect disbursements for lodging or travel made to each employee. On average, Tier II labor organizations have 13.53 employees listed on their Form LM-2. Finally, it is assumed that Tier III labor organizations already keep records of benefits and indirect disbursements for lodging or travel by employee. Therefore, labor organizations will spend an additional .75 hours keeping records of employee benefits and disbursements to employees for lodging or travel. Like Schedules 3 and 4, the Department assumes it will take Tier I labor organization .05 hours recordkeeping burden per employee to keep the new data. The Department, however, also assumes that one-half the Tier II labor organizations currently keep the records, and all the Tier III labor organizations keep the records. Additionally, the Department assumes that labor organizations will use the same method for reporting benefits as they use throughout the Form LM-2. Therefore, the Department estimates that labor organizations will spend an additional .50 hours per year reporting benefits on the Form LM-2. There is no additional reporting cost associated with the removal of the exemption for indirect disbursements to employees for lodging or travel. This information is now reported in Schedules 15 through 20, as appropriate, so only the reporting location on the form is changed. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

For proposed Schedules 14 through 22, the Department estimates that labor organizations will spend, on average, 10.38 hours per schedule to change their accounting structures; develop, test, review, and document accounting software queries; design query reports; and train accounting personnel. This burden estimate is based largely on the 2003 burden estimates for Schedule 14 and the number of itemized receipts reported on Schedule 14 in 2006, approximately 6.4 per filer. It should be noted that the Department has used the number of itemized entries currently reported on Schedule 14 for estimating this burden because there is no way to determine the number of itemized receipts which will appear on the proposed Schedules 14 through 22 as they currently only report an aggregate number. However, since Schedule 14 is a “catch all” schedule (includes all other receipts which do not fit into the other specific receipt schedules), it is likely that the number of entries on proposed Schedules 14 through 22 will be significantly lower than the Department's estimate. As in 2003, the Department estimates that it will take Tier I and Tier II labor organizations 5.3 hours to change their accounting structures and 13.3 hours for Tier III labor organizations to change their accounting structures. Additionally, the Department estimates that each labor organization will spend approximately 4.95 hours setting up the reporting system. The smallest Form LM-2 filers, Tier I, will spend approximately 4.25 hours setting up their reporting schedules (1 hour to design report, 1 hour to develop query, .75 hours to test query, .5 hours for management review, .75 hours for document query process, and .25 hours to train new staff). The Tier II and III labor organizations will spend an additional hour setting up their systems as their systems are more complicated and will require a greater number of entries.

The Department also estimates that, on average, labor organizations will take an additional (recurring) .21 hours of recordkeeping burden and .47 hours of reporting burden to complete proposed Schedules 14 through 22. In 2003 the Department made the underlying assumption that labor organizations will spend 3 minutes (.05 hours) on recordkeeping per disbursement or receipt. Further, the Department assumed that all the largest labor organizations, Tier III, and 10% of the Tier II labor organizations will already keep this data. The Department has adopted the above underlying assumptions in its current analysis. In 2006, Tier I filers had, on average, 1.3 entries on other receipts and Tier II filers had, on average, 6.1 entries on other receipts. If it takes 3 minutes of recordkeeping per receipt or disbursement, then the average labor organization will spend .21 hours per schedule on recordkeeping each year. Further, as in 2003, the Department assumes that Tier I filers will spend .25 hours on training, .33 hours preparing the report and 1 minute (.02 hours) to manually enter each disbursement or receipt on the report and Tier II and III filers will spend 25 minutes (.42 hours) per schedule to cut and paste or import their data onto the Form LM-2. Therefore, the Department estimates the reporting burden per schedule to be .47 hours. The average burden was computed by taking the burden in each tier and weighting it by the number of labor organizations in each tier.

Finally, the Department estimates that labor organizations will spend, on average, an additional, recurring 2.0 hours reviewing the revised Form LM-2 and instructions. In 2003, the Department estimated that, on average, labor organizations would spend 4.0 hours reviewing the current Form LM-2 and instructions. The Department has reduced the burden associated with reviewing the revised Form LM-2 and instructions because the proposed changes are significantly less extensive than the changes in 2003 and labor organizations are familiar with the kinds of changes being made to the proposed Form LM-2.^[20]

Given the current widespread use of automated accounting packages and labor organizations' experience with the electronic filing, the Department is not making the assumption (that was made in 2003) that over time the recurring burden would be reduced due to efficiency gains as the accounting staff became familiar with the software. Rather, the Department assumes that the second- and third-year burden will be equal to the recurring first-year burden.

To develop the cost estimates, the Department examined data from BLS and the e.LORS system. The Department examined salary data for the positions of president, secretary-treasurer, accountant, and bookkeeper-clerk. This review was conducted for labor organizations in all three tiers. Based on this review the Department has developed averages for these labor organization personnel in each tier. The annual salaries were divided by 2080 hours to convert them to hourly rates. These figures are reported in Table 4 immediately below.

The weighted average salary rates were then multiplied by the estimated additional burden hours to arrive at the estimated additional cost burden displayed in Table 5 below.

The Department estimates the additional weighted average reporting and recordkeeping burden for the revised Form LM-2 to be 146.09 hours per respondent in the first year (including nonrecurring implementation costs) and 11.14 hours per respondent in the second and third years. See Table 5 below. The Department estimates the total additional annual burden hours for respondents for the revised Form LM-2 to be 650,407 hours in the first year and 49,599 hours in the second and third years.

The Department estimates the additional weighted average annual cost for the revised Form LM-2 to be $4,310 ($29.50 (weighted average cost per hour) x 146.09 (additional hours to complete the proposed changes to Form LM-2 in first year) = $4,310) per respondent in the first year (including nonrecurring implementation costs) and $329 ($29.50 (weighted average cost per hour) × 11.14 (additional hours to complete the proposed changes to Form LM-2 in second and third year) = $329) per respondent in the second year and third year. The Department also estimates the total additional annual cost to respondents for the revised Form LM-2 to be $19.19 million ($29.50×650,407 (total hours to complete proposed changes to Form LM-2 in first year) = $19.19 million) in the first year and $1.46 million ($29.50×49,599 (total hours to complete proposed changes to Form LM-2 in second and third year) = $1.46 million) in the second and third years.

The Department's estimates of the additional burden and costs associated with the proposed revisions to the Form LM-2 are presented in Table 5. This table only presents the increases associated with the proposed changes to the form. Neither the burden or costs associated with the current Form LM-2 nor the proposed revocation of the privilege of some labor organizations to file the Form LM-3 is included in these estimates.

Appropriate information technology is used to reduce burden and improve efficiency and responsiveness. The current forms can be downloaded from the OLMS Web site. OLMS has also implemented a system to require Form LM-2 filers and permit Form LM-3 and Form LM-4 filers to submit forms electronically with digital signatures. Labor organizations are currently required to pay a minimal fee to obtain electronic signature capability for the two officers who sign the form. These digital signatures ensure the authenticity of the reports. Information about this system can be obtained on the OLMS Web site at http://www.olms.dol.gov.

The OLMS Online Public Disclosure Room is available for public use at http://www.unionreports.gov. The site contains a copy of each labor organization's annual financial report for reporting year 2000 and thereafter as well as an indexed computer database on the information in each report that is searchable through the Internet.

OLMS includes e.LORS information in its outreach program, including compliance assistance information on the OLMS website, individual guidance provided through responses to email, written, or telephone inquiries, and formal group sessions conducted for labor organization officials regarding compliance.

2. Form LM-3 Revocation Procedures Burden Estimates

The Department proposes to establish a procedure for revoking the simplified reports filing privilege, provided by 29 CFR 403.4(a)(1), for labor organizations that are delinquent in their Form LM-3 filing obligation, have failed to timely file an amended form after notification that the report is materially deficient, or those for which the Department otherwise finds that the purposes of section 208 of the LMRDA, 29 U.S.C. 438, would be served by such revocation. The Department's ultimate goal in revoking the filing privilege for such labor organizations is to promote greater financial transparency. As discussed above, the revised paperwork requirements are necessary to effectuate the purposes of the LMRDA by providing members of labor organizations with information about their labor organizations that will enable them to be responsible, informed, and effective participants in the governance of their labor organizations; discourage embezzlement and financial mismanagement; prevent the circumvention or evasion of the statutory reporting requirements; and strengthen the effective and efficient enforcement of the LMRDA by the Department. The manner in which the collected information will serve these purposes is discussed throughout the preamble to this proposed rule.

As discussed in the preceding discussion about the Form LM-2, the Department estimates that Form LM-2 filers will spend 463.08 hours (389.60 (average recordkeeping hours to complete current Form LM-2) + 73.48 (average recordkeeping hours to complete proposed changes to Form LM-2) = 463.08) fulfilling recordkeeping requirements and 219.01 hours (146.40 (average reporting hours to complete current Form LM-2) + 72.61 (average reporting hours to complete proposed changes to Form LM-2) = 219.01) completing the proposed form in the first year. However, the Department assumes that labor organizations with total annual receipts under $250,000 will not devote as many hours nor incur as high a cost as labor organizations with greater annual receipts. As explained below, the Department has estimated that Form LM-3 filers who lose their filing privilege will expend 143.56 hours fulfilling the recordkeeping requirements of the Form LM-2 and 67.89 hours completing the form itself, which corresponds to $3,359.92 in costs.

In its PRA estimates for the 2003 final rule, the Department estimated that the average Form LM-2 filer in the first year of the final rule would expend 133.9 hours on recurring recordkeeping functions related to Schedule 11 (Officers) and an additional 69.3 hours on recurring recordkeeping burden hours related to Schedule 12 (Employees). See Table 4 of the Form LM-2 final rule at 68 FR 58439. These 203.2 hours (133.9 plus 69.3) represent the recurring recordkeeping hours that labor organization officers and employees spend tracking the functional reporting categories for their work (i.e., recordkeeping for Schedules 11 and 12 on Form LM-2). These hours also represent over one half (56%) of the total estimated recurring recordkeeping burden hours for the average Form LM-2 filer during the first year of the final rule. It bears repeating, however, that the total of 203.2 hours represents the burden for officers and employees of the average labor organization filing the Form LM-2, not the smallest labor organizations.

In the 2003 rule, the Department estimated that officers and employees of the smallest Form LM-2 filers (Tier I filers) would spend only 30 minutes a month (rather than 60 minutes for larger labor organizations) during the year and an hour at the end of the year on recurring recordkeeping, corresponding to a total of seven hours per officer/employee per year. Moreover, the Department estimated that Tier I labor organizations only have an average of eight officers and one employee. See 68 FR 58436-37. The Department therefore estimated that these nine officers and employees would spend only 63 hours (nine officers/employees multiplied by seven burden hours) on recurring recordkeeping, rather than the average of 203 hours for all Form LM-2 filers. See 68 FR 58439. This 140 hour difference (203 minus 63) represents a 69% difference in the overall average burden hours for all Tier I labor organization officers and employees on this aspect of the Form LM-2 rule. The Department has extrapolated from these 2003 figures to determine estimates of the total burden and costs for Form LM-3 filers that lose their simplified filing privilege and instead file a Form LM-2. As discussed below, the Department calculated an adjusted burden estimate for the average Form LM-2 filer, and then reduced this amount by 69%, to reflect the generally fewer assets, liabilities, and financial transactions of the “Tier I” labor organizations.

In adjusting the overall burden of the average Form LM-2 filer, the Department eliminated those recurring and nonrecurring burden hours and costs (shown in Table 5) associated with electronic filing, because the proposed rule allows affected labor organizations the option of filing electronically or by paper. Form LM-3 filers currently have the option of filing the Form LM-3 electronically. However, in the latest fiscal year for which data is available (2005) fewer than 20 did so. Given the very small number of Form LM-3 filers that voluntarily use the electronic filing system, the Department anticipates that none of the labor organizations that have their Form LM-3 filing privilege revoked will use electronic filing on their Form LM-2. Thus, for purposes of the proposed rule, the Department combined the remaining recurring and nonrecurring recordkeeping and reporting burden hours, because the typical Form LM-3 filer that must file a Form LM-2 will incur such burdens only once (i.e., the burden hours and costs will all be nonrecurring). The estimated totals for the average filer in these situations are 463.08 hours for recordkeeping and 219.01 hours for reporting.

As mentioned, the Department reduced the combined Form LM-2 recordkeeping and reporting burden estimates for the average Form LM-2 filer (shown by Table 2) by 69%, concluding that affected labor organization will spend 211.45 hours completing Form LM-2 (143.55 burden hours for recordkeeping and 67.89 hours for reporting) for a total cost of $3,359.92 per respondent. To calculate the total cost, the Department has used the same weighted average salary rates for Tier I labor organizations ($15.89) used above in computing dollar costs.

Form LM-3 filers spend an estimated 64 hours fulfilling recordkeeping requirements and 52 hours completing the form (corresponding to a total cost of $1,404 per filer at $12.10 per hour). Therefore, the Department estimates that a Form LM-3 labor organization that loses its Form LM-3 filing privilege and files a Form LM-2 in its place will experience an increase of 79.55 hours (143.55−64 = 79.55) for recordkeeping and 15.89 hours (67.89−52 = 15.89 hours) for reporting burdens associated with the Form LM-2, which translates to a total burden hour increase of 95.45 hours and a cost increase of $1,955.92 ($3,359.92−$1,404 = $1,955.92) per filer.^[21] The Department estimates that it will revoke the Form LM-3 filing privilege for an average of 96 filers during each of the first three years of the proposed rule. This will result in an increase of 7,637.37 recordkeeping burden hours (96 × 79.55) and 1,525.72 reporting burden hours (96 × 15.89) per year. Thus, there is an estimated annual increase of 9,163.09 total burden hours and an estimated annual increase of $187,798.61 in costs.

Finally, as discussed above in greater detail, this aspect of the proposed rule relies on appropriate information technology to reduce burden and improve efficiency and responsiveness. At the same time, the Department's proposal has sought to minimize the burden on the reporting labor organization by permitting it to submit the report manually. Upon its receipt of manual reports, the Department will enter the information electronically so that members of labor organizations, the public, and the Department's investigators will be able to access and fully search these reports through the OLMS Online Public Disclosure Room.

3. Request for Public Comment

Currently, the Department is soliciting comments concerning the information collection request (“ICR”) for the information collection requirements included in this proposed regulation at section 403.2, Annual financial report, of title 29, Code of Federal Regulations, which, when implemented, will revise the existing OMB control number 1215-0188. A copy of this ICR, with applicable supporting documentation; including among other things a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the RegInfo.gov Web site at http://www.reginfo.gov/​public/​do/​PRAMain or by contacting Darrin King on 202-693-4129 (this is not a toll-free number)/e-mail: [e-mail]. Please note that comments submitted in response to this notice will be made a matter of public record.

The Department hereby announces that it has submitted a copy of the proposed regulation to the Office of Management and Budget (“OMB”) in accordance with 44 U.S.C. 3507(d) for review of its information collections. The Department and OMB are particularly interested in comments that:

• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., by permitting electronic submission of responses.

Type of Review: Revision of a currently approved collection.

Agency: Employment Standards Administration.

Title: Labor Organization and Auxiliary Reports.

OMB Number: 1215-0188.

Affected Public: Private Sector: Not-for-profit institutions.

Number of Annual Responses: 34,054.^[22]

Frequency of Response: Annual for most forms.

Estimated Total Annual Burden Hours: 4,568,057.

Estimated Total Annual Burden Cost: $111,071,724.

Potential respondents are hereby duly notified that such persons are not required to respond to a collection of information or revision thereof unless approved by OMB under the PRA and it displays a currently valid OMB control number. See 35 U.S.C. 3506(c)(1)(B)(iii)(V). In accordance with 5 CFR 1320.11(k), the Department will publish a notice in the Federal Register informing the public of OMB's decision with respect to the ICR submitted thereto under the PRA.

4. Annualized Federal Costs

The estimated annualized Federal cost of this rule is $231,924.52. This represents estimated operational expenses such as computer programming to amend the Form LM-2, and staff time to draft documents and review materials in cases where a labor organization's privilege to file the Form LM-3 is revoked.

Executive Order 13045 (Protection of Children From Environmental Health Risks and Safety Risks)

In accordance with Executive Order 13045, the Department has evaluated the environmental safety and health effects of the proposed rule on children. The Department has determined that the proposed rule will have no effect on children.

Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments)

The Department has reviewed this proposed rule in accordance with Executive Order 13175, and has determined that it does not have “tribal implications.” The proposed rule does not “have substantial direct effects on one or more Indian tribes, on the relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes.”

Executive Order 12630 (Governmental Actions and Interference With Constitutionally Protected Property Rights)

This proposed rule is not subject to Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights, because it does not involve implementation of a policy with takings implications.

Executive Order 12988 (Civil Justice Reform)

This proposed rule has been drafted and reviewed in accordance with Executive Order 12988, Civil Justice Reform, and will not unduly burden the federal court system. The proposed rule has been written so as to minimize litigation and provide a clear legal standard for affected conduct, and has been reviewed carefully to eliminate drafting errors and ambiguities.

Environmental Impact Assessment

The Department has reviewed the proposed rule in accordance with the requirements of the National Environmental Policy Act (“NEPA”) of 1969 (42 U.S.C. 4321 et seq.), the regulations of the Council on Environmental Quality (40 U.S.C. part 1500), and the Department's NEPA procedures (29 CFR part 11). The proposed rule will not have a significant impact on the quality of the human environment, and, thus, the Department has not conducted an environmental assessment or an environmental impact statement.

Executive Order 13211 (Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use)

This proposed rule is not subject to Executive Order 13211, because it will not have a significant adverse effect on the supply, distribution, or use of energy.

List of Subjects in 29 CFR Part 403

• Labor unions
• Reporting and recordkeeping requirements

Text of Proposed Rule

Accordingly, the Department proposes to amend part 403 of 29 CFR Chapter IV as set forth below:

PART 403—LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS

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

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

2. Amend 29 CFR 403.4 by:

a. Revising paragraph (a)(1) to read as set forth below.

b. Redesignating paragraph (b) as paragraph (f).

c. Adding new paragraphs (b), (c), (d), and (e) to read as set forth below.

§ 403.4

Simplified annual reports for smaller labor organizations.

(a)(1) If a labor organization, not in trusteeship, has gross annual receipts totaling less than $250,000 for its fiscal year, it may elect, subject to revocation of the privilege as provided in section 208 of the LMRDA, to file the annual financial report called for in section 201(b) of the LMRDA and § 403.3 on United States Department of Labor Form LM-3 entitled “Labor Organization Annual Report,” in accordance with the instructions accompanying such form and constituting a part thereof.

* * * * *

(b) The Secretary may revoke a labor organization's privilege to file the Form LM-3 simplified annual report described in paragraph (a)(1) of this section and require the labor organization to file the Form LM-2 as provided in § 403.3, if the following conditions are met:

(1) The Secretary has undertaken an investigation revealing:

(i) The labor organization failed to file the Form LM-3 on or before the date it was due; or

(ii) The labor organization filed the Form LM-3 with a material deficiency and failed to timely remedy this deficiency after notification by the Secretary that the report was deficient; or

(iii) Other circumstances exist that warrant revocation of the labor organization's privilege to file the Form LM-3.

(2) The Secretary has provided notice to the labor organization of the proposed decision to revoke the filing privilege, the reason for such revocation, and an opportunity for the labor organization to submit in writing a position statement with relevant factual information and argument regarding:

(i) The existence of the delinquency or the deficiency (including whether it is material) or other circumstances alleged in the notice;

(ii) The reason for the delinquency or deficiency and whether it was caused by factors reasonably outside the control of the labor organization; and

(iii) Any other factors that should be considered in mitigation of revoking the labor organization's privilege to file the Form LM-3.

(3) The Secretary (or his or her designee who will not have participated in the investigation), after review of all the information provided, shall issue a determination in writing to the labor organization, stating the reasons for the determination, and, as appropriate, informing the labor organization that it must file the Form LM-2 for such reporting periods as the Secretary finds appropriate.

(c) A labor organization that receives a notice as set forth in paragraph (c)(2) of this section must submit its written statement of position and any supporting facts and argument (by mail, hand delivery, or by alternative means if specified in the notice) to the Office of Labor-Management Standards (OLMS) at the address provided in the notice within 30 days after the date of the letter proposing revocation. If the 30th day falls on a Saturday, Sunday, or Federal holiday, the submission will be timely if received by OLMS on the first business day after the 30th day. Absent a timely submission to OLMS, the proposed revocation shall take effect automatically unless the Secretary in his or her discretion determines otherwise.

(d) The Secretary shall make the determinations provided for in the foregoing paragraphs of this section. The determination shall be the Department's final agency action on the revocation.

(e) For purposes of this section, a deficiency is “material” if in the light of surrounding circumstances, the inclusion or correction of the item in the report is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced.

* * * * *

Signed in Washington, DC, this 2nd day of May 2008.

Victoria A. Lipnic,

Assistant Secretary for Employment Standards.

Don Todd,

Deputy Assistant Secretary for Labor-Management Programs.

Appendix

Note:

This appendix, which will not appear in the Code of Federal Regulations, contains the proposed revised Form LM-2, instructions and related charts.

Footnotes

1.  There are now more large labor organizations affiliated with a national or international body than ever before. At the close of FY 2005, 4,452 labor organizations, including 101 national and international labor organizations, reported $250,000 or more in total annual receipts. Unless otherwise noted, all estimates are based on data from the OLMS electronic labor organization reporting system (“e.LORS”) for FY 2005.

2.  The balance between wages/salaries paid to workers and their “other compensation” has changed significantly during this time. For example, in 1966, over 80% of total compensation consisted of wages and salaries, with less than 20% representing benefits. U.S. Department of Labor, Report on the American Workforce (2001) 76, 87. By 2007, wages dropped to 70.8% of total compensation and benefits grew to 29.2% of the compensation package. U.S. Department of Labor, Bureau of Labor Statistics Chart on Total Benefits, available on the Web site of the Bureau of Labor Statistics, http://www.bls.gov.

3.  The format of Forms LM-2 and LM-3 remained essentially unchanged from the early 1960s, when the Department issued the first and second generation of rules under the Act, until October 2003 when the revised Form LM-2 was issued. See, e.g., 25 FR 433 (Jan. 20, 1960); 28 FR 14383 (Dec. 27, 1963). The Form LM-4 was adopted by a final rule in 1992 with an effective date of December 31, 1993. See 57 FR 49356-49365 (Oct. 30, 1992). The effective date was subsequently postponed until December 31, 1994. See 58 FR 28304 (May 12, 1993). The Form LM-4 was then revised slightly and adopted by a final rule with the same December 31, 1994 effective date. See 58 FR 67594 (Dec. 21, 1993).

4.  The Form LM-2 and its instructions are published at 68 FR 58449-523 (Oct. 9, 2003) and are available at http://www.olms.dol.gov. Copies of the Form LM-3 and Form LM-4 are also available at http://www.olms.dol.gov.

5.  The 2003 rule set this amount at $250,000. However, the rule inadvertently failed to change the figure in 29 CFR 403.4(a)(1) from $200,000 to $250,000. As part of this proposal, the Department intends to revise section 403.4(a)(1) by correcting it to read “$250,000.” See proposed text of regulation.

6.  The public disclosure room is located in Room N-1519 of the Francis Perkins Building, 200 Constitution Ave., NW, Washington, DC 20210.

7.  The Department published on March 4, 2008 a proposed rule that would establish a Form T-1 relating to the financial operations of “trust[s] in which a labor organization is interested.” See 29 U.S.C. 402(l), 438. The proposed Form T-1 rule, if adopted, will affect the instructions to the Form LM-2. See 73 FR 11754.

8.  For example, the Securities and Exchange Commission on December 29, 2006, amended its regulations governing disclosure to that agency of executive compensation (71 FR 78338), and the Internal Revenue Service Form 990 requires more detailed disclosure in the area of executive compensation than does the Department's Form LM-2.

9.  The proposed revocation procedures will not affect labor organizations with annual receipts less than $10,000. While section 208 allows the Secretary to revoke the privilege of such labor organizations to file the highly simplified Form LM-4, the Department is not proposing at this time to apply such procedure to Form LM-4 filers.

10.  OLMS intends to continue its regular practice of contacting Form LM-3 filers at the end of their fiscal year about their filing obligation, and, in doing so, it will inform them of the potential revocation of their privilege to file the Form LM-3 if they are delinquent in filing the form, file a Form LM-3 that is materially deficient, or for other appropriate cause. The instructions to the Form LM-3 already inform labor organization officers of their statutory obligation to file the completed forms with OLMS within 90 days after the end of their labor organization's fiscal year.

11.  OLMS will notify a filer whose Form LM-3 is materially deficient by letter, advising in what respects the filing is deficient and providing a date by which the filer must submit a corrected Form LM-3. Ordinarily, the filer will be allowed not less than 30 days from the date of the letter to submit a corrected Form LM-3.

12.  In the 2003 Form LM-2 rule, the Department estimated the burden for each of three categories of reporting labor organizations as measured by their range of annual receipts: Tier I ($250,000 to less than $500,000); Tier II ($500,000 to less than $50,000,000) and Tier III ($50,000,000 or more).

13.  The estimated burden on labor organizations is discussed in detail in the section concerning the Paperwork Reduction Act. The figures discussed above are derived from the figures explained in that section.

14.  The estimates reported in this paragraph do not include labor organizations that voluntarily filed the Form LM-2 nor an estimate of the number of labor organizations (with annual receipts less than $250,000) that would have to file the Form LM-2 under the proposed Form LM-3 revocation procedures. The number of such labor organizations (158) represents only a small fraction of the total number of reporting labor organizations and thus their inclusion would not have a material effect on the burden estimates.

15.  The several magnitude difference in percentages is accountable to the much smaller number of labor organizations with $250,000 to $499,999 in annual receipts (1,317) compared to the number of labor organizations with $500,000 to $6.5 million in annual receipts (2,881) and the three and one half-fold difference in average receipts between labor organizations with $250,000 to $499,999 in annual receipts ($360,387.94) and labor organizations with $500,000 to $6.5 million in annual receipts ($1,262,627.09).

17.  The PRA analysis for the Form LM-2 is set forth at 68 FR 58436-42.

18.  The sum is divided for Tier II labor organizations because, as noted above, the Department estimated that one-half of these organizations already keep these records.

19.  The Department suspects that it will take significantly less time to make the changes listed above to column F (Disbursements for Official Business) on Schedules 11 and 12, which will now include indirect disbursements for temporary lodging or transportation while on official business for the labor organization. However, this information has never been reported by individuals and there is no data upon which to reliably estimate the number of disbursements.

20.  The Department estimates the total recordkeeping and reporting burden to average 682.09 hours per response in the first-year and 547.14 hours per response in the second- and third-years. The total first-year burden was computed by adding the current Form LM-2 total burden hours per respondent (536) to the revised Form LM-2 first-year burden (146.09) from Table 5. The second- and third-year burden was computed by adding the current Form LM-2 total burden hours per respondent (536) to the revised Form LM-2 second- and third-year burden (11.14) from Table 5.

21.  It should be noted that the increased cost to file the LM-2 ($1,955.92) is not the same as the cost associated with the increased burden hours to file the Form LM-2 instead of the Form LM-3 (95.45 hours × the $15.89 average salary rate = $1516.68). As stated above, the Department assumes that the hourly cost for those Form LM-2 filers who have had their Form LM-3 privilege revoked to be the same as Tier I Form LM-2 filers or $15.89. Therefore, the additional cost to Form LM-2 filers who have had their Form LM-3 filing privilege revoked is based on the increased burden hours to file the Form LM-2 (95.45) and the additional hourly cost of $3.79 ($15.89 hourly cost to file Form LM-2−$12.10 hourly cost to file Form LM-3 = $3.79). Thus, $3.79 (the additional hourly cost to complete the Form LM-2 rather than the Form LM-3) × 116 (the original burden hours to complete the Form LM-3 that, under the proposal, would now be used to complete the Form LM-2) = $439.24 (the additional cost of completing the Form LM-2 rather than the Form LM-3). This sum ($439.24) added to $1,516.68 (which is the product of 95.45 (additional hours to complete the Form LM-2 rather than Form LM-3) and $15.89 (hourly cost to fill out the Form LM-2)) equals $1955.92 (the total additional cost of completing the Form LM-2 rather than the Form LM-3).

22.  This figure includes the burden estimates associated with the Department's proposal to establish a reporting requirement concerning a labor organization's section 3(1) trusts. See 73 FR 11754, March 4, 2008.