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 (202) 693-0123 (this is not a toll-free number). Individuals with hearing impairments may call (800) 877-8339 (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, (202) 693-1233 (this is not a toll-free number), (800) 877-8339 (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.
[Page Number 27347]
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.
*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.
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
[Page Number 27348]
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.
*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).
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
*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.
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.
*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.
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.
*6 The public disclosure room is located in Room N-1519 of the Francis Perkins Building, 200 Constitution Ave., NW, Washington, DC 20210.
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
[Page Number 27349]
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
*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.
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
[Page Number 27350]
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
[Page Number 27351]
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.
*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.
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
[Page Number 27352]
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
[Page Number 27353]
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
*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.
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
*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.
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
[Page Number 27354]
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 o
More News:
Market Updates |
Stock Alerts |
All Trading News |
Stock Index
|
|
