Labor Organization Annual Financial Reports, 11754-11801 [E8-3853]

Agencies

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

[Federal Register Volume 73, Number 43 (Tuesday, March 4, 2008)]
[Proposed Rules]
[Pages 11754-11801]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-3853]



[[Page 11753]]

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Part III





Department of Labor





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Office of Labor-Management Standards



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29 CFR Part 403



Labor Organization Annual Financial Reports; Proposed Rule

Federal Register / Vol. 73, No. 43 / Tuesday, March 4, 2008 / 
Proposed Rules

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 403

RIN 1215-AB64


Labor Organization Annual Financial Reports

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

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: The Department of Labor's Employment Standards Administration 
(``ESA'') proposes to promulgate a rule that establishes a form to be 
used by labor organizations to file trust annual financial reports with 
ESA's Office of Labor-Management Standards (``OLMS''), provides 
appropriate instructions, and revises relevant sections of 29 CFR Part 
403 relating to such reports. The proposed changes are made pursuant to 
section 208 of the Labor-Management Reporting and Disclosure Act 
(``LMRDA''), 29 U.S.C. 438. The proposed rule will apply prospectively.

DATES: Comments must be received on or before April 18, 2008.

ADDRESSES: You may submit comments, identified by RIN 1215-AB64, only 
by the following methods:
    Internet--Federal eRulemaking Portal. Electronic comments may be 
submitted through www.regulations.gov. To locate the proposed rule, use 
key words such as ``Labor-Management Standards'' or ``Labor 
Organization Annual Financial Reports'' to search documents accepting 
comments. Follow the instructions for submitting comments. Please be 
advised that comments received will be posted without change to 
www.regulations.gov, including any personal information provided.
    Mail: Mailed comments should be sent to: Kay H. Oshel, Director of 
the Office of Policy, Reports and Disclosure, Office of Labor-
Management Standards, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Room N-5609, Washington, DC 20210.
    Because of security precautions the Department continues to 
experience delays in U.S. mail delivery. You should take this into 
consideration when preparing to meet the deadline for submitting 
comments.
    OLMS recommends that you confirm receipt of your mailed comments by 
contacting (202) 693-0123 (this is not a toll-free number). Individuals 
with hearing impairments may call (800) 877-8339 (TTY/TDD).
    Only those comments submitted through www.regulations.gov, hand-
delivered, or mailed will be accepted.
    Comments will be available for public inspection during normal 
business hours at the above address.

FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director of the Office 
of Policy, Reports and Disclosure, at: Kay H. Oshel, U.S. Department of 
Labor, Employment Standards Administration, Office of Labor-Management 
Standards, 200 Constitution Avenue, NW., Room N-5609, Washington, DC 
20210, (202) 693-1233 (this is not a toll-free number), (800) 877-8339 
(TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Statutory Authority

    This proposed rule is issued pursuant to section 208 of the LMRDA, 
29 U.S.C. 438. Section 208 authorizes the Secretary of Labor to issue, 
amend, and rescind rules and regulations to implement the LMRDA's 
reporting provisions. Secretary's Order 4-2007, issued May 2, 2007, and 
published in the Federal Register on May 8, 2007 (72 FR 26159), 
contains the delegation of authority and assignment of responsibility 
for the Secretary's functions under the LMRDA to the Assistant 
Secretary for Employment Standards and permits re-delegation of such 
authority. The proposal implements section 201 of the LMRDA, which 
requires covered labor organizations to file annual, public reports 
with the Department, detailing the labor organization'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 labor organization, direct or indirect loans 
(in excess of $250 aggregate) to any officer, employee, or member, 
loans (of any amount) to any business enterprise, and other 
disbursements. 29 U.S.C. 431(b). The statute requires that such 
information shall be filed ``in such detail as may be necessary to 
disclose [a labor organization's] financial conditions and 
operations.'' Id.
    Section 208 directs the Secretary to issue 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 LMRDA's] reporting requirements.'' 29 U.S.C. 438. Section 3(l) of 
the LMRDA 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.

29 U.S.C. 402(l).

II. Background

A. Introduction

    The Department proposes to establish a Form T-1 to capture 
financial information pertinent to ``trusts in which a labor 
organization is interested'' (``section 3(l) trusts''), information 
that historically has largely gone unreported despite the trusts' 
significant effect on labor organization financial operations and their 
members' own interests. This proposal is part of the Department's 
continuing effort to better effectuate the reporting requirements of 
the LMRDA. The LMRDA's various reporting provisions are designed to 
empower labor organization members by providing them the means to 
maintain democratic control over their labor organizations and ensure a 
proper accounting of labor organization funds. Labor organization 
members are better able to monitor their labor organization's financial 
affairs and to make informed choices about the leadership of their 
labor organization and its direction when labor organizations provide 
financial information required by the LMRDA. By reviewing the reports, 
a member may ascertain the labor organization's priorities and whether 
they are in accord with the member's own priorities and those of fellow 
members. At the same time, this transparency promotes both the labor 
organization's own interests as a democratic institution and the 
interests of the public and the government. Furthermore, the LMRDA's 
reporting and disclosure provisions, together with the fiduciary duty 
provision, 29 U.S.C. 501, which directly regulates the primary conduct 
of labor organization officials, operate to safeguard a labor 
organization's funds from depletion by improper or illegal means. 
Timely and complete reporting also helps deter labor organization 
officers or employees from embezzling or otherwise making improper use 
of such funds.
    The proposed rule helps brings the reporting requirements for labor 
organizations and section 3(l) trusts in line with contemporary 
expectations for the disclosure of financial information. Today labor 
organizations are more like

[[Page 11755]]

modern corporations in their structure, scope, and complexity than the 
labor organizations of 1959.\1\ The balance between wages/salaries paid 
to workers and their ``other compensation'' has changed significantly 
during this time. For example, in 1966, over 80 percent of total 
compensation consisted of wages and salaries, with less than 20 percent 
representing benefits. U.S. Department of Labor, Report on the American 
Workforce (2001) 76, 87. By 2007, wages dropped to 71.8 percent of 
total compensation and benefits grew to 29.2 percent of the 
compensation package. U.S. Department of Labor, Bureau of Labor 
Statistics Chart on Total Benefits, available at https://data.bls.gov/
cgi-bin/surveymost. Moreover, labor organization members today are 
better educated, more empowered, and more familiar with financial data 
and transactions than ever before. Labor organization members, no less 
than consumers, citizens, or creditors, expect access to relevant and 
useful information in order to make fundamental investment, career, and 
retirement decisions, evaluate options, and exercise legally guaranteed 
rights.
    In August and September of 2007, Department officials met with 
representatives of the community that would be affected by the proposed 
Form T-1, including officials of labor organizations and their legal 
counsel, to hear their views on the need for reform and the likely 
impact of changes that might be made. The Department developed its 
proposal with these discussions in mind and it requests comments from 
this community and other members of the public on any and all aspects 
of the proposal.
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    \1\ There are now more large labor organizations affiliated with 
a national or international body then ever before. In 2006, 4,452 
labor organizations, including 95 national and international labor 
organizations, reported $250,000 or more in total annual receipts.
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B. The LMRDA's Reporting and Other Requirements

    In enacting the LMRDA in 1959, a bipartisan Congress made the 
legislative finding that in the labor and management fields ``there 
have been a number of instances of breach of trust, corruption, 
disregard of the rights of individual employees, and other failures to 
observe high standards of responsibility and ethical conduct which 
require further and supplementary legislation that will afford 
necessary protection of the rights and interests of employees and the 
public generally as they relate to the activities of labor 
organizations, employers, labor relations consultants, and their 
officers and representatives.'' 29 U.S.C. 401(a). The statute was 
designed to remedy these various ills through a set of integrated 
provisions aimed at labor organization governance and management. These 
include a ``bill of rights'' for labor organization members, which 
provides for equal voting rights, freedom of speech and assembly, and 
other basic safeguards for labor organization democracy, see 29 U.S.C. 
411-415; financial reporting and disclosure requirements for labor 
organizations, their officers and employees, employers, labor relations 
consultants, and surety companies, see 29 U.S.C. 431-436, 441; detailed 
procedural, substantive, and reporting requirements relating to labor 
organization trusteeships, see 29 U.S.C. 461-466; detailed procedural 
requirements for the conduct of elections of labor organization 
officers, see 29 U.S.C. 481-483; safeguards for labor organizations, 
including bonding requirements, the establishment of fiduciary 
responsibilities for labor organization officials and other 
representatives, criminal penalties for embezzlement from a labor 
organization, a prohibition on certain loans by a labor organization to 
officers or employees, prohibitions on employment by a labor 
organization of certain convicted felons, and prohibitions on payments 
to employees, labor organizations, and labor organization officers and 
employees for prohibited purposes by an employer or labor relations 
consultant, see 29 U.S.C. 501-505; and prohibitions against 
extortionate picketing, retaliation for exercising protected rights, 
and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529, 
530.
    The LMRDA was the direct outgrowth of a Congressional investigation 
conducted by the Select Committee on Improper Activities in the Labor 
or Management Field, commonly known as the McClellan Committee, chaired 
by Senator John McClellan of Arkansas. In 1957, the committee began a 
highly publicized investigation of labor organization racketeering and 
corruption; and its findings of financial abuse, mismanagement of labor 
organization funds, and unethical conduct provided much of the impetus 
for enactment of the LMRDA's remedial provisions. See generally 
Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of 
1959, 73 Harv. L. Rev. 851, 851-55 (1960). During the investigation, 
the committee uncovered a host of improper financial arrangements 
between officials of several international and local labor 
organizations and employers (and labor consultants aligned with the 
employers) whose employees were represented by the labor organizations 
in question or might be organized by them. Similar arrangements were 
also found to exist between labor organization officials and the 
companies that handled matters relating to the administration of labor 
organization 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).
    Financial reporting and disclosure were conceived as partial 
remedies for these improper practices. As noted in a key Senate Report 
on the legislation, disclosure would discourage questionable practices 
(``The searchlight of publicity is a strong deterrent.''); aid labor 
organization governance (Labor organizations will be able ``to better 
regulate their own affairs. The members may vote out of office any 
individual whose personal financial interests conflict with his duties 
to members''); facilitate legal action by members against ``officers 
who violate their duty of loyalty to the members''; and create a record 
(The reports will furnish a ``sound factual basis for further action in 
the event that other legislation is required''). S. Rep. No. 187 (1959) 
16 reprinted in 1 NLRB Legislative History of the Labor-Management 
Reporting and Disclosure Act of 1959 412.
    The Department has developed several forms for implementing the 
LMRDA's financial reporting requirements. The annual reports required 
by section 202(b) of the Act, 29 U.S.C. 432(b) (Form LM-2, Form LM-3, 
and Form LM-4), contain information about a labor organization's 
assets, liabilities, receipts, disbursements, loans to officers and 
employees and business enterprises, payments to each officer, and 
payments to each employee of the labor organization paid more than 
$10,000 during the fiscal year. The reporting detail required of labor 
organizations, as the Secretary has established by rule, varies 
depending on the amount of the labor organization's annual receipts. 29 
CFR 403.4.
    Labor organizations with annual receipts of at least $250,000 and 
all labor organizations in trusteeship (without regard to the amount of 
their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4. 
This form may be filed voluntarily by any other labor organization. The 
Form LM-2 now requires receipts and disbursements to

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be reported by functional categories, such as representational 
activities; political activities and lobbying; contributions, gifts, 
and grants; union administration; and benefits. Further, the form 
requires filers to allocate the time their officers and employees spend 
according to functional categories, as well as the payments that each 
of these officers and employees receive, and it compels the itemization 
of certain transactions totaling $5,000 or more. This form must be 
electronically signed and filed with the Department.\2\
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    \2\ The Form LM-2 and its instructions are published at 68 FR 
58449-523 (Oct. 9, 2003) and are available at https://
www.olms.dol.gov. Copies of the Form LM-3 and Form LM-4 are also 
available at https://www.olms.dol.gov.
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    The labor organization's president and treasurer (or its 
corresponding officers) are personally responsible for filing the 
reports and for any statement in the reports known by them to be false. 
29 CFR 403.6. These officers are also responsible for maintaining 
records in sufficient detail to verify, explain, or clarify the 
accuracy and completeness of the reports for not less than five years 
after the filing of the forms. 29 CFR 403.7. A labor organization 
``shall make available to all its members the information required to 
be contained in such reports'' and ``shall * * * permit such member[s] 
for just cause to examine any books, records, and accounts necessary to 
verify such report[s].'' 29 CFR 403.8(a).
    The reports are public information. 29 U.S.C. 435(a). The Secretary 
is charged with providing for the inspection and examination of the 
financial reports, 29 U.S.C. 435(b); for this purpose, OLMS maintains: 
(1) A public disclosure room where copies of such reports filed with 
OLMS may be reviewed and; (2) an online public disclosure site, where 
copies of such reports filed since the year 2000 are available for the 
public's review.

III. Proposal

A. Introduction

    Labor organization members need to be provided with information 
about the finances and operation of section 3(l) trusts, which, by 
statutory definition are established and maintained primarily to 
provide benefits to the members and/or their beneficiaries. 29 U.S.C. 
402(l). Section 3(l) trusts are created for a myriad of purposes; 
common examples include credit unions, strike funds, redevelopment or 
investment groups, training funds, apprenticeship programs, pension and 
welfare plans, building funds, and educational funds. These trusts are 
funded in a number of different ways. Some may be funded with employer 
contributions and jointly administered by trustees appointed by labor 
organizations and employers. By requiring that labor organizations file 
the Form T-1, labor organization members and the public will receive 
the same benefit of transparency they now receive under the Form LM-2. 
Under this proposal, any labor organization or trust official who 
places their own personal financial interests above their duty to the 
labor organization and the trust--and third parties complicit with 
these officials--will find it more difficult to circumvent and evade 
their legal obligations.
    The Department proposes to require a labor organization with total 
annual receipts of $250,000 or more to file a Form T-1 for each trust 
of the type defined by section 3(l) of the LMRDA, 29 U.S.C. 402(l) 
(defining ``trust in which a labor organization is interested'') where 
the labor organization during the reporting period, either alone or in 
combination with other labor organizations, (1) selects or appoints the 
majority of the members of the trust's governing board, or (2) 
contributes more than 50 percent of the trust's revenue; contributions 
made on behalf of the labor organization or its members shall be 
considered the labor organization's contribution.
    The proposed Form T-1 uses the same basic template as prescribed 
for the Form LM-2. Both forms require the labor organization to provide 
specified aggregated and disaggregated information relating to the 
financial operations of the labor organization and the trust. 
Typically, a labor organization will be required to provide information 
on the Form T-1 explaining certain transactions by the trust (such as 
disposition of property by other than market sale, liquidation of 
debts, loans or credit extended on favorable terms to officers and 
employees of the trust); and identifying major receipts and 
disbursements by the trust during the reporting period. The proposed 
Form T-1, however, is shorter and requires less information than the 
Form LM-2. As proposed, the Form T-1, unlike the Form LM-2, does not 
require that receipts and disbursements be identified by functional 
category. The proposed Form T-1 includes: 14 questions that identify 
the trust, six yes/no questions covering issues such as whether any 
loss or shortage of funds was discovered during the reporting year and 
whether the trust had made any loans to officers or employees of the 
labor organizations at terms below market rates, statements regarding 
the total amount of assets, liabilities, receipts and disbursements of 
the trust; a schedule that separately identifies any individual or 
entity from which the trust receives $10,000 or more, individually or 
in the aggregate, during the reporting period; a schedule that 
separately identifies any entity or individual that received 
disbursements that aggregate to $10,000 or more, individually or in the 
aggregate, from the trust during the reporting period and the purpose 
of disbursement; and a schedule of disbursements of $10,000 or more to 
officers and employees of the trust. Under the proposal, exceptions are 
provided for labor organizations with section 3(l) trusts where the 
trust, as a political action committee (``PAC'') or a political 
organization (the latter within the meaning of 26 U.S.C. 527), submits 
timely, complete and publicly available reports required of them by 
federal or state law with government agencies. A partial exception is 
provided for a trust for which an audit was conducted in accordance 
with prescribed standards and the audit is made publicly available. As 
proposed, a labor organization choosing to use this option must 
complete and file the first page of the Form T-1 and a copy of the 
audit.
    The Department specifically invites comments on whether the trust's 
``employer identification number'' (``EIN'') should be reported on the 
first page of the Form T-1. This number could be used by members of 
labor organizations to cross-check the information on the Form T-1 with 
other reports submitted by the trust, such as its filings with the 
Internal Revenue Service (``IRS'').
    This proposal contains many of the same features proposed by the 
Department in 2002 and incorporates some changes in the 2003 and 2006 
final rules, which are discussed below. The proposal limits the 
reporting obligation to those labor organizations that alone or in 
combination with other labor organizations maintain management control 
or financial domination over a section 3(l) trust. For purposes of 
measuring a labor organization's financial dominance, as discussed 
below, funds paid into the trust by an employer on behalf of the labor 
organization or its members are treated the same as contributions made 
from the labor organization's own funds.
    Two threshold requirements that were contained in the 2003 and 2006 
rules relating to the amount of a labor organization's contributions to 
a trust ($10,000 per annum) and the amount of the contributions 
received by a trust ($250,000 per annum) are not included in the 
proposal. The Department believes that the labor organization's

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control over the trust either alone or with other labor organizations, 
measured by its selection of a majority of the trust's governing body 
or its majority share of receipts during the reporting period, provides 
the appropriate gauge for determining whether a Form T-1 must be filed 
by the participating labor organization. In contrast to the 2003 and 
2006 rules, the Department's proposal does not include an exemption for 
section 3(l) trusts that are part of employee benefit plans that file a 
Form 5500 Annual Return/Report under the Employee Retirement Income 
Security Act (``ERISA'').

B. Judicial Review of Earlier Form T-1 Rulemaking

    This proposal follows the Department's earlier efforts to implement 
a Form T-1 reporting obligation. The proposal is an outgrowth of these 
earlier efforts and takes into account the guidance provided by the 
United States Court of Appeals for the District of Columbia Circuit in 
its 2005 review of the 2003 Form T-1 rule, 68 FR 58374 (American 
Federation of Labor and Congress of Industrial Organizations v. Chao, 
409 F.3d 377 (2005)).
    In November 2003, the American Federation of Labor and Congress of 
Industrial Organizations (``AFL-CIO'') filed a complaint against the 
Department, challenging the combined Form LM-2 and Form T-1 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 (AFL-CIO v. Chao, 298 F.Supp.2d 104 (D.D.C. 2004). On appeal, the 
D.C. Circuit in its 2005 opinion unanimously upheld the Form LM-2 rule 
as a reasonable exercise of the Department of Labor's LMRDA rulemaking 
authority. 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 Form T-1 portion of 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 Form T-1 rule was impermissible, in part, because 
it encompassed joint trusts, which by operation of statute were 
independent of a labor organization's control. 409 F.3d 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. 409 
F.3d 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 labor organization 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.
    The court recognized that reports on trusts that reflect a labor 
organization'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. 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 labor 
organizations' 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 labor organization simply because the labor organization satisfied 
a reporting threshold (a labor organization 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 labor organization's appointment of a single 
member to a trust's governing board could trigger a reporting 
obligation, even though the labor organization's contribution to the 
trust constituted a fraction of the trust's total revenues. Id. 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 light of the decision by the D.C. Circuit and guided by its 
opinion, the Department again reviewed the proposal as it related to 
the Form T-1 and the comments received on the proposal. The Department 
then issued a final rule on September 29, 2006, but the rule was 
vacated on procedural grounds by the U.S. District Court for the 
District of Columbia in AFL-CIO v. Chao, 496 F.Supp.2d 76 (D.D.C. 
2007). In light of this court decision, the Department provides this 
new proposal for notice and comment.

[[Page 11758]]

C. Reasons for the Form T-1

     The proposed Form T-1 closes a reporting gap under the 
Department's former rule whereby labor organizations were only required 
to report on ``subsidiary organizations.'' This proposal is designed to 
provide labor organization members a proper accounting of how their 
labor organization's funds are invested or otherwise expended by the 
trust. Labor organization members have an interest in obtaining 
information about funds provided to a trust for the member's particular 
or collective benefit whether solely administered by the labor 
organization or a separate, jointly administered governing board. 
Because the money an employer contributes to such a trust for the labor 
organization members' benefit might otherwise have been paid directly 
to a labor organization's members in the form of increased wages and 
benefits, the members on whose behalf the financial transaction was 
negotiated have a right to know what funds were contributed, how the 
money is managed, and how it is being spent. By reviewing the Form T-1, 
labor organization members will receive information on funds that would 
be accounted for on Form LM-2 but for their management through the 
section 3(l) trust.
    The proposed rule will make it more difficult for a labor 
organization, its officials, or other parties with influence over the 
labor organization to avoid, simply by transferring money from the 
labor organization's books to the trust's books, the basic reporting 
obligation that would apply if the funds had been retained by the labor 
organization. Although the proposal will not require a Form T-1 to be 
filed for all section 3(l) trusts in which a labor organization 
participates, it will be required where a labor organization, alone or 
in combination with other labor organizations, appoints or selects a 
majority of the members of the trust's governing board or where 
contributions by or on behalf of labor organizations or their members 
represent greater than 50 percent of the revenue of the trust. Thus, 
the rule follows the instruction in AFL-CIO v. Chao, where the D.C. 
Circuit 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.
    Labor organization officials and trustees both owe a fiduciary duty 
to their labor organization and the trust, respectively, but the 
Department's case files reveal numerous examples of embezzlement of 
funds held by both labor organizations and their section 3(l) 
trusts.\3\ The Form T-1, by disclosing information to labor 
organization members, the true beneficiaries of such trusts, will 
increase the likelihood that wrongdoing is detected and may deter 
individuals who might otherwise be tempted to divert funds from the 
trusts. See Archibald Cox, Internal Affairs of Labor Organizations 
Under the Labor Reform Act of 1959, 58 Mich. L. Rev. 819, 827 (1960) 
(``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'').
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    \3\ The fiduciary duty of the trustees 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. Although a 
fiduciary's own duty to the trust's grantors and beneficiaries 
include disclosure and accounting components (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)), public disclosure requirements, government regulation, 
and the availability of civil and criminal process, complement these 
obligations and help ensure a trustee's observance of his or her 
fiduciary duty.
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    Because the labor organization's obligation to submit a Form T-1 
overlaps with the responsibility of labor organization 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 the proposed rule may cause the parties to reconsider 
the primary conduct that would trigger the reporting requirement. As 
discussed above, the LMRDA's primary reporting obligation (Forms LM-2, 
LM-3, and LM-4) applies to labor organizations as institutions; other 
important reporting obligations under the LMRDA 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 labor organization 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 labor organizations to report the 
information requested by the Form T-1 rule provides an essential check 
for labor organization members and the Department to ensure that labor 
organizations, their 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.
    As an illustration of how this check will work, consider an 
instance in which a trust identifies a $15,000 payment to a company for 
duplicating services. Under the proposal, the labor organization must 
identify the company and the purpose of the payment. With this 
information, coupled with information about a labor organization 
official's ``personal business'' interests in the company, a labor 
organization member or the Department may discover whether the official 
has reported this payment on a Form LM-30. Additional information from 
the labor organization's Form LM-2 might allow a labor organization 
member to ascertain whether the trust and the labor organization have 
used the same printing company and whether there was a pattern of 
payments by the trust and the labor organization from which an 
inference could be drawn that duplicate payments were being made for 
the same services. Upon further inquiry into the details of the 
transactions, a member or the government might be able to determine 
whether the payments masked a kickback or other conflict-of-interest 
payment, and, as such, reveal an instance where the labor organization, 
a labor organization official, or an employer may have failed to comply 
with their reporting obligations under the Act. Furthermore, the 
proposal will provide a missing piece to one part of the Department's 
crosscheck system that correlates reported holdings and transactions by 
party, description, and reporting period and thereby helps identify any 
deviations in the reported details, including instances where the 
reporting obligation appears reciprocal, but one or more parties have 
not reported the matter.
    Under the instructions in effect prior to the 2003 rule, a labor 
organization was obliged to provide financial information about a 
section 3(l) trust only if the trust was a ``subsidiary'' of the 
reporting labor organization, i.e., an entity, as defined by the 
Department, that is wholly owned, wholly controlled, and wholly 
financed by the labor organization. Thus, the former rule, which was 
crafted shortly after the

[[Page 11759]]

LMRDA's enactment, required reporting by only a portion of the labor 
organizations that contributed to section 3(l) trusts, and, in many 
cases, no reporting at all. Currently, there is no enforceable form for 
trust reporting and the largest labor organizations, Form LM-2 filers, 
report only very limited and opaque information concerning trusts. This 
proposal will better effectuate the full disclosure intended under the 
LMRDA.
    Many labor organizations now 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. 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 labor organization officers and employees 
who may operate, receive income from, or hold an interest in, such 
businesses. The labor organizations' business relationships with 
outside firms and vendors that provide benefits and financial services 
to the labor organization and its members also increase the possibility 
that labor organization officers and employees may have financial 
interests in these businesses that might conflict with fiduciary 
obligations they owe to the labor organization and its members. In 
addition, employers also have fostered multi-faceted business 
interests, creating further opportunities for financial relationships 
between labor organizations, labor organization officials, employers, 
and other entities, including section 3(l) trusts.
    Both historical and recent examples demonstrate the vulnerability 
of trust funds to misuse and misappropriation by labor organization 
officials and others. The McClellan Committee, as discussed above, 
provided several examples of labor organization officials using funds 
held in trust for their own purposes rather than for their labor 
organization and its members. Additional examples of the misuse of 
labor organization 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); see also Note: Protection of Beneficiaries Under Employee 
Benefit Plans, 58 Colum. L. Rev. 78, 85-89, 96, 107-08 (1958). 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 labor organizations, a presidential commission concluded 
that ``the plunder of labor organization resources remains an 
attractive end in itself.* * * The most successful devices are the 
payment of excessive salaries and benefits to organized crime-connected 
labor organization 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 12 (1986).
    The enactment of ERISA has ameliorated many of the historical 
problems, but many section 3(l) trusts are not covered by ERISA and 
even those that are covered do not file financial reports that provide 
transparency for LMRDA disclosures comparable to what will be provided 
by the proposed Form T-1. The Department has discovered numerous 
situations, as illustrated by the following examples, where funds held 
in section 3(l) trusts have been used in a manner that, if reported, 
would have been scrutinized by the members of the labor organization 
and this Department:
     A case in which no information was publicly disclosed 
about the disposition of tens of thousands of dollars (over $60,000 on 
average per month) by participating locals into a trust established to 
provide statewide strike benefits. No information was disclosed because 
the trust was established by a group of labor organization locals and 
not wholly controlled by any single labor organization.
     A case in which a credit union trust largely financed by a 
local labor organization had made large loans to labor organization 
officials but had not been required to report them because the trust 
was not wholly owned by any single local. (One local accounted for 97 
percent of the credit union's funds on deposit). Membership in the 
credit union was limited to members of three locals; all of the credit 
union directors were local officials and employees. Four loan officers, 
three of whom were officers of the Local, received 61 percent of the 
credit union's loans.
    Under the proposed rule, each labor organization in these examples 
would have been required to file a Form T-1 because each of these funds 
is a 3(l) trust. In each instance, the labor organization's 
contribution to the trust, including contributions made on behalf of 
the organization or its members, made alone or in combination with 
other labor organizations, represented greater than 50 percent of the 
trust's revenue in the one-year reporting period. The labor 
organizations would have been required to annually disclose for each 
trust the total value of its assets, liabilities, receipts, and 
disbursements. For each receipt or disbursement of $10,000 or more 
(whether singly or in the aggregate), the labor organization would have 
been required to provide: the name and business address of the 
individual or entity involved in the transaction(s), the type of 
business or job classification of the individual or entity; the purpose 
of the receipt or disbursement; its date, and amount. Further, the 
labor organization would have been required to provide additional 
information concerning any trust losses or shortages, the acquisition 
or disposition of any goods or property other than by purchase or sale; 
the liquidation, reduction, or write off of any liabilities without 
full payment of principal and interest, and the extension of any loans 
or credit to any employee or officer of the labor organization at terms 
below market rates, and any disbursements to officers and employees of 
the trust.
    In developing this proposal, the Department also relies, in part, 
on information it received from the public on the 2002 proposal. In its 
comments on that proposal, a labor policy group identified multiple 
instances where labor organization officials were charged, convicted, 
or both, for embezzling or otherwise improperly diverting labor 
organization trust funds for their own gain, including the following: 
(1) Five individuals were charged with conspiring to steal over $70,000 
from a local's severance fund; (2) two local labor organization 
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 labor 
organization president embezzled an undisclosed amount from the local's 
disaster relief fund; (5) an employee of an international labor 
organization embezzled over $350,000 from a job training fund; (6) a 
former international officer, who had also been a director and trustee 
of a labor organization benefit fund, was convicted of embezzling about 
$100,000 from the labor organization's apprenticeship and training 
fund; (7) a former officer of a national labor organization was 
convicted of embezzling about $15,000 from the labor organization and 
about

[[Page 11760]]

$20,000 from the labor organization's welfare benefit fund; and (8) a 
former training director of a labor organization's pension and welfare 
fund was charged and convicted of receiving gifts and kickbacks from a 
vendor that provided training for labor organization members.
    The comments received from labor organizations and their members on 
the 2002 proposal generally opposed any reporting obligation concerning 
trusts (beyond the requirement then applicable to the ``wholly-owned'' 
subset of section 3(l) trusts). Labor organization members, however, 
recommended generally greater scrutiny of labor organization trust 
funds. These commenters included several members of a single 
international labor organization. They explained that under the labor 
organization's collective bargaining agreements, the employer sets 
aside at least $.20 for each hour worked by a member and that this 
amount was paid into a benefit fund known as a ``joint committee.'' The 
commenters asserted that some of the funds were ``lavished on junkets 
and parties'' and that the labor organization used the joint committees 
to reward political supporters of the labor organization's officials. 
They stated that the labor organization refused to provide information 
about the funds, including amounts paid to ``union staff.'' From the 
perspective of one member, the labor organization did not want ``this 
conflict of interest'' to be exposed.
    The need for this proposal is also demonstrated by additional 
examples of improper administration and diversion of funds from section 
3(l) trusts. Labor organization officials in New York were convicted in 
a ``pension-fund fraud/kickback scheme'' where labor organization 
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 placed into a sham investment, the body of which was to be used to 
fund kickbacks to the labor organization 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, 446 
F.3d 65 (2d Cir. 2006); see The Final Report of the New York State 
Organized Crime Task Force: Corruption and Racketeering in the New York 
City Construction Industry (1990) 27-29, 91-92, 182-84 (describing 
devices typically used by labor organization officials and third 
parties to divert trust funds for their own enrichment). In another 
case, nepotism and no-bid contracts depleted a labor organization's 
health and welfare funds of several million dollars. The problems 
associated with the fund included, among others, paying the son-in-law 
of a board member, a local labor organization official, a salary of 
$119,000 to manage a scholarship program that gave out $28,000 per 
year; paying a daughter of this board member $111,799 a year as a 
receptionist; and paying $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.\4\ If the Department's proposed rule had been in place, 
the members of the affected labor organizations, aided by the 
information disclosed in the labor organizations' Form T-1s, would have 
been in a much better position to discover the improper use of the 
trust funds and thereby minimize the injury to their stake in the 
trust. Further, the fear of discovery may have deterred the wrongdoers 
from engaging in the offending conduct in the first place.
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    \4\ Various concerns about the administration of joint trusts 
are addressed in legal periodicals such as Note: Conflict of 
Interest Problems Arising from Union Pension Fund Loans, 67 Colum. 
L. Rev. 162 (1967), 162-63; and Stephen Fogdall, Exclusive Union 
Control of Pension Funds: Taft-Hartley's Ill-considered Prohibition, 
4 U. Pa. J. Lab. & Emp. L. 215 (2001-2002), 228-31 (providing 
examples of misuse and exemplary use of trust funds). See also 
Stephen Brill, The Teamsters, 151, 201-16, 221-60 (discussing 
problems with administration of Teamster funds, especially the 
Central States Pension Fund); James B. Jacobs, Mobsters, Unions, and 
Feds (2006) 181 (describing the looting of Teamster Local 560's 
benefit funds); Robert Fitch, Solidarity for Sale (2006), 149-52 
(misuse of New York Mason Tenders pension fund).
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    As the foregoing discussion makes clear, the proposed Form T-1 rule 
will add necessary safeguards to deter circumvention and evasion of the 
LMRDA's reporting requirements.
     Under the proposal, it will be more difficult for labor 
organizations and complicit trusts to avoid the disclosure required by 
the LMRDA. Labor organization members will be able to review financial 
information they may not otherwise have had, empowering them to better 
oversee their labor organization's officials and finances as 
contemplated by Congress.

D. Specific Aspects of the Proposed Form T-1

1. Determining Management Control or Financial Domination
    In 2002, the Department proposed to require that any labor 
organization, regardless of its size or the proportion of the trust's 
receipts represented by its payments, file a Form T-1 if, among other 
conditions, it contributed $10,000 or more to a section 3(l) trust 
during the reporting period. 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 labor organization 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.'' 
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.
    In the 2003 rule, the Department explained that it had received 
only a few comments on the ``single entity'' test. After considering 
the comments, the Department determined that the test would be less 
effective than other approaches, because it could be easily evaded by 
labor organizations seeking to conceal their relationship with a trust. 
The Department further explained that even if information concerning 
the relationship between the trust and the labor organization 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. Several comments received by the Department suggested 
that the labor organization'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 labor organizations. 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

[[Page 11761]]

possessed the authority ``for developing an analytical framework for 
identifying 'significant trusts'' as to which financial disclosure 
should be required.'' A local labor organization, 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.''
    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 labor organizations' 
relationship with section 3(l) trusts and indicia of their management 
control or financial domination of the trusts. Id. at 388-89. As 
discussed previously, the appeals court found that the Secretary had 
not demonstrated how a labor organization's contribution of $10,000, an 
amount that could be infinitesimal given the trust's other 
contributions, could be indicative of the labor organization's ability 
to exercise any effective control over the trust.
    The court indicated that the Secretary could require a labor 
organizations to file a Form T-1 where labor organizations exercise 
management control or financial domination over a trust. The court did 
not establish a control test, leaving the Department to fashion a test 
consistent with the LMRDA and its policy preferences. After considering 
various alternatives, including a case-by-case determination, or one 
based on whether a labor organization or labor organizations hold the 
largest but not predominant share of the trust's interests (or the 
contributions to the trust during a reporting period), the Department 
is proposing a bright line approach. Under the proposal, a labor 
organization is required to file a report only where it alone or in 
combination with other labor organizations (1) selects or appoints the 
majority of the members of the trust's governing board, or (2) 
contributes more than 50 percent of the trust's revenue during the 
annual reporting period; contributions made on behalf of the 
organization or its members shall be considered contributions by the 
labor organization.\5\ The test is responsive to the concerns expressed 
by the D.C. Circuit in that the test looks to the relationship between 
the labor organization or labor organizations and the trust and relies 
on principles of management control and financial domination.
---------------------------------------------------------------------------

    \5\ As a result, multiple unions may be required to report on a 
single trust. This aspect of the rule is discussed in detail below 
in section II D.7.
---------------------------------------------------------------------------

    Under this proposal, Form T-1 reports would be required on Taft-
Hartley trusts where the contributions by or on behalf of the labor 
organization or its members comprise a majority of the trust's 
receipts.\6\ Taft-Hartley trusts are statutorily defined trusts, 
established by a labor organization for the sole and exclusive benefit 
of the contributing employer's employees, their families, and 
dependents that meet several prescribed conditions, including a written 
agreement with the employer(s) concerning the basis on which such 
payments are to be made and joint administration by an equal number of 
employee and employer representatives. See section 302(c) of the Labor 
Management Relations Act, 29 U.S.C. 186(c); see Steven J. Sacher, James 
S. Singer, et al., editors, Employee Benefits Law (2d ed. BNA 2001) 
179-83, 642-43, 1177-03. Typically the establishment of such trusts and 
their funding is set through collective bargaining. Such payments 
comprise a portion of the employer's labor expenses, along with 
salaries, wages, and employer administered benefits. Thus, the money 
paid into the trusts reflects payments that otherwise could be made 
directly to employees as wages, benefits, or both, but for their 
assignment to the trusts.
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    \6\ A labor organization's obligation to report on section 3(l) 
trusts is based on the majority control and financial domination 
tests embodied in the proposed rule. Thus, the designation of a 
trust as a ``Taft-Hartley Trust,'' a ``welfare benefit trust,'' or 
other designation will not control the coverage question. Examples 
of trusts for which a Form T-1 may be required include training or 
educational funds, strike funds, and redevelopment or investment 
funds. Other examples, depending upon their particular 
characteristics, would include trusts such as Multiple Employer 
Welfare Arrangements, Multi-Employer Plans, Voluntary Employees' 
Beneficiary Associations, or other similar plans. This is not an 
exhaustive list. At the same time, a labor organization should also 
be mindful that a designation of an entity as something other than a 
trust or its description as a particular kind of trust does not 
except the labor organization from filing a Form T-1 for the entity 
if it meets the filing standards. Again, the coverage question is to 
be based on the majority control and financial domination tests 
embodied in the proposed rule.
---------------------------------------------------------------------------

    The administration of a Taft-Hartley fund is under the control of 
the labor organization and employer trustees, not the employees or 
their beneficiaries. While the disbursements from the funds often 
represent individual payments to employees or their beneficiaries by 
reason of health or other claims, payments also often reflect more 
collective interests of employees such as developing apprenticeship or 
vocational training programs or operating job targeting programs, 
payments that serve the interests of the labor organization. In such 
instances, the funds cover expenses that otherwise would be paid from 
the labor organization's general treasury and reported on the Form LM-
2.
    Under this proposal, management domination or financial control is 
determined by looking at the involvement of all labor organizations 
contributing to or managing the trust. As discussed above, the 
Department's experience, as noted by the D.C. Circuit in its 2005 
opinion, demonstrates that participating labor organizations may 
``retain a controlling management role, [even though] no individual 
union wholly owns or dominates the trust.'' 409 F.3d at 389. This 
occurs, for example, where a trust is created from the participation of 
several labor organizations with common affiliation, industry, or 
location, but none alone holds predominant management control over or 
financial stake in the trust. Absent the Form T-1, the contributing 
labor organizations, if so inclined, would be able to use the trust as 
a vehicle to expend pooled labor organization funds without the 
disclosure required by Form LM-2 and the members of these labor 
organizations would continue to be denied information vital to their 
interests. If a single labor organization may circumvent its reporting 
obligations when it retains a controlling management role or 
financially dominates a trust, then a group of labor organizations may 
also be capable of doing so. A rule directed to preventing a single 
labor organization from circumventing the law must, in all logic, be 
similarly directed to preventing multiple labor organizations from also 
evading their legal obligations.
    Because labor organizations filing the Form LM-2 already are 
required to identify section 3(l) trusts on the Form LM-2, the proposed 
rule will not add any significant reporting burden with respect to 
identifying the section 3(l) trusts. The Form LM-2 requires labor 
organizations to provide the full name, address, and purpose of each 
section 3(l) trust in which it participates. The Form T-1 will be filed 
for only a subset of the labor organization's section 3(l) trusts. No 
Form T-1 will be required for any trust not required to be listed on 
the Form LM-2.
    In most cases labor organizations already possess information to 
determine whether a Form T-1 is required for a particular section 3(l) 
trust. If a labor organization selects or appoints a member of the 
trust's governing board, it will know how the other members are 
selected and whether

[[Page 11762]]

the majority control prong of the reporting test is satisfied. In other 
situations, the section 3(l) trust in question will consist entirely of 
units of the same national or international labor organization. Here 
too, each labor organization participating in the trust will know 
whether the majority control prong of the test is satisfied and likely 
will possess information to determine whether the alternative financial 
domination prong of the test is met.
    In some situations, the Department expects that labor organizations 
will have to contact the trusts to obtain information about whether the 
trust's ``pooled receipts'' from labor organizations constitute a 
majority of the trust's receipts during a reporting period. The trust 
can easily determine whether labor organizations have financial 
dominance by examining their accounting records. Finally, no specific 
information as to voting or contributions need be disclosed by the 
trust at this phase. Therefore, the trust will not be required to 
release any confidential information pertaining to financial 
contributions or control. The Department expects that labor 
organizations that do not already possess the information to determine 
whether they need to file a Form T-1 will be able to obtain this 
information simply by calling the trust. The Department invites 
comments on its assumptions concerning the information already 
possessed by labor organizations that will enable them to readily 
determine whether they must file a Form T-1 for their section 3(l) 
trusts and the relative ease by which they may obtain additional 
information from the section 3(l) trusts