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OLMS Final Rules

Trust Annual Reports   [12/30/2009]
[PDF]
FR Doc E9-30942
[Federal Register: December 30, 2009 (Volume 74, Number 249)]
[Rules and Regulations]               
[Page 69023-69027]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de09-6]                         

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Parts 403 and 408

RIN 1215-AB75

 
Trust Annual Reports

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

ACTION: Final rule; extending filing due date.

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SUMMARY: This rule extends the filing due date of Form T-1 Trust Annual 
Reports required to be filed during calendar year 2010. The Form T-1 is 
an annual financial disclosure report required to be filed, pursuant to 
the Labor-Management Reporting and Disclosure Act (LMRDA), by labor 
unions with total annual receipts of $250,000 or more about certain 
trusts in which they are interested. Labor unions are required to use 
the Form T-1 to disclose financial information about these trusts, such 
as assets, liabilities, receipts, and disbursements. The Department 
established the Form T-1 in a final rule published October 2, 2008, 
with an effective date of January 1, 2009. Subsequently, the Department 
announced its intention to propose withdrawal of the Form T-1 (Spring 
2009 Regulatory Agenda, Fall 2009 Regulatory Agenda). The Department 
also held a public meeting on July 21, 2009, and received comments from 
interested parties concerning provisions of the Form T-1 and its 
proposed rescission. On December 3, 2009, the Department published a 
Notice of Proposed Rulemaking proposing to

[[Page 69024]]

extend for one year Form T-1 reports due in calendar year 2010, pending 
the completion of a rulemaking proposing to withdraw the October 2, 
2008 Form T-1 rule. In consideration of comments received, the 
Department now extends for one calendar year the filing due date of the 
Form T-1 reports otherwise required to be filed during 2010.

DATES: Effective December 30, 2009. This rule extends for one calendar 
year the filing due dates for Form T-1 reports required to be filed 
during calendar year 2010. Form T-1 reports that otherwise would be due 
in 2010 will be filed in 2011. This rule does not extend the filing due 
date of any Form T-1 report due during calendar year 2011 or beyond.

FOR FURTHER INFORMATION CONTACT: Denise M. Boucher, Director, Office of 
Policy, Reports and Disclosure, Office of Labor-Management Standards, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Room N-5609, 
Washington, DC 20210, (202) 693-0123 (this is not a toll-free number), 
(800) 877-8339 (TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Background and Overview

    On October 2, 2008, the Department of Labor, Office of Labor-
Management Standards (OLMS), published a Final Rule establishing the 
Form T-1, Trust Annual Report. 73 FR 57411. The Form T-1 is an annual 
financial disclosure report to be filed by labor unions about certain 
trusts in which they are interested. For an organization or fund to be 
a labor union's trust subject to Form T-1 reporting, it must be 
established by the labor union or have a governing body that includes 
at least one member appointed or selected by the labor union, and a 
primary purpose of the trust must be to provide benefits to the members 
of the labor union or their beneficiaries. Examples of such trusts 
include building and redevelopment corporations, educational 
institutes, credit unions, labor union and employer joint funds, and 
job targeting funds. Labor unions currently are required to disclose 
financial information about the trust, such as assets, liabilities, 
receipts and disbursements through use of Form T-1.
    Labor unions with total annual receipts of $250,000 or more (those 
required to file Form LM-2, Labor Organization Annual Report) are 
required to file the Form T-1 report. A labor union must file a Form T-
1 report for each trust where the labor union, alone or in combination 
with other labor unions, appoints or selects a majority of the members 
of the trust's governing board or the labor union's contribution to the 
trust, alone or in combination with other labor unions, represents more 
than 50% of the trust's receipts. Contributions by an employer under a 
collective bargaining agreement are considered contributions by the 
labor union.
    The Form T-1 rule also provides that unions will not be required to 
file a Form T-1 under certain circumstances, such as when the trust is 
a political action committee, if publicly available reports on the 
committee are filed with appropriate federal or state agencies; when an 
independent audit has been conducted for the trust, in accordance with 
standards set forth in the final rule; or when the trust is required to 
file a Form 5500 with the Employee Benefits Security Administration 
(EBSA).
    The Form T-1 final rule took effect on January 1, 2009. Filing due 
dates depend on the fiscal year ending dates of both the reporting 
union and the trust being reported. The fiscal year of both the labor 
union and its trust must begin on or after January 1, 2009, for a Form 
T-1 report to be owed that fiscal year. The earliest Form T-1 reports 
would be required of unions that have, and whose trusts have, a fiscal 
year start date of January 1, 2009. Reports are due within 90 days of 
the end of the union's fiscal year. These first Form T-1 reports would 
therefore be due on or after January 1, 2010, but no later than March 
31, 2010.
    In the Spring 2009 Regulatory Agenda, the Department notified the 
public of its intent to initiate rulemaking proposing to rescind the 
Form T-1 and to require labor unions to report their wholly owned, 
wholly controlled, and wholly financed (``subsidiary'') organizations 
on their Form LM-2 or LM-3 reports. See http://www.reginfo.gov/public/
do/eAgendaViewRule?pubId=200904&RIN=1215-AB75. Additionally, the 
Department held a public meeting on July 21, 2009, which allowed 
interested parties to comment on any aspect of the Form T-1. 
Furthermore, the Department's Fall 2009 Regulatory Agenda stated that 
such proposal to rescind would be published in January 2010 (See http:/
/www.reginfo.gov/public/do/eAgendaViewRule?pubId=200910&RIN=1215-AB75). 
A draft proposed rule to withdraw the October 2, 2008 Form T-1 rule is 
currently under review by the Administration.
    In view of its plan to propose rescission of the Form T-1 Trust 
Annual Report, the Department proposed to extend the filing due dates 
of Form T-1 reports that would otherwise be due in 2010, pending review 
and consideration of comments on the proposal to rescind. Extension of 
the filing due dates delays or eliminates the first year recurring and 
nonrecurring burdens on labor organizations associated with the Form T-
1 reporting requirements pending the outcome of the proposed 
withdrawal. Without this extension of the filing dates, many affected 
labor organizations likely will incur the reporting costs and burdens 
associated with filing the form, including the nonrecurring first year 
costs and burdens associated with implementing changes to the reporting 
systems necessary for completion of the Form T-1. Specifically, the 
October 2, 2008 rule estimated that unions would incur 41.20 hours in 
reporting burden per Form T-1 filed during the first year of the rule's 
implementation, for a total first year reporting burden of 128,978.11 
hours. The estimated reporting cost per form filed in the first year is 
$1,632.41, and the estimated reporting cost in the first year for all 
projected Form T-1 filings is $5,110,324.80. The Department notes that 
the first year burden is higher than that in later years, which is 
estimated to be 28.28 hours per form filed and 88,542.01 hours total. 
73 FR 57444-5. If the proposal to rescind the rule ultimately is 
effectuated, these expenses, including upfront costs, will have been 
incurred unnecessarily.
    In its proposal, the Department noted that the extension of the 
filing dates for Form T-1 reports due in 2010 would not affect the 
filing due date of Form T-1 reports owed in any subsequent year. The 
Department's proposal did not extend the filing due date of any Form T-
1 report that normally would be due during calendar year 2011 or 
beyond. Further, in the event that the Department determines to retain 
the Form T-1 rule, the initial Form T-1 reports that would have been 
due during 2010 would be filed in 2011 in addition to any Form T-1 
reports due in 2011.
    For the foregoing reasons, the Department proposed extending the 
filing dates of Form T-1 reports due during calendar year 2010 and 
sought comments on the proposal.

II. Comments on the Proposal and the Department's Responses and 
Decision

    The Department received 128 comments on this proposal. Of these, 15 
supported the proposed extension and 111 opposed any changes to the 
Form T-1 reporting regime. Two additional comments addressed only the 
adequacy of the ten day comment period. One comment was received after 
the

[[Page 69025]]

comment period closed and was not considered.
    Of the 111 comments submitted in opposition to any changes to the 
Form T-1 requirements, only one specifically addressed the Department's 
rationale for the proposal to extend the Form T-1 filing due dates. The 
remainder expressed only general opposition to any changes to the Form 
T-1 reporting regime, including rescission, and only approximately ten 
of those comments included any reference to the proposed extension.
    The comment specifically opposing the Department's rationale for 
its proposal to extend the Form T-1 filing due dates was submitted by a 
public policy group. The comment asserted that the Department's 
rationale that an extension of the filing due date for 2010 filers is 
necessary to prevent them from unnecessarily incurring first year 
reporting burdens is flawed. It argued that an extensive amount of 
``lead time'' is necessary to build new reporting systems to ensure 
that receipts, disbursements, and other information can be tracked from 
the first day the rule is in effect. The commenter claims that since 
the Form T-1 went into effect on January 1, 2009, filers have had 
nearly a year to implement the necessary tracking systems and suggests 
that they should have already incurred most of the costs imposed by the 
Form T-1 requirements. Additionally, the public policy group stated 
that only those in the regulated community that did not intend to 
comply with the reporting requirements would have failed to take the 
steps needed to enable them to meet the initial Form T-1 filing dates. 
The commenter also suggested that the Department is heading towards the 
elimination of ``any meaningful reporting of union finances.''
    The Department disagrees with the public policy group's assertion 
that an extension in the deadline will not prevent unnecessary burden. 
As stated in the notice proposing the extension of the Form T-1 filing 
due dates, no filers have yet incurred any reporting burden and will 
not incur such burden until at least January 1, 2010, although calendar 
year filers should have incurred much of the recordkeeping burden for 
the initial Form T-1 reports. 74 FR 63335, 63336 (Dec. 3, 2009). Since 
a reporting labor organization must retrieve the data recorded for the 
entire fiscal year by the trust, and then must organize and report this 
data on the Form T-1, the union would initiate these steps upon 
completion of the fiscal year, which for the earliest filers will not 
begin until after December 31, 2009.
    As explained in the notice proposing the extension of the Form T-1 
filing due dates, the October 2, 2008 rule estimated that unions would 
incur 41.20 hours in reporting burden per Form T-1 filed during the 
first year of the rule's implementation. The estimated reporting cost 
per form filed in the first year is $1,632.41, and the estimated 
reporting cost in the first year for all projected Form T-1 filings is 
$5,110,324.80. 73 FR 57444-5. If the proposal to rescind the rule 
ultimately is effectuated, these expenses, including up front costs, 
will have been incurred unnecessarily. Furthermore, the Department does 
not accept the argument that extending this reporting eliminates ``any 
meaningful'' union financial disclosure, as this rule only extends Form 
T-1 reporting for one year.
    Each of the remaining 110 comments in opposition to the 
Department's proposal was submitted by an individual expressing general 
opposition to any change in the Form T-1 reporting regime, including 
rescission. Approximately ten of these general comments referenced the 
proposed extension. However, these references generally did not provide 
any substantive argument in response to the Department's proposal. 
Rather, they asserted broadly that an extension of a rule that may be 
rescinded would set a ``bad precedent;'' that more transparency was 
needed, not less; and that the burden on unions is worth the 
disclosure. Comments in general opposition also referenced or alluded 
to such issues as President Obama's emphasis on transparency; 
suggestions of political and special interest favor; opposition to 
government corruption; general opposition to labor unions; and general 
opposition to the President and the Administration's economic policies. 
There were, in addition, other political comments unrelated to the 
proposed extension. The general opposition also often compared union 
disclosure to reporting requirements for taxpayers, the insurance 
industry, companies, and others; expressed support for union financial 
disclosure and opposed any lessening of such disclosure; supported the 
need to combat union corruption; and argued for the need for timely 
disclosure and time to evaluate the union disclosure requirements 
presently in place.
    The Department reiterates that it is not assessing the merits of 
the Form T-1 in this rule extending the 2010 Form T-1 filing due dates. 
The Department acknowledges and fully supports the importance of labor-
management transparency through the LMRDA reporting regimes. Thus, it 
stresses that the union financial reporting requirements, such as the 
Form LM-2, LM-3, and LM-4, remain in place. Further, the Form T-1 
reporting requirements remain in place, as well, pending the result of 
a proposal to rescind them, which the Department anticipates will be 
published in January 2010 for notice and comment rulemaking.
    Of the 15 comments supporting the extension, 12 came from national 
or international unions, two from federations of unions, and one from a 
certified public accounting (CPA) firm. These comments all offered 
support for the Department's justification for its proposal to extend 
the filing due dates for Form T-1 for one year to avoid upfront 
reporting costs that would prove unnecessary if the Department 
implemented a proposal to rescind the form.
    With respect to these costs, one national union stated that its 
accountants and financial specialists had estimated that start up costs 
needed to comply with the Form T-1 requirements could be in ``the tens 
of thousands of dollars,'' which would likely be a one-time cost that, 
in its view, would not benefit the union members, trust beneficiaries, 
or the public with any greater transparency or accountability, while 
costing the unions significant dues monies. Another national union 
stressed that the resources that would be used to implement these 
reporting requirements are union members' dues. Another national union 
compared the implementation of the Form T-1 with the Form LM-2 changes, 
which required significant resources to create new accounting systems, 
practices and procedures, new reporting systems for officers and staff, 
additional accounting personnel, new forms for internal use, and the 
purchase of additional equipment and software, all of which are ongoing 
costs but higher in the first year. In the union's experience, the Form 
T-1 would add significant costs and burdens to those imposed by the 
existing Form LM-2.
    Several other comments discussed the burden on trusts and the 
burden of union coordination with the trusts to complete the Form T-1. 
One international union stated that the trusts would be required to 
reprogram their recordkeeping systems to comply, which would be highly 
disruptive to the trusts and expensive for the unions. Further, 
according to this commenter, unions would need to retain accountants 
and coordinate with the trusts for reviewing the records and

[[Page 69026]]

preparing the report and these start-up costs would be wasted if the 
Department did rescind the form. This union also argued that no harm 
has occurred from the repeated postponement of the Form T-1 caused by 
court decisions.
    Commenters also noted that the Department in the Spring 2009 
Regulatory Agenda notified the public of its intent to initiate 
rulemaking to rescind the 2008 Form T-1 rule and that a notice of 
proposed rulemaking is now under review by the Administration with an 
anticipated January 2010 publication date. One national union asserted 
that the rescission may take place for some unions before their reports 
are even due, and an international union emphasized the waste of 
government resources, as well, if the Department were to enforce the 
filing due dates in 2010 while at the same time moving to rescind the 
form.
    One of the federations of unions offered two additional arguments 
in support of an extension. First, the federation asserted that much of 
the reporting and recordkeeping burden associated with the Form T-1 is 
actually borne by the trusts and not the reporting unions. Although the 
rule requires that unions must reimburse the trusts for implementing 
recordkeeping systems and transmitting the information to the unions, 
the comment expressed doubt that trusts would be willing to alter their 
systems to implement the Form T-1 reporting requirements, knowing that 
the Department may effectuate its intention to rescind the rule. 
Furthermore, the federation anticipates conflict between the unions and 
trusts and difficulties for the Department in enforcement of the Form 
T-1 rule. The trusts, according to the federation, will display 
resistance to changing their systems for a possible one-time reporting 
requirement. This would put the unions in a difficult position, 
according to the federation, because the Department indicated in the 
2008 Form T-1 rule that it expects union officials to ``take timely, 
reasonable, and good faith actions to obtain the necessary information 
from section 3(l) trusts,'' and that it could ``assert a willful and 
knowing violation of the filing requirements'' against the union and 
its officials. 73 FR at 57432.
    Second, the federation maintained that enforcement of the Form T-1 
in 2010 will generate litigation challenging the rule itself. The 
federation believes that the 2008 Form T-1 rule suffers from the same 
flaws identified by the courts when striking down the two previous 
versions of the form. Thus, the federation concluded, if the Department 
went forth with enforcement of the Form T-1 in 2010, pending 
rescission, it would unnecessarily waste its own resources and those of 
the courts.
    Various national and international unions that belong to this 
federation submitted comments adopting or restating its comments, in 
whole or part. Further, a number of unions advised of their support for 
the rescission of the Form T-1. Two international unions commented that 
the Department may have underestimated the cost and burden associated 
with obtaining the necessary information from the trusts. One of these 
commenters urged that any effort by union officials to complete the 
Form T-1 exposes the union and those officials (but not the trust) to 
the ``risk of civil and criminal liability'' for failing to obtain the 
necessary data from trusts, over which they may not have practical or 
legal control. Further, this commenter claims, it is not clear what 
authority the Department has under the LMRDA to retrieve the 
information from the trusts on behalf of the unions. The union 
commented that the Department has not provided a ``safe harbor'' 
provision in the event that the trust fails to provide complete and 
accurate data by which a Form T-1 can be filed.
    An international union offered similar comments to the above 
national union, with several additional points regarding its view that 
the Department underestimated the reporting burden on filers. In its 
view, these are errors that justify an extension even without pending 
regulatory action to rescind the rule. First, it argued that the 
itemization and aggregation requirements of the Form T-1 create 
tremendous burden not truly appreciated by the 2008 rule. Second, it 
asserted that there is no dollar threshold on the contribution of one 
union to a trust, which could result in unions filing Form T-1 reports 
for trusts that only have a small amount of money derived from the 
union. Further, it claims that, because there is no threshold on the 
size of the trust, unions could be reporting on very small trusts. 
Third, and similarly to other comments, it stated that the union must 
identify the trusts for which a Form T-1 is required, which can be 
costly, and it must obtain information from the third-party trust, over 
which it may not have any legal control. Fourth, it claimed that the 
2008 rule overstated the benefits of the Form T-1 and downplayed any 
redundancy, because multiple unions are required to file a report on 
the same trust, regardless of which union has a greater financial 
contribution or level of control over the trust, and because trusts 
generally file the Internal Revenue Service (IRS) Form 990, which 
provides financial transparency for these entities.
    The other federation of unions similarly cited potential litigation 
arising from the reporting requirements of the Form T-1. This 
federation also emphasized that labor organizations do not have the 
information required to be reported. The federation went on to note 
that although the trusts do have this information, they do not organize 
the data in the manner that the Form T-1 requires. The unions must 
reimburse the trusts to assemble and provide them with the necessary 
information, which, citing the Department, requires potentially 
unnecessary start-up costs. The federation argued that, given the 
current economic situation and the demand on labor organizations to 
further legitimate interests, it would be wasteful to mandate unions 
and trusts to comply with potentially unnecessary reporting 
requirements.
    The CPA firm that submitted comments contended that the 
implementation of the Form T-1 would be a costly burden for unions, as 
many of the firm's union clients had not established procedures to 
implement the filing of the form, nor have, to the firm's knowledge, 
the trusts established any procedures to capture and provide data to 
the unions. The firm believes that it would be ``impractical'' for the 
Department to require unions to timely submit Form T-1 reports in 2010, 
and, instead, that a one year extension would enable such entities to 
prepare for either a Form T-1 or, in the case rescission is 
effectuated, to consolidate information about wholly owned, wholly 
controlled, and wholly financed organizations (i.e. ``subsidiary 
organizations'') on their Form LM-2.\1\
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    \1\ The Department's 2009 Spring and Fall Regulatory Agenda 
announced that a proposal to rescind the Form T-1 would be 
accompanied by a proposal to instead return to reporting of 
subsidiary organizations that are wholly owned, controlled, and 
financed by a single labor organization to the Form LM-2.
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    The Department acknowledges comments that suggest that many unions 
and trusts have not begun the necessary steps needed to implement the 
Form T-1 reporting and recordkeeping requirements. The Department 
points out that unions should already have incurred much of the 
recordkeeping burden imposed by the 2008 Form T-1 rule, as this rule 
went into effect on January 1, 2009. Thus, unions and trusts should 
have put into place the necessary systems to track trust transactions. 
However, the reporting burden has not yet been triggered for unions, 
and it would not be triggered until, at the earliest date, January 1, 
2010. Therefore, while today's rule extends the 2010 filing due

[[Page 69027]]

dates, to avoid the potentially unnecessary and burdensome reporting 
costs that would otherwise be triggered for many Form T-1 reporting 
unions on January 1, 2010, the Department leaves in place, for 2010, 
the recordkeeping responsibilities imposed by the 2008 rule.
    Finally, four commenters claimed that the Department did not 
provide for an adequate comment period. A public policy group and a 
trade association made requests for an extension of the period and two 
individual commenters opposing changes to the Form T-1 requirements 
addressed the issue generally, while also commenting on other matters. 
The public policy group asked for a minimum extension of 140 days and 
asserted that the Department took almost a decade to develop the Form 
T-1, with great effort by personnel, and that a comment period of only 
ten days on extending ``the effective date'' of the rule is not 
sufficient for those union members who would gain from the disclosure 
provided by the Form T-1. The commenter stated that the Department has 
granted much longer comment periods for notices contemplating 
``regulatory changes to the annual financial reports.'' In particular, 
the comment cited the 90-day extension granted during the recent Form 
LM-30 rulemaking, after a request from two unions, for a total of 150 
days. Further, the comment suggested that the Department has not 
adequately justified the length of its comment period, particularly in 
light of Executive Order (E.O.) 12866, sec. 6(a)(1), and the multiple 
regulatory actions currently being undertaken by the Administration.
    The trade association requested an 80-day extension, arguing that 
the ten-day period does not provide sufficient time for stakeholders to 
submit a meaningful response. The comment also addressed past 
extensions that the Department has granted, particularly concerning 
``changes to the substance or filing instructions of labor organization 
financial reporting regulations,'' such as the 90-day extension granted 
during the Form LM-30 rulemaking mentioned by the public policy group, 
after two stakeholder requests. The trade association also cited E.O. 
12866, sec. 6(a)(1), which states, in part, that ``in most cases'' an 
agency should include a comment period of not less than 60 days.
    The Department finds that the commenters have not established 
grounds to extend the comment period. The Department reiterates that it 
sought comments on a proposal to extend the Form T-1 filing due dates 
for one year, not to rescind the Form T-1 rule or otherwise make 
regulatory changes to the form, such as was the case with the 
regulations referenced in the requests for an extended comment period. 
The Department will provide a lengthier comment period concerning any 
future proposal to rescind the Form T-1. The Department believes that 
the ten-day comment period was sufficient for the narrow purpose of 
reviewing the proposal to extend the filing due dates, as the large 
number of comments demonstrates. Further, there is urgency in providing 
for this extension, because the first reports to be filed under the 
Form T-1 rule would be due on or after January 1, 2010, and the 
Department anticipates publication as early as January 2010 of a 
proposal to withdraw the Form T-1 rule. As such, there is sufficient 
reason that the Department determined that a longer comment period was 
not feasible in this case.
    For the reasons stated above and in light of the Department's 
intention to propose the withdrawal of the Form T-1 rule as early as 
January 2010, the Department has decided to extend for one year the 
filing due dates of Form T-1 reports that otherwise must be filed 
during calendar year 2010. In particular, the Department acknowledges 
the evidence and experience described in those comments regarding the 
costs and burdens associated with implementing new reporting 
requirements, particularly those created by the unique nature of the 
Form T-1, which mandates that trusts provide unions with information 
about the former's transactions. The Department notes comments 
suggesting that enforcement of the filing due dates in 2010 could lead 
to conflict between the unions and the trusts. Such conflict, as well 
as the up front reporting costs and burdens, may be avoided by 
extending the calendar year 2010 filing due dates for one year, pending 
the outcome of a proposal to rescind the 2008 Form T-1 rule. The 
Department believes that a one-year extension of the Form T-1 filing 
due dates is justified by a significant decrease in potentially 
unnecessary reporting burden, including up front costs.

Andrew Auerbach,
Deputy Director, Office of Labor-Management Standards.
[FR Doc. E9-30942 Filed 12-29-09; 8:45 am]

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