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ESA Final Rules

Labor Organization Annual Financial Reports   [1/21/2009]
[PDF]
FR Doc E9-503
[Federal Register: January 21, 2009 (Volume 74, Number 12)]
[Rules and Regulations]               
[Page 3677-3820]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21ja09-17]                         
 

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Part II





Department of Labor





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Employment Standards Administration



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29 CFR Parts 403 and 408



Labor Organization Annual Financial Reports; Final Rule


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DEPARTMENT OF LABOR

Employment Standards Administration

29 CFR Parts 403 and 408

RIN 1215-AB62

 
Labor Organization Annual Financial Reports

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

ACTION: Final Rule.

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SUMMARY: The Department of Labor's Employment Standards Administration 
(``ESA'') Office of Labor-Management Standards (``OLMS'') publishes 
this Final Rule to make several revisions to the current Form LM-2 
(used by the largest labor organizations to file their annual financial 
reports) that will provide additional information on Schedules 3, 4, 11 
and 12, clarify reporting under certain functional categories and add 
itemization schedules corresponding to categories of receipts, and 
establish a procedure and standards by which the Secretary of Labor may 
revoke a particular labor organization's privilege to file a simplified 
annual report, Form LM-3, where appropriate, after investigation, due 
notice, and opportunity for a hearing. The changes are made pursuant to 
section 208 of the Labor-Management Reporting and Disclosure Act 
(``LMRDA''), 29 U.S.C. 438. The final rule will apply prospectively.

DATES: Effective Date: This rule shall take effect on February 20, 
2009.
    Applicability Date: This rule will apply prospectively to labor 
organizations whose fiscal years begin on or after July 1, 2009.

FOR FURTHER INFORMATION CONTACT: Denise Boucher, Director of the Office 
of Policy, Reports and Disclosure, at: Denise M. Boucher, U.S. 
Department of Labor, Employment Standards Administration, Office of 
Labor-Management Standards, 200 Constitution Avenue, NW., Room N-5609, 
Washington, DC 20210, (202) 693-1185 (this is not a toll-free number). 
(800) 877-8339 (TTY/TDD).

SUPPLEMENTARY INFORMATION: 

I. Statutory Authority

    This final rule is issued pursuant to section 208 of the LMRDA, 29 
U.S.C. 438. Section 208 authorizes the Secretary of Labor to issue, 
amend, and rescind rules and regulations to implement the LMRDA's 
reporting provisions. Secretary's Order 4-2007, issued May 2, 2007, and 
published in the Federal Register on May 8, 2007 (72 FR 26159), 
contains the delegation of authority and assignment of responsibility 
for the Secretary's functions under the LMRDA to the Assistant 
Secretary for Employment Standards and permits re-delegation of such 
authority. This rule implements section 201 of the LMRDA, which 
requires covered labor organizations to file annual, public reports 
with the Department, identifying the labor organization's assets and 
liabilities, receipts, salaries and other direct or indirect 
disbursements to each officer and all employees receiving $10,000 or 
more in aggregate from the labor organization, direct or indirect loans 
(in excess of $250 aggregate) to any officer, employee, or member, 
loans (of any amount) to any business enterprise, and other 
disbursements during the reporting period. 29 U.S.C. 431(b). The 
statute requires that such information shall be filed ``in such detail 
as may be necessary to disclose [a labor organization's] financial 
conditions and operations.'' Id.
    Section 208 authorizes the Secretary to establish ``simplified 
reports for labor organizations or employers for whom [s]he finds that 
by virtue of their size a detailed report would be unduly burdensome.'' 
Section 208 also authorizes the Secretary to revoke this privilege for 
any labor organization or employer if the Secretary determines, after 
such investigation as she deems proper and due notice and opportunity 
for a hearing, that the purposes of section 208 would be served by 
revocation.

II. Background

A. Introduction

    On May 12, 2008, the Department issued a notice of proposed 
rulemaking (73 FR 27346) proposing to modify and improve the Form LM-2 
by requiring additional information about the receipt and disbursement 
of labor organization funds, and establish standards and procedures for 
revoking, where appropriate, the privilege afforded some labor 
organizations to file simplified annual reports, after investigation, 
due notice, and opportunity for hearing. As noted in the proposal, the 
revisions to Form LM-2 and the standards and procedures for revoking a 
labor organization's simplified filing privilege are part of the 
Department's continuing effort to better effectuate the reporting 
requirements of the LMRDA.
    The Department initially provided for a 45-day comment period 
ending June 26, 2008. In response to public requests, the Department 
published a notice extending the comment period to July 11, 2008. (73 
FR 34913). The Department received 536 comments on the LM-2/LM-3 NPRM, 
excluding requests for extensions. Of these comments, approximately 45 
were unique comments. The remaining comments were copies of a form 
letter endorsing the proposal. Comments were received from labor 
organizations, employers, trade and public interest groups, and two 
Members of Congress.
    The LMRDA's various reporting provisions are designed to empower 
labor organization members by providing them the means and information 
to maintain democratic control over their labor organizations and 
ensure a proper accounting of labor organization funds. Labor 
organization members are better able to monitor their labor 
organization's financial affairs and to make informed choices about the 
leadership of their labor organization and its direction when they 
receive the financial information required by the LMRDA. By reviewing 
the reports, a member may ascertain the labor organization's priorities 
and whether they are in accord with the member's own priorities and 
those of fellow members. At the same time, this transparency promotes 
both the labor organizations' own interests as democratic institutions 
and the interests of the public and the government. Furthermore, the 
LMRDA's reporting and disclosure provisions, together with the 
fiduciary responsibility provision, 29 U.S.C. 501, which directly 
regulates the primary conduct of labor organization officials, operate 
to safeguard a labor organization's funds from depletion by improper or 
illegal means. Timely and complete reporting also helps deter labor 
organization officers or employees from making improper use of such 
funds or embezzling assets.
    The final rule brings the reporting requirements for labor 
organizations in line with contemporary expectations for the disclosure 
of financial information. Today labor organizations are more like 
modern corporations in their structure, scope, and complexity than the 
labor organizations of 1959.\1\ Further, as benefits have become a 
larger component of compensation, information about such benefits has

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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.
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    \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 29.4% of the compensation package. U.S. Department of Labor, 
Bureau of Labor Statistics Chart on Total Benefits, available on the 
Web site of the Bureau of Labor Statistics, http://www.bls.gov.
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B. The LMRDA's Reporting and Other Requirements

    In enacting the LMRDA in 1959, a bipartisan Congress made the 
legislative finding that in the labor and management fields ``there 
have been a number of instances of breach of trust, corruption, 
disregard of the rights of individual employees, and other failures to 
observe high standards of responsibility and ethical conduct which 
require further and supplementary legislation that will afford 
necessary protection of the rights and interests of employees and the 
public generally as they relate to the activities of labor 
organizations, employers, labor relations consultants, and their 
officers and representatives.'' 29 U.S.C. 401(a).
    The statute was the direct outgrowth of a congressional 
investigation conducted by the Select Committee on Improper Activities 
in the Labor or Management Field, commonly known as the McClellan 
Committee, chaired by Senator John McClellan of Arkansas. In 1957, the 
committee began a highly publicized investigation of labor organization 
racketeering and corruption; and its findings of financial abuse, 
mismanagement of labor organization funds, and unethical conduct 
provided much of the impetus for enactment of the LMRDA's remedial 
provisions. See generally Benjamin Aaron, The Labor-Management 
Reporting and Disclosure Act of 1959, 73 Harv. L. Rev. 851, 851-55 
(1960). During the investigation, the committee uncovered a host of 
improper financial arrangements between officials of several 
international and local labor organizations and employers (and labor 
consultants aligned with the employers) whose employees were 
represented by the labor organizations in question or might be 
organized by them. See generally Interim Report of the Select Committee 
on Improper Activities in the Labor or Management Field, S. Rep. No. 
85-1417 (1957); see also William J. Isaacson, Employee Welfare and 
Benefit Plans: Regulation and Protection of Employee Rights, 59 Colum. 
L. Rev. 96 (1959).
    The statute was designed to remedy these various ills through a set 
of integrated provisions aimed at labor organization governance and 
management. These include a ``bill of rights'' for labor organization 
members, which provides for equal voting rights, freedom of speech and 
assembly, and other basic safeguards for labor organization democracy, 
see 29 U.S.C. 411-15; financial reporting and disclosure requirements 
for labor organizations, their officers and employees, employers, labor 
relations consultants, and surety companies, see 29 U.S.C. 431-36, 441; 
detailed procedural, substantive, and reporting requirements relating 
to labor organization trusteeships, see 29 U.S.C. 461-66; detailed 
procedural requirements for the conduct of elections of labor 
organization officers, see 29 U.S.C. 481-83; safeguards for labor 
organizations, including bonding requirements, the establishment of 
fiduciary responsibilities for labor organization officials and other 
representatives, criminal penalties for embezzlement from a labor 
organization, a prohibition on certain loans by a labor organization to 
officers or employees, prohibitions on employment and officeholding of 
certain convicted felons in a labor organization, and prohibitions on 
payments to employees, labor organizations, and labor organization 
officers and employees for prohibited purposes by an employer or labor 
relations consultant, see 29 U.S.C. 501-05; and prohibitions against 
extortionate picketing, retaliation for exercising protected rights, 
and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529, 
530.
    Financial reporting and disclosure was conceived as a partial 
remedy for these improper practices. As noted in a key Senate Report on 
the legislation, disclosure would discourage questionable practices 
(``The searchlight of publicity is a strong deterrent.''); aid labor 
organization governance (Labor organizations will be able ``to better 
regulate their own affairs. The members may vote out of office any 
individual whose personal financial interests conflict with his duties 
to members.''); facilitate legal action by members against ``officers 
who violate their duty of loyalty to the members''; and create a record 
(The reports will furnish a ``sound factual basis for further action in 
the event that other legislation is required.''). S. Rep. No. 187 
(1959), at 16, reprinted in 1 NLRB Legislative History of the Labor-
Management Reporting and Disclosure Act of 1959, at 412.
    Section 201 of the LMRDA requires labor organizations to file 
annual, public reports with the Department, detailing the labor 
organization's financial condition and operations. 29 U.S.C. 431(b). 
The Department has developed several forms for implementing the LMRDA's 
financial reporting requirements. The annual report forms (Form LM-2, 
Form LM-3, and Form LM-4), require information about a labor 
organization's assets, liabilities, receipts, disbursements, loans to 
officers and employees and business enterprises, direct and indirect 
payments to each officer, and payments to each employee of the labor 
organization paid more than $10,000 during the fiscal year.\3\ The 
reporting detail required of labor organizations, as the Secretary has 
established by rule, varies depending on the amount of the labor 
organization's annual receipts. 29 CFR 403.4.
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    \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).
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    Labor organizations with annual receipts of at least $250,000 and 
all labor organizations in trusteeship (without regard to the amount of 
their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4. 
This form may be filed voluntarily by any other labor organization. The 
Form LM-2 requires receipts and disbursements to be reported by 
functional categories, such as representational activities; political 
activities and lobbying; contributions, gifts, and grants; union 
administration; and benefits. Further, the form requires filers to 
allocate the time their officers and employees spend according to 
functional categories, as well as the payments that each of these 
officers and employees receive, and it compels the itemization of 
certain transactions

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totaling $5,000 or more. This form must be electronically signed and 
filed with the Department.\4\
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    \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.
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    Forms LM-3 and LM-4 were developed by the Secretary to meet the 
LMRDA's charge that she develop ``simplified reports for labor 
organizations and employers for whom [s]he finds by virtue of their 
size a detailed report would be unduly burdensome,'' 29 U.S.C. 438. A 
labor organization not in trusteeship that has total annual receipts 
less than $250,000 for its fiscal year may elect, ``subject to 
revocation of the privilege,'' to file Form LM-3 or Form LM-4, 
depending on its total annual receipts, instead of Form LM-2. See 29 
CFR 403.4(a)(1).\5\ The Form LM-3, which may be used by a labor 
organization with annual receipts of $10,000 or greater, but less than 
$250,000, is a five-page document requiring labor organizations to 
provide particularized information by certain categories, but in less 
detail than Form LM-2. A labor organization not in trusteeship that has 
total annual receipts less than $10,000 for its fiscal year may elect, 
``subject to revocation of the privilege,'' to file Form LM-4 instead 
of Form LM-2 or Form LM-3. 29 CFR 403.4(a)(2). The Form LM-4 is a two-
page document that requires a labor organization to report only the 
total amounts of its assets, liabilities, receipts, disbursements, and 
payments to officers and employees.
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    \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 final rule, the Department has 
revised section 403.4(a)(1) by correcting it to read ``$250,000.'' 
See text of regulation.
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    With regard to each of these reports, the LMRDA states that the 
Secretary of Labor shall ``prescribe the[ir] form and publication * * * 
and such other reasonable rules and regulations * * * as he may find 
necessary to prevent the circumvention or evasion of such reporting 
requirements.'' 29 U.S.C. 438. This final rule revises the Form LM-2 
and establishes a procedure and standards for revocation of a labor 
organization's simplified filing privilege. The revised Form LM-2 will 
provide greater transparency of labor organization finances and 
effectuate the goals of the LMRDA.

III. Changes to the Form LM-2 and the Form LM-3

A. Form LM-2

1. Introduction
    The Department proposed changes to enhance the Form LM-2 by 
requiring labor organizations to disclose additional information about 
their financial activities to their members, this Department, and the 
public. Each of the changes proposed has been adopted in the final 
rule, with some modifications in response to public comment received on 
the proposals. On the revised form, labor organizations will provide 
additional information in Schedule 3 (``Sale of Investments and Fixed 
Assets'') and Schedule 4 (``Purchase of Investments and Fixed Assets'') 
that will allow verification that these transactions are performed at 
arm's length and without conflicts of interest. Schedules 11 and 12 
have also been revised to require reporting of the value of benefits 
paid to and on behalf of officers and employees. This change will 
provide a more accurate picture of total compensation received by labor 
organization officers and employees. Labor organizations will report on 
Schedules 11 and 12 travel reimbursements indirectly paid on behalf of 
labor organization officers and employees. This change will provide 
more accurate information on travel disbursements for labor 
organization officers and employees. The enhancements also include 
additional schedules corresponding to the following categories of 
receipts: Dues and Agency Fees; Per Capita Tax; Fees, Fines, 
Assessments, Work Permits; Sales of Supplies; Interest; Dividends; 
Rents; On Behalf of Affiliates for Transmittal to Them; and From 
Members for Disbursement on Their Behalf. These new schedules will 
require the reporting of additional information, by receipt category, 
of aggregated receipts of $5,000 or more. The $5,000 threshold for 
itemization is used throughout the Form LM-2. This change is consistent 
with the information currently provided for disbursements. Finally, the 
Department is amending the Form LM-2 instructions to conform to the 
requirements of the Form T-1 published on October 2, 2008.\6\
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    \6\ When the current Form LM-2 was revised in 2003, the 
Department also established a Form T-1. The latter was vacated by 
the DC Circuit in American Federation of Labor and Congress of 
Industrial Organizations v. Chao, 409 F.3d 377 (2005). See 
discussion at 73 FR 57412, 57413 (Oct. 2, 2008). The Form LM-2 
instructions contained descriptive information about the Form T-1. 
As discussed in its proposal to revise the Form LM-2, 73 FR at 
57416, the Department noted that it had proposed to establish a new 
Form T-1 (73 FR 11754 (Mar. 4, 2008)) and that a final Form T-1 rule 
would affect the instructions to the Form LM-2. Because the Form T-1 
published on October 2, 2008, 73 FR 57412, differs in some respects 
from the Form T-1, as described in the 2003 rule, the Department has 
revised the relevant portion of the Form LM-2 instructions to 
reflect the new Form T-1. The most significant changes have been 
made to Section X of the General Instructions. Compare the language 
of the new Form LM-2 instructions, at pages 4-6, with the language 
in the new Form T-1 instructions, at pages 1-3, shown at 73 FR at 
57457-59. Minor changes have been made to sections II and VII of the 
General Instructions; items 10 (``Trusts or Funds'') and 11 
(``Political Action Committee Funds''); and Schedule 7 (``Other 
Assets'').
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    The Department also sought comment on three specific questions: 
Whether the functional categories on the Form LM-2 should be changed in 
order to improve their usability to members of labor organizations and 
the public; whether the confidentiality exception from the Form LM-2 
instructions should be narrowed, clarified or removed; and ``whether 
all transactions greater than $5,000 should be identified by amount and 
date in the relevant schedules, permitting, however, labor 
organizations, where acting in good faith and on reasonable grounds, to 
withhold information that otherwise would be reported, in order to 
prevent the divulging of information relating to the labor 
organization's prospective organizing or negotiat[ing] strategy.'' 73 
FR at 27352-53. Comments were received on these questions; however, 
with the exception of a clarification about the use of the 
confidentiality exception for reporting payments under a job targeting 
or market recovery program, the Department has made no changes to the 
Form LM-2 on the points for which specific comments were requested.
    The Department framed the request regarding the appropriateness of 
the functional reporting categories as follows:

    The Department also requests comment from the public regarding 
the appropriateness of the current functional disbursement 
categories in the Form LM-2. Comment is sought on whether changes 
should be made to these sections in order to improve their usability 
to members of labor organizations and the public.

    73 FR at 27348. Numerous comments were received on this question. 
Several commenters expressed support for the continued use of the 
functional categories, which they find useful. Some commenters argued 
that no changes should be made to the functional categories, arguing 
that the functional categories place an unnecessary burden on unions 
and that unions have already spent considerable time to modify their

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accounting systems to allow for reporting on the current Form LM-2. 
Among the suggestions for improving the functional categories were the 
following:
     Separate reporting for organizing and representation 
functions and require additional itemization.
     Lower the itemization threshold from $5,000 to $200.
     Require accurate reporting of time spent, rather than an 
estimate to the nearest 10%, by officers and employees on activities in 
the functional categories.
     Require details regarding specific matters, cases, 
contracts, or grievances for which legal fees or other representational 
expenses, including staff time, are incurred.
    The Department requested comment on the functional categories to 
further its understanding of any problems, concerns, or areas where 
improvement would be useful. Other than the items specifically listed, 
the Department did not propose general changes to the functional 
categories. The Department sought comment for informational purposes. 
That information has been received and reviewed and will be used to 
guide any changes that may be proposed in this area in the future.
    The remaining two questions are discussed below in connection with 
Schedule 15.
    The enhancements adopted in today's final rule, as more fully 
described below, will ensure that information is reported in such a way 
as to meet the objectives of the LMRDA by providing labor organization 
members with useful data that will enable them to be responsible and 
effective participants in the democratic governance of their labor 
organizations. The enhancements are designed to provide members of 
labor organizations with additional and more detailed information about 
the financial activities of their labor organization that is not 
currently available through the Form LM-2 reporting. Moreover, 
experience with the software and technology developed for the 2003 
revisions show that it is possible to provide the level of detail 
necessary to give labor organization members a more accurate picture of 
their labor organization's financial condition and operations without 
imposing an unwarranted burden on reporting labor organizations. The 
Department is revising the Form LM-2 software currently in use by Form 
LM-2 filers to conform to the enhancements made in today's final rule 
and will make the software available to filers without charge.
2. The Revisions to the Form LM-2 and Instructions
a. General
    The Department received numerous comments on the proposed changes 
to the Form LM-2. While many comments concerned particular aspects of 
the proposal, many who opposed the proposal made some or all of the 
following claims: (1) The proposal comes too soon after, and without 
adequate justification to depart from, the reporting requirements 
established in 2003; (2) the proposal lacks the support of union 
members and supersedes their right to examine records underlying their 
union's financial reports; and (3) the proposal, especially the 
additional itemization to be required of labor organizations, places 
unnecessary and costly burdens on them. The comments received on these 
points are discussed below.
(1) Timing and Justification for Changing the Form
    Several commenters raised questions about the timing of and 
justification for the proposed changes. For example, one commenter 
stated that the Department's proposal to require additional detailed 
reporting by labor organizations was made without any review by the 
Department of whether the 2003-revised Form LM-2 has been effective or 
beneficial to union members. It suggested that the Department failed to 
provide concrete examples of the need for a particular change or for 
how a change would address a concrete problem. Another commenter stated 
that by changing the reporting requirements so soon after the 2003 
revision, the Department would impose needless, but significant, non-
recurring costs on filers.
    The 2003 rule represented an extensive change in the annual 
financial reports required under the LMRDA. The 2003 rule represented 
the first significant change in the Form LM-2 in over 40 years. Among 
other things, it required unions to report information in new 
functional categories, union officials to allocate how they spend their 
time working on members' interests, itemize major disbursements, 
identify tardy accounts receivables, and file the reports 
electronically in a format that allows for computer-assisted review and 
dissemination via the Internet. When the Department formulated its 
proposal to revise further the Form LM-2, it had the benefit of three 
cycles of reviewing forms submitted in accord with the 2003 revision to 
assess the utility of the form and to identify areas in which 
improvement was needed. In developing the proposals, the Department has 
had the opportunity to review thousands of forms and to tap the 
experience gained by its staff in investigating Form LM-2 issues and 
from their dialogue with union officials and union members while 
providing Form LM-2 compliance assistance to them. The Department has 
had the additional benefit of the lessons learned since the 2003 rule 
took effect in developing other LMRDA reports (Form LM-30 and Form T-1) 
and defending these reports in litigation before the federal courts.
    The changes proposed and adopted in the instant rulemaking are 
incremental changes to the 2003 revisions. As stated in the NPRM and 
the discussion below, the Department acknowledges that unions will 
incur some additional burden in making the changes. In contrast to the 
2003 revisions to the Form LM-2, however, the burden is minimal. Unions 
already have systems with the capability of itemizing disbursements; 
and there is no apparent reason (and none of the commenters suggested 
otherwise) why the same systems cannot be adapted for itemizing 
receipts.
    As discussed in greater detail in the PRA section of the preamble, 
the Department has carefully considered the comments about its 
preliminary burden estimates, as set forth in the NPRM. The Department 
has revised upwards its estimate of the recurring burden associated 
with the new changes to the Form LM-2 to 15.6 hours, an increase of 
about 35 percent from the estimate in the NPRM. The revised estimate 
includes the changes made to the form and instructions from their 
proposed versions.
(2) Benefits to Union Members
    Some commenters stated that the Department failed to explain why 
union members would find the proposed reporting requirements to be 
useful. Another commenter expressed concern about the absence of any 
studies showing how union members are using the information being 
reported under the 2003-revised Form LM-2 to improve the accountability 
and fiscal management of their unions. As the Department explained in 
the NPRM, 73 FR at 27346-48, the proposed rules were designed to 
improve the transparency of union finances and better effectuate the 
intention of Congress in enacting the Act's reporting and disclosure 
provisions. As discussed above, the proposed changes were the result of 
the Department's experience with the 2003-revised Form LM-2. Through 
this experience, it became evident to the Department's staff that

[[Page 3682]]

the Form LM-2 incompletely reflected the compensation paid to union 
officials. Notably missing from the reports was a true reflection of 
the amounts of compensation being paid to or on behalf of individual 
officials. See 73 FR at 27350. While salaries and most other 
disbursements were being reported on an individual basis, the reports 
failed to disclose the total amount of travel expenses incurred by 
union officials or the amount of benefits paid to them. In a similar 
fashion, the 2003 Form LM-2 failed to provide itemization of a union's 
receipts. Without this information, union members, the Department, and 
the public have been missing pertinent, material information about the 
union's finances. The Department's proposals, as adopted in this rule, 
provide greater transparency about a union's finances. Further, each of 
the proposals was accompanied by one or more illustrations of why the 
changes are necessary and how they will benefit union members. These 
examples show the still opaque nature of the current reporting in some 
areas; the examples were chosen to highlight the problems rather than 
serve as an exhaustive listing of the problems.
    Some of the commenters suggest that union members have little or no 
concern about how the union conducts its finances and none about 
transactions as little as $5,000. They further suggest that any 
interest is easily met by a member's right for ``just cause'' to review 
the union's financial records if he or she has questions relating to 
the union's finances. They assert, in effect, that LMRDA section 
201(c), which provides union members a right to review records 
underlying a union's financial report for ``just cause,'' becomes 
superfluous because of the additional detail that the Department would 
require.
    The commenters correctly recognize that Congress provided members 
an important right to obtain additional information about their union's 
finances. The LMRDA requires both that a labor organization file annual 
reports with the Department, LMRDA section 201(b), 29 U.S.C. 431(b), 
and make available to its members the information required to be 
contained in the annual report. LMRDA section 201(c), 29 U.S.C. 431(c). 
However, they mistakenly view detailed reporting as undermining that 
right. In the Department's view, the additional detail required by the 
changes to the Form LM-2 promotes the right of union members to seek 
further information about their union's finances. Sections 201(b) and 
(c) are complementary. As noted by the DC Circuit, there is no 
inconsistency between the itemization required by the Form LM-2 and 
subsection 201(c) because section 201(c) simply requires disclosure of 
data that underlies a subsection 201(b) report. AFL-CIO v. Chao, 409 
F.3d 377, 383-384 (D.C. Cir. 2005). The Court explained that additional 
detail in the subsection 201(b) reports would facilitate a union 
member's right to probe further pursuant to subsection 201(c). Id. 
Today's rule is entirely consistent with the approach taken by the 
Department in 2003 and the court's view of the interplay between 
section 201(b) and 201(c). The information that will be reported on the 
Form LM-2 under this final rule enhances the member's right to examine 
underlying records. It enables a member to more easily identify 
transactions warranting additional scrutiny, which he or she can then 
pursue by requesting and examining underlying records. It thereby 
promotes the interests of the inquiring member, his or her fellow 
members, and the labor organization as an institution.
    By providing itemization of receipts, labor organizations will 
better disclose to their members a more complete accounting of all 
funds received and the identity of individuals and entities with which 
the labor organization does business. The Department also can use this 
information to determine the purpose of any receipt from one source in 
an amount of $5,000 or more, which will help identify possible 
misappropriation of funds. Members will be able to determine that money 
received by the labor organization is actually accounted for. For 
example, labor organization members can ensure that money they paid to 
the organization for disbursement on their behalf is properly accounted 
for on the Form LM-2. If there is no itemized receipt in new Schedule 
22 for payments of $5,000 or more, or the receipt is less than 
expected, then the member will know that the money was not properly 
reported and may pursue his or her right to examine the union's books 
and records underlying the information reported on the Form LM-2.
    One commenter made the point that the question whether unions 
should make itemized disclosures of sales of union assets to non-
insiders is the kind of question that should be resolved by the unions 
themselves in accord with their internal democratic processes. This 
process, it was argued, would better accord with members' real 
interests than the Department's imputed interest. The commenter points 
out that in many, if not most, instances the Department has 
acknowledged that the added detail on the proposed revised Form LM-2--
for example the sale of a union automobile for less than its book value 
to a non-insider-can only be evaluated by a union member who, if he or 
she believes the matter worthy of further scrutiny, can follow up by 
exercising his or her LMRDA Sec.  201(c) right to inspect union 
records. The Department agrees with the assessment that in most cases 
union members will be in the best position to determine whether a 
particular transaction or transactions raise questions that demand 
further examination of the underlying details. Nonetheless, as 
discussed above, Congress established a reporting system in which the 
Department and the general public also serve important roles.
    The Department cannot ensure adequate disclosure if itemization and 
reporting policies are left to the discretion of individual unions. 
Different reporting standards would lead to as many different forms and 
reporting requirements as there are labor organizations. Finally, 
members would have to research each individual labor organization to 
determine whether and where they report. For example, a member of a 
local who is affiliated with an international has an interest in the 
local, international, and any intermediate body. Under this final rule, 
the member can go to the Department Web site and search each labor 
organization's filings containing information reported in a consistent 
format. If the decisions were left to the unions' own choice, members 
would be provided information varying in detail and which could change 
from year to year, denying members the ability to make reliable 
historical and cross-union comparisons. The integrated reporting system 
adopted by the Department ensures that members can find information and 
know what information is provided on the reports.
    A number of the commenters asserted that the new receipt reporting 
requirements would produce a forest of financial minutia that is 
expensive to track and impossible for members to meaningfully 
interpret. One commenter estimated that the average Form LM-2 report is 
195 pages. The commenters also stated that labor organizations with $50 
million or more in annual receipts filed, on average, 96.3 more pages 
in 2007 than in 2004, a 97.4% increase. He stated that the proposed 
changes would add substantial length to the reports. This commenter and 
others questioned how many members will have the time, patience, and 
resources to meaningfully

[[Page 3683]]

delve into their labor organization's Form LM-2 report.
    The Department acknowledges that additional reporting requirements 
add length to a report and that the interest of individual union 
members to examine their union's finances will vary greatly from 
individual to individual. The Department also recognizes that a typical 
member will not have an interest in investigating each transaction 
listed on the Form LM-2. However, a member need not study his or her 
labor organization's entire Form LM-2 for the report to be useful. The 
member can use the summary schedules for quick references or, as 
discussed above, use the search function to find specific transactions. 
The summary schedules allow for quick references. For example, a quick 
look at any summary schedule might reveal a large number where one 
would expect a small number or a small number where one might expect a 
large number. If such a disparity is identified, the member is free to 
search the itemized receipt/disbursement schedules to investigate the 
unexpected aggregate. In one case a labor organization indicated on its 
Form LM-2 summary schedule that it had received $5,037,071 in rent. 
This accounted for more than ten percent of the labor organization's 
total receipts. No itemized schedule for rents is available on the 
current Form LM-2. Another labor organization indicated on its Form LM-
2 summary schedule that it had received $15,123,482 in receipts on 
behalf of affiliates for transmittal to them. This accounted for almost 
a quarter of the labor organization's receipts, exceeded only by per 
capita taxes. Like rents, receipts on behalf of affiliates for 
transmittal to them are not itemized on the current Form LM-2. However, 
the newly revised Form LM-2 will provide the information necessary to 
evaluate the rent receipts and receipts on behalf of affiliates for 
transmittal to them. Another labor organization indicated that it 
received $6,900,000 in loans. This was the third largest source of its 
receipts and accounted for more than ten percent of its total receipts. 
Closer examination of the labor organization's Form LM-2 Schedule 9 
(``Loans Obtained'') indicated that the loans were obtained from two 
institutions. There is no indication that these loans were illegal, but 
a member may want to know more about a large loan received in a year 
when the labor organization's total receipts exceeded its disbursements 
by more than two million dollars. Further, itemization allows a member 
to search his or her labor organization's Form LM-2 for specific 
vendors or purchasers.
    A commenter expressed concern that the Department has failed to 
recognize that labor organizations have numerous internal controls in 
place to detect and prevent embezzlement, including multiple levels of 
review for receipts and disbursements, annual internal audits, 
segregation of duties, banking tools such as ``positive pay,'' digital 
checks that eliminate check stock inventories and therefore, the 
changes are not providing additional benefit to union members. The 
Department acknowledges that many labor organizations have internal 
controls in place to detect and prevent embezzlement. In 2008, these 
internal controls combined with the Department's on-going audit program 
and study of Form LM-2s have resulted in 93 embezzlement convictions 
and $3,134,415 in restitution. Notwithstanding these efforts, many 
financial irregularities continue to go undetected. The greater 
transparency provided by today's rule will allow union members and the 
Department to better detect such irregularities and better deter, in 
the first instance, union officials and others from engaging in 
questionable financial practices.
    A few commenters stated that the additional reporting required by 
the proposals would confuse union members who would not be able to 
discern the nuances associated with these new requirements. The 
Department disagrees with this suggestion. The changes required by this 
rule are straightforward and will not be confusing to union members, 
whose ability to understand basic financial information seems to be 
underestimated by some commenters. Moreover, the Department would 
expect labor organizations to assist their members in properly 
understanding the financial reports and the Department, through its 
extensive compliance assistance program, is ready and able to assist 
any members who have questions.
(3) Itemization
    A number of commenters asserted that it was a mistake for the 
Department in 2003 to require itemization of major disbursements,\7\ 
and that this mistake, in effect, would be compounded by applying this 
requirement to major receipts by a labor organization. At least one 
commenter stated that the $5,000 threshold is too high; it suggested 
lowering it to $200. The question whether itemization is beneficial was 
answered in the 2003 rulemaking. As set forth in the preamble to that 
rule, 68 FR at 58389-91, itemization promotes the transparency of union 
finances, thereby providing union members with information essential 
for them to exercise their democratic rights within the union and to 
ensure that the union's finances receive appropriate scrutiny by the 
members, this Department, and the public.\8\ In that rule, itemization 
was required for major disbursements by a union, providing greater 
transparency on that side of a union's ledger. Today's rule, in large 
part, merely extends that requirement to the union's receivables, 
allowing members to see more clearly the source and amount of the 
union's finances.
---------------------------------------------------------------------------

    \7\ The existing instructions for the Form LM-2 (created in 
2003) require itemization of ``any individual disbursement of $5,000 
or more or total disbursements to any single entity or individual 
that aggregate to $5,000 or more during the reporting period.''
    \8\ The 1959 Senate report on the version of the bill later 
enacted as the LMRDA mandated that union members receive a full 
accounting of ``union internal processes and financial operations.'' 
S. Rep. No. 187, at 2, reprinted in 1 NLRB Leg. Hist. of the LMRDA, 
at 398. The LMRDA states that a full accounting includes 
``information in such detail as may be necessary accurately to 
disclose [the labor organization's] financial condition and 
operations for its preceding fiscal year * * * [including] receipts 
of any kind and the sources thereof.'' 29 U.S.C. 431(b). Senator 
Kennedy stated that ``receipts of any kind'' was ``intended to be as 
broad as it suggests * * * receipts of any kind and the sources 
thereof.'' As noted in the Senate report ``the members who are the 
real owners of the money and property of the organization are 
entitled to a full accounting of all transactions involving their 
property.'' S. Rep. No. 187, at 8, reprinted in 1 NLRB Leg. Hist. of 
the LMRDA, at 404. This rule furthers the Department's goal of 
increased transparency.
---------------------------------------------------------------------------

    The principle of aggregation, i.e., reporting an organization's 
total expenditures within a particular category, while an accepted 
accounting principle, provides only a partial view of an organization's 
finances, a shortcoming addressed in the 2003 rule by requiring 
itemization of disbursements of $5,000 or greater and in today's rule 
by requiring as a general rule that receipts of $5,000 or greater must 
be identified. In those instances, where commenters demonstrated a 
particular problem with itemizing certain receipts, the Department has 
modified its proposals to meet these concerns. As discussed below, the 
Department acknowledges that the rule will impose some additional 
burden on labor organizations, but not nearly as much as suggested by 
some commenters.\9\
---------------------------------------------------------------------------

    \9\ The Department has reduced the recordkeeping and reporting 
burden associated with Schedules 14 and 15, by requiring labor 
organizations to only report on these schedules the yearly 
aggregates it receives from represented employers and labor 
organizations.

---------------------------------------------------------------------------

[[Page 3684]]

    The primary purpose of this rulemaking is the furtherance of labor 
organization transparency. See 73 FR at 27346-47. OLMS experience over 
years of auditing and investigating union financial activities 
indicates that increased access to information concerning a labor 
organization's finances will enable members to protect their own 
interests through more effective vigilance over union funds, and will 
aid OLMS in enforcement efforts. Although a member will not have 
knowledge of each receipt received by the labor organization, 
interested members will have information on many of the itemized dues 
and agency fees, per capita taxes, fees, fines, assessments, and work 
permits, sales of supplies, interest, dividends, rents, receipts on 
behalf of affiliates for transmittal to them, and receipts from members 
for disbursement on their behalf. For example, a member will be able to 
determine whether his or her labor organization is receiving the 
appropriate interest and dividends on its investments. Schedule 5 
(``Investments'') will list the book value of each investment of $5,000 
or more as of the end of the year. The member can look at his or her 
labor organization's most recent Form LM-2 (for the last fiscal year 
covered by the 2003 revisions) to determine the book value of 
particular assets. With this information and the information provided 
on the new Form LM-2, the member can determine how much the labor 
organization received in increased value or interest during the 
reporting year. The member can calculate the amount of appreciation or 
interest, the latter based on either the rate of the particular 
institution identified on the Form LM-2 or the market average, which is 
available on the Internet. A disparity between the rate computed from 
the Form LM-2 and the market rate may indicate that further 
investigation is warranted to determine whether the disparity is due to 
bad investment choices or culpable actions. Moreover, as discussed in 
the preceding section, itemization effectively complements a member's 
right to examine documentation underlying the information reported on 
the Form LM-2 by allowing him or her to identify major financial 
receipts involving the union, a task that would be very impractical, at 
best, without the itemization required by today's rule.
b. Particular Aspects of the Rule
    The following is a ``section-by-section'' discussion of the 
sections, items and schedules on the revised Form LM-2 and 
instructions:
    Items 1-21. These items are unchanged, except for some minor 
editorial changes, mostly concerning the reporting of information about 
trusts in which labor organizations hold an interest. See n. 6.
    Statement A. This statement is unchanged.
    Statement B. Receipts and Disbursements: This statement currently 
contains two primary columns, one with the heading ``Cash Receipts'' 
and one with the heading ``Cash Disbursements.'' Under each heading are 
items listed that describe categories of receipts or disbursements that 
should be reported. There are no changes to the items listed under 
``Cash Receipts.'' As discussed below, however, the Department is 
adding, as proposed, additional schedules to correspond to items listed 
under ``Cash Receipts'' for which currently no schedules exist. As a 
result of these changes, the remaining cash disbursement items will be 
renumbered on Statement B. The new Form LM-2, including the new 
numbering system for the cash disbursement items can be found in the 
appendix to this final rule.
    Schedules 1-2. These schedules are unchanged.
    Schedules 3 and 4--Sale of Investments and Fixed Assets and 
Purchase of Investments and Fixed Assets: The Department adopts its 
proposal, but exempts certain stock transactions from particularized 
reporting as further discussed below. The first new column on the form, 
entitled ``Name and Address of Purchaser (A),'' will disclose the 
purchasers of investments and fixed assets from the labor organization, 
if in the aggregate the sales amount to $5,000 or more per purchaser. A 
second column ``Date (C)'' will disclose the date of the sale. These 
additions will provide members of labor organizations and the public 
with information necessary to verify that the sale was transacted at 
market price and at arm's length, thereby helping prevent interested 
parties from unjustly enriching themselves by purchasing labor 
organization assets at below-market price. In addition to the reasons 
discussed below, this disclosure is important because if an insider 
(e.g., officer or employee) receives property at below market price the 
receipt of such property is a disbursement to the insider that should 
be reported on Schedule 11 or 12.
    As explained in the NPRM, 73 FR at 27349-50, the Department 
believes that Schedules 3 and 4 of the current Form LM-2 do not provide 
labor organization members with adequate information to enable them to 
determine whether a particular purchase or sale of an investment or 
asset was transacted at market price and at arm's length. For instance, 
one labor organization in its latest Form LM-2 reported that it had 
sold a ``John Deere Lawn Tractor, Trailer and Mower'' for $678, even 
though this asset had a book value and cost of $18,000. Another labor 
organization reported that it had sold automobiles that had a book 
value of $57,997, a ``real estate investment trust'' that had a book 
value of $25,735, and furniture and equipment with a book value of 
$7,634. For each of these items, the union listed the sale price as $0. 
This same labor organization sold corporate stocks with a book value of 
$29,570,505 for $34,297,627. Another union sold a Ford Explorer for 
$9,252 that had a book value of $23,471. As explained in the NPRM, 73 
FR at 27349, in all these situations, labor organization members would 
be unable to determine whether the labor organization received fair 
market value for the items that it sold, whether an insider benefited 
from these transactions, or whether the union's officials are properly 
managing the labor organization's finances.
    The Department's review of data filed on the current Form LM-2 has 
demonstrated that the current form does not provide labor organization 
members with a clear understanding of the entities that are receiving 
in some cases hundreds of millions of dollars of the labor organization 
members' money. For instance, as discussed in the NPRM, id., one labor 
organization listed disbursements of $789,369,139, another labor 
organization reported disbursements of $313,978,214, and another labor 
organization reported disbursements of $156,544,561. Labor 
organizations also report smaller amounts on this schedule. For 
instance, three labor organizations reported disbursements of $5,353, 
$5,350, and $6,952 on this schedule. None of the reports disclose the 
parties that sold these assets to these labor organizations. As such, 
the members of these labor organizations are not in a position to know 
whether these sums of money were well spent. The enhancements made 
today to Schedules 3 and 4 will help ensure the disclosure of any 
potential conflicts of interest between the seller and the labor 
organization.
    The book value of an asset is the value at which the investment or 
fixed asset was shown on the labor organization's books and reflects 
the lower of its cost or market value. See 73 FR at 27413 (unchanged 
from current instructions to the form). The value of certain assets 
such as stocks can vary greatly within

[[Page 3685]]

the fiscal year. Because the date of sales is not listed on the current 
Form LM-2, a labor organization member is unable to determine whether 
the labor organization received good value on the sale transaction. As 
the Department explained in its proposal, 73 FR at 27349, the stock on 
the day of the sale may have been worth much more than its book value. 
In this scenario, a labor organization member would be unable to 
determine whether the stocks were sold by the labor organization at 
market value. The labor organization's financial report filed on the 
current Form LM-2 would show this transaction as a profit for the labor 
organization, but the transaction could also have been detrimental to 
the labor organization if the asset was sold at a price below current 
market value. The changes made in today's final rule will help ensure 
disclosure of any potential conflicts of interest between the purchaser 
and the labor organization. The schedule will total all individually 
itemized transactions and will provide the sum of the sales by itemized 
individual purchasers and the sum of all non-itemized sales of 
investments and fixed assets, as well as the total of all sales.
    The Department received many comments supporting the proposed 
changes to the Form LM-2. Many of these comments were identical or 
nearly so. Commenters expressed support for the Department's proposed 
revisions to Schedules 3 and 4, which, in their view, would allow union 
members to spot transactions where union officers and employees are 
given advantageous prices when purchasing labor organization assets. 
Another commenter approved of the Department's ongoing promotion of 
transparency. Additionally, the commenter agreed with the Department 
that the additions to Schedules 3 and 4 will provide members with the 
information necessary to scrutinize those transactions to ensure the 
best practices when managing their money.
    Some commenters questioned the wisdom of requiring unions to 
provide additional detail in the Form LM-2 reports, asserting that the 
new information would add length to the reports and further burden 
unions without benefit to members. They raised specific objection to 
the burden associated with reporting details concerning the sale and 
purchase of investments and assets. The Department does not expect the 
average member to investigate each investment or asset sale/purchase 
listed on the Form LM-2. Such an undertaking by a single member would 
be time consuming and impracticable. However, a member need not study 
its labor organization's entire Form LM-2 for the report to be useful. 
The member can use the Schedules 3 and 4 summary schedules for quick 
references or use the search function to find specific transactions. 
For example, a quick look at the summary schedules for Schedules 3 and 
4 might reveal a large number where one would expect a small number or 
a small number where one might expect a large number. Once one of these 
disparities is identified the member is free to search the itemized 
schedules for an explanation for the unexpected aggregate. In one case, 
a labor organization indicated on its Form LM-2 summary schedule that 
it had received $527,937 from the sale of investments and fixed assets. 
This accounted for over 94 percent of the labor organization's total 
receipts. A closer look at Schedule 3 of its Form LM-2 indicated that 
the labor organization had received all of the $527,937 from the sale 
of one building. This sale left the labor organization with only $1,347 
in fixed assets. Another labor organization indicated that it received 
$64,389,415 from the sale of investments and fixed assets, almost half 
of the labor organization's total receipts. Upon closer inspection of 
the labor organization's Form LM-2 a member would find that $15,782,856 
of the $64,389,415 was from the sale of ``common stock.'' However, the 
same schedule indicated that none of the money from the sale was 
reinvested. Nothing indicates that either of these sales was illegal, 
but a member may want to know more about such a large sale of union 
assets. Further, itemization allows a member to search his or her labor 
organization's Form LM-2 for specific sellers or purchasers. Using the 
OLMS Web site, a member can easily search his or her labor 
organization's Form LM-2 for a specific seller or purchaser in seconds, 
e.g., the labor organization's president's brother. The changes to 
Schedules 3 and 4 will provide members with information necessary to 
verify that sales/purchases are transacted at market price and at arm's 
length.
    The majority of the commenters believed that an exception should be 
created for the purchase and sale of publicly-traded assets on a 
registered market exchange. They stated that the reporting of these 
open market, arms length transactions would provide no relevant 
information to a member. Further, since these trades are through the 
``market,'' it is doubtful that the ``seller'' and ``buyer'' 
information is even available, due to investments being pooled and 
matched by the investment broker market. The only purchaser information 
available to provide on the proposed new investment schedules would be 
that of the broker. A national labor organization pointed out that the 
Department does not require disclosure of transactions involving 
securities on registered public exchanges, such as the NYSE and NASDAQ, 
on Form LM-30. Therefore, the labor organization reasoned that the same 
transactions should not be disclosed on Form LM-2. In both contexts, 
such sales and purchases of securities are by definition transacted at 
``market prices'' and ``at arm's length.'' 29 U.S.C. 432(b).
    The Department agrees with the commenters' position that an 
exception should be created for bona fide market transactions over a 
registered securities exchange. Consistent with the current Form LM-2 
and the Form LM-30, the Department excepts marketable securities from 
itemization on Schedule 3. The labor organization will not be required 
to itemize the purchase or sale of marketable securities when the end 
seller or purchaser, i.e., the party transacting with the labor 
organization, is not known. (Such as sales of stock over a registered 
exchange.) The instructions have been revised and include the direction 
that ``Marketable securities are those for which current market values 
can be obtained from published reports of transactions in listed 
securities or in securities traded `over the counter,' such as 
corporate stocks and bonds, stock and bond mutual funds, state and 
municipal bonds, and foreign government securities.'' The total amount 
of such sales will be reported on Schedule 3 Detailed Summary page.
    A number of commenters stated that their investment activities are 
run through independent investment groups, asserting that for this 
reason such activities should be excepted from the proposed reporting 
requirement. The Department disagrees that an exception for investment 
manager transactions is appropriate. Such an exception is neither good 
policy nor necessary. Although the investment manager may have 
independent control over the individual investments, the labor 
organization still has control over the manager. If the labor 
organization is dissatisfied with returns or particular purchases/
sales, then it is free to hire a new investment manager. Thus, the 
investment manager is never truly independent. Further, the exception 
laid out above should alleviate many of the commenters' concerns. Most 
of the investment manager purchases/sales will qualify for the 
exception provided

[[Page 3686]]

for bona fide transactions made with a registered securities exchange. 
Those transactions that do not qualify for the exception, i.e., 
securities purchased outside these highly regulated channels, will be 
of particular interest to members, the public, and the Department. 
These are the types of transactions that are subject to abuse whether 
it is abuse by the labor organization or the independent investment 
manager. Therefore, the Department has chosen not to create an 
exception for investment manager transactions.
    A number of commenters expressed a concern that the additional 
information required for the sale and purchase of investments on 
Schedules 3 and 4 will be deceptive. A national labor organization 
argued that the value of a given stock transaction cannot be understood 
absent an understanding of market conditions, news affecting that 
particular stock and market segment at the time of sale and the 
investment manager's strategy resulting in the sale. Additionally, it 
stated that the ``market price'' of a tangible item, such as a car, 
cannot be objectively determined without knowledge of the degree of 
wear-and-tear, local market conditions, and the like. Without these 
essential facts a national labor organization stated that listing the 
name of the purchaser and the date of the sale may well lead union 
members to conclude that a buyer received a windfall when, in fact, 
that is not the case. The labor organization suggested that the 
Department retain the current reporting format, aggregating the total 
of all such sales and purchases and the net effect on assets.
    The Department disagrees with the suggestion that the proposed 
changes to Schedules 3 and 4 will be deceptive. As discussed earlier, 
members will be able to assess without difficulty whether the sale or 
purchase of an asset and its price appears appropriate given its timing 
and the existing market conditions. Unlike the previous Form LM-2, 
members will now be able to evaluate sales/purchases by date and 
purchaser/seller. This clearly improves the members' ability to 
evaluate a transaction in its particular context. To use an example 
discussed above and in the NPRM, 73 FR at 27349, a labor organization 
indicated on its Form LM-2 that it sold a Ford Explorer for $9,252, but 
listed its book value at $23,471. The previous Form LM-2 included price 
information and a general description. The identification of the buyer 
can be used to identify interested party transactions, but it can also 
be used to better understand the sale. For example, the Ford Explorer 
might have been sold to a dealership rather than on the open market. In 
this case the identification of the buyer would alleviate any concern 
of an interested party windfall. The disclosure of this information 
will allow members to make preliminary assessments of sales/purchases 
from the information provided on the Form LM-2. If necessary, as 
discussed below, they can then exercise their section 201(c) right to 
obtain additional information about the particular transaction. It 
should be noted that most securities transactions will fall within the 
exception discussed above.
    The additional information that will be disclosed on the Form LM-2 
will enable union members, the general public, and the Department to 
focus their attention on particular transactions involving significant 
sums of money. As some commenters have acknowledged the information 
will be most directly beneficial to union members who will be most 
familiar with the transactions and the parties involved, but the 
information also improves the ability of the public and the Department 
to examine the details of a transaction. Moreover, to the extent the 
union believes that any particular transaction could be misleading, the 
union may choose to provide additional information on the Form LM-2 to 
minimize this possibility. By adopting this rule, the Department is 
setting a minimum standard that labor organizations must meet for 
reporting the sale and purchase of investments and assets. A number of 
commenters stated that the revisions were not necessary and would not 
benefit members. Multiple national labor organizations stated that 
union members already have access to any information necessary to 
assess sales of union assets. They explained that any individual member 
could exercise his or her section 201(c) right to obtain the 
information.
    The Department recognizes that members possess the right to examine 
any books, records and accounts to obtain information on the purchase/
sale of investments and assets under 29 U.S.C. 431(c). However, members 
have no way of knowing whether they need to request the information 
from the labor organization without the Form LM-2. As explained above, 
a quick look at the summary schedules for Schedules 3 and 4 might 
reveal a large number where one would expect a small number or a small 
number where one might expect a large number. Once one of these 
disparities is identified the member is free to search the itemized 
schedules for an explanation for the unexpected aggregate. In one case, 
a labor organization indicated on its Form LM-2 summary schedule that 
it had received $35,224,391 from the sale of investments and fixed 
assets. This accounted for over half of the labor organizations total 
receipts. A closer look at Schedule 3 of its Form LM-2 indicated that 
it had sold ``corporate stocks'' for $34,297,627. See 73 FR at 27349. 
Nothing indicates that this sale was illegal, but a member may want to 
know more about such a large sale of union assets. Under the new 
reporting requirements the member will now be able to evaluate whether 
the transaction occurred at arm's length or not. The member need only 
look for the purchaser/seller information to know whether the 
transaction merits further inquiry. If the transaction occurred on a 
registered exchange the labor organization will not detail that 
transaction. In this case, the member will know that no insiders 
received unjust enrichment from the transaction. However if the 
transaction occurred not on a registered exchange but through some 
other means the transaction information of the date and identity of the 
purchaser/seller will be useful to the member. If the itemized 
schedules do not provide an adequate explanation or reveal a 
transaction with an interested party then the member is free to request 
additional information from the labor organization pursuant to 29 
U.S.C. 431(c). This process is more efficient for both the labor 
organization and the member. Labor organizations will not have to 
provide information unless the member finds a particularly interesting 
transaction and the member will not have to request superfluous 
information to obtain a clear accounting of the labor organization's 
activities. Both itemization reporting and the changes adopted in this 
rule are essential to providing members with a clear picture of their 
labor organization's activities.
    Two commenters offered alternatives to requiring a labor 
organization to disclose the name and address of the purchaser or 
seller in transactions involving labor organization investments and 
other assets. A labor organization suggested that if the Department is 
concerned about sales of assets for less than market value it can 
merely mandate disclosure of specifically such sales of union assets. 
Another commenter suggested that the Department pare down the report 
and ask about specific areas of concern. For example, instead of 
modifying Schedules 3 and 4 as currently proposed, the Department 
should simply ask about related party transactions and any non-routine

[[Page 3687]]

transactions and specifically define related parties.
    In the Department's view, the suggested approach is a poor 
substitute for the full transparency achieved under the Department's 
proposal. The Department seeks to provide members with the tools by 
which each member can make his or her own evaluations of the financial 
decisions made by the officials of his or her labor organization. 
Although members as a general rule will have the greatest interest in 
matters involving a party in interest or a sale of an asset for less 
than market value, members will also have an interest in other less 
easily categorized transactions. For example, a member may have an 
interest in the sale of a building to a non-party in interest at what 
appears to be fair market price. As a general matter, the sale of the 
building might indicate to the member that his or her labor 
organization is selling off assets or not managing his or her money 
appropriately. But a sale of the asset to a particular individual or 
group, such as a sale to a company in which a union official's long-
time associate has an interest or to a company in which a politician or 
his or her associate has an interest (who might have inside information 
about a possible change in zoning that would substantially increase the 
value of the property) would be of substantial interest to members. 
Itemization of the purchase/sale of investments and assets provides 
members with a base from which they can evaluate transactions.\10\
---------------------------------------------------------------------------

    \10\ One commenter suggested that the Department replace the 
Book Value column with a Market Value or Par Value column. In the 
commenter's view, this change would allow those studying the Form 
LM-2 to determine whether the sale of an investment or fixed asset 
was at market value and at arm's length.
    The Department has decided not to change the values reported on 
Schedules 3 and 4 column (E), ``Book Value.'' Book value is ``the 
value at which the investment or fixed asset was entered on the 
labor organization's books.'' Form LM-2 Instructions page 16. 
Depending on when the asset was obtained, the book value will 
reflect the asset's original or depreciated value. Book value allows 
for regularized reporting of the value of assets. Unlike market or 
par value (the latter applicable only to equitable assets and even 
then of limited utility to union members and the public), book value 
does not pose problems of verification in comparing the value of the 
reported asset and the value carried on the union's books. Further, 
unlike market value which can be determined independently through 
the market (e.g., by bluebook, comparable real estate values, market 
price of stock) book value cannot be easily ascertained by union 
members and others reading the Form LM-2. For these reasons, the 
Department views the book value as an essential check to determine 
the union's compliance with this aspect of its reporting obligation.
---------------------------------------------------------------------------

    Therefore, the Department adopts the reporting requirements as 
outlined in the NPRM with an added exception that labor organizations 
need not report bona fide purchases or sales of securities traded on a 
securities exchange registered as a national securities exchange under 
the Securities Exchange Act of 1934, shares in an investment company 
registered under the Investment Company Act of 1940 or securities of a 
public utility holding company registered under the Public Utility 
Holding Company Act of 1935.
    Schedules 5-10. These schedules are unchanged except for a minor 
editorial change to the instructions for Schedule 7 to clarify the 
reporting of information about a trust in which a labor organization is 
interested. See n. 6.
    Schedule 11--All Officers and Disbursements to Officers; and
    Schedule 12--Disbursements to Employees: The Department proposed 
two substantive changes to the categories of disbursements reported on 
these schedules: Reporting of indirect disbursements to officers and 
employees for hotels (room rent charges) and public carrier 
transportation; and disclosure of benefits disbursed to officers and 
employees. No commenters suggested that one approach was appropriate 
for officers and another for employees. In today's rule, the same 
revisions are being made to both Schedules 11 and 12. In today's final 
rule the Department has decided to adopt the proposed items with minor 
changes. These changes are discussed below.
a. Indirect Disbursements to Officers and Employees for Hotels (Room 
Rent Charges) and Public Carrier Transportation
    The Department proposed to eliminate the existing exception to the 
reporting of indirect disbursements, thus requiring the reporting of 
both direct and indirect payments on behalf of a particular union 
official for hotels (room rent charges and public carrier 
transportation charges) on Schedule 11. The Department adopts the 
proposal, with a minor clarification as discussed below.
    Indirect disbursements for official business, which include travel 
and lodging expenses, will be reported in Column G, on both Schedule 
11, ``All Officers and Disbursements to Officers'' and Schedule 12, 
``Disbursements to Employees.'' This column is clearly identified, and 
is distinct from columns listing gross salary, allowances, and 
benefits. Concerns raised by commenters that union members may not 
grasp the ``nuances of the reporting categories'' and that disclosure 
would result in inflated figures of total compensation are unwarranted.
    As explained in the NPRM, 73 FR at 27350, disbursements for 
temporary lodging and transportation made directly to a labor 
organization official by the labor organization are now reported, by 
individual, on Schedule 11; however, if the labor organization pays the 
vendor directly for the travel it is not reported by individual. This 
distinction does not serve the purpose of section 201(b)(3) of the 
LMRDA, 29 U.S.C. 431(b)(3), which calls for reporting of ``other direct 
or indirect disbursements (including reimbursed expenses) to each 
officer and also to each employee.''
    A ``direct disbursement'' to an official is a payment made by the 
labor organization to the official in the form of cash, property, 
goods, services, or other things of value. An ``indirect disbursement'' 
to an official is a payment made by the labor organization to another 
party for cash, property, goods, services, or other things of value 
received by or on behalf of the officer. Such payments include those 
made through a credit arrangement under which charges are made to the 
account of the labor organization and are paid by the labor 
organization. For example, when a union, through its credit 
arrangements, is billed directly and pays the airline bills of an 
officer or employee, the union will have to include this amount as part 
of the disbursements made to the particular official. If the credit 
arrangement results in an invoice that is detailed by officer or 
employee, e.g., hotel room rent charges, the labor organization will 
use this detailed invoice when allocating expenses by officer or 
employee. If the billing arrangement is set up in such a way that 
expenses are not detailed by officer or employee, e.g., when a labor 
organization purchases a block of hotel rooms for its officers or 
employees, then the labor organization will divide the total cost by 
the number of officers or employees for which the expense was incurred. 
The instructions to the form now clarify that unions may allocate these 
disbursements in this manner.
    The distinction between reporting of direct and indirect 
disbursements was established because of the difficulties faced by 
unions over 40 years ago in reconstructing documentation for certain 
payments for their prior fiscal year. Because of this difficulty, 
organizations were allowed to report such disbursements as functional 
expenses of the organization rather than as disbursements to particular 
officials. This distinction remained in the instructions and was not 
revisited by DOL despite changes in data reporting and record retention 
methods over the

[[Page 3688]]

intervening decades. This issue was not addressed in the 2002-2003 
rulemaking.
    As noted in the NPRM, 73 FR at 27350, payment for an official's 
travel and lodging expenses by credit card does not reduce the 
significance of the expense to a labor organization member; yet the 
current Form LM-2 treats the method of payment as significant. Travel 
and lodging expenses for a particular official may raise questions 
among the membership for various reasons. The choice of transportation 
by public carrier (airplane, train or bus) and the level of 
accommodation (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.
    The Department received almost 500 form letters endorsing its 
proposal to require disclosure of indirect disbursements. These 
commenters stated that such disclosure would provide union members a 
more accurate idea of how much their union is spending on these 
matters. Noting agreement with the proposal, a commenter stated that 
all expenditures for travel for officers should be reported regardless 
of the method of payment to the vendor. Another commenter noted 
specific examples of union spending that highlighted the importance of 
disclosure of travel disbursements. The commenter explained that while 
one large union's membership declined 15% last year, the union expended 
members' dues money to hold meetings at resorts and casinos in 
destinations including Palm Springs, Las Vegas, and Atlantic City.
    One commenter alleged that a review of the legislative history of 
the LMRDA does not provide support for the disclosure of indirect 
disbursements made on behalf of an officer or employee for official 
business. The commenter alleged that Congress was particularly 
concerned with schemes through which corrupt employers and union 
officials could enrich or benefit themselves by structuring indirect 
payments through relatives or to vendors of goods and services that 
were unrelated to their duties as union officials.
    While Congress did evince a particular concern over corrupt schemes 
in which union officers sought to enrich themselves through indirect 
payments, it also clearly intended that union members receive a full 
accounting of their union's financial operations. See discussion above, 
at n.8. The mandate for a full accounting does not exempt transactions 
that may be considered ``official business.''
    Commenters questioned the utility of providing disclosure of 
indirect disbursements. The Department believes that union members have 
an interest in learning the full extent of disbursements made to or for 
labor organization officials. Travel and lodging expenses may be of 
particular interest when officers and employees are not utilizing 
particularly cost effective modes of transportation, levels of 
accommodation, or choice of lodging. This more complete reporting will 
help members determine whether such disbursements warrant further 
scrutiny. Information about travel and lodging expenses is no less 
valuable when payments are made indirectly to the vendor rather than 
directly to the union official.
    Several commenters suggested that sums aggregated by individual 
officials, as called for under the proposed rule, could easily be 
misconstrued by membership and the public. One commenter believed that 
the data would unfairly make individual officers targets because of 
their ``allegedly excessive spending.'' They provided as an example the 
contrasting circumstances of two union officials--one who travels 
often, but cheaply, will have a large amount of money in travel 
expenses, while another official who only travels once but flies first 
class and stays at a high-end hotel will appear to be more fiscally 
responsible with union funds. The Department recognizes that dollar 
figures alone will not show how profligate or not union officers are 
with their members' money. A member, however, who is familiar with the 
demands of an officer's duties, including travel on behalf of the 
union, will be able to determine from the sums reported whether the 
expenses incurred seem about right or not and, if the latter, 
identifies a need for closer scrutiny of particular expenses. One 
commenter stated that the proposed change would allow ``labor's 
enemies'' to falsely inflate an official's compensation by including 
the cost of legitimate business travel. Another commenter noted that 
such indirect disbursements do not meet the IRS definition of income. 
As discussed earlier, the Department believes that union members 
deserve the benefit of increased transparency and these commenters 
concerns can be best addressed by providing information about a union's 
policies, so members will better understand the amounts reported by 
individual officers. Better education may also be the answer to 
concerns about false claims about disbursements to union officer 
officials. In any event, the Department does not believe that members 
should be denied information relevant to disbursements made to their 
officers because of the asserted ``misuse'' of public information. 
Because Congress chose to make union financial reports public, the 
Department is required to make public information it deems necessary 
for union members to possess a full picture of their union's finances. 
Finally, the Department recognizes, as it believes the public does 
also, that the Form LM-2 and IRS forms do not capture identical 
information. Indirect disbursements represent a significant aspect of a 
union's expenditures--and as such are important for purposes of 
disclosure without regard to any tax consequences they may pose for 
individuals.
    Commenters also noted that aggregation of the data by specific 
officers would not provide the same utility as disclosure of the 
specific details of such payments and that aggregation may prove 
misleading to members. Two commenters argued that disclosure of union 
travel and expense policies would be more useful to members than data 
regarding indirect travel expenses. One commenter asserts that the data 
revealed by eliminating the exemption for indirect expenses will not 
afford union members any more useful information than they already have 
by examining the labor organization's itemized expenditures for 
individual hotels and common carriers on Schedules 15 and 19. This 
commenter provides that a union's travel and expense policies, which 
are available to members upon request, are far more probative because 
they explain the types of expenses that officers and employees are 
entitled to incur when they travel. Some commenters noted that 
providing specific details of payments for travel and lodging would be 
more useful to union members than providing aggregate sums. Two 
international unions argued that requiring disclosure of union travel 
and expense policies would be more useful to members.

[[Page 3689]]

    The Department acknowledges that providing union members additional 
information regarding the specific details of travel disbursements and 
providing members copies of travel and expense policies would provide 
the members access to possibly useful information. As noted in the 
NPRM, 73 FR 27350, eliminating the exception from reporting indirect 
disbursements will provide union members a more accurate accounting of 
the total amount spent on travel and lodging for union officials. This 
data will help union members better determine whether further 
investigation is warranted. To the extent that labor organization 
commenters believe greater detail would benefit union members, labor 
organizations are free to amend their bylaws to require a level of 
disclosure or specificity that is greater than that required by the 
Form LM-2.
b. Disclosure of Benefits Disbursed to or on Behalf of Officers and 
Employees
    As a second change to this schedule, the Department proposed the 
addition of a new column to allow disclosure of benefits disbursements 
made to each labor organization official. The final rule adopts the 
proposed changes. Columns ``(A)'' through ``(E)'' are unchanged from 
the current form. Column ``(F)'' will be redesignated ``Benefits.'' 
This is the only new column on the schedules requiring disclosure of 
additional information. Column ``(G)'' will be redesignated 
``Disbursements for Official Business.'' Column ``(H)'' will be 
redesignated ``Other Disbursements not reported in (D) through (G).'' 
Column ``(I)'' will be added for ``Total.''
    In response to comments received, the Department is adding 
clarifying information to the requirements for this schedule as 
follows:
     Reasonable estimates may be used if precise cost figures 
are not readily available for benefits provided to individual officers, 
e.g., insurance premiums, defined benefit plan contributions, and so 
forth.
     FICA, federal and state unemployment tax, workers' 
compensation taxes, and other employer taxes that are legally required 
to be paid by the employer are not included within the scope of 
benefits for officers and employees. These types of payments are to be 
reported on the Form LM-2 in the manner provided for in the current 
instructions.
     The reporting changes adopted by this rule only apply to 
disbursements on behalf of labor organization officers and employees. 
These changes do not apply to disbursements to persons who are no 
longer officers or employees of the labor organization. Thus, 
disbursements on behalf of individuals who have retired from employment 
by the labor organization will be handled the same way that these 
disbursements are currently handled for members, i.e., they will be 
aggregated in Schedule 29.
    In proposing the identification of total benefits paid to officials 
on an individual by individual basis, the Department explained that the 
current Form LM-2 fails to provide sufficient information on 
disbursements by the labor organization to or on behalf of its 
officers. See 73 FR at 27350. In the Department's view, labor 
organization members should know the value of benefits paid by the 
union to its officers. Benefits received by officers for life 
insurance, health insurance, and pensions, for example, make up an 
important part of the compensation package paid for by the union and 
its members. Reporting benefits disbursed in the aggregate on Schedule 
20 (i.e., reporting the total benefits paid to all union officials) 
does not provide a complete picture of compensation received by 
individual labor organization officers. For example, as noted in the 
NPRM, id., one local in its Form LM-2 listed almost $500,000 for 
``Officer's Union Fringes'' even though the labor organization had 
fewer than ten full-time officers. From this information alone, a 
member of a labor organization would have no way of knowing, for 
example, if these benefits were evenly distributed among the officers, 
or if one officer received $400,000 and the other eight officers split 
the remaining amount. Rather than report fringe benefits in the 
aggregate on the current Schedule 20, the labor organization will now 
report the benefits on Schedule 11 by individual labor organization 
officer.
    In another instance, again as noted in the NPRM, id., a labor 
organization reported payments of $49,542 to ``Various Companies'' for 
``Benefits Administration'' and payments of $64,219 to ``Various School 
Districts'' for ``Benefits paid on behalf of officers.'' Another labor 
organization reported on its Form LM-2 total disbursements of $461,971, 
$460,203, and $244,780 to certain individual officers. Id. This 
disclosure did not take into account that these same officers and 
employees also received $181,297, $184,397, and $161,240 respectively 
as contributions to their employee benefit plans. These benefits 
payments were reported to the IRS on an individual-by-individual basis, 
as required by the IRS; however, these payments are simply lumped 
together on the Form LM-2, without identifying the amounts paid to 
individual officers. The above examples demonstrate that the current 
Form LM-2 fails to provide a full accounting of labor organizations' 
disbursements to their officials. The current Form LM-2 allows benefits 
payments made to or on behalf of officers to be lumped together with 
general benefits paid to members in Schedule 20. With such large 
disbursements listed in one category, it is impossible for labor 
organization members to ascertain what benefits are being paid to labor 
organization officers and employees. The Department believes that 
combining these disbursements into an aggregate on a single schedule 
does not adequately inform labor organization members and the public 
regarding benefits paid to labor organization officers, and thus in 
this area the full reporting mandate of the LMRDA is not fulfilled.
    By requiring unions to report the total amount of benefits 
disbursements made to each officer, members and the public will see the 
total payments made to or on behalf of each officer. This increased 
transparency will better enable union members to evaluate whether the 
compensation paid to each officer is appropriate for the services he or 
she renders to the organization. This information will allow union 
members, among other uses, to debate and vote to change the amount of 
the compensation if they deem it appropriate and consistent with their 
organization's constitution, by laws, and the organization's financial 
status. They also will be able to evaluate whether the costs of the 
benefits provided by the union are in line with market conditions and 
benefits paid to officers by other labor organizations--a factor that 
may bear on the performance of the union officials with stewardship 
over the union's finances.
    The Department received mixed comments on its proposal. About 500 
commenters who submitted form letters endorsed the Department's 
proposal to require unions to report aggregate benefits disbursements 
for each officer and employee. One commenter cited data from a large 
labor organization's 2007 Form LM-2 that showed pension benefits paid 
of $15,858,309 and combined payroll for officers and employees of 
$40,468,063. The commenter noted that the data may indicate ``very 
generous pension benefits,'' but without the proposed change ``there is 
no way of telling from looking at Form LM-2.'' Many others opposed the 
proposal. One commenter stated that the proposed disclosure of 
aggregate benefits data is unnecessary because union members already 
have access to much of this information

[[Page 3690]]

already under the Form LM-2; others stated that any other information 
needed may be obtained by invoking their ``just cause'' right to 
examine the union's underlying financial reports; while some suggested 
that the information, as earlier noted, was available to union members 
by requesting a copy of the union's IRS Form 990. While the Department 
agrees that the current Form LM-2 provides important information about 
the salaries paid to individual officers, members receive only an 
incomplete picture of the payments made to individual officers. Without 
the reporting required by today's rule, members would be left guessing 
as to the total compensation paid to particular officers. Moreover, as 
discussed further below, the IRS Form 990 fails to provide the same 
level of transparency as proposed by the Department.
    Commenters are correct that labor organizations are required to 
track and report officer benefits disbursements for the IRS Form 990. 
There is a minor level of overlap in the information required to be 
disclosed for officers and employees on the Form 990 and the Form LM-2. 
Disclosure of benefits disbursements on the Form LM-2 is not identical 
to the disclosure required on the Form 990 because the Form 990 
requires disclosure of this information for ``key employees,'' unlike 
the Form LM-2 where this information must be disclosed for all 
employees earning $10,000 or more a year.\11\ As such, while there is 
overlap between the Form 990 and the Form LM-2, the Form LM-2 will 
provide more comprehensive information because the required disclosures 
apply to a larger group of individuals. Moreover, the Department's 
proposal ensures that all members will have ready access to this 
particular information in a single database. While some members might 
be aware that individual payments would be reported to the IRS, others 
are not likely to be aware of this disclosure source. Additionally, 
union members should be able to determine easily the total compensation 
paid to all their officials, not merely the key officials. Where a 
labor organization has a large number of highly paid employees, only a 
fraction will be reported on the Form 990. While a few commenters 
suggested that the Department underestimates the burdens associated 
with tracking the information in a way that allows compliance with both 
the Form LM-2 and the IRS Form 990, the Department remains convinced 
that unions can maintain their records in a way that avoids any 
unnecessary additional burden. This point is further discussed below in 
the Department's analyses under the Regulatory Flexibility Act and the 
Paperwork Reduction Act.
---------------------------------------------------------------------------

    \11\ For Form 990 purposes, the IRS defines a ``key employee'' 
as ``any person having responsibilities, powers, or influence 
similar to those of officers, directors, or trustees.'' Instructions 
to IRS Form 990 (2007), at p. 40. To illustrate this requirement, 
the IRS states: A chief financial officer and the officer in charge 
of the administration are both key employees if they have the 
authority to control the organizations, activities, its finances, or 
both.'' Id. For the 2008 tax year, the IRS is requiring Form 990 
filers to also provide information on the filer's five current 
highest compensated employees (other than officers, directors, 
trustees, or key employees) receiving more than $100,000 in 
reportable compensation from the filer or related organizations. IRS 
Form 990 (2008), Part VII, Section A, 1a.
---------------------------------------------------------------------------

    Other commenters stated that members already know or can easily 
estimate the value of the benefits paid to officers. One commenter 
stated that each of its officers and employees participated in the same 
medical plan as its members, so members could already ascertain the 
value of the benefits provided to officers and employees. The 
Department recognizes that in some instances a member can estimate the 
value of a particular benefit, but that this will exist only for 
certain benefits and for certain unions. Transparency is ill served 
where it varies from union to union and from benefit to benefit.
    Several commenters asserted that some benefits would be difficult 
to report on an individual-by-individual basis. For example, one 
commenter noted that it would be burdensome to collect data because 
there may be multiple benefit plans involved (0034) (0044). Another 
commenter noted that the insured group may vary from month to month, 
requiring the organization to recalculate the amount attributed to each 
officer and employee, which may result in increased costs. Other 
commenters requested clarification of how to treat benefits for 
retirees, lump sum benefit data, and administration expenses associated 
with benefits.
    The Department recognizes that labor organizations may have to 
estimate the particular value of a benefit provided a union official. 
It is not the intention of the Department to impose on unions a complex 
methodology to arrive at the most precise valuation of benefits made to 
each individual official. In this regard, the Department notes that the 
IRS, which requires labor organizations to report all forms of deferred 
compensation, allows: ``[r]easonable estimates * * * if precise cost 
figures are not readily available.'' See instructions to 2007 IRS Form 
990, p. 41. Under this final rule, the Department will also accept 
reasonable good faith estimates of the value of benefits paid to 
individual officials.\12\
---------------------------------------------------------------------------

    \12\ As noted in the NPRM, 73 FR at 27351, the changes are 
consistent with the level of disclosure required in other contexts 
for executive and employee compensation. Both the IRS (see Form 990) 
and the Securities and Exchange Commission (see 71 FR 78338 (2006)) 
require similar disclosure for certain officials.
---------------------------------------------------------------------------

    As noted above, several commenters expressed concerns about the 
need to report information that could intrude upon an individual's 
legitimate concerns for his or her privacy. Several commenters raised a 
generalized concern that the proposal would raise privacy issues under 
HIPAA. Four commenters raised specific concerns about reporting 
payments where the labor organization is self-insured and thus pays 
directly for the health care of its officials. The commenters argue 
that a self-insured organization would violate HIPAA by providing 
information relating to ``past payment[s] for the provision of health 
care.'' One commenter noted that it would be unable to report some 
information, even if it were required, because the employees in the 
union's accounting office are unable to view records that include 
protected health information. Two comments noted that the proposal 
would allow a union member for just cause to examine the underlying 
information which would violate HIPAA. Another commenter, while noting 
that the Department was not requiring labor organizations to identify 
the nature or value of any particular benefit--the Department proposed 
only that the total value of all the benefits to an individual be 
reported--questioned whether this would sufficiently address HIPAA 
privacy concerns.
    As noted in the NPRM, 73 FR at 27351, the Department is fully 
cognizant of the need to protect the legitimate privacy interests of 
individuals under HIPAA and other laws. To further address the concerns 
of commenters, the Department, as discussed below, has clarified the 
rule to further protect the privacy of individuals. However, the 
Department disagrees with the premise of some commenters that the rule 
as proposed infringed on the privacy of individuals. In the 2003 
revisions to the Form LM-2, the Department made the decision to 
aggregate the benefits paid to union officials on Schedule 20 
(Benefits) based on privacy considerations. See 68 FR 58374, 58387, 
58399, 58426 (Oct. 9, 2003). Based on those same considerations, the 
Department crafted Schedule 11 and Schedule 12 in order to preserve the 
privacy interests of individuals. Under the proposal and the final 
rule, a person

[[Page 3691]]

reading the report would be unable to ascertain what types of benefits 
labor organization officers and employees receive, only the total value 
of these benefits. For instance, if a labor organization officer 
received a matching contribution to a 401(k) plan in the amount of 
$5,000, indirect payment of health insurance premiums in the amount of 
$6,700, and a health club membership in the amount of $1,200, the labor 
organization's Form LM-2 would disclose that this officer received a 
total of $12,900 in benefits. Given that benefits that must be reported 
are aggregated without identifying the nature of particular benefits 
that comprise the total, the potential for disclosing information of a 
private or protected nature is only remotely possible if at all. 
However, in those rare instances, where a labor organization, in good 
faith and on reasonable grounds, believes that a particular disclosure 
would violate HIPAA, or other federal or state law, or confidential 
settlement agreement, it should not include that particular information 
for the affected individual, but should instead include its value as 
part of the aggregated, non-itemized amount reported on the schedules 
and identify that reason and the individual affected in item 69 
(additional information) of the Form LM-2.
    On a related matter, a commenter questioned whether FICA, federal 
and state unemployment tax, long term disability insurance, accident 
death and dismemberment insurance, and workers' compensation would be 
required to be included in the benefits disclosure by the officer or 
employee's name. As noted above, the Department is not requiring labor 
organizations to report the value of such payments on an individual-by-
individual basis.
    Schedule 13--Membership Status: This schedule is unchanged.
    Detailed Summary Page: The current detailed summary page contains 
information from Schedule 14 through Schedule 19. The new detailed 
summary page, as proposed and adopted by today's rule, includes 
information from Schedule 14 through Schedule 29. These summary pages 
provide a snapshot of the labor organization's activities. Members of 
the union and the public may then use this snapshot to determine 
whether further analysis of the individual itemized schedules is 
required. There is no additional burden associated with these summary 
schedules because the software will automatically enter the totals in 
the appropriate lines of the summary schedules as the labor 
organization fills out the individual itemization schedules.
    Schedules 14-22. Currently, Form LM-2 filers only report the total 
amount received from dues and agency fees, per capita taxes, fees, 
fines, assessments, and work permits, sales of supplies, interest, 
dividends, rents, receipts on behalf of affiliates for transmittal to 
them, and receipts from members for disbursement on their behalf on 
Statement B. As noted in the NPRM, these line items exceed $20 million 
in some instances. 73 FR at 27351. For example, one labor organization 
stated that it received over $298 million in per capita taxes and 
another received over $28 million in rent. Id. Little useful 
information can be discerned from these totals alone. The Department 
proposed that for each of these schedules the labor organization would 
separately identify payments from any individual or entity that alone 
or in the aggregate total $5,000 or greater during a reporting period. 
The Department has adopted this proposal with some modifications for 
schedules relating to the receipt of dues payments and per capita 
taxes. The general instructions for completing these schedules have 
been modified to account for these changes, including notice to filers 
that they should complete the revised schedules 14 (``Dues and Agency 
Fees'') and 15 (``Per Capita Tax'') before completing the summary 
detail page.
    As explained in the NPRM, 73 FR at 27351, the lack of itemization 
of most receipts on the current Form LM-2 makes it easier for 
individuals to embezzle money coming to labor organization accounts. In 
one case, the president and treasurer of a local labor organization 
converted over $184,129 in dues checks. See 73 FR at 27352. One 
commenter took issue with this example in the NPRM, stating that simply 
requiring a listing of checks received by a Form LM-2 filer will not 
prevent the type of embezzlement identified in the example. (38) The 
commenter noted that the purpose of every receipt is not reflected in a 
corresponding disbursement of the same amount, reducing the value of 
the new itemization schedules. The Department agrees that it will not 
be possible to track the disbursement of each receipt from the 
information on the revised Form LM-2. The difference between the 
receipt and disbursement functional categories makes such a comparison 
impossible. Nonetheless, the itemization of individual receipts 
provides helpful information to union members. The revised form will 
contain itemized information for each check that is $5,000 or more and 
disclose whether other checks aggregate to $5,000 or more. The change 
will address this problem, which extends to all the various reporting 
categories on the current form and not merely the receipt of dues 
payments, because now receipts-side embezzlements like the embezzlement 
of $184,129 mentioned above will be harder to hide.
    The Department proposed to add new schedules that coincide with the 
items of cash receipts listed on Statement B.\13\ In today's final 
rule, the Department adopts the proposal with the modifications 
discussed below. The Department is revising the existing Form LM-2 to 
include schedules for dues and agency fees, per capita taxes, fees, 
fines, assessments, and work permits, sales of supplies, interest, 
dividends, rents, receipts on behalf of affiliates for transmittal to 
them, and receipts from members for disbursement on their behalf. 
Except as discussed below, the itemization schedules for receipts will 
operate in the same fashion as do the itemization schedules for 
disbursements.
---------------------------------------------------------------------------

    \13\ Current schedules 14 through 20 will be re-numbered as 
schedules 21 through 29.
---------------------------------------------------------------------------

    Schedule 14--Dues and Agency Fees. The Department proposed the 
requirement that a labor organization report dues and agency fees of 
$5,000 or more it receives from an individual or entity during the 
reporting period, and that each individual payment of $5,000 or more be 
disclosed on a separate line. The Department adopts the proposal as 
modified. As modified, labor organizations are not required to itemize 
such payments made by individual members. The aggregate dues and agency 
fees received directly from a represented employer must be reported by 
each individual employer. However, as modified, filers will only have 
to report for each employer the total such payments received during the 
reporting period--not each payment from the employer that alone or in 
combination with other payments is $5,000 or greater. Filers will enter 
in Column (A) the full name and business address of the represented 
employer. Filers will enter in Column (B) the purpose of the receipt of 
$5,000 or more, which means a brief statement or description of the 
reason the receipt was received. An adequate description includes 
information about the number and type of units covered by the receipt 
and the number of employees covered by the receipt. Filers will enter 
in Column (C) the total received from the represented employer during 
the reporting period.
    Some commenters expressed concerns with the difficulties associated 
with

[[Page 3692]]

itemizing the receipt of dues. As explained by one commenter, its 
members work for multiple employers that are signatory to collective 
bargaining agreements. Under collective bargaining agreements, working 
dues are deducted from members' paychecks and forwarded to an 
intermediate body or a local union. The commenter explained that in 
such situations information regarding the specific employer may not be 
transmitted to or recorded by the intermediate body, leading to 
difficulties in how to report such receipts. The commenter posited 
three possibilities: The dues can be considered received from (a) the 
member from whose paycheck the dues were deducted, (b) the employer 
that forwarded the dues either to the labor organization or to another 
entity that then forwarded the dues to the labor organization, or (c) 
where the working dues were sent by an employer to some other entity 
and then forwarded to the union, the entity that forwarded the dues. 
Another commenter explained that many unions do not allocate or 
transmit on a receipt-by-receipt basis the dues they receive on behalf 
of local unions or affiliates. The commenter explained that under the 
unions' own internal procedures they would do so only periodically and 
based on the total amount collected during that period. This commenter 
explained that the itemization of dues receipts would have to make 
calculations that do not correspond to the amounts they actually 
transmit to their locals; he also indicated that unions would have to 
devise accounting systems that pro rate every dues check received or 
perform such calculations manually. One commenter explained that the 
timing of the dues deductions from members' pay varied from unit to 
unit and that employers of more than one unit often remit payment for 
these units in a single check to the international. One commenter 
expressed concern that the Department was confused about how dues money 
is handled by most unions, including unions in the railroad industry.
    The Department believes that labor organizations have misread the 
Department's proposal and thereby overstated the burdens associated 
with reporting the receipt of dues payments. The Form LM-2 
Instructions, as proposed, state on page 31 that the filer must enter 
``the purpose of each individual receipt of $5,000 or more which means 
a brief statement or description of why the union received the 
receipt.'' See 73 FR at 2742. The proper reporting of dues will depend 
on how the dues are collected. If the dues are received directly from 
the employer, the labor organization receiving these payments should 
identify the employer that sent the dues. If another entity, such as an 
intermediate body, sent the dues to the labor organization, then the 
labor organization receiving the payments should identify the 
intermediate body and the intermediate body should list the dues 
payments received from the employer on the schedule for ``receipts on 
behalf of affiliates for transmittal to them'' (now renumbered as 
schedule 21). Both the intermediate body and the labor organization 
must identify the units covered by the payment.
    If a parent labor organization receives $5,000 or more on behalf of 
affiliates for transmittal to them from a represented employer covering 
an affiliated labor organization then the parent labor organization 
must identify the payer, the type or classification of the payment 
(which in most cases will be dues), the purpose, including information 
as to which affiliates the receipt covers, and the amount of the 
receipt. This type of information will be readily available as the 
parent must determine what portion of the check is to be disbursed to 
each local. The Department recognizes that unions may have to change 
the manner in which they capture and report information such as dues, 
but they remain free to devise their own procedures for collecting this 
information in order to meet the reporting requirements. The Department 
has not required unions to conform their procedures to a prescribed 
template; they are free to craft their own procedures so long as the 
dues receipts are fairly and accurately allocated and reported.
    Two commenters expressed concern that the itemization of the dues 
schedule would disclose members' personal information. Under the 
proposal, a labor organization would have to report the member's name 
and address. The commenters felt that members' names and addresses 
should remain confidential. The same concern was expressed with respect 
to initiation fees, fines, assessments, and work permits. The 
Department has accommodated these concerns. The Department is not 
requiring the identification of members who made payments directly to 
their labor organization for dues, fees, fines assessments, work 
permits, and disbursements on their behalf. Instead, the labor 
organizations should add these amounts to the aggregate reported on the 
line 3 (Other Receipts) of summary schedules 14, 16, and 22.
    Schedule 15--Per Capita Tax. The Department proposed that a labor 
organization report on a new Schedule 15 per capita payments it 
receives from an individual or entity during the reporting period. The 
Department adopts the proposal as modified to clarify how the 
information should be described.
    The labor organization will report per capita taxes of $5,000 or 
more received during the reporting period. Per capita taxes received 
directly from a labor organization must be aggregated for the year and 
reported by each individual labor organization. Filers will enter in 
Column (A) the full name and address of the labor organization from 
which the per capita tax was received. Enter in Column (B) the purpose 
of the receipt of $5,000 or more, which means a brief statement or 
description of the reason the receipt was received. An adequate 
description includes information about the number and type of units 
covered by the receipt and the number of employees covered by the 
receipt. Filers will enter in Column (C) the total received from the 
represented employer during the reporting period.
    The Department received several comments relating to the reporting 
of per capita taxes. Because the comments on this schedule were 
essentially the same as those received on the other new schedules 
proposed for a labor organization's receipts, they are discussed 
together below.
    Schedule 16-22. As earlier discussed, the Department proposed the 
addition of these schedules to capture, by functional category, a labor 
organization's various receipts. Labor organizations are required to 
itemize the individual categories of receipts aggregated to $5,000 from 
any one source. The labor organization will be required to complete a 
separate itemization schedule for each individual or entity from which 
the labor organization has received $5,000 or more. Each transaction 
from that individual or entity will include information about the 
individual, the purpose of the payment, the date of the payment, and 
the amount of the payment. The total amount received from the 
individual or entity, both itemized and non-itemized, will be included 
at the bottom of the itemized schedule. The totals from each itemized 
schedule will then be added together and that number will be entered in 
the appropriate item on Statement B.
    By establishing this reporting obligation, the Department is 
requiring labor organizations to provide the same information about 
their ``major'' receipts as they are currently required to report

[[Page 3693]]

about their ``major'' disbursements. Most of the general comments about 
the proposal to require itemization of both sides of the ledger were 
addressed earlier in the preamble. Neither those comments nor the 
Department's response to those comments will be repeated. Instead, only 
comments about particular aspects of the receipts schedules, not 
already discussed, are addressed below. Schedules 16, 21, and 22, like 
Schedules 14 and 15, require filers to identify receipts by units, 
jobs, and timeframes. The instructions have been modified for this 
purpose.
    A national labor organization stated that it does not break down 
sales of supplies by entity and will have to alter substantially its 
account system to track the sales of supplies to affiliates by entity. 
Another national labor organization was particularly concerned with 
itemizing receipts on Schedule 21, ``Receipts on Behalf of Affiliates 
for Transmittal to Them.'' The commenter explained that many parent 
labor organizations collect dues, fees, and other amounts that include 
the members' dues for subordinate or local unions. The commenter stated 
that it will be extremely difficult to designate the precise amount of 
each receipt to be transmitted to one or more locals or affiliates. One 
labor organization calculated that the proposed receipts schedules will 
increase its yearly burden by 250-500 hours (compared to the 
Department's estimated average of .47 hours per year). A commenter 
estimated that the ``per capita tax'' schedule alone would increase the 
number of itemized entries on its Form LM-2 by 1,200. Another commenter 
stated that under the Department's proposal it would have to make about 
10,000 itemized entries, one for each employer from whom it receives 
members' dues payments.
    As stated earlier in this preamble and in the preamble to the 
proposed rule, greater transparency promotes the detection of 
embezzlement and financial irregularities and, in so doing, also deters 
individuals at the front end from engaging in criminal or other 
improper conduct. Receipts from dues, per capita taxes, and sales of 
supplies are as susceptible to embezzlement or other improper use as 
any other receipt. For example, as noted in the NPRM, 73 FR at 27351-
52, the president and treasurer of a local labor organization converted 
over $184,129 in dues checks. The dues and agency fees schedule will 
provide an essential check for transactions between affiliates and 
parent bodies.\14\
---------------------------------------------------------------------------

    \14\ The Department recognizes that some national or 
international labor organizations receive dues payment from hundreds 
and, in some cases, thousands of employers. Although this will add 
length to the reports, the recurring burden will be minimal given 
the sorting feature in accounting software. Further, members 
interested in tracking payments to and from the national 
organization and between that organization and an intermediate body 
of local labor organization will be able to quickly search for 
payments involving particular employers, labor organizations, and 
bargaining units. The Department expects that most labor 
organizations already track such payments in order to ensure they 
are receiving the appropriate amount in dues payment and that most 
will receive payments from only a relatively small number of 
employers.
---------------------------------------------------------------------------

    Members of the affiliate labor organization will be able to check 
the amount their labor organization received in dues against the parent 
labor organizations receipts on behalf of affiliates for transmittal to 
them. The same analysis can be done on lump sum payments from the 
represented employer to the parent labor organization covering multiple 
affiliates. The member need only look at each of the covered 
affiliates' dues schedule and aggregate the payments to ensure they 
match the sum reported on Schedule 21. A difference in these two 
numbers could indicate embezzlement and warrant further investigation.
    As discussed in the NPRM, 73 FR at 27352, the per capita tax 
schedules of affiliates and parent labor organization can also be used 
to detect embezzlement and financial irregularities. The member can 
check for possible embezzlement or misallocation of funds owed his or 
her labor organization by checking his or her labor organization's per 
capita tax disbursements reported in Item 57 against the per capita tax 
receipts of the parent and its intermediate bodies. This can be done by 
entering his or her labor organization's name in the payer/payee search 
available on unionreports.gov. The search results will identify each 
labor organization that received per capita taxes from the member's 
labor organization. These payments can then be aggregated to determine 
whether the per capita disbursements from the member's labor 
organization match the per capita receipts reported on all the 
recipients' per capita tax schedules (Schedule 15). A difference in 
these two numbers could indicate an embezzlement or misallocation and 
warrant further investigation.\15\
---------------------------------------------------------------------------

    \15\ One commenter noted that it has 750 local affiliates, the 
vast majority of which have no office address other than the home of 
the local president or treasurer. It explained that all of these 
local affiliates make per capita payments over $5,000 per year and 
therefore it would be required to report on Schedule 15 the name and 
address of the person/entity making the payment. Expressing concern 
for the privacy of these officials, it urged the Department to 
except it from reporting their home addresses. The Department does 
not agree that an exception is necessary. Labor organizations 
already must disclose a publicly available address for itself or a 
registered agent for service of process in order to comply with 
state corporation laws. Further, the IRS requires a labor 
organization to list its address on IRS Form 990. For purposes of 
Schedule 15, a labor organization may use the address used by the 
labor organization in complying with state law or reported on the 
Form 990. Alternatively, a labor organization concerned about the 
disclosure of an officer's home address may elect to obtain a P.O 
Box and use that as its mailing address.
---------------------------------------------------------------------------

    Schedule 23--Other Receipts: This schedule, currently numbered 
Schedule 14, will be renumbered Schedule 23. No other changes will be 
made to this schedule.
    Schedule 24--Representational Activities: This schedule, currently 
numbered Schedule 15, will be renumbered Schedule 24. No other changes 
will be made to this schedule.
    Schedule 25--Political Activities and Lobbying: This schedule, 
currently numbered Schedule 16, will be renumbered Schedule 25. No 
other changes will be made to this schedule.
    Schedule 26--Contributions, Gifts and Grants: This schedule, 
currently numbered Schedule 17, will be renumbered Schedule 26. No 
other changes will be made to this schedule.
    Schedule 27--General Overhead: This schedule, currently numbered 
Schedule 18, will be renumbered Schedule 27. No other changes will be 
made to this schedule.
    Schedule 28--Union Administration: This schedule, currently 
numbered Schedule 19, will be renumbered Schedule 28. No other changes 
will be made to this schedule.
    Schedule 29--Benefits: This schedule, currently numbered Schedule 
20, will be renumbered Schedule 29. As described above in the 
discussion regarding the proposed changes to Schedule 11 and Schedule 
12, those benefits inuring to officers and employees of the labor 
organization will be listed next to the corresponding officer's or 
employee's name. Apart from this change, the same disbursements that 
were disclosed on Schedule 20 will be disclosed on the new Schedule 29. 
These include direct and indirect disbursements associated with direct 
and indirect benefits to members and members' beneficiaries.
Special Procedures for Reporting Confidential Information
    The Department requested comments on whether to narrow, clarify, or 
remove the confidentiality exception from the Form LM-2 instructions. 
The Department recently considered this same question in connection 
with the Form T-1 rulemaking. There the Department issued a final rule 
retaining the special procedure without change but cautioning that it 
was to be used in

[[Page 3694]]

limited circumstances. As discussed below, the Department reaches the 
same result here, i.e., preserving the confidentiality procedure. 
However, based in part on comments received in connection with the 
proposed changes to the Form LM-2 but primarily based on the agency's 
interpretation of its own regulations, the Department is clarifying 
that the procedure may not be used by unions in connection with 
payments made by them to employers if such payments are made as part of 
a job targeting, market recovery or similar program.
    Additionally, the Department modifies the instructions to clarify 
that the procedure may be used to report information the disclosure of 
which is proscribed by HIPPA or other federal or state law and that 
where this information is reported in aggregated form for this purpose, 
it is not subject to the per se ``just cause'' proviso of the 
procedure. See 29 CFR 403.8 (2008); see also 73 FR at 57449 (revising 
29 CFR 403.8(c)).\16\ This change conforms the instructions in the Form 
LM-2 to the instructions and regulatory text in the Form T-1 final 
rule, which takes effect on December 31, 2008. See 73 FR at 57449, 
57469.\17\
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    \16\ In this rulemaking the Department only addresses whether 
the information is available pursuant to the ``just cause per se'' 
provision of the special reporting procedure. The Department does 
not reach the question whether a union member for ``just cause'' 
would be able to examine underlying documents. The result may well 
depend upon the particular circumstances giving rise to the member's 
request, the nature of the information that is at issue, and the 
potential applicably of non-disclosure provisions under statute and 
case law.
    \17\ The revised section reads: ``This provision does not apply 
to disclosure that is otherwise prohibited by law or that would 
endanger the health or safety of an individual, or that would 
consist of individually identifiable health information the trust is 
required to protect under the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) Privacy Regulation.''
---------------------------------------------------------------------------

    The instructions currently allow unions to use the confidentiality 
procedure for information that would (1) identify individuals paid by 
the union to work in a non-union facility in order to assist the union 
in organizing employees, provided that such individuals are not 
employees of the union who receive more than $10,000 in the aggregate 
from the union in the reporting year; (2) expose the reporting union's 
prospective organizing strategy; (3) provide a tactical advantage to 
parties with whom the reporting union or an affiliated union is engaged 
or will be engaged in contract negotiations; (4) subject to a 
confidentiality agreement in a settlement agreement; or (5) endanger 
the health or safety of an individual. See 73 FR at 27423-24 (unchanged 
from current rule). If the receipt or disbursement fits within one of 
the above categories, then the labor organization need not itemize the 
receipt or disbursement. Instead, it may include the receipt or 
disbursement in the aggregated total on Line 3 of Summary Schedule 23 
(``Other Receipts'') or on Line 5 of Summary Schedules 24 
(``Representational Activities'') or 28 (``Union Administration''), as 
appropriate. A union member has a statutory right ``to examine any 
books, records, and accounts necessary to verify'' the labor 
organization's financial report if the member can establish ``just 
cause'' for access to the information. 29 U.S.C. 431(c); 29 CFR 403.8. 
The instructions and regulatory text expressly provide that if a labor 
organization chooses to utilize the special procedures for confidential 
information, such use constitutes a per se demonstration of ``just 
cause for access to the information'' and thus the information must be 
available to a member for inspection. 68 FR at 58448, 58499-00. 
Information that is withheld from full disclosure is not subject to the 
per se disclosure rule if its disclosure would consist of individually 
identifiable health information of the kind required to be protected 
under the Health Insurance Portability and Accountability Act of 1996 
(HIPAA) privacy regulation, violate state or federal law, violate a 
non-disclosure provision of a settlement agreement, or endanger the 
health or safety of an individual.
    Several commenters objected to the use of special procedures for 
reporting confidential information. The objections, however, were 
directed at the use of the procedure to shield from the view of union 
members and the public the amount of union funds directed at organizing 
activities, not at the use of the procedure to protect the legitimate 
privacy interests of individuals. One commenter asserted that the 
procedure effectively allowed labor organizations to assert 
unsubstantiated claims as a guise to justify any instance where they 
elect to withhold information. One commenter argued that the exemption 
affords labor organizations greater ability to withhold information 
than what is permitted under the discovery rules of federal civil 
procedure or permitted by the National Labor Relations Board (NLRB). 
Another commenter noted that narrowing or removing the exemption ``will 
provide labor organization members with clearer information regarding 
[labor organization] receipts and disbursements.'' The commenter argued 
that financial information should be available to labor organizations' 
membership without having to petition the labor organization directly. 
The commenter also alleged that because of potential tax and other 
impacts and implications, the public is entitled to and should have the 
same benefit of clarity regarding labor organization receipts and 
disbursements.
    Several commenters argued in favor of maintaining the special 
procedure for reporting organizing activities, asserting it was 
necessary to balance the interest of union members in transparency 
against the interest in protecting a union's ongoing organizing 
campaigns. One commenter expressed the unsubstantiated view that but 
for the inclusion of the special procedure in the 2003 rule, the courts 
would have overturned the rule. Another commenter, while noting that 
transparency is a positive benefit to the public, urged the Department 
to weigh this benefit against the labor organizations' primary 
responsibility--to represent its members. This commenter concluded that 
the damage done to unions' representational responsibilities far 
outweighs the value of this transparency in and of itself.
    Other comments noted that eliminating the confidentiality exception 
would be detrimental to legitimate organizing efforts and could 
compromise a labor organization's efforts to effectively engage in 
collective bargaining. Specifically, one commenter argued that 
requiring a union to identify ``salts'' on the Form LM-2 will 
unreasonably chill, if not destroy, this legitimate form of organizing 
under the NLRA. Disclosure of ``salts'' could jeopardize the 
individual's ability to earn a livelihood. This category of information 
subject to the Special Procedures for Confidential Information remains 
unchanged in the final rule. Labor organizations should note that 
notwithstanding the confidentiality provisions any employee who 
receives over $10,000 in any fiscal year is required by the LMRDA to be 
disclosed, even if employed as a ``salt.''
    One commenter argued that the need for a confidentiality exemption 
is self evident. One commenter noted that the current exception is 
already narrowly tailored to protect legitimate union interests while 
ensuring union members have access to information. Two commenters 
suggested that concerns that the Department found ``persuasive'' in 
2003 when it adopted this narrow exception to itemized reporting are no 
less real or compelling today. Several commenters also noted that the

[[Page 3695]]

Department cited no complaints from union members that this exception 
prevented them from accessing information on their union.
    Several commenters argued against imputing an improper motive to a 
labor organization's use of the confidentiality procedure. One noted 
that a union's decision to protect information from disclosure should 
not be assumed to connote misuse or abuse of the exception. This 
commenter alleged that use of the exemption is evidence of the extent 
to which the Department has already transformed the Form LM-2 from a 
vehicle Congress created to strengthen unions into a trap for the 
unwary and a weapon of choice for anti-union consultants bent on 
stopping workers from organizing. Two commenters believed that misuse 
of the exemption may be attributed to the steep ``learning curve'' 
inherent in the complex reporting scheme.
    The Department also specifically invited comments on an alternative 
proposal to require that all transactions greater than $5,000 be 
identified by amount and date on the relevant schedules, permitting 
however, labor organizations, where acting in good faith and on 
reasonable grounds, to withhold information that would otherwise be 
reported, in order to prevent the divulging of information relating to 
the labor organization's prospective organizing or negotiating 
strategy. Only one commenter addressed this proposed alternative. The 
commenter noted that such an approach did not provide protection for 
information recognized in the other parts of the existing 
confidentiality section, such as information that is required to be 
kept confidential pursuant to a settlement agreement, information the 
union is prohibited by law from disclosing, or information where 
disclosure would endanger the health or safety of the individual. The 
commenter also noted that such an approach would require additional 
itemization and reporting that would provide meaningless information to 
members.
    The Department has carefully considered the comments relating to 
the Special Procedures for Reporting Confidential Information. It also 
has undertaken further review of the use of this procedure by reporting 
labor organizations. The Department's review of Form LM-2 data 
indicates that the confidentiality exception is used only by a small 
number of Form LM-2 filers. However, the Department has found that in 
some cases where the confidentiality exception is used, large portions 
of the labor organizations' disbursements are not being itemized. For 
example, one labor organization treated $360,308.00 in disbursements as 
confidential information and entered this amount on line 5 of Schedule 
17. The $360,308 accounted for 45% of the labor organization's total 
disbursements. A mid-sized local labor organization treated $1,011,863 
as confidential. This accounted for 49% of the labor organization's 
total disbursements. Finally, a large local labor organization treated 
$5,931,513.00 as confidential. This accounted for 46% of the labor 
organization's total disbursements. As these examples demonstrate, an 
undisciplined use of the special procedures may result in the non-
itemization of disbursements of millions of dollars and thus deny 
members the very transparency that is the foundation of the LMRDA's 
disclosure provisions.
    Thus, while this final rule retains the Special Procedure for 
Reporting Confidential Information, the Department reemphasizes the 
limited situations in which it should be used and clarifies that it was 
not the Department's intention that it should be used to shield the 
itemization and full disclosure of payments to employers for job 
targeting, market recovery or other similar programs. In clarifying 
this aspect of the rule, the Department remains of the view that a 
labor organization should not be required to disclose information that 
would harm the labor organization's prospective organizing campaign or 
negotiations, by disclosing strategy that would otherwise be 
confidential. However, the Department reiterates, as it did in the Form 
T-1 final rule, that labor organizations are required to itemize 
transactions related to organizing drives and contract negotiations 
after the confidentiality interest giving rise to the exemption has 
ended. The instructions make clear that absent unusual circumstances 
information about past organizing drives or contract negotiations 
should not be treated as confidential under the reporting requirements. 
The Department also reiterates, as noted in the 2003 final rule, the 
procedures may not be used for Schedules 16 through 18. 68 FR at 58500. 
This rule has renumbered Schedules 16 through 18 as Schedules 25 
through 27. Thus, the instructions for this final rule state that the 
procedures may not be used for the new Schedule 25 (``Political 
Activity and Lobbying''), Schedule 26 (``Contributions, Gifts and 
Grants''), and Schedule 27 (``General Overhead'').
    The Department is also clarifying that the procedure may not be 
used for payments made to employers as part of a labor organization's 
job targeting, market recovery or other similar program. A commenter 
urged the Department to eliminate the confidentiality procedure because 
of what it saw as a widespread practice by labor organizations to avoid 
reporting the names of, and amount of payments to, employers who had 
received job targeting funds. Independently, the Department's own 
recent investigative experience has shown that some labor organizations 
have been using this procedure to shield from disclosure payments to 
employers as part of the unions' job targeting or market recovery 
programs. Although the total number of instances appears relatively 
small, the amount of money involved is substantial. The labor 
organizations have informed the Department that they consider such 
payments to be part of their ``organizing strategy'' and that the 
disclosure of such payments would adversely affect future organizing 
efforts. As discussed below, the Department has determined that 
payments to employers for job targeting or market recovery purposes are 
not encompassed by the special procedure. Therefore, any payments of 
$5,000 or greater to a particular employer must be itemized.
    In the 2003 rule, the Department, recognizing that the disclosure 
of certain payments related to organizing might adversely affect a 
union's legitimate interests, created a special procedure for reporting 
confidential or sensitive information. The key language of the 2003 
rule is embodied in the instructions to the Form LM-2: ``Filers may use 
the [special procedure for reporting confidential information] to 
report * * * [i]nformation that would expose the reporting union's 
prospective organizing strategy. The union must be prepared to 
demonstrate that disclosure of the information would harm an organizing 
drive'' (emphasis added).
    Neither the rule nor its preamble illustrated the particular kinds 
of payments that would or would not qualify for this limited reporting 
procedure. Although the preamble to the rule mentioned ``job 
targeting'' in a few instances, the preamble did not specifically 
identify which particular schedule should be used for reporting such 
payments. See 68 FR at 58387, 58400. The closest the preamble comes to 
addressing how job targeting disbursements should be reported is the 
following statement: ``In the Department's view, receipts and 
disbursements of job targeting funds that exceed the itemization 
threshold will be disclosed as a result of the

[[Page 3696]]

general reforms implemented by this rule.'' Id., at 58400. The 
Department acknowledges that the term ``organizing strategy'' is 
ambiguous, and that the rule did not make clear whether payments made 
directly to employers, such as job targeting payments, would qualify. 
The ambiguity of the term is illustrated by literature reviewed by the 
Department, some of which classified activities as far flung as 
community service projects and pension investment strategies as being 
part of a union's ``organizing strategy.'' Kate Bronfenner, Organizing 
to Win: New Research on Union Strategies, 302. The Department never 
intended that the term should be read so broadly. Such activities may 
have an indirect impact on the attractiveness of a union to workers, 
but do not directly attempt to organize workers, and thus fall outside 
the meaning of the term as interpreted and administered by the 
Department. Moreover, the ``key language'' of the rule, as quoted 
above, dictates that the special procedure must be read as limited to 
information that would ``harm an organizing drive.'' Payments to an 
employer in order to assist it in bidding for construction jobs on 
which union members will be paid in accord with union industry practice 
cannot be viewed as part of an ``organizing drive.'' Such payments 
stand in contrast to payments commonly associated with an organizing 
drive, such as payments to printing vendors for literature and signage, 
and rental of meeting facilities, communication equipment, 
transportation vehicles, and various consultants. For this reason, the 
Department modifies the rule by explicitly stating that ``payments made 
by a labor organization to an employer under a market recovery, job 
targeting, or like program (e.g., for ``industry advancement''), must 
be reported. Such payments must be itemized where they aggregate to 
more than $5,000. If the labor organization chooses to report such 
payments on Schedule 24 (``Representational Activities''), it may not 
use the confidentiality exception. Additionally, it is the Department's 
view that this clarification best serves the LMRDA's purpose, by 
providing transparency to this substantial aspect of a union's 
financial operations without impeding a union's prospective organizing 
drives. In making this change, the Department takes no position in this 
rule on the propriety or not of job targeting or similar payments made 
by a labor organization under the Labor Management Relations Act, the 
Davis-Bacon Act, or other law, or how such information has been 
addressed under the discovery rules of federal civil procedure and NLRB 
practice. The changes are based solely on the Department's 
interpretation of the confidential reporting procedure and its view 
that the disclosure purposes of the LMRDA are best served by making 
known to union members and the public the amounts and recipients of job 
targeting, market recovery or other similar payments.

C. Proposed Procedure and Standards To Revoke the Simplified Reporting 
Option Where Appropriate in Particular Circumstances

1. Introduction
    The Department proposed to establish standards and procedures for 
revoking the simplified report filing privilege provided by 29 CFR 
403.4(a)(1) for those labor organizations that are delinquent in their 
Form LM-3 filing obligation, fail to cure a materially deficient Form 
LM-3 report after notification by OLMS, or where other situations exist 
where revoking the Form LM-3 filing privilege furthers the purposes of 
LMRDA section 208. The final rule adopts the proposal with some 
modifications. The new procedure will effectuate the Department's 
authority to revoke a labor organization's existing Form LM-3 filing 
privilege if it fails to timely file a Form LM-3 or files a Form LM-3 
that is materially deficient. Without such a procedure, the Department 
has been unable to revoke a labor organization's privilege to file a 
simplified report--no matter how egregious a labor organization's 
noncompliance with its reporting obligations, or obvious the 
indications of financial mismanagement, embezzlement, or corruption 
within that organization. See 73 FR at 27353. The procedures 
established in this rule will remedy this shortcoming in the 
Department's reporting system.\18\
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    \18\ The 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.
---------------------------------------------------------------------------

    As discussed in the NPRM, 73 FR at 27346-47, the goal of these 
changes is to improve transparency in situations where it is most 
needed, i.e., where a union has failed to comply with its basic 
financial reporting obligation. Although it may appear counterintuitive 
to require a non-compliant organization that fails to meet its 
relatively simple Form LM-3 obligation to file a more detailed Form LM-
2, this view assumes that the only reason for non-compliance was 
relatively benign, e.g., a responsible officer was brand new to the 
position or his or her illness delayed the timely submission or 
clarification of a submission. The Department recognizes that some 
submissions are delayed for such reasons; thus, the Department did not 
propose that a delinquent or materially deficient filing would 
automatically trigger revocation and require the submission of a Form 
LM-2. However, as most commenters appeared to recognize, the reasons 
for non-compliance are varied and by no means all benign. Labor 
organizations will be given the opportunity to explain the reasons for 
the delay, including mitigating circumstances, and may thereby avoid 
having to file the Form LM-2. But where revocation is appropriate, the 
union will incur some additional burden in completing the Form LM-2 
but, as discussed below, the burden is manageable and outweighed by the 
gains in transparency. The Form LM-2 not only requires more detail in 
general than the Form LM-3, but the Form LM-2 requires information that 
may be particularly pertinent to situations where possible financial 
mismanagement or embezzlement may have occurred. This additional 
financial information will assist members of labor organizations and 
OLMS investigators in reviewing the labor organization's funds and 
assets during the reporting period and enable them to determine whether 
additional scrutiny of the labor organization's finances is in order, 
for example, by requesting an explanation of the accounting, examining 
the underlying records of various transactions, or both.\19\
---------------------------------------------------------------------------

    \19\ 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.
---------------------------------------------------------------------------

    The differences between the Form LM-2 and the Form LM-3 forms have 
been accentuated by the substantial revisions made to the Form LM-2 in 
2003 and those adopted in this final rule. As the Department explained 
in the preamble to the 2003 Form LM-2 rule, the broad aggregated 
categories on the old Form LM-2 enabled officials of labor 
organizations to potentially hide embezzlements and financial 
mismanagement. 68 FR 58420. The more detailed reporting required of all 
financial transactions covered by Form LM-2 was designed, in part, to 
discourage and reduce corruption by making it more difficult to hide

[[Page 3697]]

financial irregularities from members and the Department's 
investigators and thereby strengthen the effective and efficient 
enforcement of the LMRDA. 68 FR 58402. Requiring labor organizations to 
file a Form LM-2, after a determination that revocation of the 
privilege of filing a Form LM-3 is warranted, will make it more 
difficult to hide fraud.
    The Form LM-2 requires labor organizations to provide more specific 
information than the Form LM-3 in several areas relating to labor 
organization finances including, in part, the following: Investments, 
fixed assets, loans payable and owed, contributions, grants, and gifts, 
overhead expenses, union administration, and receipts. With regard to 
labor organization receipts, Form LM-2 filers are explicitly required 
to report all receipts including: ``Receipts from fundraising 
activities, such as raffles, bingo games, and dances; funds received 
from a parent body, other labor organizations, or the public for strike 
assistance; and receipts from another labor organization which merged 
into the labor organization.'' See p. 29 of Instructions to Form LM-2, 
as reproduced at 68 FR 58501.
    Form LM-2 requires filers to itemize receipts from and 
disbursements to any individual or business or other entity that exceed 
$5,000 in a fiscal year either in a single transaction or aggregated 
over the year. Itemization prevents a labor organization from 
``hiding'' significant receipts from or disbursements to the same 
individual or entity, a possibility that exists under the Form LM-3. 
The name, address, and other information must be provided for any such 
entity or individual. This information, which is not required by the 
Form LM-3, enables members of a labor organization to detect payments 
to individuals or entities that are out of the ordinary (given 
information that is known to the member but would not appear irregular 
to someone without such information). Thus, this information enables 
members to identify situations that may reflect a breach of the labor 
organization's duties to its members or provide a reasonable basis for 
inquiry to determine whether officials of the labor organization are 
improperly diverting funds for their own benefit or the shared benefit 
of others. Additionally, a member who is aware that the labor 
organization has a financial relationship with one or more of these 
businesses will be in a better position to determine whether the 
business has made any required reports (Form LM-10). The itemization of 
payments at or above $5,000 also puts members in a better position to 
determine whether any of the recipients of the payments are businesses 
in which a labor organization official (or the official's spouse or 
minor child) holds an interest, a circumstance that will require a 
report to be filed by the official (Form LM-30).
    The Form LM-2, unlike the Form LM-3, requires filers to provide a 
list of accounts receivable and payable (involving a particular 
individual or entity in an amount of $5,000 or greater, singly or 
aggregated) that are past due by more than 90 days. As explained in the 
2003 Form LM-2 rulemaking, 68 FR at 58401-02, such itemized disclosure 
can provide a vital early warning signal of financial improprieties. In 
the case of an already overdue report, the delinquency demonstrates 
that such improprieties already may exist.
    As discussed in the NPRM, 73 FR at 27354, the Department's 
enforcement experience has shown that the failure of labor 
organizations to file the annual Form LM-3 on time and without material 
deficiencies is often an indicator of larger problems about the way 
such organizations maintain their financial records, and may be an 
indicator of more serious financial mismanagement. OLMS review of data 
indicates that labor organizations that are repeatedly delinquent are 
more likely than other labor organizations to suffer embezzlement, or 
related crime. For instance, in one recent case an investigation of a 
labor organization that was delinquent in its reports for two years 
showed that the labor organization had been the victim of a serious 
embezzlement. Its former president pled guilty to embezzling $112,525 
and received a prison sentence of 33 months, and was ordered to pay 
back the money he had stolen. In another case, a former financial 
secretary of a labor organization that had been delinquent in filing 
its reports for several years pled guilty to embezzlement and was 
ordered to pay restitution of $103,248 and also received a sentence 
including confinement for eight months, home detention for four months, 
and probation for three years. Many of the reasons that contribute to 
delinquent filings also result in the filing of reports that omit or 
misstate material information about the labor organization's finances. 
The members of a labor organization that fails to correct a material 
reporting deficiency will also benefit from the increased transparency. 
For example, the labor organization may delay filing a Form LM-3 to 
avoid making timely public disclosures about financial improprieties of 
officers, such as the diversion of funds for personal use. Even if the 
Department eventually succeeds in encouraging a delinquent labor 
organization to file the required form, the lack of specificity in Form 
LM-3 may permit significant problems to remain undetected. The greater 
detail required by the Form LM-2 makes it more difficult to hide such 
problems.
    As discussed in the NPRM, at 73 FR at 27357, the Department's 
enforcement experience reveals various reasons for delinquent filings, 
such as a labor organization's failure to maintain the records required 
by the LMRDA; inadequate office procedures; frequent turnover of labor 
organization officials and their often part-time status; uncertainty of 
first-time officers about their reporting responsibilities under the 
LMRDA and their inexperience with bookkeeping, recordkeeping, or both; 
an ``inherited bookkeeping mess;'' an inattention generally to 
``paperwork;'' overworked or under-trained officers; an officer's 
unwillingness to question or report apparent irregularities due to the 
officer's own inexperience or concern about the repercussions of 
reporting such matters; or a conscious effort to hide embezzlement or 
the misappropriation of funds by the officers, other members of the 
organization, or third parties associated with the labor organization. 
Many of these causes of delinquency highlight the need for more, not 
less, detailed reporting. The inability to comply with the reporting 
obligations may be symptomatic of financial management problems, benign 
or otherwise, within the union. As discussed below, commenters 
generally agreed with the Department's assessment of why labor 
organizations are delinquent or deficient in filing the Form LM-3. Some 
commenters, however, disagreed with the efficacy of additional 
reporting as a means of detecting fraud or embezzlement. As discussed 
further below, the Department recognizes that the changes will not 
eliminate fraud or embezzlement. But the changes should increase the 
ability of union members, the Department, and the public to identify 
how the union's finances are being managed. This increased 
transparency, especially insofar as overdue accounts and major 
transactions (those valued at $5,000 or greater) are concerned, will 
increase the prospect that fraud will be uncovered and the fear of 
detection may deter individuals from engaging in the improper conduct 
in the first instance.
    To implement this procedure and standards for revocation, the 
Department proposed to modify section 403.4 of its regulations, 29 CFR 
403.4, and to amend the instructions to the Form LM-3 in order to fully 
apprise

[[Page 3698]]

filers of the procedure and standards. The Form LM-3 instructions will 
remain unchanged except for a new paragraph that notes that the 
privilege to file the Form LM-3 may be revoked under certain 
circumstances, and refers filers to the standards and procedures set 
forth in the Department's regulations (29 CFR 403.4).
    Where there appear to be grounds for revoking a labor 
organization's privilege to file the Form LM-3, such as where the labor 
organization has failed to timely file the Form LM-3, or files a Form 
LM-3 that lacks material information,\20\ the Department will conduct 
an investigation to confirm the facts relating to the delinquency or 
other possible ground for revocation. The depth of the investigation 
will depend upon the particular circumstances. For example, where OLMS 
has no record of receiving a timely Form LM-3, the investigation may be 
limited to confirming that the labor organization did not timely submit 
the report. In other circumstances, an investigation may be needed to 
review the labor organization's books, to review documents, and to 
interview subjects and obtain statements from individuals with 
knowledge about a labor organization's finances and their reporting to 
determine whether or not the deficiencies on the Form LM-3 are 
material.
---------------------------------------------------------------------------

    \20\ 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.
---------------------------------------------------------------------------

    If the Department finds grounds for revocation after the 
investigation, the Department will send the labor organization a notice 
of the proposed Form LM-3 revocation stating the reason for the 
proposed revocation and explaining that revocation, if ordered, will 
require the labor organization to file the more detailed annual 
financial report, Form LM-2.\21\ The letter will also provide notice 
that the labor organization has the right to a hearing if it chooses to 
challenge the proposed revocation; and that the hearing will be limited 
to written submissions due within 30 days of the date of the notice. 
The submissions and any supporting facts and argument must be received 
by OLMS at the address provided in the notice within 30 days after the 
date of the letter proposing revocation. The letter will also advise 
that the labor organization's failure to timely respond within 30 days 
will waive such labor organization's opportunity to request a hearing 
and the proposed revocation shall take effect automatically unless the 
Secretary in his or her discretion determines otherwise.
---------------------------------------------------------------------------

    \21\ The Department anticipates that the new rule will provide 
ample incentive for labor organizations to fulfill timely their Form 
LM-3 filing responsibilities. If the rule has that salutary effect, 
the number of unions potentially subject to revocation of their Form 
LM-3 privilege will be relatively small. Should this not be the 
case, available resources may limit the ability of the Department to 
pursue revocation in all cases where it may be warranted. In such 
instances, the Department will exercise, fairly and impartially, its 
enforcement discretion in deciding where revocation should be 
pursued.
---------------------------------------------------------------------------

    In its written submission, the labor organization must present 
relevant facts and arguments that address whether: (1) The report was 
delinquent or deficient or other grounds for the proposed revocation 
exist; (2) whether the deficiency, if any, was material; (3) whether 
the circumstances concerning the delinquency or other grounds for the 
proposed revocation were caused by factors reasonably outside the 
control of the labor organization; and (4) any factors exist that 
mitigate against revocation. Factors reasonably outside the control of 
a labor organization could include, for example, natural disasters that 
destroyed the records necessary to complete a Form LM-3, or the death 
or serious illness of the labor organization's president or treasurer 
while the form was being prepared for filing. Mitigating factors could 
also include, for example, that the form was timely completed but was 
mailed to an incorrect address or an attachment was inadvertently 
omitted from the filing.
    After review of the labor organization's submission, the Secretary 
(or her designee who will not have participated in the investigation) 
will issue a written determination, stating the reasons for the 
determination, and, as appropriate based on neutral criteria, informing 
the labor organization that it must file the Form LM-2 for such 
reporting periods as he or she finds appropriate. Where a labor 
organization has failed to timely respond to the notice of proposed 
revocation, the Secretary will notify the labor organization in writing 
that its privilege has been revoked (or in an exercise of his or her 
discretion that revocation is unnecessary). The determination by the 
Secretary shall be the Department's final agency action on the 
revocation.
    The revocation of the Form LM-3 filing privilege will ordinarily 
only apply to the fiscal year for which the labor organization was 
delinquent or failed to file a properly completed amended report after 
notification of a material deficiency and the fiscal year during which 
the revocation determination is issued, but in no event will a labor 
organization be required to submit a Form LM-2 for any past fiscal year 
for which the labor organization already has properly and timely filed 
a Form LM-3. If the revocation is for a longer period of time, the 
Department's reasons will be included in its written determination. 
Labor organizations that are required to file a Form LM-2 because their 
Form LM-3 filing privilege has been revoked will not be required to 
submit the Form LM-2 electronically.
2. Discussion of Comments Received
    A few commenters addressed the authority of the Secretary to make 
the proposed changes. One commenter noted that the Secretary has the 
statutory authority to revoke the simplified reporting privilege and 
doing so will promote greater transparency. The commenter also noted 
that the revocation procedure will act as an effective deterrent to 
deliberately inaccurate or late reporting of financial information. 
Others, however, argued that Congress intended revocation under section 
208 to be limited to situations where the simplified report would not 
accurately reflect the finances of a small labor organization, i.e., 
where filing the simplified form would permit the labor organization to 
circumvent or evade its reporting obligations. A suggested example of 
its appropriate use would be where a single labor organization, in 
effect, was formed as two separate labor organizations in order to 
decrease its annual receipts below the $250,000 filing threshold for 
the Form LM-2. The same commenters stated that the authority under 
section 208 was not intended to be used for individual or episodic 
violations. In its view, the only appropriate remedies for individual 
violations are already provided for under the LMRDA--civil and criminal 
enforcement. Another commenter argued that where conduct is culpable, 
it should be dealt with through criminal investigations and 
prosecutions.
    The Department disagrees with this narrow reading of the 
Secretary's authority. Section 208 permits the Secretary to establish 
simplified forms for labor organizations where she ``finds by virtue of 
their size a detailed report would be unduly burdensome.'' Section 208 
also authorizes the Secretary to revoke a labor organization's 
privilege to file such forms when the Secretary determines, after 
investigation, due notice, and an opportunity for a hearing, ``that the 
purposes of this section would be served [by revocation].'' Contrary to 
the view of these commenters, section 208 grants her express, 
unambiguous statutory authority to revoke the

[[Page 3699]]

privilege of a labor organization to file a simplified report. There is 
nothing in the text of the LMRDA or its legislative history to suggest 
that the Secretary's authority to revoke the privilege is somehow 
constrained by her separate grant of civil and criminal enforcement 
powers. The Department's primary method of enforcement to obtain a 
timely and complete report, a civil action seeking a court order that 
the labor organization file an adequate report, is a time-consuming 
process that permits the evasion of the reporting requirements to 
continue for lengthy periods, denying members the timely disclosure of 
this financial information, without which they are unable to properly 
oversee the operations of their labor organization and, where they 
believe appropriate, to timely change its leadership, policies, or 
both. Moreover, requiring unions that are delinquent or materially 
deficient in their reports to file the more detailed Form LM-2 will 
help identify situations demanding civil and criminal investigations 
and prosecutions. The revocation process is but one tool that the 
Department may utilize to ensure that labor organizations are complying 
with the LMRDA reporting requirements. Where conduct warrants criminal 
enforcement, the Department will use this complementary tool.
    A few commenters took an alternative tack by stating that implicit 
in the authority to create a simplified financial report is the 
assumption that simplified reports adequately reveal a small labor 
organization's finances, or that small organizations are incapable of 
filing the same report as larger organizations, or both. They suggested 
limiting revocation to only those situations where a simplified report 
would not accurately reflect the finances of a small labor 
organization. While Congress clearly viewed simplified reports as 
potentially adequate for reporting the finances of small labor 
organizations, it left the Secretary to decide whether to permit some 
unions to file a simpler form. It is difficult to square the decision 
by Congress to leave the choice to the Secretary while, at the same 
time, hobbling her authority to revoke the authority where she deems it 
appropriate. Congress left it to the Secretary to determine what is 
``unduly burdensome.'' And, where action (or inaction) of individuals, 
not a union's size, is the reason for the reporting deficiency, the 
argument that the Secretary is constrained by the language of section 
208 loses any remaining force. Commenters have failed to provide any 
persuasive arguments in support of such a reading.
    A few commenters suggested that the Department was exaggerating the 
problem, one stating that a phone call to the labor organization in 
question should be sufficient to remedy the problems, while other 
suggested that the Department should address the problem by providing 
compliance assistant to small unions so that they will understand their 
filing obligation. As most commenters appeared to recognize, however, 
it is hard to exaggerate the difficulties confronting the Department in 
obtaining timely and complete Form LM-3s from a substantial percentage 
of unions in this category. The problems persist despite the 
Department's robust compliance efforts to assist unions with their 
filing obligations.
    Several labor organization commentators believed that increased 
disclosure was punitive. A commenter asserted that compliance does not 
appear to be the goal of this proposal, explaining its view that the 
proposal would impose extraordinary costs on labor organizations. (45) 
The Department disagrees with this assertion. Filing a delinquent or 
materially deficient report violates the labor organization's duty to 
provide accurate disclosure of its financial condition and operations. 
Such evasion of the reporting requirements may be a sign of more 
serious financial mismanagement. Increased transparency and disclosure 
will help labor organization members and the Department ascertain 
whether serious financial mismanagement is occurring. Revocation of a 
labor organization's simplified reporting privilege will further the 
purposes of the LMRDA, namely, ensuring that the organization 
accurately discloses its financial condition and operations.
    Many commenters described the proposal as unnecessarily burdensome. 
Commenters stated that Form LM-3 filers do not keep track of data that 
is required on the Form LM-2. Specifically, one commenter believed that 
the Form LM-2 functional categories would pose a particular challenge 
for Form LM-3 filers. An additional commenter also noted that 
aggregation, itemization and categorization could pose a problem. This 
international labor organization commenter noted that from its 
experiences with filing Form LM-2 reports for Form LM-3 filers that had 
been placed in trusteeship, conversion of data to the Form LM-2 format 
had been difficult.\22\
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    \22\ As ``evidence'' of the burden, two commenters noted that 
the Form LM-2 is so difficult to complete that the Department, in 
light of the legal challenge to the 2003 rule, recognized that 
unions would need at least 18 months to prepare for filing the form. 
(As discussed in the text, the actual burden to an affected union 
under this aspect of today's rule will be much less demanding than 
for a typical Form LM-2 filer. The ``lead time'' for the submission 
of the Form LM-2s, as revised by the 2003 rule, was provided because 
of two factors: (1) The need for some unions to substantially revise 
sophisticated recordkeeping and accounting systems; and (2) the 
delay in the Department's development of software by which unions 
would electronically submit their Form LM-2s. Neither factor is in 
play under the instant rule.
---------------------------------------------------------------------------

    The Department acknowledges that the Form LM-2 will prove more 
burdensome to complete than the Form LM-3, a fact that should provide 
incentive for an organization to file its Form LM-3 on time and without 
material deficiencies. At the same time, however, the Department 
believes that some commenters overstate the burden to those labor 
organizations that will be required to file the Form LM-2. The burden 
to a labor organization of filing a Form LM-2 is proportionate to the 
size of the labor organization. Form LM-2 requires additional 
information and specificity that is not captured by the Form LM-3. A 
labor organization that has had the Form LM-3 filing privilege revoked 
will have to assign receipts and disbursements into functional 
categories, a new task for those unions. However, due to the relatively 
small number of receipts and disbursements, assigning the receipts and 
disbursements to functional categories should not require a significant 
adjustment in the labor organization's recordkeeping systems. The 
burden imposed by requiring itemization of receipts and disbursements 
into functional categories is linked to the amount of receipts and 
disbursements that a labor organization has. A labor organization with 
less than $250,000 in annual receipts will have significantly fewer 
receipts and disbursements to itemize than a larger labor organization. 
And where the labor organization believes that it does not have 
voluntary resources to complete the form itself, it can turn to its 
parent or other affiliated unions for assistance or referral to third 
parties experienced in preparing the Form LM-2. Additionally, labor 
organizations that will file the Form LM-2 due to having their Form LM-
3 filing privilege revoked are relieved of the requirement to file the 
Form LM-2 electronically, which may reduce the burden of converting 
files to a system that is compliant with the electronic form.

[[Page 3700]]

    The Department notes that currently situations exist where a Form 
LM-3 filer may be required to file a Form LM-2 with little notice. For 
example, a traditional Form LM-3 filer that received $230,000 in annual 
receipts in the previous year but nearing the end of its current fiscal 
year eclipses that total, and now has $260,000 in annual receipts must 
file a Form LM-2 for that year with little advance notice. Similarly, a 
traditional Form LM-3 filer that received $100,000 in annual receipts 
in the previous fiscal year but nearing the end of its current fiscal 
year sells an asset thus bringing its annual receipts over the $250,000 
Form LM-2 threshold, would be required to file the Form LM-2 with 
little advance notice. Additionally, the Department has long required a 
Form LM-2 to be filed for a labor organization that has been placed in 
trusteeship without regard to the amount of its annual receipts. 
Depending on particular circumstances, a Form LM-2 could have to be 
filed shortly after the imposition of a trusteeship, even though but 
for the trusteeship, a Form LM-3 would have fulfilled the 
organization's annual financial reporting obligation. See 29 CFR 403.4 
and 408.5.
    Focusing on the Department's estimate of 96 revocations a year out 
of a much larger potential universe of delinquent filers, commenters 
questioned the Department's intention or ability to identify those 
labor organizations that will be required to file the Form LM 2. Some 
commenters suggest that the procedure invites, if not compels, 
arbitrary action by the Department. One commenter noted that nearly 80% 
of all 2006 Form LM-3 filers filed on time or within 30 days of their 
filing deadline. The commenter noted that over 2,000 Form LM-3 filers 
remain delinquent over 30 days after their filing deadline. Another 
commenter asserted that the proposal would require the Form LM-2 to be 
filed by less than one-tenth of one percent of all Form LM-3 filers, 
allowing the Department unbridled discretion in singling out those for 
sanction. Two commenters questioned what process the Department would 
utilize to determine which delinquent and deficient filers would have 
their Form LM-3 filing privilege revoked. One commenter requested the 
Department present clear, precise, and reasoned criteria for 
revocation. One commenter worried that the Department would revoke the 
Form LM-3 filing privilege for labor organizations that filed their 
Form LM-3 one day late.
    Such fear is unfounded and, in any event, premature. As explained 
in the NPRM, 73 FR at 27370, the Department anticipates that the vast 
majority of situations where revocation occurs will be for delinquency 
or material deficiency. (See Regulatory Flexibility Analysis below; the 
Department there estimates that of the 96 cases per year in which the 
simplified reporting privilege will be revoked all but two will be for 
delinquency or deficiency.) The term ``other circumstances'' is 
necessarily broad to encompass situations that are contrary to the 
Act's disclosure provisions but not easily catalogued in advance. 
Moreover, the Department's actions are constrained by the language of 
section 208, which requires that revocation be limited to situations 
where it would serve the purposes of that section. The Department has 
established a procedure that ensures due process--notably no commenter 
has taken issue with the investigatory and decision making process. 
This process ensures fair and even-handed treatment. Moreover, any 
labor organization that believes it has been aggrieved by the 
Department's decision to revoke the Form LM-2 filing privilege could 
secure judicial review of the Department's decision.
    The ``other circumstances'' provision will rarely be used. As the 
commenters noted, if a large labor organization divided itself into two 
separate labor organizations, while continuing to function as one 
entity, the labor organization would be evading the Form LM-2 reporting 
requirement. In such a situation, the labor organizations may be filing 
timely Form LM-3 reports, which may comply with the technical 
requirements of Form LM-3, but revocation would still be warranted. 
While revocation is appropriate in that instance, the commenters, have 
failed to make a convincing argument that the Department's statutory 
discretion should be limited by specifying particular situations where 
revocation may be appropriate. The Department cannot anticipate every 
situation where revocation would be appropriate and for this reason it 
retains the ``other circumstances'' language in the final rule.
    Two commenters asserted that the examples of mitigating 
circumstances in the proposal, ``natural disasters'' and ``death or 
serious illness'' of the president or treasurer of the labor 
organization, indicated that the Department will allow mitigation only 
in the most extreme situations, inviting arbitrariness in singling out 
violators for the revocation sanction. (38, 40) The language in 
question does not require such inference. For example, the NPRM stated 
that ``[m]itigating factors could also include, for example, that the 
form was timely completed but was mailed to an incorrect address or an 
attachment was inadvertently omitted from the filing.'' 73 FR 27356. To 
alleviate this concern, however, the Department acknowledges that 
mitigating factors, including a labor organization officer's lack of 
recordkeeping or bookkeeping experience will be taken into account by 
the Department in deciding whether revocation is appropriate. However, 
where officers of a labor organization have deliberately obscured its 
financial condition and operations, the Secretary will exercise her 
statutory right to revoke the simplified filing privilege of the labor 
organization.
    Two commenters expressed concern that the Secretary could impose 
the Form LM-2 filing requirement indefinitely. The revocation of the 
Form LM-3 filing privilege will ordinarily only apply to the fiscal 
year for which the labor organization was delinquent or filed a 
materially deficient report, and the fiscal year during which the 
revocation was issued. However, to the extent that a labor organization 
continues to fail to accurately disclose its financial conditions and 
operations despite the revocation, application of the revocation to 
additional fiscal years may be appropriate. Thus the duration of the 
revocation is limited by the Section 208 requirement that revocation 
further the purposes of the Act.
    Labor organizations will receive notice of their delinquency well 
before the revocation process is invoked. Only after notification of 
the delinquency and voluntary cooperation has failed to resolve the 
delinquency will a revocation proceeding commence. Labor organizations 
will be notified that a consequence of failure to file a timely report 
or filing a report with material deficiencies may be revocation of 
their simplified reporting privilege. They will be so informed not less 
than 30 days before the revocation process is invoked. Under the final 
rule, labor organizations that file a delinquent or materially 
deficient Form LM-3 will be notified of their right to file a written 
submission contesting the proposed revocation. The notice also informs 
the labor organization that failure to file a written submission within 
30 days will result in an automatic revocation of their simplified 
reporting privilege. The written submission must address four issues 
that should be readily ascertainable to a labor organization official: 
(1) The existence of a delinquency, material deficiency or other 
circumstances; (2) whether the deficiency, if any, was material; (3) 
whether a delinquency or other

[[Page 3701]]

circumstance for revocation was caused by factors reasonably outside 
the control of the labor organization; and (4) any mitigating factors. 
In light of the labor organization's prior notification of the 
delinquency and opportunity to voluntarily resolve the delinquency, 30 
days is sufficient for a labor organization to prepare its response. 
The automatic revocation of the simplified reporting privilege for a 
labor organization that fails to contest the proposed revocation, much 
like a default judgment in a civil suit, is a reasonable response to 
the labor organization's continuing inattention to its filing 
obligations. Whether the privilege will be revoked will ultimately 
depend on the Secretary's determination of whether revocation is 
warranted, which is a fact-specific inquiry requiring evaluation of the 
circumstances of the delinquency, material deficiency or other grounds, 
and evidence presented by the labor organization.
    Several commenters noted the possible consequences to a labor 
organization whose Form LM-3 filing privilege is revoked. One commenter 
stated that the need to file the more burdensome Form LM-2 would divert 
the labor organization from grievance handling and its other core 
business. By filing a timely Form LM-3 report without material 
deficiencies a labor organization can avoid any diversion of resources 
that may occur as a result of the revocation of the simplified filing 
privilege. One international labor organization worried that labor 
organization officers may resign should their organization's Form LM-3 
privilege be revoked. Another international labor organization believed 
that if a local labor organization's Form LM-3 filing privilege were 
revoked the parent organization would move to place the local in 
trusteeship or merge it with another local organization. Revocation of 
the Form LM-3 filing privilege is the culmination of an investigation 
which may unearth underlying financial problems within a labor 
organization. The Department acknowledges these possible consequences. 
At the same time, such consequences are foreseeable and, depending on 
the particular circumstances, may be reasonable and appropriate 
actions. Where a union official believes that complying with his or her 
financial reporting obligation will interfere with the union's 
grievance handling or other responsibilities to its members, the 
revocation procedure will bring this to light, allowing members to 
weigh this factor in exercising their democratic right to elect or 
remove such officer. In the Department's view, there is no merit to the 
suggestion that filing an annual financial report is not within the 
union's ``core business.'' Labor organizations, including parent 
organizations, and individual officers, however, must ultimately decide 
what actions they deem appropriate in such situations.
    One commenter argued that the definition of materiality presented 
in the NPRM set too low a threshold for material deficiency. The 
Department disagrees. As explained in the NPRM, the proposed definition 
of ``material'' was modeled on the standards of the Financial 
Accounting Standards Board (``FASB''), and the standard applied to 
corporations in TSC Industries Inc. v. Northway Inc., 426 U.S. 438, 449 
(1976) and tailored to apply to the unique circumstances of the LMRDA 
reporting requirements. The standard proposed in the NPRM was as 
follows: ``a deficiency is `material' if in the light of surrounding 
circumstances, the inclusion or correction of the item in the report is 
such that it is probable that the judgment of a reasonable person 
relying upon the report would have been changed or influenced.'' 73 FR 
27355. One commenter argued that the proposed standard is too low 
because it does not include language from the FASB regarding the 
``magnitude'' of the deficiency and language utilized in TSC Industries 
Inc. v. Northway Inc. regarding the ``total mix'' of information 
available. The Department disagrees with this assessment. The proposed 
standard requires that a deficiency be judged ``in the light of 
surrounding circumstances'' which inherently involves consideration of 
the magnitude of the deficiency in light of the total information 
available to determine whether ``a reasonable person relying upon the 
report would have been changed or influenced.''
    Some commenters argued that requiring a labor organization to file 
an opposition to a notice of proposed revocation within 30 days was 
insufficient and believed that 60 days would be appropriate. Two 
commenters suggested that the Department implement an alternate 
compliance system modeled on Federal lobbying disclosure laws. Under 
the Federal lobbying disclosure system, a lobbyist is notified in 
writing of his or her noncompliance and then given 60 days to provide 
an adequate response. If an adequate response is not provided within 60 
days the matter is referred to the United States Attorney for the 
District of Columbia. 2 U.S.C. 1605(a)(8). The Department disagrees 
with these suggestions. The Department already contacts delinquent Form 
LM-3 filers to encourage them to fulfill their reporting obligations. 
Currently if a labor organization's annual report is not received 
timely, the Department sends the labor organization a delinquency 
notice letter. If the annual financial report is still not submitted, 
the Department District Office in whose jurisdiction the labor 
organization is located will open a delinquent report case and seek to 
obtain the report. The Department will continue its practice of 
contacting delinquent filers in order to promote the timely remedying 
of their delinquency. Only when delinquent filers have failed to timely 
remedy their delinquency would revocation of the Form LM-3 filing 
privilege be utilized.
    Another commenter noted that filers who could not timely file a 
Form LM-3 would not likely be able to prepare a written response to a 
notice of proposed revocation with the 30 days allotted for this 
purpose. For this reason, the commenter stated that it would be unfair 
in those situations to, in effect, impose a default judgment. The 
Department cannot agree with this point of view. As discussed above, 
the Department currently provides reminders to labor organizations 
about the need to timely file a Form LM-3; it will continue to provide 
such ``early warnings'' about the need to timely and completely file 
the required reports, now coupled with a reminder that failure to do so 
may result in having to file the more detailed Form LM-2. Where, 
despite these reminders, a labor organization fails to timely submit 
its position within 30 days of the revocation notice, the entry of a 
``default judgment'' seems entirely appropriate. The Department 
recognizes that there may be some situations in which a labor 
organization, for good cause, may be unable to submit a complete 
statement of position on the proposed revocation within the 30-day 
timeframe. Where good cause is shown, the Department will approve a 
timely request for a short extension of time for submission of the 
union's statement.
    One commenter suggested that an exception should be crafted to the 
Form LM-3 revocation procedures for situations where an international 
union has assumed responsibility for assuring that locals file LM-3s. 
The commenter noted that once the Department has notified the 
international labor organization that its affiliate was delinquent in 
its reporting obligation, the international would then assist and 
promote the filing of a delinquent Form LM-3. Another commenter noted 
that compliance assistance programs have

[[Page 3702]]

been effective within the Department of Labor, citing EBSA's 
``Delinquent Filer Voluntary Compliance Program.''
    The Department promotes the importance of voluntary compliance. It 
recognizes the efforts that many international labor organizations have 
made to remedy their affiliated local labor organizations' delinquent 
reporting. Their efforts to assist and promote timely compliance by 
their affiliates are a responsible response to a significant problem. 
Approximately 40 parent national and international labor organizations 
regularly assist the Department with obtaining delinquent annual 
disclosure reports from their affiliated organizations. The Department 
periodically sends each parent organization a list of the subordinate 
affiliates that have failed to file reports for either of the two most 
recent fiscal years. An accompanying letter requests that the parent 
organization assist in obtaining the delinquent reports and in 
providing the Department with updated contact information, for the 
labor organization officials responsible for filing them.
    The revocation procedure is to be used after attempts to secure 
timely voluntary compliance, through a program or otherwise, have 
proven unsuccessful. The procedure established in the final rule is 
designed to address the situations where despite the best efforts of 
the Department and parent labor organizations, a labor organization 
fails to file its required Form LM-3. Whatever its reasons for non-
compliance, the time has come to determine whether revocation of the 
privilege is warranted. The officials of the non-complying labor 
organization may be trying to obscure the financial condition and 
operations of the organization in order to hide more serious financial 
problems, including criminal activity such as embezzlement. The 
additional information provided by the Form LM-2 is a measured and 
proportionate remedy to ensure accurate disclosure of the financial 
condition and operations of a labor organization.

IV. Regulatory Procedures

Executive Order 12866

    This final rule has been drafted and reviewed in accordance with 
Executive Order 12866, section 1(b), Principles of Regulation. Based on 
a preliminary analysis of the data the rule is not likely to have an 
annual effect on the economy of $100 million or more or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local, or tribal governments or communities. As a 
result, a full economic impact and cost/benefit analysis is not 
required for the rule under Section 6(a)(3) of the Order. However, 
because of its importance to the public the rule was treated as a 
significant regulatory action and was reviewed by the Office of 
Management and Budget. Because this final rule makes revisions to 
information collection requirements, our discussion of its impact can 
be found in the Paperwork Reduction Act and Final Regulatory 
Flexibility Act sections that follow.

Unfunded Mandates Reform

    For purposes of the Unfunded Mandates Reform Act of 1995, this 
final rule does not include a federal mandate that might result in 
increased expenditures by state, local, and tribal governments, or 
increased expenditures by the private sector of more than $100 million 
in any one year, adjusted by the rate of inflation between 1995 and 
2008 ($130.38 million) per 2 U.S.C. 1532(a).

Executive Order 13132 (Federalism)

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

Paperwork Reduction Act

    This statement is prepared in accordance with the Paperwork 
Reduction Act of 1995, 44 U.S.C. 3501. As discussed in the preamble, 
this rule implements an information collection that meets the 
requirements of the PRA in that: (1) The information collection has 
practical utility to labor organizations, their members, other members 
of the public, and the Department; (2) the rule does not require the 
collection of information that is duplicative of other reasonably 
accessible information; (3) the provisions reduce to the extent 
practicable and appropriate the burden on labor organizations that must 
provide the information, including small labor organizations; (4) the 
form, instructions, and explanatory information in the preamble are 
written in plain language that will be understandable by reporting 
labor organizations; (5) the disclosure requirements are implemented in 
ways consistent and compatible, to the maximum extent practicable, with 
the existing reporting and recordkeeping practices of labor 
organizations that must comply with them; (6) this preamble informs 
labor organizations of the reasons that the information will be 
collected, the way in which it will be used, the Department's estimate 
of the average burden of compliance, the fact that reporting is 
mandatory, the fact that all information collected will be made public, 
and the fact that they need not respond unless the form displays a 
currently valid OMB control number; (7) the Department has explained 
its plans for the efficient and effective management and use of the 
information to be collected, to enhance its utility to the Department 
and the public; (8) the Department has explained why the method of 
collecting information is ``appropriate to the purpose for which the 
information is to be collected''; and (9) the changes implemented by 
this rule make extensive, appropriate use of information technology 
``to reduce burden and improve data quality, agency efficiency and 
responsiveness to the public.'' 5 CFR 1320.9; see also 44 U.S.C. 
3506(c).
A. Issues Raised in Public Comments Related to the Department's Cost 
Estimates
    As the Department has done with the final rule, the NPRM employed 
the cost conclusions derived in the PRA analysis in order to assess 
burdens to small labor organizations for the purposes of the Regulatory 
Flexibility Act (``RFA'') analysis. As a result, for the most part, the 
comments received by the Department on its costs analysis did not 
indicate whether they were specifically addressing the PRA analysis, 
the RFA, or both. Because of the interrelationship between the 
analyses, and because the RFA specifically requires the Department to 
address comments related to its burden analysis,\23\ the Department has 
construed all comments received regarding its assessment of costs to 
the regulated community as comments related to both the PRA and the RFA 
analysis. Therefore, the introduction to the PRA analysis below is a 
complete recitation of the

[[Page 3703]]

significant issues raised by the comments, the Department's response 
thereto, and changes made to both the PRA and RFA analyses as a result 
of those comments.
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    \23\ The RFA requires that an agency's final regulatory 
flexibility analysis include ``a summary of the significant issues 
raised by the public comments in response to the initial regulatory 
flexibility analysis, a summary of the assessment of the agency of 
such issues, and a statement of any changes made in the proposed 
rule as a result of such comments.'' 5 U.S.C. 604(a)(2).
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    A number of commenters expressed concern that the Department used 
as the foundation for the NPRM's burden analysis the Department's 
estimates of compliance costs associated with revisions made to the LM-
2 in 2003, instead of collecting data from a survey of labor 
organizations' actual compliance costs realized as a result of the 
earlier revision. Commenters questioned whether the Department could 
accurately estimate the current Form LM-2 and new Form LM-2 burdens 
using estimates that pre-dated the current Form LM-2. Although actual 
data on burden was not available in 2003, labor organizations have been 
filing the revised Form LM-2 for three years, and several commenters 
suggested that the Department should have sought information regarding 
compliance burdens from the regulated community rather than rely on 
those estimates as a baseline for the burden analysis in this rule.
    Several labor organizations provided specific data regarding their 
own compliance costs associated with that revision. One commenter 
indicated that his labor organization spent approximately $100,000 in 
2004, its first reporting year, on staff time, outside accounting 
services, and new software to comply with the data gathering 
requirements of the current Form LM-2, approximately $75,000 more than 
the Department estimated in the 2003 rule. The same labor organization 
asserted that it cost an additional $100,000 each year to comply with 
the recordkeeping and reporting requirements of the 2003 rule, 
approximately $83,000 more than the Department estimated in the 2003 
rule. Two other LM-2 filers estimated that they spent over $120,000 a 
year to comply with the requirements of the current LM-2 in a timely 
manner. Based on these estimates, the commenters indicate that the 
Department has underestimated the total burden by at least 50 percent. 
Another commenter estimated that the Department had underestimated the 
total burden by at least a factor of three. Finally, one commenter, 
citing an unpublished analysis of the increase in the number of pages 
submitted as part of the LM-2 filing, noted that for labor 
organizations with at least $50 million in annual revenue, their 
submissions increased in size an average of 94 percent for the three 
years of filing experience after the 2003 revisions, suggesting that 
the Department underestimated the costs to labor organizations 
associated with complying with those revisions. These commenters and 
others indicate that actual compliance experience, rather than the 
Department's estimates, could be used to inform and calculate the Form 
LM-2 burden estimates associated with the revisions in this rule.
    After considering the comments regarding actual costs associated 
with the LM-2 revision in 2003, the Department has decided to retain 
the approach adopted in the NPRM and use the costs estimates developed 
in 2003 as a baseline for the costs associated with this revision. The 
cost estimates developed in 2003 were the result of a comprehensive and 
detailed empirical analysis of costs to all labor organizations 
affected by the change, not just the costs incurred by the largest 
labor organizations. Certainly, some labor organizations will spend 
more time on recordkeeping and reporting than others, as shown in the 
examples offered by the commenters. For example, a labor organization 
with $2,500,000 in annual receipts will have many times more itemized 
receipts to report than a labor organization with $250,000 in annual 
receipts. It is likely, as noted above, that there are multiple labor 
organizations that spend $100,000 or more on recordkeeping and 
reporting. However, just over half of LM-2 filers have more than $1 
million in annual receipts. Those LM-2 filers with less than $1 million 
in receipts will spend significantly less on recordkeeping and 
reporting than the larger labor organizations, those with millions in 
receipts. To account for these size differences, the Department used 
weighted average burden estimates to ensure that the cost estimates 
represented the experience of all labor organization filers, and that 
large labor organizations are not over represented and small labor 
organizations are not underrepresented in the final burden estimate.
    For a number of reasons, the Department has confidence in its 2003 
estimates of compliance burdens as a fair and realistic representation 
of costs to labor organizations for compliance with the previous Form 
LM-2 revisions. The 2003 estimates were based on the Department's 
detailed review of the recordkeeping and reporting requirements of the 
Form LM-2. That review incorporated the expertise of investigators with 
first-hand knowledge of union financial reporting. In addition, the 
burden estimates used in 2003 were based on the Department's review of 
extensive public comments, which included a survey of affected labor 
organizations submitted by the AFL-CIO as part of its 2003 comment. 
Where appropriate, the AFL-CIO's survey data were incorporated into the 
2003 analysis to improve those burden estimates. In response to public 
comments in 2003, the Department improved its methodology and, as a 
result, its overall estimate of burden hours was ultimately increased 
from 15.25 hours to 292.00 hours. Moreover, to further improve the 2003 
burden estimates, the Department conducted internal time trials to 
determine the amount of time needed to change the accounting structure, 
document records, and fill out the Form LM-2. Finally, legal challenges 
by the AFL-CIO to the Department's methodology underlying and 
conclusions regarding its burden estimates in 2003 were rejected by the 
court in American Federation of Labor and Congress of Industrial 
Organizations v. Chao, 298 F.Supp.2d 104, 121-126 (D.D.C. 2004), aff'd 
409 F.3d 377 (D.C. Cir. 2005) (AFL-CIO v. Chao). In the Department's 
view, the collection of data regarding compliance costs from a survey 
of affected labor organizations would not result in a significant 
improvement to the Department's analysis of costs associated with the 
prior Form LM-2 revisions, and the use of a survey tool would have 
injected into the analysis substantial issues regarding appropriate 
respondent sampling, verification of reported respondent costs, and 
comparability of results to prior estimates, significantly limiting the 
utility of such an approach.
    The majority of comments submitted regarding the Department's 
burden analysis indicated that the analysis of the costs to implement 
the new receipts schedule was flawed and significantly underestimated 
the recordkeeping and reporting burden. In particular, the commenters 
were concerned that basing the number of itemizations on the current 
Schedule 14 (``Other Receipts'') grossly underestimated the number of 
itemized receipts on the other receipt itemization schedules. The 
commenters pointed out that the current schedule 14 does not include 
the major sources of union revenues, and that most itemized receipts 
will be reported on the new dues, per capita tax and investment 
schedules. As one example, a labor organization stated that it receives 
more than $5,000 in annual withheld dues from more than 10,000 
employers, and that the schedule will require it to enter a line item 
for each of those 10,000 employers. A certified public accounting firm 
noted that depending on a labor organization's investment

[[Page 3704]]

activities, the potential volume of itemized transactions is 
tremendous. An international labor organization estimated that it would 
spend 120 to 240 hours per year putting together its investment records 
to comply with the reporting requirements. Another international labor 
organization noted that it receives over $5,000 from over 750 
affiliates. This labor organization estimated that the additional 
itemization schedules will add 1,000 pages to its Form LM-2. An 
accountant with experience in filling out LM-2s believed that the 
reporting time required is 5 to 10 times what was estimated in the 
NPRM, employer contributions could take 20 to 25 hours alone.
    As discussed elsewhere in this preamble, the Department has created 
exceptions in the final rule to itemized receipt reporting that 
responds to these and other commenters, and will significantly reduce 
the recordkeeping and reporting burden proposed in the NPRM, and the 
Department has revised its burden analysis accordingly. First, as 
discussed above, dues and agency fees, which make up approximately 70% 
of all receipts, received directly from an employer need not be 
itemized by transaction. The labor organization need only report the 
aggregate dues and agency fees received from each employer over the 
year. As a result, however, it is axiomatic that those labor 
organizations that receive payments of dues and agency fees from many 
employers will have a greater reporting responsibility on this schedule 
than those labor organizations that receive dues and agency fees from 
relatively fewer employers. Second, as discussed above, investment 
transactions made over a registered market exchange need not be 
itemized. Finally, as discussed above, per capita taxes received 
directly from an affiliate should not be itemized by transaction. The 
labor organization need only report the aggregate per capita taxes 
received from each affiliate over the year. These exceptions should 
alleviate many of the concerns raised by the commenters and 
significantly reduce the overall burden. In addition to these new 
itemization exceptions and as discussed further below, the Department 
has improved the burden estimates associated with the new receipts 
schedules by using the aggregates currently reported on Summary 
Schedule B, which were divided by $5,000 to estimate the number of 
itemized receipts per schedule.
    Regarding reporting obligations for disbursements to officers and 
employees, a number of commenters stated that they could not breakdown 
benefits by officer and employee, nor could they breakdown indirect 
disbursements to officers and employees for travel and lodging, without 
extensive changes to their recordkeeping system. A number of labor 
organizations explained that they frequently make single credit card 
payments that cover the hotel and transportation expenses of more than 
one officer or employee. As a result, several labor organizations 
estimated that they would need between 40 and 120 hours per year to 
comply with the new officer and employee reporting requirements.
    In response to concerns raised regarding the reporting of officer 
benefits, the Department reiterates, as noted in the NPRM, that there 
should be no increased recordkeeping burden associated with the report 
of officer benefits because labor organizations are currently required 
to track each officer's benefits to complete the IRS Form 990.
    In response to concerns raised regarding the reporting of indirect 
disbursements to officers and employees, the Department's final rule 
has created an exception for certain indirect disbursements to decrease 
the overall burden, and has improved the methodology to improve 
indirect disbursement burden estimates. To reduce the overall burden, 
the Department will now allow labor organizations to distribute 
indirect disbursements equally between multiple officers and employees 
if they meet the exception discussed elsewhere in this preamble. In the 
NPRM, the Department accounted for the increase burden for indirect 
disbursements by applying the same burden to this change as it would 
apply to a new schedule in 2003, and estimated that, on average, each 
officer and employee will have one reportable indirect disbursement. As 
explained further below, to improve the burden estimates for indirect 
disbursements for travel and lodging, the Department adopted a new 
methodology for calculating the number of reportable indirect 
disbursements. The number of indirect disbursements is now based on the 
number of disbursements currently reported on the LM-2. These changes 
should reduce the burden hours and significantly improve the overall 
burden estimates.
    Several commenters stated the overall cost conclusions reached in 
the NPRM were flawed because the salary estimates employed in the 
calculations were artificially low. First, some asserted that the 
Department incorrectly used general Bureau of Labor Statistics 
(``BLS'') salary data rather than labor organization-specific data. 
Second, some asserted that the Department incorrectly used an average 
salary for an in-house and outside accountant when labor organizations 
must only use outside accountants in order to comply with their 
fiduciary duties. Some commenters noted that outside accountants 
frequently charge $100 or more an hour. Finally, some commenters noted 
that the salary estimates did not account for fringe benefits, which 
constitute approximately 30% of total compensation costs.
    The Department has improved the compensation cost estimates in 
response to these comments. First, instead of employing BLS salary 
data, the Department has estimated the average salary of the president 
and secretary using the e.Lors database and a stratified random sample. 
Second, unlike the NPRM, the Department did not average the in-house 
and outside accountants' and bookkeepers' salaries, and instead derived 
them exclusively from the BLS survey. Finally, based on BLS data and 
explained further below, all of the salaries were increased by 30.2% to 
account for the costs of benefits, resulting in a more accurate total 
compensation cost for each employee identified. The same method was 
used to estimate the LM-3 compensation costs, and these changes will 
improve the accuracy of the cost estimates for the final rule.
    Given the costs associated with implementation, some commenters 
questioned whether the benefits of this final rule outweigh the costs. 
The Department has not conducted a formal cost/benefit analysis of this 
rule. However, as outlined above, labor organization members will 
benefit from greater transparency and accountability. For the first 
time, members will have a nearly complete accounting of all receipts 
and disbursements. These benefits are difficult to quantify, but we 
believe members have benefited greatly from the 2003 revisions to the 
Form LM-2. The revisions adopted in this final rule and those adopted 
in the 2003 final rule have created the most functional and informative 
Form LM-2 in Department history.
    Regarding the LM-3 revocation burden analysis, several commenters 
suggested that the analysis was flawed in many aspects. First, some 
commenters questioned the means by which the Department estimated that 
96 LM-3 filers will have their privilege revoked. Second, some 
commenters argued that the Department failed to fully account for the 
reporting burden by not including the computer hardware and software 
costs in the analysis. Third, some commenters argued that the 
Department did not use actual data from

[[Page 3705]]

Form LM-2 reports to estimate the total burden hours and costs, and 
instead of using actual data available on the e.LORS database, the 
Department merely reduced the total LM-2 burden hours by 69% and used 
the Tier I LM-2 filers' salary data.\24\ Critics suggested that such a 
blanket reduction does not take into account the time needed to review 
the LM-2 rules and requirements, review each disbursement and receipt, 
record the necessary information, place the disbursements into the 
appropriate functional categories, and prepare the form.
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    \24\ As indicated in the NPRM, the Department's analysis has 
segregated labor organizations into three ``tiers,'' based on size 
of annual receipts. Tier I labor organizations are those with annual 
receipts between $250,000 and $499,999; Tier II labor organizations 
are those with annual receipts between $500,000 and $6.5 million; 
and Tier III labor organizations are those with annual receipts over 
$6.5 million.
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    The Department has revised its methodology to determine the LM-3 
revocation burden and cost. As explained further below, where possible, 
the Department has based the LM-3 revocation burden on actual data 
taken from LM-3s. The information that could not be drawn from the LM-
3s was estimated from LM-2 filers with between $250,000 and $500,000 in 
annual receipts. These additions will improve both the burden and cost 
estimates.
    In sum, based upon careful consideration of all the comments 
regarding the burden analysis in the NPRM, the Department has made 
adjustments to its quantitative methods and therefore to its burden 
estimates. As reflected in the analysis that follows, the Department 
has, among other things:
     Calculated salary data for labor organizations presidents 
and treasurers from LM-2 data using a proportionate stratified random 
sample;
     Revised the compensation cost for each individual, 
accountant, president, treasurer, etc., by increasing wages by 30.2% to 
account for total compensation, including compensation received in the 
form of benefits;
     Employed publicly available data from the Department's 
e.LORS database and the Federal Mediation and Conciliation Service to 
determine the number of employers that will make dues payments;
     Employed data from the Department's e.LORS database to 
determine the number of labor organizations that will pay and receive 
per capita taxes;
     Employed the aggregate receipts reported on Summary 
Schedule B to estimate the number of itemized receipts on Schedules 16-
22;
     Calculated the number of indirect disbursements to 
officers and employees for lodging or travel by employing the total 
number of disbursements for official business currently reported on the 
LM-2;
     Replaced the overall percentage reduction for computing 
the burden associated with LM-3 revocation with discrete analyses of 
the burden for each schedule, summary schedule, and item using the same 
assumptions as used in the LM-2 analysis; and
     Where possible, employed LM-3 data to estimate the number 
of itemized receipts and disbursements, and if LM-3 data was not 
available, employing Tier I LM-2 data.
    As a result of these improvements to the Department's 
methodological approach, the estimates of costs to labor organizations 
for compliance with this rule have been revised upward.\25\ Those 
figures are reported in the analyses that follow. Pursuant to the PRA, 
the information collection requirements contained in this final rule 
were submitted to OMB, and received approval on January 8, 2009, under 
an OMB control number 1215-0188, which will expire on September 30, 
2011. The Form LM-2 and its instructions, which are modified to reflect 
the new filing criteria, are published as an appendix to this final 
rule. The instructions to the Form LM-3, which have been modified to 
reflect the new revocation procedure, are also published as an appendix 
to this final rule.
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    \25\ This upward revision was modest, and occurred despite the 
fact that overall compliance costs to labor organizations were 
reduced as a result of changes made in the final rule, in 
particular, to reporting requirements for the two largest receipt 
itemization schedules, dues and per capita taxes. These 
modifications from the NPRM realized a reduction in overall 
compliance costs for covered labor organizations, but the 
methodological improvements in the cost analysis offset those 
savings.
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B. Summary of the Rule: Need and Economic Impact
    This final rule has improved the usefulness and accessibility of 
information to members of labor organizations subject to the LMRDA. The 
LMRDA reporting provisions were devised to protect the basic rights of 
labor organization members and to guarantee the democratic procedures 
and financial integrity of labor organizations. The 1959 Senate report 
on the version of the bill later enacted as the LMRDA stated clearly 
that ``[t]he members who are the real owners of the money and property 
of the organization are entitled to a full accounting of all 
transactions involving their property.'' S. Rep. No. 187 (1959), at 8, 
reprinted in 1 NLRB Legislative History of the Labor-Management 
Reporting and Disclosure Act of 1959, at 404. A full accounting 
included ``full reporting and public disclosure of union internal 
processes [and] financial operations.'' Id. at 2.
    As labor organizations have become more multifaceted and have 
created hybrid structures for their various activities, the form used 
to report financial information with respect to these activities had 
until recently remained relatively unchanged and had become a barrier 
to the complete and transparent reporting of labor organizations' 
financial information intended by the LMRDA. By providing members of 
labor organizations with more complete, understandable information 
about their labor organizations' financial transactions, investments, 
and solvency, this final rule will put them in a much better position 
than they are today to protect their personal financial interests and 
to exercise their rights of self-governance. The information collection 
achieved by this rule is integral to this purpose. The paperwork 
requirements associated with the final rule are necessary to enable 
workers to be responsible, informed, and effective participants in the 
governance of their labor organizations; discourage embezzlement and 
financial mismanagement; prevent the circumvention or evasion of the 
statutory reporting requirements; and strengthen the effective and 
efficient enforcement of the LMRDA by the Department.
    The Department's NPRM in this rulemaking contained an initial PRA 
analysis, which was also submitted to OMB. The initial PRA analysis was 
based largely on the PRA analysis prepared by the Department in 
connection with its 2003 final rule that substantially revised the Form 
LM-2.\26\ The PRA analysis employed in 2003 was approved by the Office 
of Management and Budget. Based upon careful consideration of comments 
received regarding the Department's estimate of costs in the NPRM, the 
Department made methodological revisions which resulted in adjustments 
to its burden estimates in this final rule. The costs to the Department 
also were adjusted. Federal annualized costs are discussed following 
the consideration of the burden on the reporting labor organizations.
---------------------------------------------------------------------------

    \26\ The PRA analysis for the revisions to Form LM-2 in 2003 is 
set forth at 68 FR 58436-42.
---------------------------------------------------------------------------

    Based upon the analysis presented below, the Department estimates 
that the total first year burden to comply

[[Page 3706]]

with revised Form LM-2 will be 685,924 hours for all covered labor 
organizations. The total first year compliance costs associated with 
this burden is estimated to be $22,143,880 for all covered labor 
organizations. Both the burden hours and the compliance costs 
associated with Form LM-2 decline in subsequent years. The Department 
estimates that the total burden averaged over the first three years for 
all covered labor organizations to comply with the Form LM-2 to be 
274,539 hours per year. The total compliance costs associated with this 
burden averaged over the first three years are estimated to be 
$8,863,038 for all covered labor organizations.\27\
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    \27\ The compliance costs for all covered labor organizations 
for the first year, and the compliance costs averaged over the first 
three years--$22.14 million and $8.86 million, respectively--are 
well below the $100,000,000 threshold that would make this rule 
economically significant under Executive Order 12866. Therefore, as 
noted above, this rule is not an ``economically significant'' 
regulatory action under section 3(f)(1) of Executive Order 12866.
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C. Background on Current Form LM-2
    Every labor organization whose total annual receipts are $250,000 
or more and those organizations that are in trusteeship must currently 
file an annual financial report using the current Form LM-2, Labor 
Organization Annual Report, within 90 days after the end of the labor 
organization's fiscal year, to disclose its financial condition and 
operations for the preceding fiscal year. The current Form LM-2 is also 
used by covered labor organizations with total annual receipts of 
$250,000 or more to file a terminal report upon losing their identity 
by merger, consolidation, or other reason.
    The current Form LM-2 consists of 21 questions that identify the 
labor organization and provide basic information (in primarily a yes/no 
format); a statement of 11 financial items on different assets and 
liabilities; a statement of receipts and disbursements; and 20 
supporting schedules. The information that is reported includes: 
whether the labor organization has any trusts; whether the labor 
organization has a political action committee; whether the labor 
organization discovered any loss or shortage of funds; the number of 
members; rates of dues and fees; the dollar amount for seven asset 
categories, such as accounts receivable, cash, and investments; the 
dollar amount for four liability categories, such as accounts payable 
and mortgages payable; the dollar amount for 13 categories of receipts 
such as dues and interest; and the dollar amount for 16 categories of 
disbursements such as payments to officers and repayment of loans 
obtained. Four of the supporting schedules include a detailed 
itemization of loans receivable and payable and the sale and purchase 
of investments and fixed assets. There are also 10 supporting schedules 
for receipts and disbursements that provide members of labor 
organizations with more detailed information by general groupings or 
bookkeeping categories to identify their purpose. Labor organizations 
are required to track their receipts and disbursements in order to 
correctly group them into the categories on the current form.
    The Department also has developed an electronic reporting system 
for labor organizations, e.LORS, which uses information technology to 
perform some of the administrative functions for the current forms. The 
objectives of the e.LORS system include the electronic filing of 
current Forms LM-2, LM-3, and LM-4, as well as other LMRDA disclosure 
documents; disclosure of reports via a searchable Internet database; 
improving the accuracy, completeness and timeliness of reports; and 
creating efficiency gains in the reporting system. Effective use of the 
system reduces the burden on reporting organizations, provides 
increased information to members of labor organizations, and enhances 
LMRDA enforcement by OLMS. The OLMS Online Public Disclosure site is 
available for public use at http://www.unionreports.gov. The site 
contains a copy of each labor organization's annual financial report 
for reporting year 2000 and thereafter as well as an indexed computer 
database of the information in each report.
    Filing labor organizations have several advantages with the current 
electronic filing system. With e.LORS, information from previously 
filed reports and officer or employee information can be directly 
imported into Form LM-2. Not only is entry of the information eased, 
the software also makes mathematical calculations and checks for errors 
or discrepancies.
D. Overview of Changes to Form LM-2
    The revised Form LM-2 includes: the same number of questions (21) 
as the current form that identify the labor organization and provide 
basic information (in the same general yes/no format); the same (11) 
financial items on assets and liabilities in Statement A; an updated 
Statement B that asks for information in the same categories of 
receipts (13) as the current Form LM-2 and ten additional supporting 
schedules (for a total of 23 instead of 13).
    Under this final rule, several of the current supporting schedules 
will change. The schedules for ``Sale of Investments and Fixed Assets'' 
and ``Purchase of Investments and Fixed Assets'' will be modified by 
the inclusion of the name of the party transacting with the labor 
organization in the purchase or sale. The schedule for ``Benefits'' 
will be modified and the disbursements for benefits to labor 
organization officers and employees will be reported in the schedules 
for disbursements to officers and employees.
    Under the final rule, the Form LM-2 will be revised to require 
labor organizations to individually identify receipts within supporting 
schedules for all of the current categories of receipts.
E. Methodology for the Burden Estimates
    As an initial matter, it should be noted, as was noted in the NPRM, 
that some of the numbers included in both this PRA analysis and the 
preceding regulatory flexibility analysis will not add perfectly due to 
rounding.
    In reaching its estimates, the Department considered both the one 
time and recurring costs associated with the final rule. Separate 
estimates are included for the initial year of implementation as well 
as the second and third years. For filers, the Department included 
separate estimates, based on the relative size of labor organizations 
as measured by the amount of their annual receipts. The size of a labor 
organization, as measured by the amount of its annual receipts, will 
affect the burden on reporting labor organizations. For example, larger 
labor organizations have more receipts and disbursements to itemize and 
more employees who have to estimate their time allocation.
    In 2006, there were approximately 4,571 labor organizations that 
were required to file Form LM-2 reports under the LMRDA (approximately 
19.11 percent of all labor organizations covered by the LMRDA).\28\ 
Although these estimates may not be predictive of the exact number of 
labor organizations that will be impacted by this rule in the future, 
the Department believes these estimates to be sound and derived from 
the best available information.
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    \28\ The Department has updated these figures from the NPRM, 
which relied on 205 LM-2 reports.
---------------------------------------------------------------------------

    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

[[Page 3707]]

all of the following positions (either internal or external staff, 
including the labor organization's president, secretary-treasurer, 
accountant, bookkeeper, and computer programmer) and the compensation 
costs for these positions, as measured by wage rates and employer costs 
published by the Bureau of Labor Statistics or derived from data 
reported in e.LORS.
    The Department also made assumptions relating to the amount of time 
that particular tasks or activities would take. The activities occur 
during the distinct ``operational'' phases of the rule: first, tasks 
associated with modifying bookkeeping and accounting practices, 
including the modification or purchase of software, to capture data 
needed to prepare the required reports; second, tasks associated with 
recordkeeping; and third, tasks associated with sending or exporting 
the data in an electronic format that can be processed by the 
Department's import software. Since the analysis is designed to provide 
estimates for a ``representative'' labor organization the Department's 
estimates largely reflect weighted averages. Where an estimate depends 
upon the number of labor organizations subject to the LMRDA or included 
in one of the tier groups, the Department has relied upon data in the 
e.LORS system (for the years stated for each example in the text or 
tables).
    The following methodology and assumptions underlie the Department's 
burden estimates:
     The size of a labor organization, as measured by the 
amount of its annual receipts, will affect the burden on reporting 
labor organizations. Larger labor organizations have more receipts and 
disbursements to itemize and more employees who have to estimate their 
time allocation. Three tiers, based on annual receipts, have been 
constructed to differentiate the burdens among Form LM-2 filers.
     A labor organization's use of computer technology, or not, 
to maintain its financial accounts and prepare annual financial reports 
under the current rule, will affect the burden on reporting labor 
organizations. Although few Form LM-2 filers do not have computers, the 
larger the labor organization the greater likelihood that it will be 
using a specialized accounting program instead of commercial-off-the-
shelf accounting software.
     Relative burden will correspond to the following 
predictable stages: review of the rule, instructions, and forms; 
adjustments to accounting software and computer hardware; installation, 
testing, and review of the Department's reporting software; changing 
accounting structures and developing, testing, reviewing, and 
documenting accounting software queries as well as designing query 
reports; training officers and employees involved in bookkeeping and 
accounting functions; training officers and employees to maintain 
information relating to transactions and estimating the amount of time 
they expend in prescribed categories; the actual recordkeeping of data 
under the revised procedures associated with itemizing receipts and 
disbursements and allocating them by functional categories; preparing a 
download methodology to either submit electronic reports using ``cut 
and paste'' methods or the import/ export technology allowing for a 
more automated transfer of data to the Department; the development, 
testing, and review of any translator software that may be required 
between a labor organization's accounting software and the Department's 
reporting software; and completing a continuing hardship exemption 
request if necessary.
     Burden can be categorized as recurring or non-recurring, 
with the latter primarily associated with the initial implementation 
stages. Recordkeeping burden, as distinct from reporting burden, will 
predominate during the first months of implementation.
     Burden can be usefully reported as an overall total for 
all filers in terms of hours and cost. This burden, for most purposes, 
can be differentiated for each individual form. The Federal burden 
cannot be reasonably estimated by form.
     The estimated burden associated with the current Form LM-2 
and Form LM-3 is the appropriate baseline for estimating the burden and 
cost associated with the final rule.
F. Baseline Adjustments: Current Form LM-2
    Prior to the 2003 revision, the Department assumed that 5,038 local 
labor organizations would take 200 hours and 141 national and 
international labor organizations would take 1,500 hours to collect and 
report their information on the current Form LM-2 for a weighted 
average of approximately 240.0 hours for each of the 5,179 respondents. 
In addition, the Department assumed at that time that Form LM-2 filers 
would take an average 24.0 hours for accounting, 16.0 hours for 
programming, 8.0 hours for legal review, and 4.0 hours for consulting 
assistance to complete the current form for an average total burden of 
292.0 hours per respondent. Further, the Department previously 
estimated that 160.0 hours of the total is for recordkeeping burden and 
132.0 hours is for reporting burden. In 2003, the Department estimated 
that on average, labor organizations would spend 536.0 hours to comply 
with the recordkeeping and reporting requirements.
    In 2003 the Department estimated that the average annual cost of 
complying with the current Form LM-2 recordkeeping and reporting 
requirements per respondent would be $24,271. The total annual cost for 
all respondents (based on the more recent estimate of 4,452 reporting 
labor organizations rather than the 5,038 estimate used in 2003) is 
estimated to be $116.0 million for the current Form LM-2.
G. Hours To Complete and File Form LM-2: Recurring and Nonrecurring 
Reporting and Recordkeeping
    To estimate the burden hours and costs for revisions to Form LM-2, 
the Department, as it did in connection with the 2003 rule, divided the 
Form LM-2 filers into three groups or tiers, based on the amount of the 
labor organizations' annual receipts. As discussed, in 2006 there were 
4,571 such filers. In Tier I, the Department estimates there are 1,325 
labor organizations with annual receipts from $250,000 to $499,999.99. 
The Department assumes that labor organizations within this tier 
probably use some type of commercial off-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 3,194 labor organizations with annual receipts from $500,000 
to $49.9 million. The Department assumes that labor organizations 
within this tier most likely use some type of commercial 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 
final rule.

[[Page 3708]]

    The final rule will revise Form LM-2 to improve financial 
disclosure and clarity within categories of receipts and disbursements. 
Under the final rule, receipts will have to be disclosed in the same 
manner that disbursements are currently disclosed and certain 
disbursements (e.g., benefit payments, travel reimbursements, and 
transactions involving investment and fixed assets) will be reported in 
greater detail. To accomplish this result, additional schedules will be 
required, which will add to the burden associated with each Form LM-2 
filed.
    For this analysis the Department has used an approach that largely 
replicates the approach used in 2003, i.e., estimating the burden and 
costs by the size of labor organizations as measured by the amount of 
their annual receipts. However, the current approach differs somewhat 
from the 2003 approach. Since the basic information required on the new 
and revised schedules is already needed to complete the current Form 
LM-2, the Department assumes that most of the burden associated with 
the changes will occur in the first year due to needed changes to the 
accounting software and staff training. Like it did in 2003, the 
Department has estimated burden hours and costs for the additional 
nonrecurring (first year) recordkeeping and reporting requirements, the 
additional recurring recordkeeping and reporting burden hours, and a 
three-year annual average for the additional nonrecurring and recurring 
burden hours. As in 2003, the Department assumes that Tier I and Tier 
II labor organizations use commercial off-the-self accounting packages 
and Tier III labor organizations use customized accounting software.
1. Hours to Complete Schedules 3 and 4
    For revised Schedules 3 and 4 (Sale of Investments and Fixed Assets 
and Purchase of Investments and Fixed Assets), the Department estimates 
that labor organizations will spend, on average, an additional, 
nonrecurring 10.38 hours per schedule to change their accounting 
structures; develop, test, review, and document accounting software 
queries; design query reports; and train accounting personnel. See 
Table 2 below. This estimated burden is derived from the 2003 Form LM-2 
PRA estimate for the first year nonrecurring burden associated with 
Schedule 17 (Contributions, Gifts, and Grants). The changes to that 
schedule under the 2003 rule (the addition of date, name and address of 
payer or payee) are the same changes that are included for Schedules 3 
and 4 in this final rule. In 2003, the Department determined that in 
order to provide this information it would take Tier I and II labor 
organizations 5.3 hours to change their accounting systems and Tier III 
labor organizations 13.3 hours. Again, as in 2003, the Department 
estimates that it will take Tier I, II and III labor organizations 1 
hour to design the report, 1 hour to develop a query, .75 hours to test 
the query, .5 hours for management review, .75 hours to document the 
query process, and .25 hours to train staff. The Department estimates 
that Tier II and III labor organizations will spend an additional hour 
preparing download methodology. The average burden was computed by 
taking the burden in each tier and weighting it by the number of unions 
in each tier.
    To record the date of the transaction and address of the payee on 
Schedule 4, the Department estimates, using a weighted average based on 
the number of labor organizations within each tier, that labor 
organizations will spend an additional (recurring) .03 hours on 
recordkeeping burden and .48 hours on reporting. To record the date of 
the transaction and address of the payer on Schedule 3, the Department 
estimates, using a weighted average based on the number of labor 
organizations within each tier, that labor organizations will spend and 
an additional (recurring) .01 hours on recordkeeping burden, and .49 
hours on reporting burden. Based on extensive public comment and 
analysis, the Department in 2003 made the following underlying 
assumptions in determining its final burden numbers. First, that it 
would take the average Form LM-2 filer approximately .05 hours of 
additional recordkeeping time per receipt/disbursement to record the 
name and address of the payer/payee. Second, Tier I labor organizations 
would incur an additional recordkeeping burden from training (.25 
hours) and preparing the report (.33 hours) to record the name and 
address of the payer/payee. Third, that approximately one-half of the 
Tier II labor organizations already kept these records, and all Tier 
III labor organizations kept these records. Therefore, all Tier I labor 
organizations would be subject to the additional recordkeeping burden, 
and one-half the Tier II labor organizations would be subject to the 
additional recordkeeping burden. The Department has adopted these 
underlying assumptions for its current analysis.
    The number of receipts and disbursements on Schedules 3 and 4 for 
2006 was compiled from the e.LORS database, which showed that Tier I 
labor organizations report, on average, less than 1 receipt in Schedule 
3 and slightly more than 1 disbursement in Schedule 4. On average, Tier 
II labor organizations report 1.5 receipts in Schedule 3 and less than 
3.4 disbursements in Schedule 4. Therefore, the additional 
recordkeeping burden for Tier I and Tier II filers is .06 hours and .13 
hours respectively (average number of disbursements/receipts per tier 
on Schedules 3 and 4 times .05 hours; then divided by two for the Tier 
II estimate).\29\ It should be noted that the newly adopted exception 
for purchases and sales over a registered market exchange will further 
reduce the recordkeeping and reporting burden on these schedules.
---------------------------------------------------------------------------

    \29\ 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.
---------------------------------------------------------------------------

    Based on the same assumptions underlying the Department's 2006 
estimates, the Department assumes that 75% of Tier I filers will use 
the cut and paste method to enter their data on the Form LM-2 (.08 hour 
burden per schedule) and 25% will manually enter the data on the Form 
LM-2 (.016 hour burden per disbursement or receipt) and that all Tier 
II and III filers will import or attach their data to the Form LM-2 for 
an additional reporting burden of .42 hours per schedule. The average 
burden was computed by taking the burden in each tier and weighting it 
by the number of labor organizations in each tier.
2. Hours to Complete Schedules 11 and 12
    For revised Schedules 11 (All Officers and Disbursements to 
Officers) and 12 (Disbursements to Employees), the Department estimates 
that labor organizations will spend, on average, 10.38 hours to change 
their accounting structures; develop, test, review, and document 
accounting software queries; design query reports; and train accounting 
personnel. As explained below, this estimated burden was reached by 
analyzing the 2003 burden estimates from the Form LM-2 final rule for 
Schedules 11 and 17 and applying that data to the Form LM-2 officer and 
employee entries on Form LM-2 reports filed with the Department in 
2007. As in 2003, the Department assumes that the time required to add 
a column to one schedule is the same for any schedule. To download the 
relevant information from their records, programmers will only have to 
designate an appropriate location on their electronic filing system for 
collecting and reporting this information. Therefore, each labor

[[Page 3709]]

organization would require, on average, approximately 5.2 hours to add 
the benefits column to Schedules 11 and 12 (one-half the time required 
to add two columns to Schedules 3 and 4). The Department has applied 
the same nonrecurring burden to the Disbursements for Official Business 
revision as to the benefits revision, 5.2 hours.\30\ The average burden 
was computed by taking the burden in each tier and weighting it by the 
number of labor organizations in each tier.
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    \30\ 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.
---------------------------------------------------------------------------

    As explained below, the Department estimates that, on average, 
labor organizations will take an additional (recurring) hour on 
recordkeeping burden and half an hour on reporting burden to enter the 
amount officers receive in benefits on Schedule 11 and track the 
indirect disbursements for temporary lodging or transportation. Again, 
these estimates are calculated using the recurring burden estimates 
from 2003 for Schedules 11 and 17. The average burden was computed by 
taking the burden in each tier and weighting it by the number of labor 
organizations in each tier.
    The changes to Schedule 11 involve individual columns, not entire 
schedules. Nevertheless, the Department has assumed that labor 
organizations will expend about the same amount of time keeping records 
and entering data required by the new columns on Schedule 11 (using the 
same methodology, as discussed above, for Schedules 3 and 4). To report 
the additional information required by the new schedule, labor 
organizations will have to report the amount each of its officers 
receives in benefits from the labor organization. The labor 
organization must keep records of the benefits each officer receives, 
like an itemized schedule, then aggregate the payments and report the 
aggregate amount next to the officer's name. Although the individual 
disbursements of $5,000 or more need not be entered on the Form LM-2, 
the labor organization must track all the disbursements for benefits so 
that a final lump sum total can be entered for each officer on Schedule 
11. Currently, labor organizations are required to keep records of all 
benefits they provide to officers on the IRS Form 990. Therefore, there 
is no recurring recordkeeping burden associated with the new benefits 
column.
    The Department assumes that Tier III labor organizations are 
already tracking the data required to report travel and lodging on 
Schedule 11. After weighting the averages based on the number of labor 
organizations in the two remaining tiers, the Department concludes that 
labor organizations in Tier I and Tier II will spend one hour a year 
tracking indirect disbursements for temporary lodging or transportation 
as a result of the following analysis. In 2007, 46% of Tier I officers, 
or approximately 4.53 officers per labor organization, reported $1,800 
in disbursements for official business; 55% of Tier II officers, 
approximately or 7.27 officers per labor organization, reported $3,768 
in disbursements for official business; and 84% of Tier III officers, 
or approximately 46.43 officers per labor organization, reported $9,354 
in disbursements for official business. Based on institutional 
experience, the Department assumes that the average trip or hotel will 
cost $600. Dividing the average reported disbursements for official 
travel by $600 provides a reasonable estimate of the number of indirect 
disbursement for official travel or lodging. Therefore, on average, 
each Tier I labor organization will have 4.53 officers who receive 
slightly more than 3 indirect disbursements for travel or lodging and 
each Tier II labor organization will have 7.27 officers who receive 
approximately 6.28 indirect disbursements for travel or lodging. The 
Department again assumes that Tier I labor organizations will spend 3 
minutes on recordkeeping per disbursement, half of the tier II labor 
organizations will spend 3 minutes on recordkeeping per disbursement.
    There is a slight recurring reporting burden, on average, of .50 
hours. The Department assumes that 75% of Tier I filers would use the 
cut and paste method to enter their data on the Form LM-2 (.08 hour 
burden per column entering data, .25 hours on training, .33 hours 
preparing the report), and 25% would manually enter the data on the 
Form LM-2 (.016 hour burden per officer, .25 hours on training, .33 
hours preparing the report). Tier II and III filers will import or 
attach their data to the Form LM-2 for an additional reporting burden 
of .42 hours. Indirect disbursements for travel and lodging will be 
included in the aggregate reported in ``Disbursements for Official 
Business.'' Therefore, there is no new recurring reporting burden for 
indirect disbursements for temporary lodging or transportation. The 
average burden was computed by taking the burden in each tier and 
weighting it by the number of labor organizations in each tier.
    Compared to revised Schedule 11, the Department estimates that, on 
average, labor organizations in Tiers I and II will spend slightly more 
time on revised Schedule 12, and that labor organizations in Tier III 
already keep records of benefits and indirect disbursements. Labor 
organizations in Tiers I and II, on average, will spend an additional 
(recurring) 1.91 hours of recordkeeping burden and .49 hours of 
reporting burden to track and enter the amount employees receive in 
benefits on Schedule 12 and track the indirect disbursements for 
temporary lodging or transportation. Unlike benefits to officers (which 
are reported on Schedule 11), labor organizations do not have to track 
benefits paid to employees for the IRS Form 990 unless those employees 
are ``key employees.'' Further, labor organizations have not had to 
track by individual employee the indirect disbursements to employees 
for lodging or travel under the current Form LM-2.
    There is no way to determine the amount or number of benefits or 
indirect disbursement for lodging or travel being paid to employees 
from the current Form LM-2. To estimate the additional burden 
associated with these tasks, the Department assumes that labor 
organizations will expend the same amount of time keeping records of 
benefits and indirect disbursements for lodging or travel for data 
entry on Schedule 12 as they do on Schedules 3 and 4. The Department 
assumes that labor organizations already keep some records of benefits 
paid to employees and indirect disbursements for lodging and travel. 
However, it is unlikely that these benefits or disbursements appear 
next to the name of the person who received them. Therefore, like 
Schedules 3 and 4, the labor organizations will now have to track the 
name of the person to whom (or on whose behalf) the disbursement is 
made. As on Schedule 3 and 4, the Department assumes that Tier I labor 
organizations will spend 3 minutes (.05 hours) on keeping records per 
disbursement, one half of the Tier II labor organizations will already 
keep data on benefits and indirect disbursements for lodging or travel 
made to employees, but the other one half will spend approximately 3 
minutes (.05 hours) per disbursement, and Tier III labor organizations 
already keep records of benefits and indirect disbursements.
    The Department assumes that each employee will receive, on average, 
one reportable benefit. If each employee

[[Page 3710]]

receives one reportable benefit, then Tier I labor organizations will 
spend approximately 3 minutes (.05 hours) per employee keeping records 
of benefits paid employees. On average, Tier I labor organizations have 
2.79 employees listed on their Form LM-2 and Tier II labor 
organizations have 10.24 employees listed on their Form LM-2. 
Therefore, on average, labor organizations will spend .02 hours keeping 
records on benefits to employees each year.
    Like Schedule 11, the Department calculated the schedule 12 
indirect disbursements for travel and lodging recordkeeping burden 
using the aggregate currently reported in disbursements for official 
business. In 2007, 35% of Tier I employees, or approximately 1 employee 
per labor organization, reported $2,550.78 in disbursements for 
official business; 59% of Tier II employees, or approximately 6 
employees per labor organization, reported $5,049.82 in disbursements 
for official business; and 74% of Tier III employees, or approximately 
240.67 employees per labor organization, reported $9,022 in 
disbursements for official business. The Department assumes that the 
average trip or hotel will cost $600. Dividing the average reported 
disbursements for official travel by $600 provides a reasonable 
estimate of the number of indirect disbursement for official travel or 
lodging. Therefore, on average, each Tier I labor organization will 
have 1 employee who receives 4.25 indirect disbursements for travel or 
lodging and each Tier II labor organization will have 6 employees who 
receive approximately 8.42 indirect disbursements for travel or 
lodging. The Department again assumes that Tier I labor organizations 
will spend 3 minutes on recordkeeping per disbursement, half of the 
Tier II labor organizations will spend 3 minutes on recordkeeping per 
disbursement, and Tier III labor organizations will already track the 
data. Therefore, on average, labor organizations in Tier I and Tier II 
will spend 1.89 hours keeping records on indirect disbursements for 
travel and lodging to employees each year.
    Labor organizations will spend an additional 1.91 hours keeping 
records of employee benefits and indirect disbursements to employees 
for lodging or travel. Like Schedules 3 and 4, the Department assumes 
it will take Tier I labor organizations .05 hours for recordkeeping 
burden per transaction to keep the new data. The Department, however, 
also assumes that one-half the Tier II labor organizations currently 
keep the records, and all the Tier III labor organizations keep the 
records. Additionally, the Department assumes that labor organizations 
will use the same method for reporting benefits as they use throughout 
the Form LM-2. Therefore, the Department estimates that labor 
organizations will spend an additional .49 hours per year reporting 
benefits on the Form LM-2. There is no additional reporting cost 
associated with the removal of the exemption for indirect disbursements 
to employees for lodging or travel. This information is now reported in 
Schedules 15 through 20, as appropriate, so only the reporting location 
on the form is changed. The average burden was computed by taking the 
burden in each tier and weighting it by the number of labor 
organizations in each tier.
3. Hours To Complete Schedule 14
    On average, labor organizations will spend 10.38 hours in the first 
year changing the accounting structure; developing, testing, reviewing, 
and documenting accounting software queries; designing query reports; 
and training accounting personnel. As in 2003, the Department estimates 
that it will take Tier I and Tier II labor organizations 5.3 hours to 
change their accounting structures and 13.3 hours for Tier III labor 
organizations to change their accounting structures. Additionally, the 
Department estimates that each labor organization will spend 
approximately 4.95 hours setting up the reporting system. The smallest 
Form LM-2 filers, Tier I, will spend approximately 4.25 hours setting 
up their reporting schedules (1 hour to design report, 1 hour to 
develop query, .75 hours to test query, .5 hours for management review, 
.75 hours for document query process, and .25 hours to train new 
staff). The Tier II and III labor organizations will spend an 
additional hour setting up their systems as their systems are more 
complicated and will require a greater number of entries.
    To reduce the overall recordkeeping and reporting burden, the 
Department amended the itemization rules for Schedule 14. The labor 
organization will never have to itemize dues and agency fees received 
directly from members; dues and agency fees received directly from an 
employer are reported as yearly totals.
    Unlike the NPRM which used Schedule 14 data to estimate the number 
of itemized receipts on Schedule 14, this final rule used Federal 
Mediation and Conciliation Service (``FMCS'') data to estimate the 
number of dues and agency fees itemized on Schedule 14. To estimate the 
number of union employers, the Department relied on FMCS's Form F-7, 
which must be filed by a labor organization or employer with the FMCS 
thirty days after notification to the other party of the intent to 
terminate or modify a collective bargaining agreement. Typically, 
collective bargaining agreements are renegotiated every 3 years. 
Therefore, the Department can reasonably estimate the number of 
employers employing employees in bargaining units represented by labor 
organizations by determining the number of Form F-7s filed between 2004 
and 2006, 54,884.\31\ In 2006, the Department received 4,571 Form LM-2s 
out of 23,924 labor organization filings. The Department assumes that 
smaller labor organizations, those that do not file the LM-2, represent 
the employees of one employer. That leaves 30,960 (54,884 - 23,924) 
union employers who have collective bargaining agreements with LM-2 
filers. Therefore, on average, each LM-2 filer receives dues from 6.77 
employers.
---------------------------------------------------------------------------

    \31\ Because there is no publicly available source for obtaining 
the number of employers employing workers represented by labor 
organizations, the Department has relied instead on the number of 
Form 7s filed by labor organizations to estimate this figure. The 
Department recognizes that the filing of a Form 7 is a requirement 
of the National Labor Relations Act, 29 U.S.C. 158(d)(3), and, as a 
result, labor organizations and employers covered by the Railway 
Labor Act, 45 U.S.C. 151 et seq., and public sector labor 
organizations not covered by the NLRA but that file LM reports as 
``mixed'' unions, are not included in this figure. Further, the 
Department recognizes that because Form 7s represent contract 
disputes, more than one Form 7 may be filed by employers or labor 
organizations representing employees employed by that employer. 
Finally, the estimate assumes full compliance with the NLRA notice 
requirement. Although imperfect, the Department views this figure as 
a best estimate of the number of employers employing workers 
represented by labor organizations.
---------------------------------------------------------------------------

    In 2003 the Department made the underlying assumption that labor 
organizations will spend 3 minutes (.05 hours) on recordkeeping per 
disbursement or receipt. Further, the Department assumed that all the 
largest labor organizations, Tier III, and 10% of the Tier II labor 
organizations will already keep this data. The Department has adopted 
the above underlying assumptions in its current analysis. If it takes 3 
minutes of recordkeeping per receipt or disbursement, then the average 
labor organization will spend .31 hours on recordkeeping each year. 
Further, as in 2003, the Department assumes that Tier I filers will 
spend .25 hours on training, .33 hours preparing the report and 1 
minute (.02 hours) to manually enter each disbursement or receipt on 
the report and Tier II and III filers will spend 25 minutes (.42 hours) 
per schedule to cut and paste or import their data onto the Form LM-2.

[[Page 3711]]

Therefore, the Department estimates the reporting burden per schedule 
to be .50 hours. The average burden was computed by taking the burden 
in each tier and weighting it by the number of labor organizations in 
each tier.
4. Hours To Complete Schedule 15
    On average, labor organizations will spend 10.38 hours in the first 
year changing the accounting structure; developing, testing, reviewing, 
and documenting accounting software queries; designing query reports; 
and training accounting personnel. As in 2003, the Department estimates 
that it will take Tier I and Tier II labor organizations 5.3 hours to 
change their accounting structures and 13.3 hours for Tier III labor 
organizations to change their accounting structures. Additionally, the 
Department estimates that each labor organization will spend 
approximately 4.95 hours setting up the reporting system. The smallest 
Form LM-2 filers, Tier I, will spend approximately 4.25 hours setting 
up their reporting schedules (1 hour to design report, 1 hour to 
develop query, .75 hours to test query, .5 hours for management review, 
.75 hours for document query process, and .25 hours to train new 
staff). The Tier II and III labor organizations will spend an 
additional hour setting up their systems as their systems are more 
complicated and will require a greater number of entries.
    To reduce the overall recordkeeping and reporting burden, the 
Department amended the itemization rules for Schedule 15. The labor 
organization will never have to itemize per capita taxes received 
direct from members and per capita taxes received directly from an 
affiliate are reported as yearly totals.
    Unlike the NPRM, which used Schedule 14 data to estimate the number 
of itemized receipts on Schedule 15, this final rule used e.LORS data 
to estimate the number of per capita taxes itemized on Schedule 15. To 
determine the per capita tax recordkeeping burden the Department 
estimated the number of affiliates per LM-2. In 2006, 12,025 LM-3s were 
filed with OLMS, and of these 11,168 were designated locals. Labor 
organizations need only itemize per capita taxes from affiliates that 
exceed $5,000. Therefore, the Department limited its LM-4 search to 
those that had $5,000 or more in disbursements. OLMS received 1,332 LM-
4s in 2006 from labor organizations that had greater than $5,000 in 
disbursements. Additionally, 1,325 Tier I LM-2 filers indicated that 
they were locals; 2,702 Tier II LM-2 filers indicated that they were 
locals; and 15 Tier III LM-2 filers indicated that they were locals. In 
sum, there were 16,592 local labor organizations and 650 intermediate 
and international LM-2 filers. Tier I has 121 intermediate and 
international LM-2 filers, Tier II has 492 intermediate and 
international LM-2 filers, and Tier III has 37 intermediate and 
international LM-2 filers. Without more precise data, the Department 
assumed that all intermediate and international LM-2 filers had the 
same number of affiliates, 25.53 itemized per capita taxes.
    In 2003, the Department made the underlying assumption that labor 
organizations will spend 3 minutes (.05 hours) on recordkeeping per 
disbursement or receipt. Further, the Department assumed that all the 
largest labor organizations, Tier III, and 10% of the Tier II labor 
organizations will already keep this data. The Department has adopted 
the above underlying assumptions in its current analysis. If it takes 3 
minutes of recordkeeping per receipt or disbursement, then the average 
labor organization will spend .16 hours on recordkeeping each year. 
Further, as in 2003, the Department assumes that Tier I filers will 
spend .25 hours on training, .33 hours preparing the report and 1 
minute (.02 hours) to manually enter each disbursement or receipt on 
the report and Tier II and III filers will spend 25 minutes (.42 hours) 
per schedule to cut and paste or import their data onto the Form LM-2. 
Therefore, the Department estimates the reporting burden per schedule 
to be .48 hours. The average burden was computed by taking the burden 
in each tier and weighting it by the number of labor organizations in 
each tier.
5. Hours To Complete Schedules 16 Through 22
    For revised Schedules 16 through 22, the Department estimates that 
labor organizations will spend, on average, 10.38 hours per schedule to 
change their accounting structures; develop, test, review, and document 
accounting software queries; design query reports; and train accounting 
personnel. This burden estimate is based largely on the 2003 burden 
estimates for Schedule 14. As in 2003, the Department estimates that it 
will take Tier I and Tier II labor organizations 5.3 hours to change 
their accounting structures, and 13.3 hours for Tier III labor 
organizations to change their accounting structures. Additionally, the 
Department estimates that each labor organization will spend 
approximately 4.95 hours setting up the reporting system. The smallest 
Form LM-2 filers, Tier I, will spend approximately 4.25 hours setting 
up their reporting schedules (1 hour to design report, 1 hour to 
develop query, .75 hours to test query, .5 hours for management review, 
.75 hours for document query process, and .25 hours to train new 
staff). The Tier II and Tier III labor organizations will spend an 
additional hour setting up their systems, as their systems are more 
complicated and will require a greater number of entries.
    Unlike the NPRM, the burden estimate in this final rule used the 
aggregates reported on Statement B items 38 through 42 and 46 through 
47 to estimate the number of itemized receipts reported on the new 
schedules 16 through 22. The aggregates reported in each item were 
divided by $5,000 to estimate the number of itemized receipts. For 
example, in 2006, on average, Tier I LM-2 filers report that they 
received $5,684.98 in interest. When the aggregate is divided by 
$5,000, we reach 1.14 itemized disbursements. These findings are 
summarized on Table 1.

                                    Table 1--LM-2 Receipt Itemization Summary
----------------------------------------------------------------------------------------------------------------
                            Schedule                                  Tier I          Tier II        Tier III
----------------------------------------------------------------------------------------------------------------
Fees, Fines, Assessments, Work Permits..........................            4.72           39.44          235.64
Sale of Supplies................................................            0.08            0.50           22.70
Interest........................................................            1.14           10.05          685.52
Dividends.......................................................            0.22            2.88          146.74
Rents...........................................................            0.56            4.86          272.42
On Behalf of Affiliates for Transmittal to Them.................            0.74           37.60        3,017.36
From Members for Disbursement on Their Behalf...................            1.02            9.35          644.38
----------------------------------------------------------------------------------------------------------------


[[Page 3712]]

    In 2003, the Department made the underlying assumption that labor 
organizations will spend 3 minutes (.05 hours) on recordkeeping per 
disbursement or receipt. Further, the Department assumed that all the 
largest labor organizations, Tier III, and 10% of the Tier II labor 
organizations will already keep this data. The Department has adopted 
the above underlying assumptions in its current analysis. Further, as 
in 2003, the Department assumes that Tier I filers will spend .25 hours 
on training, .33 hours preparing the report and 1 minute (.02 hours) to 
manually enter each disbursement or receipt on the report and Tier II 
and III filers will spend 25 minutes (.42 hours) per schedule to cut 
and paste or import their data onto the Form LM-2. The burden estimates 
for Schedules 16 through 22 are summarized on Table 3. The average 
burden was computed by taking the burden in each tier and weighting it 
by the number of labor organizations in each tier.
[GRAPHIC] [TIFF OMITTED] TR21JA09.006

6. Hours to Review Instructions
    Finally, the Department estimates that labor organizations will 
spend, on average, an additional, recurring 2.0 hours reviewing the 
revised Form LM-2 and instructions. In 2003, the Department estimated 
that, on average, labor organizations would spend 4.0 hours reviewing 
the current Form LM-2 and instructions. The 2003 instructions were 44 
pages and the new instructions are 52 pages. The changes to the LM-2 
have added only 6 pages. The Department views as sufficient an 
additional 2.0 hours for review of the instructions.
7. Subsequent Yearly Burden
    Given the current widespread use of automated accounting packages 
and labor organizations' experience with the electronic filing, the 
Department is not making the assumption (that was made in 2003) that 
over time the recurring burden would be reduced due to efficiency gains 
as the accounting staff became familiar with the software. Rather, the 
Department assumes that the second and third year burden will be equal 
to the recurring first year burden.
8. Compensation Cost
    The Department assumes that, on average, the completion by a labor 
organization of Form LM-2 will involve an accountant/auditor, computer 
software engineer, bookkeeper/clerk, labor organization president and 
labor organization treasurer. Based on the 2007 BLS wage data, 
accountants earn $30.37 per hour, computer engineers earn $41.18 per 
hour, and bookkeepers/clerks earn $15.76 per hour.\32\ BLS estimates 
that the cost of an employee's total compensation is approximately 
30.2% higher than the employee's wages alone. Therefore, in order to 
account for total compensation, the Department adjusted each of the BLS 
salaries upward to include the additional 30.2% attributed to benefit 
to estimate the total compensation cost for each of the individuals 
involved in completing the Form LM-2.
---------------------------------------------------------------------------

    \32\ The wage and salary data is based on information contained 
in Bureau of Labor Statistics, Occupational Employment Statistics 
Survey, 2007.
---------------------------------------------------------------------------

    To estimate the average annual salaries of labor organization 
officers needed to complete tasks for compliance with this rule--the 
president and treasurer--the Department drew a proportionate stratified 
sample from the 4,571 LM-2 filers. A proportionate stratified sample 
ensured that neither large nor small labor organizations were over-
represented in the sample and permitted the final cost figures to be 
reported without regard to ``tier'' or size, as was done with the NPRM.
    The Department first calculated the appropriate sample size. 
Consistent with commonly accepted statistical practices, the Department 
determined that a level of precision or sample error of 6%, a 
confidence interval of 90%, and a degree of variability of 50% (maximum 
variability) was acceptable for the Form LM-2 final burden analysis. 
The sample size of 180 LM-2 filers was then increased by 20% to 217, in 
order to ensure an appropriate sample size was maintained throughout 
the analysis.
    The population was arranged into three strata based on annual 
receipts:
 Strata I ($250,000--$499,999 receipts): 1,325 Form LM-2 filers
 Strata II ($500,000--$6.5 mil receipts): 2,895 Form LM-2 
filers
 Strata III ($6.5 mil and higher receipts): 351 Form LM-2 
filers
    The proportion of each strata to the population was then 
determined:
 Strata I ($250,000--$499,999 receipts): 28.99%
 Strata II ($500,000--$6.5 mil receipts): 63.33%
 Strata III ($6.5 mil and higher receipts): 7.68%
    Finally, the sample size from each strata was drawn proportionately 
to its representation in the population:
 Strata I ($250,000--$499,999 receipts): 217 x 28.99% = 63
 Strata II ($500,000--$6.5 mil receipts): 217 x 63.33% = 137
 Strata III ($6.5 mil and higher receipts): 217 x 7.68% = 17
    These average annual salary figures were then adjusted to include 
the additional 30.2% attributed to benefits to reflect total 
compensation cost for each officer, which the Department calculated as 
$35.15 per hour for labor organization president and $30.71 per hour 
for labor organization treasurer.

[[Page 3713]]



                                        Table 3--Compensation Cost Table
----------------------------------------------------------------------------------------------------------------
                        Title                          Salary hourly  Salary--yearly  Compensation--cost--hourly
----------------------------------------------------------------------------------------------------------------
Accountants/Auditors................................          $30.37      $63,180.00                $43.51
Computer software engineers, applications...........           41.18       85,660.00                 59.00
Bookkeepers/Clerks..................................           15.76       32,780.00                 22.58
President...........................................           24.53       51,027.10                 35.15
Treasurer...........................................           21.44       44,592.89                 30.71
Weighted Average....................................  ..............  ..............                 32.28
----------------------------------------------------------------------------------------------------------------

    The Department estimated the percentage of time the accountant, 
computer software engineer, bookkeeper, president, and treasurer would 
spend completing the LM-2. These percentages were used to calculate a 
weighted average compensation cost, $32.28.
9. Conclusion
    The Department estimates the additional weighted average reporting 
and recordkeeping burden for the revised Form LM-2 to be 150.06 hours 
per respondent in the first year (including nonrecurring implementation 
costs) and 15.06 hours per respondent in the second and third years. 
See Table 3 below. The Department estimates the total additional annual 
burden hours for respondents for the revised Form LM-2 to be 685,924 
hours in the first year and 68,847 hours in the second and third years.
    The Department estimates the additional weighted average annual 
cost for the revised Form LM-2 to be $4,844 ($32.28 (weighted average 
cost per hour) x 150.06 (additional hours to complete the changes to 
Form LM-2 in first year) = $4,844) per respondent in the first year 
(including nonrecurring implementation costs) and $486 ($32.28 
(weighted average cost per hour) x 15.06 (additional hours to complete 
the changes to Form LM-2 in second and third year) = $486) per 
respondent in the second year and third year. The Department also 
estimates the total additional annual cost to respondents for the 
revised Form LM-2 to be $22.14 million ($32.28 x 685,924 (total hours 
to complete changes to Form LM-2 in first year) = $22.14 million) in 
the first year and $2.22 million ($32.28 x 68,847 (total hours to 
complete changes to Form LM-2 in second and third year) = $2.22 
million) in the second and third years.
[GRAPHIC] [TIFF OMITTED] TR21JA09.007

    The Department's estimates of the additional burden and costs 
associated with the revisions to the Form LM-2 are presented in Table 
3. This table only presents the increases associated with the changes 
to the form. Neither the burden or costs associated with the current 
Form LM-2 nor the revocation of the privilege of some labor 
organizations to file the Form LM-3 is included in these estimates.
H. Form LM-3 Revocation Procedures Burden Estimates
    The Department has established a procedure for revoking the 
simplified reports filing privilege, provided by 29 CFR 403.4(a)(1), 
for labor organizations that are delinquent in their Form LM-3 filing 
obligation, have failed to timely file an amended form after 
notification that the report is materially deficient, or those for 
which the Department otherwise finds that the purposes of section 208 
of the LMRDA, 29 U.S.C. 438, would be served by such revocation. The 
Department's ultimate goal in revoking the filing privilege for such 
labor organizations is to promote greater financial transparency. As 
discussed above, the revised paperwork requirements are necessary to 
effectuate the purposes of the LMRDA by providing members of labor 
organizations with information about their labor organizations that 
will enable them to be responsible, informed, and effective 
participants in the governance of their labor organizations; discourage 
embezzlement and financial mismanagement; prevent the circumvention or 
evasion of the statutory reporting requirements; and strengthen the 
effective and efficient enforcement of the LMRDA by the Department. The 
manner in which the collected information will serve these purposes is 
discussed throughout the preamble to this final rule.
    Rather than using a general burden reduction, the Department 
estimated the LM-3 revocation burden using the underlying assumptions 
in this rule and the 2003 LM-2 final rule. The number of receipts, 
disbursements, and officers was determined using a proportionate random 
sample of 2006 LM-3 data found on the e.LORS database. The distribution 
of receipts and disbursements was based on 2006 Tier I LM-2 filers.
    The Department's proposal has sought to minimize the burden on the 
reporting labor organization by permitting it to submit the report 
manually. Upon its receipt of manual reports, the Department will enter 
the information electronically so that members of labor organizations, 
the public, and the Department's investigators will be able to access 
and fully search these reports through the OLMS Online Public 
Disclosure Room.
    For the analysis below, recordkeeping burden is the amount of time 
the LM-3 filer will spend going through its records to identify the 
information needed to complete the LM-2. Reporting burden is the amount 
of time the LM-3 filer will spend transcribing the information onto the 
LM-2.

[[Page 3714]]

1. Review LM-2 Form and Instructions
    The Department determined that LM-3 filers who have had their 
filing privilege revoked will spend 8.32 hours reviewing the Form LM-2 
and instructions, which allows an LM-3 filer approximately .16 hours to 
review each page.
2. LM-2 Page 1 Burden Hours
    There is no recordkeeping burden associated with the first page of 
the LM-2. The first page of the LM-2 reports the same information 
provided on the first page of the LM-3. The LM-3 filer need only copy 
the contents of the first page of its LM-3 onto the first page of its 
LM-2. This copying should take approximately 3 minutes per item. There 
are 16 items on the first page. Therefore, the reporting burden is 
estimated at .80 hours.
3. LM-2 Page 2 Burden Hours
    The Department estimates that LM-3 filers will expend .33 hours on 
recordkeeping and .60 hours on reporting to complete the second page of 
the LM-2. The second page of the LM-3 asks 6 yes/no questions found on 
the second page of the LM-2 and includes the same 4 fillable items 
found on the LM-2. There is no additional recordkeeping burden 
associated with the 6 repeat questions or the 4 fillable items. 
However, two questions found on the LM-2 are not repeated on the LM-3. 
The LM-3 filer will spend .33 hours answering these questions. Once the 
LM-2 specific questions are answered, the LM-3 filer need only copy the 
information found on its LM-3 onto the LM-2. The Department estimates 
that LM-3 filers will spend 3 minutes per item copying the information 
from the LM-3 onto the LM-2 and answering the two additional questions.
4. LM-2 Itemization Schedules
    It should be noted that LM-3 filers should already have the 
information necessary to itemize the receipts, disbursements, assets, 
and liabilities for the LM-2. The LMRDA requires labor organization to 
maintain records ``on matters required to be reported which will 
provide in sufficient detail the necessary basic information and data 
from which the documents filed with the Secretary may be verified, 
explained or clarified, and checked for accuracy and completeness, and 
shall include vouchers, worksheets, receipts, and applicable 
resolutions, and shall keep records available for examination for a 
period of not less than five years.'' 29 U.S.C. 436. However, it is 
unlikely that LM-3 filers keep the information in the detail or format 
necessary to complete the LM-2. Therefore, the Department has accounted 
for this detail and formatting change by adding a recordkeeping burden 
to itemized receipts, disbursements, assets, and liabilities.
    In order to improve the LM-3 revocation burden estimates employed 
in the NPRM, the Department sampled a randomly selected subset of the 
10,977 Form LM-3 filers in 2006. The Department first calculated the 
appropriate sample size. Consistent with commonly accepted statistical 
practices, the Department determined that a level of precision or 
sample error of 6%, a confidence interval of 90%, and a degree of 
variability of 50% (maximum variability) was acceptable for the Form 
LM-3 revocation final burden analysis. The sample size of 185 LM-3 
filers was then increased by 20% to 222, in order to ensure an 
appropriate sample size was maintained throughout the analysis.
    To improve estimates of means, the Department used a proportionate 
stratified sample, which ensured that neither large nor small labor 
organizations were over-represented in the sample and permitted the 
final cost figures to be reported without regard to ``tier'' or size, 
as was done with the NPRM. The population was arranged into three 
strata based on annual receipts:

 Strata I ($10,000-$49,999 receipts): 5,868 Form LM-3 filers
 Strata II ($50,000-$149,999 receipts): 3,782 Form LM-3 filers
 Strata III ($150,000-$249,999 receipts): 1,327 Form LM-3 
filers

    The proportion of each strata to the population was then 
determined:

 Strata I ($10,000-$49,999 receipts): 53.46%
 Strata II ($50,000-$149,999 mil receipts): 34.45%
 Strata III ($150,000-$249,999 receipts): 12.09%

    Finally, the sample size from each strata was drawn proportionately 
to its representation in the population:

 Strata I ($10,000-$49,999 receipts): 222 x 53.46% = 119
 Strata II ($50,000-$149,999 mil receipts): 222 x 34.45% = 76
 Strata III ($150,000-$249,999 receipts): 222 x 12.09% = 27

    This sample indicated that the average 2006 LM-3 filer reports 
$68,585 in annual receipts, $67,459 in annual disbursements, $69,673 in 
assets, and $1,901 in liabilities. The Department divided the annual 
receipts, disbursements, assets, and liabilities by $5,000 to estimate 
the maximum number of itemized transactions, and based on this 
calculation has concluded that LM-3 filers will likely have13.71 
itemized receipts, 13.49 itemized disbursements, 13.93 itemized assets, 
and .38 itemized liabilities reported on the LM-2.
    The Department used Tier I LM-2 data to determine in which 
schedules these receipts, disbursements, assets, and liabilities would 
be reported. The Department assumes that the distribution of LM-3 
itemized receipts, disbursements, assets and liabilities is similar to 
the distribution found in LM-2s of labor organizations with between 
$250,000 and $500,000 in receipts. For example, the Department found 
that 6.51% ($31,326,557/$481,289,983 = .0651 or 6.51%) of total 
receipts are attributed to fees, fines, assessments, etc. These 
findings are summarized on Tables 5 through 8.

                 Table 5--Itemized Receipt Distribution
------------------------------------------------------------------------
                                                       Percentage of all
   Receipt functional category         Receipts            receipts
------------------------------------------------------------------------
Dues and Agency Fees............     $356,476,010.00               74.07
 Per Capita Tax.................       22,574,114.00                4.69
 Other Fees.....................       31,326,557.00                6.51
 Sales of Supplies..............          541,767.00                0.11
 Interest.......................        7,602,504.00                1.58
 Dividends......................        1,495,909.00                0.31
 Rents..........................        3,781,903.00                0.79
 On Behalf of Affiliates........        4,912,381.00                1.02
 From Members...................        6,877,831.00                1.43
 Loan Repayments................          518,391.00                0.11

[[Page 3715]]


 Loans Obtained.................        1,307,960.00                0.27
 Sales of Investments and Assets        7,402,058.00                1.54
 Other Receipts.................       36,472,598.00                7.58
                                 ---------------------------------------
     Total Receipts.............      481,289,983.00              100.00
------------------------------------------------------------------------


               Table 6--Itemized Disbursement Distribution
------------------------------------------------------------------------
                                                       Percentage of all
Disbursement functional category     Disbursements       disbursements
------------------------------------------------------------------------
 Representational Activities....     $106,498,651.00               22.30
 Political Activities & Lobbying        8,034,914.00                1.68
 Contributions, Gifts, & Grants.        8,655,415.00                1.81
 General Overhead...............       76,126,990.00               15.94
 Union Administration...........       85,108,151.00               17.82
 Benefits.......................       37,836,304.00                7.92
 Per Capita Tax.................      102,038,579.00               21.36
 Strike Benefits................        3,545,000.00                0.74
 Fees, Fines, Assessments, etc..        4,203,835.00                0.88
 Office & Administrative Expense           71,976.00                0.02
 Professional Fees..............            1,075.00                0.00
 Supplies for Resale............          749,492.00                0.16
 Purchase of Investments & Fixed       14,954,159.00                3.13
 Assets.........................
 Loans Made.....................          326,659.00                0.07
 Repayment of Loans Obtained....        1,443,492.00                0.30
 To Affiliates of Funds                 6,957,774.00                1.46
 Collected on Their Behalf......
 On Behalf of Individual Members        6,556,628.00                1.37
 Direct Tax.....................       14,515,926.00                3.04
                                 ---------------------------------------
     Total Disbursements........      477,625,020.00              100.00
------------------------------------------------------------------------


                  Table 7--Itemized Asset Distribution
------------------------------------------------------------------------
                                                       Percentage of all
    Asset functional category           Assets              assets
------------------------------------------------------------------------
 Cash...........................         $218,193.74               57.55
 Investments....................          235,122.64               14.25
 Treasury Securities............          120,077.14                1.41
 Loans Receivable...............           12,850.12                0.66
 Accounts Receivable............            4,499.69                0.97
 Fixed Assets...................          287,842.82               24.37
 Other Assets...................            2,975.39                0.79
                                 ---------------------------------------
     Total Assets...............          881,561.54              100.00
------------------------------------------------------------------------


                Table 8--Itemized Liability Distribution
------------------------------------------------------------------------
                                                       Percentage of all
  Liability functional category       Liabilities         liabilities
------------------------------------------------------------------------
 Accounts Payable...............       $5,400,228.00               20.06
 Loans Payable..................        5,944,284.00               22.08
 Mortgages Payable..............        7,249,483.00               26.92
 Other Liabilities..............        8,332,886.00               30.95
                                 ---------------------------------------
     Total Liabilities..........       26,926,881.00              100.00
------------------------------------------------------------------------

    The Department can estimate the number of receipts, disbursements, 
assets, and liabilities itemized on each schedule using the Tier I LM-2 
distribution data and the LM-3 itemized transactions data. For example, 
if the LM-3 filing privilege is revoked, LM-3 filers will itemize 
approximately 13.71 receipts per year on the Form LM-2. Based on the 
Tier I LM-2 distribution, .89 (13.71 (total itemized receipts) x 6.51% 
= .89) of the 13.71 receipts will be itemized on Schedule 16 (``Fees, 
Fines, Assessments, etc.''). The Department used the same method to 
determine the number of itemized transactions on each of the 
itemization schedules. The results are summarized in Table 9.
    It should be noted that the Department assumes that LM-3 filers

[[Page 3716]]

will receive dues payments from one employer. Consistent with the 
reporting requirements adopted in this rule, LM-3 filers will have one 
itemized dues receipt. Further, the Department estimates that like Tier 
I LM-2 filers, non-local LM-3 filers will receive 2.33 per capita 
receipts. Approximately 7.13% of LM-3 filers are non-locals. Therefore, 
on average each LM-3 filer will have .02 per capita itemizations.

                    Table 9--LM-3 Itemization Summary
------------------------------------------------------------------------
                                                              Average
                                                             number of
                                                              entries
------------------------------------------------------------------------
 Total Itemized Receipts................................           13.71
     Schedule 2: Loans Receivable.......................            0.01
     Schedule 3: Sale of Investments and Fixed Assets...            0.21
     Schedule 9: Loans Payable..........................            0.04
     Schedule 14: Dues and Agency Fees..................            1
     Schedule 15: Per Capita Tax........................             .02
     Schedule 16: Fees, Fines, Assessments, Work Permits            0.89
     Schedule 17: Sale of Supplies......................            0.02
     Schedule 18: Interest..............................            0.22
     Schedule 19: Dividends.............................            0.04
     Schedule 20: Rents.................................            0.11
     Schedule 21: On Behalf of Affiliates for                       0
     Transmittal to Them................................
     Schedule 22: From Members for Disbursement on Their            0.20
     Behalf.............................................
     Schedule 23: Other Receipts........................            1.04
 Total Itemized Disbursements...........................           13.49
     Schedule 24: Representational Activities...........            3.01
     Schedule 25: Political Activities and Lobbying.....            0.23
     Schedule 26: Contributions, Gifts, and Grants......            0.24
     Schedule 27: General Overhead......................            2.15
     Schedule 28: Union Administration..................            2.41
     Schedule 29: Benefits..............................            1.07
     Item 57: Per Capita Tax............................            1.00
     Item 58: Strike Benefits...........................            0.10
     Item 59: Fees, Fines, Assessments, etc.............            0.12
     Item 60: Supplies for Resale.......................            0.02
     Schedule 4: Purchase of Investments and Fixed                  0.42
     Assets.............................................
     Schedule 2: Loans Made.............................            0.01
     Schedule 9: Repayment of Loans Obtained............            0.04
     Item 64: To Affiliates of Funds Collected on Their             0
     Behalf.............................................
     Item 65: On Behalf of Individual Members...........            0.19
     Item 66: Direct Taxes..............................            0.41
 Assets.................................................           13.93
     Item 22: Cash......................................            8.02
     Schedule 1: Accounts Receivable....................            0.13
     Schedule 2: Loans Receivable.......................            0.09
     Item 25: U.S. Treasury Securities..................            0.20
     Schedule 5: Investments............................            1.99
     Schedule 6: Fixed Assets...........................            3.40
     Schedule 7: Other Assets...........................            0.11
 Liabilities............................................            0.38
     Schedule 8: Accounts Payable.......................            0.08
     Schedule 9: Loans Payable..........................            0.08
     Item 32: Mortgages Payable.........................            0.10
     Schedule 10: Other Liabilities.....................            0.12
------------------------------------------------------------------------

    The Department estimates that LM-3 filers will expend .25 hours on 
each schedule identifying those receipts that must be itemized, and .03 
hours per column putting together the necessary information and 
inputting it onto the LM-2. For example, LM-3 filers who have had their 
filing privilege revoked will spend .32 hours on recordkeeping and .07 
hours on reporting completing the fees, fines, assessment schedule. The 
average LM-3 filer will itemize .89 fees, fines, assessments, etc. on 
LM-2 schedule 16. The initial search and identification of itemized 
fees, fines, assessments, etc. will take .25 hours. Once the itemized 
fees, fines, assessments, etc. are identified, the labor organization 
must identify and enter the source, type, purpose, date, and amount of 
the fee, fine, assessment, etc. onto the Form LM-2, .15 hours or 
approximately .03 hours per item. The results are summarized in table 
10.

[[Page 3717]]

[GRAPHIC] [TIFF OMITTED] TR21JA09.008

5. All Officers and Disbursement to Officers
    There is no recordkeeping burden associated with identifying 
officers and their salaries. This information is reported on the LM-3 
schedule ``All Officers and Disbursements to Officers.'' Labor 
organizations will have to break down the amount reported in column (E) 
of LM-3 schedule ``All Officers and Disbursements to Officers'' between 
columns (E), (G), and (H) of LM-2 Schedule 11, and report benefits next 
to each officer's name. Officers will have to estimate the time they 
spend on representational activities, political and lobbying 
activities, contributions, general overhead, and union administration.
    LM-3 filers who have had their filing privileges revoked and their 
officers will spend 69.53 hours compiling the information necessary to 
complete the Form LM-2 Schedule 11. The labor organization will spend 
.25 hours compiling the records on disbursements and .08 hours per 
disbursement assigning the disbursements to a particular officer and 
disbursement category (allowances, official business or other). The LM-
3 sample indicated that, on average, an LM-3 filer has 8.31 officers. 
The Department estimates that each officer will receive one benefit 
disbursement and one indirect disbursement for travel or lodging. Based 
on the LM-3 sample, approximately 43.70% of the officers listed on the 
LM-3, or 3.47 officers per LM-3 filer, receive allowances and other 
disbursements. On average, these officers receive $973.92 in allowances 
and other disbursements. Unlike the LM-2 analysis above, the Department 
estimates that the average LM-3 officer disbursement will be $200. The 
average disbursement amount was reduced to take into account the 
smaller size of LM-3 filers. Therefore, the 3.47 officers who receive 
allowances and other disbursements will receive, on average, 4.87 
disbursements for allowances and other disbursements ($973.92/$200 = 
4.87), 1 disbursement for benefits, and 1 indirect disbursement for 
lodging or travel. The remaining 4.84 officers who do not receive 
allowances or other disbursements will receive 1 disbursement for 
benefits and 1 indirect disbursement for lodging or travel. In sum, 
each LM-3 filer will make 33.51 disbursements to its officers. The 
labor organization will spend 2.93 hours compiling all disbursements to 
officers.
    In addition to compiling the disbursement data, officers will have 
to estimate how much time they spent on each of the functional 
categories: representational activities, political and lobbying 
activities, contributions, general overhead, and union administration. 
In 2003, the Department estimated that officers will spend 1 hour at 
the beginning of the year reviewing the LM-2 instructions, .5 hours a 
month dividing up their time, 1 hour at the end of the year checking 
the distributions. In sum, each officer will spend 8 hours estimating 
the percentage of time spent on each functional category. If the 
average LM-3 filer has 8.31 officers, and it takes each officer 8 hours 
to estimate the percentage of time spent on each functional category, 
then officers will expend 66.48 hours on recordkeeping to complete 
Schedule 11.
    The labor organization will spend 2.08 hours on reporting. Each 
officer row on the LM-2 Schedule 11 has 15 separate fillable items. The 
Department assumes that a labor organization can fill out an item in 
one minute. Therefore, the labor organization will spend .25 hours 
filling out each officer row. If the average LM-3 filer has 8.31 
officers, and it takes .25 hours to fill out one row, then labor 
organizations will expend 2.08 hours completing Schedule 11.
6. Disbursements to Employees
    There is no recordkeeping burden associated with identifying 
employees and their salaries. The LM-3 does not

[[Page 3718]]

include a separate schedule for reporting disbursements to employees, 
but LM-3 filers have to track disbursements to employees to complete 
LM-3 Statement B, item 46. Labor organizations will have to break down 
the amount reported on LM-3 Statement B, item 46, by employee and type 
of disbursement (allowance, official business, or other). Additionally, 
the labor organization will have to report the benefits each employee 
receives. Employees will have to estimate the time they spend on 
representational activities, political and lobbying activities, 
contributions, general overhead, and union administration.
    LM-3 filers who have had their filing privileges revoked and their 
employees will spend 23.48 hours compiling the information necessary to 
complete the Form LM-2 Schedule 12. The labor organization will spend 
.25 hours compiling the records on disbursements and .08 hours per 
disbursement assigning the disbursements to a particular employee and 
disbursement category (allowances, official business or other).
    The Department used the average number of employees listed on LM-2s 
with between $250,000 and $500,000 in annual receipts to estimate the 
number of employees employed by LM-3 filers. On average, LM-2 filers 
with between $250,000 and $500,000 in annual receipts list 2.79 
employees on Schedule 12. The Department estimates that each employee 
will receive one benefit disbursement and one indirect disbursement for 
travel or lodging. Approximately 39.82% of the employees listed on LM-
2s with between $250,000 and $500,000 in annual receipts, or 1.11 
employees per LM-2 filer with between $250,000 and $500,000 in annual 
receipts, receive allowances and other disbursements. The Department 
cannot estimate the number of employee allowances and other 
disbursements from the LM-3. Therefore, the Department applied the 
estimated number of officer disbursements, 4.87, to employees. The 1.11 
employees who receive allowances and other disbursements will receive, 
on average, 4.87 disbursements for allowances and other disbursements, 
1 disbursement for benefits, and 1 indirect disbursement for lodging or 
travel. The remaining 1.68 employees who do not receive allowances or 
other disbursements will receive 1 disbursement for benefits and 1 
indirect disbursement for lodging or travel. In sum, each LM-3 filer 
will make 10.99 disbursements to its employees.
    In addition to compiling the disbursement data, employees will have 
to estimate how much time they spent on each of the functional 
categories: representational activities, political and lobbying 
activities, contributions, general overhead, and union administration. 
In 2003, the Department estimated that employees will spend 1 hour at 
the beginning of the year reviewing the LM-2 instructions, .5 hours a 
month dividing up their time, 1 hour at the end of the year checking 
the distributions. In sum, each employee will spend 8 hours estimating 
the percentage of time spent on each functional category. If the 
average LM-3 filer has 2.79 employees and it takes each employee 8 
hours to estimate the percentage of time spent on each functional 
category, then employees will expend 22.32 hours on recordkeeping to 
complete Schedule 12.
    The labor organization will spend .70 hours on reporting. Each 
employee row on the LM-2 Schedule 12 has 15 separate fillable items. 
The Department assumes that a labor organization can fill out an item 
in one minute. Therefore, the labor organization will spend .25 hours 
filling out each employee row. If the average LM-3 filer has 2.79 
employees, and it takes .25 hours to fill out one row, then labor 
organizations will expend .70 hours completing Schedule 12.
7. Member Status Schedule
    The Department estimates that LM-3 filers who have had their filing 
privilege revoked will spend .25 hours filling out Schedule 13 
(``Membership Status''). All labor organizations already keep track of 
membership status. Therefore, there is no recordkeeping burden.
    Most labor organizations have 3 types of membership: Active, 
retired, and journeyman. Each membership type will require an 
independent itemization on Schedule 13. The Department has determined 
that each itemized membership should require 5 minutes. If there are 3 
itemized memberships, then LM-3 filers will expend .25 hours filling 
out the LM-2.
8. LM-2 Statement A Burden Hours
    There is no recordkeeping burden associated with LM-2 Statement A. 
This information is already provided on the LM-3's Statement A. The LM-
3 filer need only copy the information from the LM-3 onto the LM-2. The 
Department estimates that such copying should take approximately 1 
minute per item. Statement A has 26 different items. At one minute each 
the LM-3 will spend .43 hours filling out Statement A.
9. LM-2 Statement B Burden Hours
    The Department estimates that LM-3 filers will expend .42 hours on 
recordkeeping and .58 hours on reporting to complete LM-2 Statement B. 
Twenty-two out of the twenty-nine aggregates reported on Statement B 
either have a corresponding LM-2 itemization schedule or are already 
reported on the LM-3. The recordkeeping burden associated with these 
items is either included in the recordkeeping burden for its 
corresponding schedule or it is included in the LM-3 recordkeeping 
burden. There is no recordkeeping burden for these items associated 
with Statement B. The remaining seven items, strike benefits, fees, 
fines, assessments, etc., supplies for resale, repayment of loans 
obtained, to affiliates of funds collected on their behalf, on behalf 
of individual members, and direct taxes, are unique LM-2 functional 
categories with no corresponding itemization schedules. Using the 
distributions taken from LM-2s of labor organizations with between 
$250,000 and $500,000 in annual receipts and the LM-3 itemized receipt 
estimate, the Department has determined that LM-3 filers will have one 
per capita tax disbursement, .10 strike disbursement, .12 fees, fines, 
assessment, etc. disbursement, .02 supplies for resale disbursement, 
zero disbursements to affiliates on their behalf, .19 disbursement on 
members behalf, and .41 disbursement for direct taxes. Five out of the 
six items will have some amount of money reported in the item, 
approximately one transaction per item. The LM-3 filers will spend 5 
minutes on recordkeeping per transaction or .42 hours total.
    The LM-3 filers will copy twenty-two of the twenty-nine aggregates 
from the other itemization schedules on their LM-3. As discussed above, 
the remaining five items will have to be compiled by the LM-3 filer. 
LM-3 filers will spend one minute per item filling out Statement B, or 
.48 hours in total.
10. Detailed Summary Schedules 3 and 4
    The Department estimates that LM-3 filers who have had their filing 
privilege revoked will spend .25 hours on recordkeeping and .2 hours on 
reporting to complete summary schedules 3 and 4. These summary 
schedules do not include any new information. They merely summarize the 
information itemized on Itemization Schedules 3 and 4. LM-3 filers will 
spend .25 minutes compiling the information from the itemization 
schedules for reporting here.

[[Page 3719]]

    Once the information is compiled it must be transcribed onto the 
summary schedules. There are six items per summary schedule. LM-3 
filers can transcribe the information into each item in 1 minute, .2 
hours to completely transcribe all the information onto summary 
schedules 3 and 4.
11. Detailed Summary Schedules 14 through 28
    The Department estimates that LM-3 filers who have had their filing 
privilege revoked will spend .25 hours on recordkeeping and 1 hour on 
reporting to complete summary schedules 14 through 28. These summary 
schedules do not include any new information. They merely summarize the 
information itemized on Itemization Schedules 14 through 28. LM-3 
filers will spend .25 minutes compiling the information from the 
itemization schedules for reporting here.
    Once the information is compiled it must be transcribed onto the 
summary schedules. There are four items per summary schedule. LM-3 
filers should be able to transcribe the information into each item in 1 
minute. There are 15 separate summary schedules and each has 4 items 
that must be filled. Therefore, LM-3 filers will spend 1 hour (15 
itemization schedules x 4 items per schedule x 1 minute per item = 60 
minutes) transcribing all the information onto summary schedules 14 
through 28.
12. Compensation Cost
    The Department assumes that, on average, the completion by a labor 
organization with between $10,000 and $250,000 in annual receipts of 
Form LM-2 will involve an accountant/auditor, bookkeeper/clerk, labor 
organization president and labor organization treasurer. Based on the 
2007 BLS wage data, accountants earn $30.37 per hour, computer 
engineers earn $41.18 per hour, and bookkeepers/clerks earn $15.76 per 
hour.\33\ BLS estimates that the cost of an employee's total 
compensation is approximately 30.2% higher than the employee's wages 
alone. Therefore, the Department adjusted upward each of the BLS 
salaries to include the additional 30.2% attributed to benefits to 
estimate the total compensation cost for each of the individuals 
involved in completing the Form LM-2.
---------------------------------------------------------------------------

    \33\ The wage and salary data is based on information contained 
in Bureau of Labor Statistics, Occupational Employment Statistics 
Survey, 2007.
---------------------------------------------------------------------------

    The Department estimated the average annual salaries of labor 
organization officers needed to complete tasks for compliance with the 
LM-3 revocation--the president and treasurer--from responses to salary 
inquiries contained in the sample of 222 labor organizations that filed 
a Form LM-3 in 2006. The Department assumed that LM-3 part-time 
officers work approximately 200 hours per year. These average annual 
salary figures were then adjusted to include the additional 30.2% 
attributed to benefits to reflect total compensation cost for each 
officer. Accordingly, the Department calculated as total hourly 
compensation cost $21.68 per hour for labor organization president and 
$25.08 per hour for labor organization treasurer.

                                        Table 11--Compensation Cost Table
----------------------------------------------------------------------------------------------------------------
                        Title                         Salary--hourly  Salary--yearly  Compensation--cost--hourly
----------------------------------------------------------------------------------------------------------------
Accountants/Auditors................................          $30.37      $63,180.00                $43.51
Bookkeepers/Clerks..................................           15.76       32,780.00                 22.58
President...........................................           15.13        3,026.45                 21.68
Treasurer...........................................           17.51        3,501.73                 25.08
----------------------------------------------------------------------------------------------------------------

    The Department estimated the percentage of time the accountant, 
bookkeeper, president, and treasurer would spend completing the LM-2. 
These percentages were used to calculate a weighted average 
compensation cost, $25.40.
13. Conclusion
    The Department estimates that Form LM-2 filers with total annual 
receipts under $250,000 (LM-3 Filers that have had the privileged 
revoked) will spend 102.40 hours fulfilling recordkeeping requirements 
and 16.83 hours completing the form, which corresponds to $3,028.23 in 
costs.

[[Page 3720]]

[GRAPHIC] [TIFF OMITTED] TR21JA09.009

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

[[Page 3721]]

Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., 
requires agencies to prepare regulatory flexibility analyses, and to 
develop alternatives wherever possible, in drafting regulations that 
will have a significant economic impact on a substantial number of 
small entities. The Department certifies that the final rule will not 
have a significant economic impact on a substantial number of small 
entities. To evaluate whether this final rule would have a significant 
economic impact on a substantial number of small entities, the 
Department conducted a Final Regulatory Flexibility Analysis (``FRFA'') 
as a component of this final rule.
    In the 2003 Form LM-2 rule, the Department's regulatory flexibility 
analysis utilized the Small Business Administration's (``SBA'') ``small 
business'' standard for ``Labor Unions and Similar Labor 
Organizations.'' Specifically, the Department used the $5 million 
standard established in 2000 (as updated in 2005 to $6.5 million) for 
purposes of its regulatory flexibility analyses. See 65 FR 30836 (May 
15, 2000); 70 FR 72577 (Dec. 6, 2005). This same standard, which has 
also been used in rulemakings involving the Form T-1, 73 FR 57412 
(October 2, 2008), has been used in developing the final regulatory 
flexibility analysis for this rule.
    The Department recognizes that the SBA has not established fixed, 
financial thresholds for ``organizations,'' as distinct from other 
entities. See A Guide for Government Agencies: How to Comply with the 
Regulatory Flexibility Act, Office of Advocacy, U.S. Small Business 
Administration at 12-13, available at http://www.sba.gov. The 
Department further recognizes that under SBA guidelines, the 
relationship of an entity to a larger entity with greater receipts is a 
factor to be considered in determining the necessity of conducting a 
regulatory flexibility analysis. Thus, the affiliation between a local 
labor organization and a national or international labor organization, 
a widespread practice among labor organizations subject to the LMRDA, 
may have an impact on the number of organizations that should be 
counted as ``small organizations'' under section 601(4) of the RFA, 5 
U.S.C. 601(4).\34\ However, for purposes of analysis here, and for 
ready comparison with the RFA analysis in its earlier Form LM-2 
rulemaking, the Department has used the $6.5 million receipts test for 
``small businesses.'' rather than the ``independently owned and 
operated and not dominant'' test for ``small organizations.'' 
Application of the latter test likely would reduce the number of labor 
organizations that would be counted as small entities under the RFA. It 
is the Department's view, however, that it would be inappropriate, 
given the past rulemaking concerning the Form T-1 and the Form LM-2, to 
depart from the $6.5 million receipts standard in preparing this final 
regulatory flexibility analysis. Accordingly, the following analysis 
assesses the impact of these regulations on small entities as defined 
by the applicable SBA size standards.
---------------------------------------------------------------------------

    \34\ 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. * 
* *''
---------------------------------------------------------------------------

    All numbers used in this analysis are based on 2006 data taken from 
the OLMS electronic labor organization reporting (``e.LORS'') database, 
which includes all records of labor organizations that have filed LMRDA 
reports with the Department.

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

    The following is a summary of the need for and objectives of the 
final rule. A more complete discussion is found earlier in this 
preamble.
    The objective of this final rule is to increase the transparency of 
financial reporting by revising the current LMRDA disclosure Form LM-2 
to enable workers to be responsible, informed, and effective 
participants in the governance of their labor organizations; discourage 
embezzlement and financial mismanagement; prevent the circumvention or 
evasion of the statutory reporting requirements; and strengthen the 
effective and efficient enforcement of the Act by the Department. Form 
LM-2 is filed by the largest reporting labor organizations, i.e., those 
with $250,000 or more in total annual receipts.
    The revisions to the Form LM-2 made by the Department in 2003 have 
helped to fulfill the mandate of full reporting set forth in the LMRDA. 
However, based upon the Department's experience since 2003, and after 
reviewing data from reports filed on the revised form, the Department 
has determined that further enhancements to the Form LM-2 are 
necessary. These enhancements will ensure that information is reported 
in such a way as to meet the objectives of the LMRDA by providing labor 
organization members with useful data that will enable them to be 
responsible and effective participants in the democratic governance of 
their labor organizations. The changes are designed to provide members 
of labor organizations with additional and more detailed information 
about the financial activities of their labor organization that is not 
currently available through the Form LM-2 reporting.
    The enhancements provide additional information in Schedule 3 (Sale 
of Investments and Fixed Assets) and Schedule 4 (Purchase of 
Investments and Fixed Assets) that will allow verification that these 
transactions are performed at arm's length and without conflicts of 
interest. Schedules 11 and 12 will be revised to include the value of 
benefits paid to and on behalf of officers and employees. This will 
provide a more accurate picture of total compensation received by these 
labor organization officials. In addition, the changes will require the 
reporting in Schedules 11 and 12 of travel reimbursements indirectly 
paid these officials. This change will provide more accurate 
information on travel disbursements made to them by their labor 
organizations. The enhancements also include additional schedules 
corresponding to categories of receipts, which will provide additional 
information, by receipt category, of aggregated receipts of $5,000 or 
more. This change is consistent with the information currently provided 
on disbursements.
    The Department's enforcement experience has shown that the failure 
of small labor organizations to file the annual Form LM-3 on time and 
the filing of reports with material deficiencies are often indicators 
of larger problems associated with the ways in which such organizations 
maintain their financial records, and may be an indicator of more 
serious financial mismanagement. The Department's enforcement 
experience reveals various reasons for delinquent filings, including a 
labor organization's failure to maintain the records required by the 
LMRDA; inadequate office procedures; frequent turnover of labor 
organization officials, who often serve on a part-time basis; 
uncertainty of first-time officers about their reporting 
responsibilities under the LMRDA and their inexperience with 
bookkeeping, recordkeeping, or both; an inattention generally to 
``paperwork;'' overworked or under-trained officers; an officer's 
unwillingness to question or report apparent irregularities due to the 
officer's own inexperience or concern about the repercussions of 
reporting such matters; or a conscious effort to hide embezzlement or 
the misappropriation of funds by the officers, other members of the 
organization, or third parties associated

[[Page 3722]]

with the labor organization. Many of these causes of delinquency, 
including pre-existing bookkeeping problems, inattention, overwork, 
insufficient training, and an unwillingness to confront or report 
financial irregularities, demonstrate that the labor organization 
members and the public would benefit from a more detailed accounting of 
the organization's financial conditions and operations. Moreover, OLMS 
experience indicates that labor organizations that are repeatedly 
delinquent are more likely than other labor organizations to suffer 
embezzlement, or related crime. Many of the reasons that contribute to 
delinquent filings also result in the filing of reports that omit or 
misstate material information about the labor organization's finances. 
The members of a labor organization that fails to correct a material 
reporting deficiency after being notified by the Department and being 
given an opportunity to address the error would benefit from the 
increased transparency of the Form LM-2.
    As explained previously in the preamble, additional reporting by 
labor organizations is necessary to ensure, as intended by Congress, 
the full and comprehensive reporting of a labor organization's 
financial condition and operations, including a full accounting to 
members from whose work the payments were earned. 67 FR 79282-83. This 
final rule will prevent circumvention and evasion of these reporting 
requirements by providing members of labor organizations with financial 
information concerning their labor organization.
    The legal authority for the final rule is provided by sections 201 
and 208 of the LMRDA, 29 U.S.C. 431, 438. Section 201 requires labor 
organizations to file annual financial reports and to disclose certain 
financial information, including all assets, receipts, liabilities, and 
disbursements of the labor organization. Section 208 provides that the 
Secretary of Labor shall have authority to issue, amend, and rescind 
rules and regulations prescribing the form and publication of reports 
required to be filed under Title II of the Act, including rules 
prescribing reports concerning trusts in which a labor organization is 
interested, and such other reasonable rules and regulations as she may 
find necessary to prevent the circumvention or evasion of the reporting 
requirements. Section 208 also authorizes the Secretary to establish 
``simplified reports for labor organizations and employers for whom 
[s]he finds by virtue of their size a detailed report would be unduly 
burdensome.'' 29 U.S.C. 438. Section 208 authorizes the Secretary to 
revoke this privilege for any labor organization or employer if the 
Secretary determines, after such investigation as she deems proper and 
due notice and opportunity for a hearing, that the purposes of section 
208 would be served by revocation.

B. Summary of the Significant Issues Raised by Public Comments

    The Department's NPRM in this rulemaking contained an Initial 
Regulatory Flexibility Analysis and Paperwork Reduction Act analyses. 
As noted above in the introduction to the Department's PRA analysis, 
because of the overlapping nature of costs for the purposes of both the 
RFA and PRA analyses, the Department construed all comments received 
related to the Department's assessment of costs to the regulated 
community as comments addressing both the PRA and the RFA analyses. The 
Department's discussion of significant issues raised in comments 
related to cost estimates, the agency's response thereto, and 
adjustments made to the methodology as a result of comments is found in 
the PRA section of this preamble. See, supra, Paperwork Reduction Act, 
Sec. A. As explained in that section, based upon careful consideration 
of the comments, the Department made adjustments to the methodology 
employed to assess costs, and those adjustments resulted in 
modifications to conclusions on costs, which have been employed in the 
following final RFA analysis. Thus, the statutory requirement that the 
Department provide in its final RFA analysis ``a summary of the 
significant issues raised by the public comments in response to the 
initial regulatory flexibility analysis, a summary of the assessment of 
the agency of such issues, and a statement of any changes made in the 
proposed rule as a result of such comments[,]'' 5 U.S.C. 604(a)(2), has 
been satisfied. Moreover, the Department received no comments 
addressing or challenging the specific conclusion in the NPRM that the 
rule does not have a significant economic impact on a substantial 
number of small entities.

C. Number of Small Entities Covered Under the Rule

    The primary impact of this final rule will be on those labor 
organizations that have $250,000 or more in annual receipts. There are 
approximately 4,571 labor organizations of this size that are required 
to file Form LM-2 reports under the LMRDA. See Table 13 below. The 
Department estimates that 4,220 of these labor organizations, or 
92.32%, are considered small under the current SBA standard (annual 
receipts less than $6.5 million). These labor organizations have annual 
average receipts of $1.30 million.\35\ See Table 13. The Department 
estimates that about 96 labor organizations with annual receipts of 
less than $250,000 will be affected by the final rule. These 96 labor 
organizations have annual average receipts of $68,468. See Table 13. 
Although these estimates may not be predictive of the exact number of 
small labor organizations that will be impacted by this final rule in 
the future, the Department believes these estimates to be sound and 
they are derived from the best available information.
---------------------------------------------------------------------------

    \35\ In the 2003 Form LM-2 rule, the Department estimated the 
burden for each of three categories of reporting labor organizations 
as measured by their range of annual receipts: Tier I ($250,000 to 
less than $500,000); Tier II ($500,000 to less than $50,000,000) and 
Tier III ($50,000,000 or more).
---------------------------------------------------------------------------

D. Reporting, Recording and Other Compliance Requirements of the Rule 
\36\
---------------------------------------------------------------------------

    \36\ The estimated burden on labor organizations is discussed in 
detail in the previous section concerning the Paperwork Reduction 
Act. The figures discussed above are derived from the figures 
explained in that section.
---------------------------------------------------------------------------

    This final rule is not expected to have a significant economic 
impact on a substantial number of small entities. The LMRDA is 
primarily a reporting and disclosure statute. Accordingly, the primary 
economic impact will be the cost of obtaining and reporting required 
information.
    For the estimated 4,220 Form LM-2 filers with between $250,000 and 
$6,500,000 in annual receipts, the estimated average annual reporting 
and recordkeeping burden for the current Form LM-2 is $16,328.22 or 
1.26% of their average annual receipts. See Table 13, which provides a 
more complete list of the burden estimates.\37\ The average additional 
first year cost (including first year non-recurring implementation 
costs) to these organizations is estimated at $4,717.39, or .36% of 
average annual receipts. Id. The average total first year cost of the 
revised Form LM-2 on these labor organizations is estimated at 
$21,045.61, or 1.62% of total annual receipts. Id. The Department views 
as unlikely that the smallest subset of these labor organizations 
(those with between

[[Page 3723]]

$250,000 and $499,999 in annual receipts) would incur many of the costs 
incurred by the typical Form LM-2 filer (those with receipts between 
$500,000 and $6.5 million). The labor organizations with the smallest 
annual receipts are likely to have less complicated accounts covering 
fewer transactions than the typical, larger Form LM-2 filer. However, 
to assess the ``maximum'' or ``worst-case'' impact on this subset of 
labor organizations, the Department considered the unlikely event that 
the labor organizations in this subset could incur the same compliance 
burden as the average for labor organizations with annual receipts of 
$500,000 to $49.9 million. Under this unlikely scenario, the total 
additional cost of the final rule on such labor organizations is 
estimated at $4,891.21 in the first year, or .38% of the annual 
receipts of all organizations with receipts of $250,000 to $6.5 
million, and $462.88 in the second year, or .04% of annual receipts. 
Id. For a small labor organization with $250,000 to $499,999 in annual 
receipts, the estimated maximum additional cost of the final rule would 
be 1.26% of receipts in the first year and .12% in the second year.\38\ 
Id.
---------------------------------------------------------------------------

    \37\ 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.
    \38\ 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 (1,325) compared to the 
number of labor organizations with $500,000 to $6.5 million in 
annual receipts (2,895) and the three and one half-fold difference 
in average receipts between labor organizations with $250,000 to 
$499,999 in annual receipts and labor organizations with $500,000 to 
$6.5 million in annual receipts.
    \39\ Note: Some of the figures used in this table and other 
figures mentioned in this document may not add due to rounding.
---------------------------------------------------------------------------

    The average annual reporting and recordkeeping burden for the 
current Form LM-3 is estimated at $1,404.00 or 2.08% of average annual 
receipts for Form LM-3 filers. See Table 1. The Department assumes that 
Form LM-3 filers will spend approximately $23.13 per hour to complete 
the form. See Table 11. The additional cost of filing a Form LM-2 is 
$3,028.23 or 4.49% of average annual receipts for Form LM-3 filers. The 
Department estimates that on average, 96 Form LM-3 filers annually will 
have their Form LM-3 filing privilege revoked and thus will incur this 
additional burden. The Department arrived at this figure by examining 
the number of deficiency and delinquency cases processed by the 
Department. In the latest fiscal year, the Department processed 684 
deficiency cases for Form LM-3 filers and 1,187 cases for delinquent 
Form LM-3 filers. The Department assumes that it will examine one half 
of the deficiency and delinquency cases for possible revocation (935.5 
per year) and that 10% of the cases examined will ultimately lead to 
revocation of the Form LM-3 filing privilege (93.55). Further the 
Department assumes that in another 2 cases per year it will find 
``other circumstances exist that warrant revocation,'' for a total of 
96 revocations per year (rounded up).

        Table 13--Summary of Regulatory Flexibility Analysis \39\
------------------------------------------------------------------------
                                           Total burden
   For unions that meet the SBA small        hours per    Total cost per
            entities standard               respondent      respondent
------------------------------------------------------------------------
Weighted Average Cost of Current Form LM-         507.62      $16,382.22
 2......................................
Percentage of Average Annual Receipts...            n.a.           1.26%
Average Cost of Current Form LM-3.......          116.00        1,404.00
Percentage of Average Annual Receipts...            n.a.           2.08%
Weighted Average First Year Cost of               653.86       21,045.61
 Revised Form LM-2......................
Percent of Average Annual Receipts......            n.a.           1.62%
Weighted Average Second Year Cost.......          520.36       16,748.65
Percent of Average Annual Receipts......            n.a.           1.29%
Weighted Average Increase in Cost of              146.56        4,717.39
 Final Rule, First Year.................
Percent of Average Annual Receipts......            n.a.           0.36%
Weighted Average Increase in Cost of               13.06          420.44
 Final Rule, Second Year................
Percent of Average Annual Receipts......            n.a.           0.03%
Maximum First Year Cost of Revised Form           659.26       19,677.27
 LM-2 for Unions with $250,000 to
 $499,999 in Annual Receipts............
Percentage of Average Annual Receipts...            n.a.           5.47%
Maximum Second Year Cost................          521.68       15,570.78
Percentage of Average Annual Receipts...            n.a.           4.33%
Maximum Increase in Cost of Final Rule,           151.96        4,891.21
 First Year.............................
Percent of Annual Receipts for $250,000             n.a.           1.26%
 to $499,999 Union......................
Percent of Annual Receipts for $500,000             n.a.           0.29%
 to $6,500,000 Union....................
Percent of Annual Receipts for $250K to             n.a.           0.38%
 $6.5M Union............................
Maximum Increase in Cost of Final Rule,            14.38          462.88
 Second Year............................
Percent of Annual Receipts for $250,000             n.a.           0.12%
 to $499,999 Union......................
Percent of Annual Receipts for $500,000             n.a.           0.03%
 to $6,500,000 Union....................
Percent of Annual Receipts for $250K to             n.a.           0.04%
 $6.5M Union............................
Average Cost of Revised Form LM-2.......          119.22        3,028.23
Union with between $10K and $249,999 in             n.a.           4.49%
 Annual Receipts........................
------------------------------------------------------------------------


Total 2006 Filers between $250K & $6.5M.................           4,220
Total 2006 Filers between $250K & $499,999..............           1,325
Total 2006 Filers between $500K & $6.5..................           2,895
Total 2006 Filers between $500K & $49.9M................           3,194
Number of Form LM-2 Filers with Annual Receipts between            3,401
 $250K & $2M............................................
Total 2006 Form LM-3 Filers.............................          10,977
Total 2006 Form LM-2 Filers.............................           4,571
Total 2006 Union Filers.................................          23,924
Percentage of All Union Filers that File Form LM-2......          19.11%
Percentage of all Union Filers with Annual Receipts                18.1%
 between $250K & $6.5M..................................
Percentage of Union Filers with Annual Receipts between             5.5%
 $250K & $499,999.......................................
Percentage of Form LM-2 Filers with Annual Receipts               92.32%
 between $250K & $6.5M..................................

[[Page 3724]]


Percentage between $250K & $499,999.....................          31.40%
Percentage between $500K & $6.5M........................          68.60%
Percentage of Form LM-3 Filers that will File Form LM-2.            .87%
2006 Average Annual Receipts for Unions between $250K &    $1,296,219.27
 $6.5M..................................................
2006 Average Annual Receipts for Unions between $250K &      $359,925.03
 $499,999...............................................
2006 Average Annual Receipts for Unions between $500K &    $1,724,895.80
 $6.5M..................................................
2006 Average Annual Receipts for Unions between $10K and      $67,468.14
 $249,999...............................................


    OLMS will update the e.LORS system to coincide with all changes 
embodied in this final rule. OLMS will provide compliance assistance 
for any questions or difficulties that may arise from using the 
reporting software. A help desk is staffed during normal business hours 
and can be reached by telephone toll free at 1-866-401-1109.
    The use of electronic forms makes it possible to download 
information from previously filed reports directly into the form; 
enables officer and employee information to be imported onto the form; 
makes it easier to enter information; and automatically performs 
calculations and checks for typographical and mathematical errors and 
other discrepancies, which reduces the likelihood of having to file an 
amended report. The error summaries provided by the software, combined 
with the speed and ease of electronic filing, will also make it easier 
for both the reporting labor organization and OLMS to identify errors 
in both current and previously filed reports and to file amended 
reports to correct them.
    As discussed previously in the preamble, labor organizations that 
are required to file a Form LM-2 because their Form LM-3 filing 
privilege has been revoked are not required to comply with the 
electronic submission requirement.

E. Description of the Steps the Agency Has Taken To Minimize the 
Economic Impact on Small Entities

    The Department considered a number of alternatives to the final 
rule that could minimize the economic impact on small entities. One 
alternative would be not to change the existing Form LM-2. This 
alternative was rejected because OLMS experience demonstrates that the 
goals of the Act are not being fully met. As explained further in the 
preamble, members of labor organizations cannot accurately determine 
from the current Form LM-2 important information regarding their 
union's finances, including the parties to whom it sells, and from whom 
it purchases, investments and fixed assets; the identity of parties 
from whom the union receives major amounts of funds; and the benefits 
and indirect disbursements received by officials and employees of the 
labor organization. Members need this information to make informed 
decisions on the governance of their labor organizations.
    Another alternative would be to limit the new reporting 
requirements to national and international parent labor organizations. 
However, the Department has concluded that such a limitation would 
eliminate the availability of meaningful information from local and 
intermediate labor organizations, which may have far greater impact on 
and relevance to members of labor organizations, particularly since 
such lower levels of labor organizations generally set and collect dues 
and provide representational and other services for their members. Such 
a limitation would reduce the utility of the information to a 
significant number of members. Of the 4,571 labor organizations that 
are required to file Form LM-2, just 101 are national or international 
labor organizations. Requiring only national and international 
organizations to file more detailed reports would not provide any 
deterrent to fraud and embezzlement by local and intermediate body 
officials nor would it increase transparency in local and intermediate 
bodies.
    Another alternative would be to phase-in the effective date for the 
Form LM-2 changes and provide smaller Form LM-2 filers with additional 
lead time to modify their recordkeeping systems to comply with the new 
reporting requirements. The Department has concluded that a three-month 
period for all Form LM-2 filers to adapt to the new reporting 
requirements should provide sufficient time to make the necessary 
adjustments. OLMS also plans to provide compliance assistance to any 
labor organization that requests it.
    A review of the revisions was undertaken to reduce paperwork burden 
for all Form LM-2 filers and an effort was made during the review to 
identify ways to reduce the impact on small entities. The Department 
concludes that it has minimized the economic impact of the form 
revision on small labor organizations to the extent possible, while 
recognizing workers' and the Department's need for information to 
protect the rights of members of labor organizations under the LMRDA.

F. Conclusion

    The Regulatory Flexibility Act does not define either ``significant 
economic impact'' or ``substantial'' as it relates to the number of 
regulated entities. 5 U.S.C. 601. In the absence of specific 
definitions, ``what is `significant' or `substantial' will vary 
depending on the problem that needs to be addressed, the rule's 
requirements, and the preliminary assessment of the rule's impact.'' A 
Guide for Government Agencies, supra, at 17. As to economic impact, one 
important indicator is the cost of compliance in relation to revenue of 
the entity. Id.
    As noted above, the final rule will apply to 4,220 Form LM-2 filers 
and approximately 96 Form LM-3 filers that meet the SBA standard for 
small entities, about 18% of all labor organizations that must file an 
annual financial report under the LMRDA. Further, the Department 
estimates that just 1,325 labor organizations with annual receipts from 
$250,000 to $499,999, or 5.5% of all labor organizations covered by the 
LMRDA, would be affected by this rule. Even less (5.5% of the total) 
would incur the maximum additional costs of the final rule described 
above. Finally, the Department estimates that approximately 96 Form LM-
3 filers, or .87% of all Form LM-3 labor organizations covered by the 
LMRDA, would be affected by this rule.
    For the estimated 4,220 Form LM-2 filers with between $250,000 and 
$6,500,000 in annual receipts, the estimated average annual reporting 
and recordkeeping burden for the current Form LM-2 is $16,328.22 or 
1.26% of their average annual receipts. The average additional first 
year cost (including first year non-recurring implementation costs) to 
these organizations is estimated at less than $4,717.39, or 0.36% of 
average annual receipts. The average total first year cost of the 
revised Form LM-2 on these labor organizations is estimated at 
$21,045.61, or 1.62% of total annual receipts. The Department believes 
that it is unlikely that the smallest subset of these labor 
organizations (those with between $250,000 and $499,999 in annual 
receipts) would incur many of the costs incurred by the typical Form 
LM-2 filer (those with receipts between $500,000

[[Page 3725]]

and $6.5 million). Under this ``worst case'' scenario for these 
organizations, the total additional cost of the final rule on such 
labor organizations is estimated at $4,891.21 in the first year, or 
0.38% of the annual receipts of all organizations with receipts of 
$250,000 to $6.5 million, and $462.88 in the second year, or .04% of 
annual receipts.
    The average annual reporting and recordkeeping burden for the 
current Form LM-3 is estimated at $1,404.00 or 2.08% of average annual 
receipts for Form LM-3 filers. For the estimated 96 Form LM-3 filers 
that would have their privilege to file Form LM-3 revoked (all of which 
meet the SBA standard for small entities), the additional cost of 
filing a Form LM-2 will be $3,028.23 or 4.49% of average annual 
receipts
    Given the relatively small costs of compliance in relation to the 
revenues of the affected labor organizations, the Department concludes 
that the economic impact of this rule is not significant. As to the 
number of labor organizations affected by this rule, the Department has 
determined by examining e.LORS data that in 2006, the Department 
received 4,228 Form LM-2s from labor organizations with receipts 
between $250,000 and $6,500,000, or just 17.6% of the 24,065 labor 
organizations that must file any of the annual financial reports 
required under the LMRDA (Forms LM-2, LM-3, or LM-4). The Department 
concludes that the rule does not impact a substantial number of small 
entities. Therefore, under 5 U.S.C. 605, the Department certifies that 
the final rule will not have a significant economic impact on a 
substantial number of small entities.

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

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

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

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

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

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

Executive Order 12988 (Civil Justice Reform)

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

Environmental Impact Assessment

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

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

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

Electronic Filing of Forms and Availability of Collected Data

    Appropriate information technology is used to reduce burden and 
improve efficiency and responsiveness. The current forms can be 
downloaded from the OLMS Web site. OLMS has also implemented a system 
to require Form LM-2 filers and permit Form LM-3 and Form LM-4 filers 
to submit forms electronically with digital signatures. Labor 
organizations are currently required to pay a minimal fee to obtain 
electronic signature capability for the two officers who sign the form. 
These digital signatures ensure the authenticity of the reports. 
Information about this system can be obtained on the OLMS Web site at 
http://www.olms.dol.gov.
    The OLMS Online Public Disclosure Room is available for public use 
at http://www.unionreports.gov. The site contains a copy of each labor 
organization's annual financial report for reporting year 2000 and 
thereafter as well as an indexed computer database on the information 
in each report that is searchable through the Internet.
    OLMS includes e.LORS information in its outreach program, including 
compliance assistance information on the OLMS Web site, individual 
guidance provided through responses to e-mail, written, or telephone 
inquiries, and formal group sessions conducted for labor organization 
officials regarding compliance.

List of Subjects in 29 CFR Part 403

    Labor unions, Reporting and recordkeeping requirements.

Text of Final Rule

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

PART 403--LABOR ORGANIZATION ANNUAL FINANCIAL REPORTS

0
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.


0
2. Amend 29 CFR 403.4 by:
0
a. Revising paragraph 403.4(a)(1) to read as set forth below:
0
b. Redesignating paragraph (b) as paragraph (f).
0
c. Adding new paragraphs (b), (c), (d), and (e) to read as set forth 
below.


Sec.  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 Sec.  403.3 of this part on United 
States Department of Labor Form LM-3 entitled ``Labor Organization 
Annual Report,'' in accordance with the instructions accompanying such 
form and constituting a part thereof.
* * * * *
    (b) The Secretary may revoke a labor organization's privilege to 
file the Form LM-3 simplified annual report described in Sec.  
403.4(a)(1) and require

[[Page 3726]]

the labor organization to file the Form LM-2 as provided in Sec.  
403.3, if the following conditions are met:
    (1) The Secretary has provided notice to the labor organization 
that revocation is possible if conditions warranting revocation are not 
remedied;
    (2) The Secretary has undertaken such investigation as the 
Secretary deems proper revealing:
    (i) The date the labor organization's Form LM-3 was due has passed 
and no Form LM-3 has been received; or
    (ii) The labor organization filed the Form LM-3 with a material 
deficiency and failed to remedy this deficiency after notification by 
the Secretary that the report was deficient; or
    (iii) Other circumstances exist that warrant revocation of the 
labor organization's privilege to file the Form LM-3.
    (3) The Secretary has provided notice to the labor organization of 
a proposed decision to revoke the filing privilege, the reason for such 
revocation, and an opportunity for the labor organization to submit in 
writing a position statement with relevant factual information and 
argument regarding:
    (i) The existence of the delinquency or the deficiency (including 
whether a deficiency is material) or other circumstances alleged in the 
notice;
    (ii) The reason for the delinquency, deficiency or other cited 
circumstance and whether it was caused by factors reasonably outside 
the control of the labor organization; and
    (iii) Any other factors, including those in mitigation, the 
Secretary should consider in making a determination regarding whether 
the labor organization's privilege to file the Form LM-3 should be 
revoked.
    (4) The Secretary (or a designee who has not participated in the 
investigation), after review of all the information collected and 
provided, shall issue a determination in writing to the labor 
organization. If the Secretary determines that the privilege shall be 
revoked, the Secretary will inform the labor organization of the 
reasons for the determination and order it to file the Form LM-2 for 
such reporting periods as the Secretary finds appropriate.
    (c) A labor organization that receives a notice as set forth in 
Sec.  403.4(b)(3) must submit its written statement of position and any 
supporting facts, evidence, and argument by mail, hand delivery, or by 
alternative means specified in the notice to the Office of Labor-
Management Standards (OLMS) at the address provided in the notice 
within 30 days after the date of the letter proposing revocation. If 
the 30th day falls on a Saturday, Sunday, or Federal holiday, the 
submission will be timely if received by OLMS on the first business day 
after the 30th day. Absent a timely submission to OLMS, the proposed 
revocation shall take effect automatically unless the Secretary in his 
or her discretion determines otherwise.
    (d) The Secretary's determination shall be the Department's final 
agency action on the revocation.
    (e) For purposes of this section, a deficiency is ``material'' if 
in the light of surrounding circumstances the inclusion or correction 
of the item in the report is such that it is probable that the judgment 
of a reasonable person relying upon the report would have been changed 
or influenced.

    Signed in Washington, DC, this 8th day of January 2009.
Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.

Appendix

    Note: This appendix, which will not appear in the Code of 
Federal Regulations, contains the revised Form LM-2 and the revised 
instructions to that form. The appendix also contains the revised 
instructions to the Form LM-3. The form itself is not included 
because no changes have been made to the current version.

BILLING CODE 4510-CM-P


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

BILLING CODE 4510-CM-C