Labor Organization Annual Financial Reports for Trusts in Which a Labor Organization Is Interested, Form T-1, 57716-57762 [06-8339]

Agencies

• DEPARTMENT OF LABOR
• Office of Labor-Management Standards
• Labor-Management Standards Office

[Federal Register Volume 71, Number 189 (Friday, September 29, 2006)]
[Rules and Regulations]
[Pages 57716-57762]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-8339]



[[Page 57715]]

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

Part V





Department of Labor





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



Office of Labor-Management Standards



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



29 CFR Part 403



Labor Organization Annual Financial Reports for Trusts in Which a Labor 
Organization Is Interested, Form T-1; Final Rule

Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / 
Rules and Regulations

[[Page 57716]]


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

DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 403

RIN 1215-AB54


Labor Organization Annual Financial Reports for Trusts in Which a 
Labor Organization Is Interested, Form T-1

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

ACTION: Final rule.

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

SUMMARY: The Department proposed to revise the forms used by labor 
organizations to file the annual financial reports required by the 
Labor-Management Reporting and Disclosure Act (``LMRDA'' or ``Act''), 
29 U.S.C. 431(b). Under the proposal, specified labor organizations 
would file annual reports about particular trusts to which they 
contributed money or otherwise provided financial assistance (Form T-
1). This document sets forth the Department's review of and response to 
comments on the proposal; this review was undertaken by the Department 
after the decision by the United States Court of Appeals for the 
District of Columbia Circuit in American Federation of Labor and 
Congress of Industrial Organizations v. Chao, 409 F.3d 377 (2005). 
Under this rule, the Department will require that a labor organization 
(``union'') with total annual receipts of $250,000 or more file a Form 
T-1 for each trust provided that the trust is of the type defined by 
section 3(l) of the LMRDA (defining ``trust in which a labor 
organization is interested'') and a number of conditions are met: The 
union's financial contribution to the trust was $10,000 or more during 
the year; the trust had $250,000 or more in annual receipts; and the 
union, acting either alone or with other unions, selects a majority of 
the members of the trust's governing board or the union's contribution 
to the trust, made independently or in combination with other unions, 
represents greater than 50% of the trust's revenue in the one-year 
reporting period. The Department will provide four exceptions to the 
Form T-1 requirements, and unions will not, therefore, be required to 
file a Form T-1 for: A Political Action Committee fund, if publicly 
available reports on the fund are filed with federal or state agencies; 
a political organization for which reports are filed with the Internal 
Revenue Service under 26 U.S.C. 527; an employee benefit plan filing a 
complete and timely report under the Employee Retirement Income 
Security Act (``ERISA''); and a trust or trust fund for which an 
independent audit has been conducted, in accordance with the standard 
set forth in this final rule, if the audit is made publicly available. 
Under this exception the labor organization must submit the first page 
of the Form T-1 and a copy of the audit.

DATES: Effective Date: This rule will be effective on January 1, 2007; 
however, no labor organization is required to file a Form T-1 until 90 
days after the conclusion of its first fiscal year that begins on or 
after January 1, 2007. A Form T-1 covers a trust's most recently 
concluded fiscal year, and a Form T-1 is required only for trusts whose 
fiscal year begins on or after January 1, 2007.

FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director, Office of 
Policy, Reports, and Disclosure, Office of Labor-Management Standards 
(OLMS), U.S. Department of Labor, 200 Constitution Avenue, NW., Room N-
5605, Washington, DC, olms-public@dol.gov, (202) 693-1233 (this is not 
a toll-free number). Individuals with hearing impairments may call 1-
800-877-8339 (TTY/TDD).

SUPPLEMENTARY INFORMATION: The following is the outline of this 
discussion.

I. Background
    A. Introduction
    B. Judicial Review of the 2003 Rule
    C. LMRDA: Reporting Provisions and Their Enforcement
    1. History and Summary of the LMRDA
    2. Statutory Authority
    D. The Rationale Underlying the Rule
    1. Should unions be required to report on section 3(l) trusts?
    2. Should some labor organizations be excepted from filing based 
on their size?
    3. Should there be an initial dollar threshold that a union's 
financial contribution to a union must exceed before the union may 
be required to file a Form T-1?
    4. When should a union that has met the initial dollar threshold 
be required to report on a trust in which it is interested?
    5. Where multiple unions participate in a single trust, which 
unions should be required to file the Form LM-2?
    6. Should itemization of substantial receipts and disbursements 
of the trust be required and, if so, what aggregate dollar value 
should trigger itemization?
    7. Should some unions be excepted from filing, if the trust 
already files a publicly-disclosed report, such as required by ERISA 
or other federal or state law, or the union submits an audit of the 
trust's finances?
    8. What if a section 3(l) trust refuses to provide the reporting 
union with the information required to complete the Form T-1?
    9. What concerns about privacy or sensitive information are 
implicated by requiring the disclosure of information about the 
trust and how are these interests balanced with the right of members 
to obtain relevant financial information about their union?
    10. When should the rule take effect?
    11. What assistance will the Department provide unions to assist 
them with their section 3(l) reporting obligation?
II. Changes to the Form T-1 Proposal
III. Regulatory Procedures
    A. Executive Order 12866
    B. Small Business Regulatory Enforcement Fairness Act
    C. Executive Order 13132: Federalism
    D. Regulatory Flexibility Act
    E. Unfunded Mandates Reform
    F. Paperwork Reduction Act
    G. Executive Order 13045 (Protection of Children From 
Environmental Health Risks and Safety Risks)
    H. Executive Order 13175 (Consultation and Coordination With 
Indian Tribal Governments)
    I. Executive Order 12630 (Governmental Actions and Interference 
With Constitutionally Protected Property Rights)
    J. Executive Order 12988 (Civil Justice Reform)
    K. Environmental Impact Assessment
    L. Executive Order 13211 (Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use)

I. Background

A. Introduction

    In December 2002, the Department proposed to revise its rules 
establishing the details of the annual union financial reports required 
under section 201(b) of the LMRDA, 29 U.S.C. 431(b) (``proposal''). See 
67 FR 79280 (Dec. 27, 2002). The LMRDA requires a union to file an 
annual report reflecting its assets, liabilities, and cash flow during 
the reporting period. Under the Department's rules, the detail of the 
reports varied depending upon the size of a reporting organization, as 
measured by the amount of its annual financial receipts. The report 
filed by the largest labor organizations, Form LM-2, required the 
greatest detail. The proposed rule also addressed other aspects of 
financial reporting, including an expansion of the obligation to report 
information on trusts in which a union held an interest. Such trusts 
are created for a myriad of purposes; common examples include training 
funds, apprenticeship programs, pension and welfare plans, building 
funds, and educational funds. Some of these trusts may be funded with 
employer contributions and jointly administered by trustees appointed 
by the unions and the employers. The Department proposed that large 
unions would

[[Page 57717]]

submit this trust-related information on a new form created for this 
purpose, known as the ``Form T-1.''
    As explained in the Department's proposal, the form used by labor 
organizations to report financial information had not changed 
significantly from its first printing shortly after the Act's passage 
in 1959. 67 FR 79280-81. As the form remained static, dramatic changes 
were occurring in the American workforce and in the financial operation 
of labor organizations, as the impact of information technology on the 
operation of organizations increased dramatically. Id. As noted in the 
proposal, unions have substantial financial dealings with, or through, 
trusts, funds or other organizations that meet the definition of a 
``trust in which a labor organization is interested,'' as defined by 
section 3(l) of the LMRDA, 29 U.S.C. 402(l), such as joint funds 
administered by a union and an employer pursuant to a collective 
bargaining agreement, educational or training institutions, credit 
unions, strike funds, and redevelopment or investment groups. 67 FR 
79284. Historically, however, the Department has required unions to 
report on only a segment of such trusts: those in which the ownership 
is wholly vested in the union, or its officers, employees, or members; 
which is governed or controlled by the officers, employees, or members 
of the union; and which is wholly financed by the union (``subsidiary 
organizations'' or ``wholly-owned trusts''). The Department explained 
its finding that revisions were needed to require unions to report on 
the assets, liabilities, receipts, and disbursements of other trusts 
because ``[t]hese separate organizations pose the same transparency 
challenges as ``off-the-books'' accounting procedures in the corporate 
setting: large-scale, potentially unattractive financial transactions 
can be shielded from public disclosure and accountability through 
artificial structures, classification and organizations.'' 67 FR 79282.
    Before issuing its proposal, Department officials met with many 
representatives of the affected community, including union officials 
and their legal counsel, to hear their views on the need for reform and 
the likely impact of changes that might be made. See 68 FR 58374. The 
Department's proposal, developed with these discussions in mind, 
requested comments on several specific issues in order to base any 
revisions on a complete record reflecting the views of the parties 
affected and the Department's consideration of the comments. Id. When 
the comment period closed, on March 27, 2003, the Department had 
received over 35,000 comments. Id. After careful consideration of the 
comments, the Department issued its new union financial reporting rule 
on October 9, 2003. 68 FR 58374.
    In November 2003, the AFL-CIO filed a complaint against the 
Department, challenging the rule. The suit was filed with the U.S. 
District Court for the District of Columbia; through this action, the 
AFL-CIO asked the court to order temporary, preliminary, and permanent 
relief to enjoin and vacate the Department's rule. The rule was upheld 
on its merits by the district court (American Federation of Labor and 
Congress of Industrial Organizations v. Chao, 298 F.Supp.2d 104 (D.D.C. 
2004), but on appeal the U.S. Court of Appeals for the District of 
Columbia Circuit (American Federation of Labor and Congress of 
Industrial Organizations v. Chao, 409 F.3d 377 (DC Cir. 2005) (``AFL-
CIO v. Chao'') vacated the rule relating to the Form T-1.
    In light of the decision by the DC Circuit and guided by its 
opinion, the Department has again reviewed the proposal as it related 
to the Form T-1 and the comments received on the proposal. This final 
Form T-1 rule is based on that review. Under this final Form T-1 rule a 
union must file a Form T-1 for a section 3(l) trust if it, alone or in 
combination with other unions, selects or appoints the majority of the 
members of the trust's governing board or it contributes, alone or in 
combination with other unions, more than 50% of the trust's revenue 
during the annual reporting period. This final Form T-1 rule will close 
a gap in the financial reporting regime that has provided unions and 
others with an opportunity to evade their reporting obligations under 
the Act. The rule achieves the Department's goal, consistent with the 
Act's purpose, of providing union members and the public with detailed 
information about the financial operations of unions. Such transparency 
allows union members to obtain the information they need to monitor 
their union's affairs and to make informed choices about the leadership 
of their union and its direction. At the same time, this transparency 
promotes both the unions' own interests as democratic institutions and 
the interests of the public and the government.

B. Judicial Review of the 2003 Rule

    The district court upheld the rule in its entirety, except for 
temporarily delaying the rule's implementation date. See American 
Federation of Labor and Congress of Industrial Organizations v. Chao, 
298 F.Supp.2d 104 (D.D.C. 2004).
    On appeal, the DC Circuit unanimously upheld the Department's 
promulgation of the revised Form LM-2 as a reasonable exercise of its 
LMRDA rulemaking authority. AFL-CIO v. Chao, 409 F.3d 377 (D.C. Cir. 
2005). In a divided decision, however, the court vacated the Form T-1 
rule because, in its view, the Department exceeded its authority by 
``requiring general trust reporting.'' 409 F.3d at 378-79, 391. The 
court framed the issue before it as ``whether Form T-1 comports with 
the statutory requirements that the Department ``find [such rule is] 
necessary to prevent'' evasion of LMRDA Title II reporting 
requirements.'' Id. at 386 (quoting section 208 of the LMRDA, 29 U.S.C. 
438).
    Given what it viewed as the ambiguity inherent in the word 
``necessary'' as used in section 208 (authorizing reports ``necessary 
to prevent circumvention or evasion of * * * reporting requirements''), 
the court examined the rule to determine whether the Department's 
interpretation of the statute was permissible. Id. at 386-87; see also 
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 
U.S. 837, 843 (1984). The AFL-CIO argued that the Department's T-1 rule 
was impermissible, in part, because it encompassed joint trusts, which 
by operation of statute were independent of a union's control. Id. at 
388; see 29 U.S.C. 186(c). In rejecting this argument, the court noted 
that the statutory definition of ``trust in which a union is 
interested,'' 29 U.S.C. 402(l), included joint trusts, such as Taft-
Hartley employer-funded benefit plans, and agreed with the Department's 
interpretation that such trusts could be used to evade the reporting 
requirements. Id. at 387-88. The court agreed with the Department's 
reasoning that ``[s]ince the money an employer contributes to such a 
`trust' * * * might otherwise have been paid directly to the workers in 
the form of increased wages and benefits, the members * * * have a 
right to know what funds were contributed, how the money is managed and 
how it is being spent.'' Id. at 387. The court held that ``[s]ection 
208 does not limit the [Department] to requiring reporting only in 
order to disclose transactions involving the misuse of union members' 
funds because leaving the decision about disclosure to such trusts * * 
* would allow unions to circumvent or evade reporting on the use of 
members' funds diverted to the trust.'' Id. at 388-89.

[[Page 57718]]

    The court recognized that reports on trusts that reflect a union's 
financial condition and operations are within the Department's 
rulemaking authority, including trusts ``established by one or more 
unions or through collective bargaining agreements calling for employer 
contributions, [where] the union has retained a controlling management 
role in the organization,'' and also those ``established by one or more 
unions with union members' funds because such establishment is a 
reasonable indicium of union control of that trust.'' Id. at 388, 389. 
The court acknowledged that the Department's findings in support of its 
rule were based on particular situations where reporting about trusts 
would be necessary to prevent evasion of the related unions' own 
reporting obligations. Id. at 387-88. One example included a situation 
where ``trusts [are] funded by union members' funds from one or more 
unions and employers, and although the unions retain a controlling 
management role, no individual union wholly owns or dominates the 
trust, and therefore the use of the funds is not reported by the 
related union.'' Id. at 389 (emphasis added). In citing these examples, 
the court explained that ``absent circumstances involving dominant 
control over the trust's use of union members' funds or union members' 
funds constituting the trust's predominant revenues, a report on the 
trust's financial condition and operations would not reflect on the 
related union's financial condition and operations.'' Id. at 390. For 
this reason, while acknowledging that there are circumstances under 
which the Secretary may require a report, the court disapproved of a 
broader application of the rule to require reports by any union simply 
because the union satisfied a reporting threshold (a union with annual 
receipts of at least $250,000 that contributes at least $10,000 to a 
section 3(l) trust with annual receipts of at least $250,000). Id.
    In reaching its conclusion, the court rejected an underlying 
premise of the rule that a union's appointment of a single member to a 
trust's governing board could trigger a reporting obligation, even 
though the union's contribution to the trust constituted a fraction of 
the trust's total revenues. Id. at 390. The court explained that 
``[w]here a union has minimal control over trust fund spending and a 
union's contribution is so small a part of the trust's revenues, and 
the trust is not otherwise controlled by unions or dominated by union 
members' funds, the trust lacks the characteristics of the unreported 
transactions in the examples on which the [Department] based the final 
rule.'' Id. at 391. In these circumstances, in contrast to the examples 
relied upon by the Department, the element of management control or 
financial dominance is missing. Id.
    In a separate opinion, then Circuit Judge Roberts concurred with 
the majority's conclusion that the Form LM-2 was valid, but dissented 
on the majority's decision to vacate the provisions of the Final Rule 
relating to Form T-1. 409 F.3d at 391. Contrary to the majority, he 
concluded, as had the district court, that the Department had 
established, as shown by the rulemaking record, that a section 3(l) 
trust report was necessary to prevent a union's circumvention of its 
reporting obligations.
    The Department sought rehearing and rehearing en banc of the 
panel's decision, asserting that the panel erred in requiring the 
Department to make additional findings in order to establish a 
reporting obligation with respect to any trust that met the statutory 
definition of a section 3(l) trust and which satisfied the rule's 
monetary threshold requirements. The petitions were denied on October 
28, 2005.

C. LMRDA: Reporting Provisions and Their Enforcement

1. History and Summary of the LMRDA

    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.'' LMRDA, section 2(a), 29 U.S.C. 401(a). 
The statute creates a comprehensive scheme designed to empower union 
members by providing them the means to maintain democratic control over 
their unions and ensure a proper accounting of union funds. Together 
with the Act's fiduciary duty provision, 29 U.S.C. 501, which directly 
regulates the primary conduct of union officials, the Act's various 
reporting requirements, 29 U.S.C. 431-433, operate to safeguard a 
union's funds from depletion by improper or illegal means. The 
reporting requirements also help ensure that a union official's duty to 
the union and its members is not subordinate to that official's own 
personal financial interests.
    The legislation 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 union racketeering 
and corruption; and its findings of financial abuse, mismanagement of 
union 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 unions and employers (and 
labor consultants aligned with the employers) whose employees were 
represented by the unions in question or might be organized by them. 
Similar arrangements also were found to exist between union officials 
and the companies that handled matters relating to the administration 
of union benefit funds. See generally Interim Report of the Select 
Committee on Improper Activities in the Labor or Management Field, S. 
Report No. 85-1417 (1957); see also William J. Isaacson, Employee 
Welfare and Benefit Plans: Regulation and Protection of Employee 
Rights, 59 Colum.L.Rev. 96 (1959).
    The statute was designed to remedy these various ills through a set 
of integrated provisions aimed at union governance and management. 
These include a ``bill of rights'' for union members, which provides 
for equal voting rights, freedom of speech and assembly, and other 
basic safeguards for union democracy, see LMRDA, sections 101-105, 29 
U.S.C. 411-415; financial reporting and disclosure requirements for 
unions, union officers and employees, employers, labor relations 
consultants, and surety companies, see LMRDA, sections 201-206, 211, 29 
U.S.C. 431-436, 441; detailed procedural, substantive, and reporting 
requirements relating to union trusteeships, see LMRDA, sections 301-
306, 29 U.S.C. 461-466; detailed procedural requirements for the 
conduct of elections of union officers, see LMRDA, sections 401-403, 29 
U.S.C. 481-483; safeguards for unions, including bonding requirements, 
the

[[Page 57719]]

establishment of fiduciary responsibilities for union officials and 
other representatives, criminal penalties for embezzlement from a 
union, loans by a union to officers or employees, employment by a union 
of certain convicted felons, and payments to employees for prohibited 
purposes by an employer or labor relations consultant, see LMRDA, 
sections 501-505, 29 U.S.C. 501-505; and prohibitions against 
extortionate picketing and retaliation for exercising protected rights, 
see LMRDA, sections 601-611, 29 U.S.C. 521-531. As explained in the 
Department's 2002 proposal and 2003 rule, the reporting regimen had 
hardly changed in the more than 40 years since the Department issued 
its first reporting rule under the LMRDA. 25 FR 433, 434 (1960).
2. Statutory Authority
    This 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 Act's reporting 
provisions. Secretary's Order 4-2001, issued May 24, 2001, and 
published in the Federal Register on May 31, 2001 (66 FR 29656), 
continued the delegation of authority and assignment of responsibility 
to the Assistant Secretary for Employment Standards in Secretary's 
Order 5-96 of the Secretary's functions under the LMRDA.
    Section 208 allows the Secretary to issue ``reasonable rules and 
regulations (including rules prescribing reports concerning trusts in 
which a labor organization is interested) as [she] may find necessary 
to prevent the circumvention or evasion of [the Act's] reporting 
requirements.'' 29 U.S.C. 438.
    Section 3(l) of the LMRDA, 29 U.S.C. 402(l) provides:

    ``Trust in which a labor organization is interested'' means a 
trust or other fund or organization (1) which was created or 
established by a labor organization, or one or more of the trustees 
or one or more members of the governing body of which is selected or 
appointed by a labor organization, and (2) a primary purpose of 
which is to provide benefits for the members of such labor 
organization or their beneficiaries.

    The authority to prescribe rules relating to section 3(l) trusts 
augments the Secretary's general authority to prescribe the form and 
publication of other reports required to be filed under the LMRDA. 
Section 201 of the Act requires unions to file annual, public reports 
with the Department, detailing the union's cash flow during the 
reporting period, and identifying its 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 union, 
direct or indirect loans (in excess of $250 aggregate) to any officer, 
employee, or member, any loans (of any amount) to any business 
enterprise, and other disbursements. 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 union's] financial conditions and 
operations.'' Id. Large unions report this information on the Form LM-
2. Smaller unions report less detailed information on the Form LM-3 or 
LM-4.

D. The Rationale Underlying the Rule

    In the proposal and the 2003 rule, the Department outlined the 
reasons why labor organizations should report on the financial details 
of section 3(l) trusts. The guiding point in the rulemaking is the 
statutory command that the Department determine whether such reporting 
is necessary to prevent the circumvention or evasion of the LMRDA's 
reporting obligations. See 67 FR 79284 (``Form T-1 contains various 
types of financial information that is intended to discourage 
circumvention or evasion of the reporting requirements in title II [of 
the LMRDA]''). ``The objective of this rule is to increase the 
transparency of union financial reporting by revising the LMRDA 
disclosure forms * * * [to] enable workers to be responsible, informed, 
and effective participants in the governance of their unions; 
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].'' Id. at 68 FR 58420 (emphasis added).
    As explained further below, the Form T-1 is designed to close a 
reporting gap under the Department's former rule whereby unions were 
only required to report on ``subsidiary organizations.'' Today's rule 
will assure that union members will receive a more complete accounting 
of how their union's funds are invested or otherwise expended. By 
reviewing the Form T-1, union members will receive information on funds 
that would be accounted for on the LM-2 but for their distribution 
through a trust in which the union has an interest. This rule will make 
it more difficult for a union, union officials, or other parties with 
influence over the union to avoid, simply by transferring money from 
the union's books to the trust's books, the basic reporting obligation 
that would apply if the funds had been retained by the union. Although 
the rule will not require such an accounting for all section 3(l) 
trusts in which a union participates, it will be required where a 
union, alone or in combination with other unions, appoints or selects a 
majority of the members of the trust's governing board or where 
contributions by unions represent greater than 50% of the revenue of 
the trust. Thus the rule follows the instruction in AFL-CIO v. Chao, 
where the court concluded that the Secretary had shown that trust 
reporting was necessary to prevent evasion or circumvention where 
``trusts [are] established by one or more unions with union members' 
funds because such establishment is a reasonable indicium of union 
control of the trust,'' as well as where there are characteristics of 
``dominant union control over the trust's use of union members' funds 
or union members' funds constituting the trust's predominant 
revenues.'' 409 F.3d at 389, 390.
    The Act's primary reporting obligation (Forms LM-2, LM-3, and LM-4) 
applies to labor organizations, as institutions; other important 
reporting obligations apply to officers and employees of labor 
organizations (Form LM-30), requiring them to report any conflicts 
between their personal financial interests and the duty they owe to the 
union they serve and to employers and labor relations consultants who 
must report payments to labor organizations and their representatives 
(Form LM-10). See 29 U.S.C. 432; 29 U.S.C. 433. Thus, requiring unions 
to report the information requested by the Form T-1 rule provides an 
essential check for union members and the Department to ensure that 
unions, union officials, and employers are accurately and completely 
fulfilling their reporting duties under the Act, obligations that can 
easily be ignored without fear of detection if reports related to 
trusts are not required.
    Under the instructions of the Department's pre-2003 Form LM-2, a 
reporting obligation concerning section 3(l) trusts would arise only if 
the trust was a ``subsidiary'' of the reporting union and met other 
requirements set by the Department, i.e., an entity wholly owned, 
wholly controlled and wholly financed by the union. See 68 FR 58413. 
Thus, the former rule, which was crafted shortly after the Act's 
enactment, required reporting by only a portion of the unions that 
contributed to section 3(l) trusts, and, in many cases, no reporting at 
all. During the intervening

[[Page 57720]]

decades, the financial activities of individuals and organizations have 
increased exponentially in scope, complexity, and interdependence. 67 
FR 79280-81. For example, many unions manage benefit plans for their 
members, maintain close business relationships with financial service 
providers such as insurance companies and investment firms, operate 
revenue-producing subsidiaries, and participate in foundations and 
charitable activities. 67 FR 79280. The complexity of union financial 
practices, including business relationships with outside firms and 
vendors, increases the likelihood that union officers and employees may 
have financial interests in these businesses that might conflict with 
fiduciary obligations owed to the union and its members. As more labor 
organizations conduct their financial activities through sophisticated 
trusts, increased numbers of businesses have commercial relationships 
with such trusts, creating financial opportunities for union officers 
and employees who may operate, receive income from, or hold an interest 
in such businesses. In addition, employers also have fostered multi-
faceted business interests, creating further opportunities for 
financial relationships between unions, union officials, employers, and 
other entities, including section 3(l) trusts.
    In addition to the extensive changes in unions' financial 
activities, some of the historical problems that led to the 
establishment of the LMRDA's reporting provisions and other federal 
statutes regulating trusts still persist, as illustrated by the 2002 
proposal and the comments received on the proposal. As suggested by the 
proposal (67 FR 79285) and reflected in the 2003 rule (68 FR 58413), 
the enactment of ERISA has ameliorated many of the historical problems, 
but many section 3(l) trusts do not file the detailed financial reports 
that add transparency to the operations of such trusts. The Department 
provided examples of situations where funds held in section 3(l) trusts 
were being used for improper purposes by union officials:
     Credible allegations that funds from a training benefits 
trust jointly administered by the union and employer had, without any 
public disclosure, been used to pay union officials supplementary 
salaries.
     A case in which no information was publicly disclosed 
about the disposition of tens of thousands of dollars (over $60,000 per 
month) paid into a trust established to provide strike benefits. No 
information was disclosed because the trust was established by a group 
of union locals and not controlled by any single union.
     A case in which a credit union trust largely financed by a 
union local had made large loans to union officials but had not been 
obligated to report them because the trust was not wholly owned by the 
union. Four loan officers, three of whom were officers of the Local, 
received 61% of the credit union's loans.
     A case in which local union officials established a 
building fund financed in part with union members' pension funds.

67 FR 79283. In each of these instances, the information would have 
been reported if the Form T-1 had been in place.
    Such trusts ``pose the same transparency challenges as `off-the-
books' accounting procedures in the corporate setting: Large scale, 
potentially unattractive financial transactions can be shielded from 
public disclosure and accountability through artificial structures, 
classification and organizations.'' 67 FR 79282. The Department's 
former rule required unions to report on only a subset of such trusts, 
which resulted in a gap in the reporting requirements on these trusts. 
As a result, members have long been denied important information about 
union funds that were being directed to other entities, ostensibly for 
the members' benefit, such as joint funds administered by a union and 
an employer pursuant to a collective bargaining agreement, educational 
or training institutions, credit unions, and redevelopment or 
investment groups. See 67 FR 79285. The Form T-1 is necessary to close 
this gap, prevent certain trusts from being used to evade the Title II 
reporting requirements, and provide union members with information 
about financial transactions involving a significant amount of money 
relative to the union's overall financial operations and other 
reportable transactions. 68 FR 58415 (2003). As explained in the 
proposal, additional trust reporting is necessary to ensure, as 
intended by Congress, the full and comprehensive reporting of a union's 
financial condition and operations, including a full accounting to 
union members from whose toil the payments were exacted. 67 FR 79282-
83.
    This final Form T-1 rule preserves the key aspects of the 2002 
proposal, as revised by the 2003 rule, but the scope of the reporting 
requirement has been narrowed to conform with the D.C. Circuit's 
decision in AFL-CIO v. Chao. Today's rule is tied to the union's 
reporting obligation under the LMRDA and its relationship to a section 
3(l) trust. In general terms, the final Form T-1 rule applies only to 
those unions that, alone or in combination with other unions, select or 
appoint a majority of the trustees or the members of the governing body 
of the section 3(l) trust, or, alone or in combination with other 
unions, contributed over 50% of the trust's revenue during a one-year 
reporting period. A union that meets either of these conditions will be 
required to file the Form T-1. On the form, the union will report the 
amount of its contribution to the section 3(l) trust (including any 
contribution made on its behalf), and the trust's total receipts and 
liabilities. In completing the form, the union must separately 
identify: any individual or entity from which the trust received 
$10,000 or more; any individual disbursement of $10,000 or more by the 
trust; and any entity or individual that received disbursements from 
the trust that aggregated to $10,000 or more. The rule reiterates the 
Department's determination, expressed in both the proposal and the 2003 
rule, that no union need file the Form T-1 if the trust already files a 
detailed ERISA report (Form 5500) or other reports required by federal 
or state law. Further, a union is excused from providing the detailed 
financial information required by the Form T-1 if it chooses to submit 
an audit of the trust that meets the criteria prescribed by the rule. A 
union that must file the Form T-1 will use the form and instructions 
published as an appendix to this rule.
    In the following discussion, the Department addresses the major 
components of the Form T-1 rule, its consideration of the views 
expressed in the comments, its rationale for the specific aspects of 
the final Form T-1 rule and the determination that the Form T-1 rule is 
``necessary to prevent the circumvention and evasion of [the] reporting 
requirements'' imposed by the LMRDA.
    To address the main points in the proposal, the comments received 
on the proposal, and the rationale for adopting or modifying various 
aspects of the proposal, the Department has chosen to utilize a 
question and answer format. For each question, the Department outlines 
the rationale it provided in the proposal and the preamble to the 2003 
rule. As appropriate, further explanation is provided in light of the 
Department's review of the rulemaking record after the D.C. Circuit's 
decision in AFL-CIO v. Chao.

    1. Should unions be required to report on section 3(l) trusts?
    2. Should some labor organizations be excepted from filing based 
on their size?

[[Page 57721]]

    3. Should there be an initial dollar threshold that a union's 
financial contribution to a union must exceed before the union may 
be required to file a Form T-1?
    4. When should a union that has met the initial dollar threshold 
be required to report on a trust in which it is interested?
    5. Where multiple unions participate in a single trust, which 
unions should be required to file the Form LM-2?
    6. Should itemization of substantial receipts and disbursements 
of the trust be required and, if so, what aggregate dollar value 
should trigger itemization?
    7. Should some unions be excepted from filing, if the trust 
already files a publicly-disclosed report, such as required by ERISA 
or other federal or state law, or the union submits an audit of the 
trust's finances?
    8. What if a section 3(l) trust refuses to provide the reporting 
union with the information required to complete the Form T-1?
    9. What concerns about privacy or sensitive information are 
implicated by requiring the disclosure of information about the 
trust and how are these interests balanced with the right of members 
to obtain relevant financial information about their union?
    10. When should the rule take effect?
    11. What assistance will the Department provide unions to assist 
them with their section 3(l) reporting obligation?
1. Should unions be required to report on section 3(l) trusts?
    The Department invited comment on whether its proposal was 
appropriate and sufficient for the purpose of providing full disclosure 
of pertinent financial information about section 3(l) trusts and 
whether alternate or additional approaches would achieve full 
disclosure while minimizing the reporting burden on unions. 68 FR 
79285. Numerous comments were received in favor of and against the 
proposal. Many comments objected to the Form T-1 as burdensome; they 
generally expressed similar opposition to any change in the rules 
relating to the Form LM-2. The Department disagreed with these comments 
and explained in detail why the Form LM-2 and Form T-1 were needed and 
appropriate to achieve the reporting purposes underlying the LMRDA. See 
generally 68 FR 58375-95. Other comments addressed the Department's 
legal authority to require the unions to provide any information other 
than that required by the Department's longstanding rules. See 
generally 68 FR 58376-80. In response, the Department explained that 
the LMRDA vests the Department with authority to revise the reporting 
requirements in the manner proposed. Id.
    In preparing today's rule, the Department determined that it would 
be helpful to clarify a point that may continue to confuse stakeholders 
about the effect of a trust's coverage by ERISA, particularly insofar 
as Taft-Hartley trusts are concerned. For example, one comment objected 
to the Form T-1 as ``absolutely duplicative'' of existing reporting 
requirements. An international union supported the proposition that 
members should know about the receipts and disbursements, including 
those made by relatively ``mundane trusts,'' such as building funds and 
credit unions, but that the Form T-1 merely duplicates information that 
is already reported on the Form 5500 that ERISA requires. Another 
comment indicated that such reporting was unnecessary because of the 
fiduciary obligation that attaches to individuals associated with union 
benefit funds.
    These comments fail to fully understand the reporting required of 
Taft-Hartley trusts and the reporting requirements under other laws 
regulating these trusts. In both the proposed and the 2003 rule, the 
Department acknowledged that the LMRDA's reporting requirements would 
be satisfied by the submission of the detailed report filed by an 
ERISA-covered trust or an audit that satisfied ERISA requirements. 67 
FR 79285; 68 FR 58413. In the 2003 rule, the Department explicitly 
referred to the Form 5500 and explained that the audit alternative 
could be satisfied by a union that submitted an audit meeting 
prescribed, ERISA-based standards. 68 FR 58413.
    The misconception underlying the comments is based in the 
assumption that Form 5500 reports are filed for all section 3(l) 
trusts. They are not. Some section 3(l) trusts fall outside of the 
reporting requirements of ERISA. ERISA only covers pension and 
``employee welfare benefit plans.'' 29 U.S.C. 1002. While there is 
overlap between many section 3(l) trusts and ERISA ``employee welfare 
benefit plans,'' there are also funds in which unions participate that 
fall outside ERISA coverage, including strike funds, recreation plans, 
hiring hall arrangements, and unfunded scholarship programs. 29 CFR 
2510.3-1. Other section 3(l) trusts that are subject to ERISA are not 
required to file the Form 5500 or file only abbreviated schedules. See 
29 CFR 2520.104-20 (plans with fewer than 100 participants); 29 CFR 
2520.104-22 (apprenticeship and training plans); 29 CFR 2520.104-26 
(unfunded dues financed welfare plans); 29 CFR 2520.104-27 (unfunded 
dues financed pension plans). See also Reporting and Disclosure Guide 
for Employee Benefit Plans, U.S. Department of Labor (reprinted 2004), 
available at https://www.dol.gov/ebsa/pdf/rdguide.pdf. Thus, the Form T-
1 fills the information gap confronted by union members who, absent the 
rule, would be unable to obtain information about a trust comparable to 
that disclosed by the Form 5500, even though the trust may be used to 
circumvent or evade LMRDA Title II reporting requirements.
    The fiduciary duty to refrain from taking a proscribed action has 
never been thought to be sufficient by itself to protect the interests 
of a trust's beneficiaries. Disclosure and accounting complement the 
duty of an agent to act in his principal's interest. See Restatement 
(Third) of Agency Sec.  8.01 (T.D. No. 6, 2005) et seq.; see also 1 
American Law Institute, Principles of Corporate Governance Sec.  1.14 
(1994). Today's rule extends the reporting requirement to those union 
benefit funds that previously were under no explicit federal obligation 
to make such disclosure. Despite the additional coverage provided by 
this rule, it is likely that some officials will doubtless continue to 
devise methods to deny union members the benefit of trust funds derived 
from their own dues. See Archibald Cox, Internal Affairs of Labor 
Organizations Under the Labor Reform Act of 1959, 58 Mich.L.Rev. 819, 
827 (1960) (``True criminals will undoubtedly ignore the duty to 
report''). Union officers and union representatives have a similar 
fiduciary duty to their union, but the Department's case files reveal 
numerous examples of embezzlement of union funds. The Form T-1, by 
disclosing information to union members, the true beneficiaries of 
section 3(l) trusts, will increase the likelihood that wrongdoing is 
detected. See Cox, id. (``The official whose fingers itch for a `fast 
buck' but who is not a criminal will be deterred by the fear of 
prosecution if he files no report and by fear of reprisal from the 
members if he does''). Further, since the union's obligation to submit 
a Form T-1 overlaps with the responsibility of union officials to 
disclose payments received from the trust, the prospect that one party 
may report the payment increases the likelihood that a failure by the 
other party to report the payment will be detected. Moreover, given the 
increased transparency that results from the Form T-1 reporting, in 
some instances today's rule may cause the parties to reconsider the 
primary conduct that would trigger the reporting requirement.
    The comments received by the Department further illustrated how the 
absence of a rule like the Form T-1 facilitated the diversion of union-

[[Page 57722]]

contributed trust funds for improper personal gain, and permitted the 
evasion of the LMRDA's Title II reporting obligations. A labor policy 
group identified multiple instances where union officials were charged, 
convicted, or both, for embezzling or otherwise improperly diverting 
union trust funds for their own gain, including the following: (1) Five 
individuals charged with conspiring to steal over $70,000 from a 
local's severance fund; (2) two local union officials confessed to 
stealing about $120,000 from the local's job training funds; (3) an 
administrator of a local's retirement plan was convicted of embezzling 
about $300,000 from the fund; (4) a local union president embezzled an 
undisclosed amount of money from the local's disaster relief fund; (5) 
an employee of an international union embezzled over $350,000 from a 
job training fund; (6) a former international officer, who had also 
been a director and trustee of a union benefit fund, was convicted of 
embezzling about $100,000 from the union's apprenticeship and training 
fund; (7) a former officer of a national union was convicted of 
embezzling about $15,000 in funds from the union and about $20,000 from 
the union's welfare benefit fund; and (8) a former training director of 
a union's pension and welfare fund was charged and convicted of 
receiving gifts and kickbacks from a vendor that provided training for 
union members.
    These comments recognize that existing safeguards intended to 
protect trusts and trust beneficiaries do not prevent the diversion of 
funds by some officials to trusts in order to circumvent or evade the 
LMRDA's reporting provisions. Both historical and recent examples 
demonstrate the vulnerability of trust funds to looting by union 
officials and others. The McClellan Committee, as discussed above, 
provided several examples of union officials using funds held in trust 
for their own purposes rather than for their union and its members. 
Additional examples of the misuse of union benefit funds and trust 
funds for personal gain may be found in the 1956 report of the Senate's 
investigation of welfare and pension plans, completed as the McClellan 
Committee was beginning its investigation. See Welfare and Pension 
Plans Investigation, Final Report of the Comm. of Labor and Public 
Welfare, S. Rep. No. 1734 (1956). Such problems continued, even after 
the passage of the LMRDA and ERISA. In the most comprehensive report 
concerning the influence of organized crime in some unions, a 
presidential commission concluded that ``the plunder of union resources 
remains an attractive end in itself. * * * The most successful devices 
are the payment of excessive salaries and benefits to organized crime-
connected union officials and the plunder of workers' health and 
pension funds.'' President's Commission on Organized Crime, Report to 
the President and Attorney General, The Edge: Organized Crime, 
Business, and Labor Unions (1986), at 12.
    More recently, union officials in New York were convicted in a 
``pension-fund fraud/kickback scheme'' where union officials were 
bribed by members of organized crime to invest pension fund assets in 
corrupt investment vehicles. The majority of the funds were to be 
invested in legitimate securities but millions of dollars were to 
placed into a sham investment, the body of which was to be used to fund 
kickbacks to the union officers with the hope that the return on 
investment from the majority of the legitimately invested assets would 
cover the amounts lost as kickbacks. U.S. v. Reifler, 2006 WL 999937 
(2d Cir. 2006). In another case, nepotism and no-bid contracts depleted 
the union's health and welfare funds to the sum of several million 
dollars. The problems associated with the fund included, among others, 
paying the son-in-law of a board member, a local union official, a 
salary of $119,000 to manage a scholarship program that gave out 
$28,000 per year; a daughter of this board member was paid $111,799 a 
year as a receptionist; and the fund paid $123,000 for claims review 
work that required only a few hours of effort a week. See Steven 
Greenhouse, Laborers' Union Tries to Oust Officials of Benefits Funds, 
N.Y. Times, June 13, 2005, at B5.
    In addition, while the comments received from unions and their 
members generally opposed any reporting obligation concerning trusts 
(beyond the then-existing regulation that limited reporting to 
subsidiaries, entities ``wholly owned'' by unions), there were some 
notable exceptions among the union members who commented on this point. 
As stated in the preamble to the 2003 rule, ``[m]any union members 
recommended generally greater scrutiny of joint employer-union funds 
authorized under the LMRDA.'' 68 FR 58414. These members included 
several from a single international union. They explained that under 
the union's collective bargaining agreements, the employer sets aside 
at least $.20 for each hour worked by a member and that this amount is 
paid into a benefit fund known as a ``joint committee.'' The comments 
indicate that some of the funds are ``lavished on junkets and parties'' 
and that the union uses the joint committees to reward political 
supporters of the union's officials. They stated that the union refuses 
to provide information about the funds, including amounts paid to 
``union staff.'' From the perspective of one member, the union does not 
want ``this conflict of interest'' to be exposed.
    As the foregoing discussion, like the preamble to the 2003 rule, 
makes clear, the Form T-1 rule will add necessary safeguards to deter 
circumvention and evasion of the Act's reporting requirements. The rule 
will make it more difficult for unions and complicit trusts to avoid 
the disclosure required by the LMRDA. Union members will be able to 
review financial information they may not otherwise have had, 
empowering them to better oversee their union's officials and finances 
as contemplated by Congress.
2. Should some labor organizations be excepted from filing based on 
their size?
    The Department proposed that all unions that contributed $10,000 or 
more to a ``significant'' section 3(l) trust file a Form T-1. A 
``significant trust'' was defined as one having annual receipts of at 
least $200,000. 67 FR 79284. Thus, the obligation would attach to all 
unions without regard to their size as measured by the amount of their 
own annual receipts. See 68 FR 58412. In this regard, the proposal 
departed from the model proposed for the Form LM-2, where only unions 
with annual receipts of at least $200,000 would be obliged to provide 
the kind of detailed reporting comparable to the Form T-1. Many 
comments expressed the view that the Form T-1 would impose a 
substantial burden on small labor organizations that are usually 
staffed with part-time volunteers, with little computer or accounting 
experience and limited resources to hire professional services. Id. In 
the 2003 rule, the Department explained that it had been persuaded that 
the relative size of a union, as measured by its overall finances, will 
affect its ability to comply with the proposed Form T-1 reporting 
requirements. 68 FR 58412-13. For this reason, the Department set as a 
Form T-1 reporting threshold a union's receipt of at least $250,000 
during the one-year reporting period, the same filing threshold that 
applies for the Form LM-2. 68 FR 58413. For the same reason, the final 
Form T-1 rule applies only to unions that have $250,000 or more in 
annual receipts and meet the other parts of the test for filing the 
Form T-1 as stated in the new rule.

[[Page 57723]]

3. Should there be an initial dollar threshold that a union's financial 
contribution to a trust must exceed before the union may be required to 
file a Form T-1?
    The Department proposed that any union that contributes $10,000 or 
more to a section 3(l) trust must file the Form T-1, and that unions 
that contributed less than this amount would not have to file the form. 
67 FR 79284. The Department explained that without contributions of 
this magnitude a union likely would encounter some difficulty in 
persuading the trust to provide a detailed accounting of the latter's 
financial activities. 67 FR 79284. The Department invited comment on 
whether the $10,000 contribution was appropriate as a filing threshold 
or whether it would be preferable to prescribe a threshold that 
reflected the union's proportional share of the trust's receipts, such 
as 5%, 10%, or 25%. 67 FR 79285.
    A number of comments stated that the $10,000 union contribution 
threshold was too low and recommended various alternatives. 68 FR 
58415. Those comments urged the Department to revise the proposal so 
that the threshold was based on ownership or control of at least 50% of 
the trust. Id. In the 2003 rule, the Department explained that the 
alternatives suggested would not achieve the full disclosure sought by 
the proposal; instead, it would deny information to the members of all 
the other unions participating in the trust. 68 FR 58415-16. The 
Department explained that the $10,000 threshold for union contributions 
provided an appropriate compromise between unnecessarily burdening a 
union and providing union members with information about how a trust 
that has received a significant amount of their union's revenues has 
managed the trust's finances. 68 FR 58415. The Form T-1 provides them 
with the means to identify the amount and purpose of large payments to 
individuals or entities and thereby determine whether there might be an 
irregularity in the payment or the relationship between the payee and 
officials of the members' own union. Id.
    The comments that sought to impose a filing threshold based on 
principles of ownership or control of the trust are addressed in the 
response to question 4, below. In that section, the Department 
discusses its determination that unions' filing obligations will depend 
on their selection of a majority of the governing members of a trust or 
their contribution of more than 50% of the union's annual revenue. 
Despite its adoption of this test, the Department has chosen to retain 
a $10,000 initial threshold. Unions that contribute less than this 
amount have no Form T-1 filing obligation. The Department concludes 
that the burden on a union of filing the Form T-1 under these 
circumstances outweighs the marginal increase in transparency that 
would be provided to union members whose union has contributed less 
than $10,000 that year. Pursuant to this bright-line threshold, a union 
that contributes less than $10,000 need not take the time to consider 
any other factors relevant to a determination of whether the Form T-1 
is required. Based on the amount of its annual contribution alone, the 
union will recognize that it need not file a Form T-1.
4. When should a union that has met the initial dollar threshold be 
required to report on a trust in which it is interested?
    The Department's proposal required any union, regardless of its 
size or the portion of the trust's receipts its payments represented, 
to file a report if it contributed $10,000 or more to a section 3(l) 
trust during the reporting period and the trust had annual receipts of 
at least $200,000. The proposal, however, invited comment on whether 
adequate disclosure could be achieved instead by expanding the 
definition of ``subsidiary'' to include trusts that were closely 
related to the union but not ``100% owned, controlled and financed by 
the [union].'' 67 FR 79285. The Department suggested that this 
alternative would borrow from the test, used in other contexts, to 
determine whether multiple companies constitute a ``single entity.'' 
Id. The Department explained that this approach would be based on 
various factors, including an assessment as to the integration of the 
companies' operations and their common management. Id.
    In the 2003 rule, the Department explained that it had received 
only a few comments on the ``single entity'' test. 68 FR 58416. After 
considering the comments, the Department determined that the test would 
be less effective than other approaches, because it could be easily 
evaded by unions seeking to conceal their relationship with a trust. 
Id. The Department further explained that even if information 
concerning the relationship between the trust and the union was readily 
available, the test could prove difficult to apply and thus was a poor 
substitute for a ``bright line'' standard pegged to a specified dollar 
threshold. Id.
    The ``single entity'' alternative was mentioned in the D.C. 
Circuit's opinion in AFL-CIO v. Chao, but the court did not approve or 
disapprove of this approach. 409 F.3d at 390-91. Instead, the court 
focused its inquiry on the extent of the unions' relationship with 
section 3(l) trusts and indicia of their management control or 
financial domination of the trusts. Id. at 388-89.
    Several comments received by the Department noted that the union's 
control over, not merely its participation in, a trust should fix any 
reporting obligation, and thus objected to the Department's proposal 
imposing a general reporting obligation on all large unions. The AFL-
CIO's objection to the proposal was twofold: ``If the union does not 
control the trust, the trust cannot be used to circumvent the reporting 
requirements; and if the union does not control the trust it cannot 
compel the trust to divulge the detailed financial information 
[required].'' It explained: ``[T]he Department's proposal does not 
require that the union have effective control over the trust. Without 
de facto, or actual, control over a trust's financial management, a 
labor organization has no mechanism by which it can circumvent or evade 
the Act's reporting requirements.'' Further, even though the AFL-CIO 
did not embrace the ``single entity'' approach, it viewed this approach 
as ``a helpful starting point.'' While disagreeing with the mechanisms 
suggested by the Department, it acknowledged that the Department 
possessed the authority ``for developing an analytical framework for 
identifying ``significant trusts'' as to which financial disclosure 
should be required.'' A local union, while generally opposed to the 
Form T-1, stated that ``it seems reasonable that ownership or control 
can only be attributed to parties holding over 50% ownership of an 
organization.''
    Under the proposed rule, all covered unions were required to report 
on organizations with annual receipts of $200,000 or more and that met 
the definition of a section 3(l) trust. Based on the comments and the 
decision in AFL-CIO v. Chao, the Department has reduced the types of 
trusts for which reports are required. Under today's Form T-1 rule, a 
reporting obligation exists where the union, alone or with other 
unions, appoints or selects the majority of a section 3(l) trust's 
governing board or its contributions to the trust, alone or in 
combination with other unions, represents more than 50% of the trust's 
revenue during the reporting period. For the purpose of determining 
whether a union selected the majority of the members of a section 3(l) 
trust's governing board, a member selected solely by one or more 
members

[[Page 57724]]

who were themselves selected solely by a union will be considered a 
union-selected member.
    Under the Form T-1, unions that select the majority of trust board 
members, or provide the majority of a union's annual revenue, are 
required to file a report. This test is responsive to the comments that 
contended that reporting is justified only when there are aspects of 
union ownership or control over the trust. The test is also responsive 
to the concerns expressed by the Court of Appeals when it vacated the 
2003 Form T-1, in that the test looks to the relationship between the 
union or unions and the trust and relies on principles of management 
control and financial domination. Although the Department recognizes 
that a union that meets this test may or may not be directing the 
disbursements of a trust, either directly or though union officials, it 
is apparent that this type of union/trust relationship can lead to the 
circumvention or evasion of the reporting requirements. See the 
response to question 1, above. The Department has determined that this 
test is necessary to prevent the circumvention and evasion of the Title 
II reporting requirements.
    A union that, along with other unions, selects a majority of the 
trust's board members, or, along with other unions, contributes more 
than 50% of the union's annual revenue, will be required to file Form 
T-1. As discussed in greater detail under question 5, directly below, 
the Department recognizes that such a union did not unilaterally select 
a majority of a trust's board, and did not single-handedly provide more 
than 50% of the trust's revenue. The Department nevertheless 
recognizes, as did the Court in AFL-CIO v. Chao, that there are 
examples establishing that such participating unions ``retain a 
controlling management role, [even though] no individual union wholly 
owns or dominates the trust.'' 409 F.3d at 389. Absent the Form T-1, 
the contributing unions, if so inclined, would be able to use the 
trusts as a vehicle to expend pooled union funds without the disclosure 
required by Form LM-2 and the members of these unions would continue to 
be denied information vital to their interests. It seems apparent that 
if a single union may circumvent its Form LM-2 reporting obligations 
when it retains a controlling management role or financially dominates 
a trust, then a group of unions is equally capable of doing so. A rule 
directed to preventing a single union from circumventing the law must, 
in all logic, be similarly directed to preventing multiple unions from 
also evading their legal obligations.
5. Where multiple unions participate in a single trust, which unions 
should be required to file the Form LM-2?
    The proposal did not differentiate among the reporting obligations 
of unions contributing to the same trust. Any union that satisfied the 
reporting threshold would have to submit the Form T-1, even though the 
union's share only represented a relatively small portion of the total 
contributions made to the trust by unions. Several comments opposed the 
Department's approach as requiring duplicate reports and described 
trust reporting as unduly burdensome unless a union contributed a 
substantial share of the trust's receipts.
    An international union explained that it was not uncommon for 
several locals to participate in an apprenticeship and training fund 
that would be funded by payments