Labor Organization Annual Financial Reports for Trusts in Which a Labor Organization Is Interested, Form T-1, 57412-57473 [E8-22853]

Agencies

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

[Federal Register Volume 73, Number 192 (Thursday, October 2, 2008)]
[Rules and Regulations]
[Pages 57412-57473]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22853]



[[Page 57411]]

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

Part II





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. 73, No. 192 / Thursday, October 2, 2008 / 
Rules and Regulations

[[Page 57412]]


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

DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 403

RIN 1215-AB64


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 Employment Standards Administration (ESA) Office of Labor-
Management Standards (OLMS) of the Department of Labor publishes this 
final rule to establish a form to be used by labor organizations to 
file trust annual financial reports (Form T-1) and to provide 
appropriate instructions and revise relevant portions of 29 CFR Part 43 
relating to such reports. On March 4, 2008, the Department published a 
notice of proposed rulemaking setting forth the Department's Form T-1 
proposal. Under the proposal, certain labor organizations would file 
annual reports about certain trusts to which they contributed money or 
otherwise provided financial assistance or over which they exercised 
managerial control. This document sets forth the Department's review of 
and response to comments on the proposal. This final rule requires that 
a labor organization with total annual receipts of $250,000 or more 
file a Form T-1 for each trust of the type defined by section 3(l) of 
the Labor-Management Reporting and Disclosure Act (LMRDA) and that 
meets one of the two following filing triggers: The labor organization, 
alone or with other labor organizations, either: Appoints or selects a 
majority of the members of the trust's governing board; or makes 
contributions to the trust that exceed 50 percent of the trust's 
receipts during the trust's fiscal year. This final rule provides five 
exemptions to the Form T-1 filing requirements: A political action 
committee (PAC) fund, if publicly available reports on the PAC fund are 
filed with federal or state agencies; any political organization for 
which reports are filed with the IRS under section 527 of the IRS code; 
trusts required to file a Form 5500 under the Employee Retirement 
Income Security Act (ERISA); federal employee health benefit plans that 
are subject to the provisions of the Federal Employees Health Benefits 
Act (FEHBA); and any trust for which an independent audit has been 
conducted, in accordance with the standards set forth in this final 
rule. This final rule will apply prospectively.

DATES: Effective Date: This rule will be effective on December 31, 
2008.

FOR FURTHER INFORMATION CONTACT: Denise Boucher, Director, Office of 
Policy, Reports, and Disclosure, Office of Labor-Management Standards 
(OLMS), U.S. Department of Labor, 200 Constitution Avenue, NW., Room N-
5609, Washington, DC, (202) 693-1185 (this is not a toll-free number). 
Individuals with hearing impairments may call 1-800-877-8339 (TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Statutory Authority

    This final rule is issued pursuant to section 208 of the LMRDA, 29 
U.S.C. 438. Section 208 authorizes the Secretary of Labor to issue, 
amend, and rescind rules and regulations to implement the LMRDA's 
reporting provisions. Secretary's Order 4-2007, issued May 2, 2007, and 
published in the Federal Register on May 8, 2007 (72 FR 26159), 
contains the delegation of authority and assignment of responsibility 
for the Secretary's functions under the LMRDA to the Assistant 
Secretary for Employment Standards and permits re-delegation of such 
authority. This rule implements section 201 of the LMRDA, which 
requires covered labor organizations to file annual, public reports 
with the Department, disclosing the labor organization's financial 
condition and operations during the reporting period. 29 U.S.C. 431(b). 
As administratively implemented, section 201 requires a labor 
organization to identify 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. 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

    On March 4, 2008, the Department issued a notice of proposed 
rulemaking (73 FR 11754) proposing 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 
has largely gone unreported despite the trusts' significant effect on 
labor organization financial operations and their members' own 
interests. As noted in the proposal, the establishment of the Form T-1 
is part of the Department's continuing efforts to better effectuate the 
reporting requirements of the LMRDA, which are designed to empower 
labor organization members by providing them the means to maintain 
democratic control over their labor organizations and to ensure 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 proposal noted that the Form T-1 closes a reporting gap under 
the Department's former rule whereby labor organizations were only 
required to report on ``subsidiary organizations.'' As noted in the 
proposal, labor organizations use section 3(l) trusts,

[[Page 57413]]

which by definition have a primary purpose to provide benefits for the 
members of the labor organization or their beneficiaries, 29 U.S.C. 
402(l), for a myriad of purposes. Common examples of section 3(l) 
trusts include credit unions, strike funds, development or investment 
groups, training funds, apprenticeship programs, pension and welfare 
plans, building funds, and educational funds. Such trusts may be 
administered by trustees appointed by a labor organization(s), either 
singly or jointly with other labor organizations, or jointly with an 
employer(s). As discussed below, trusts administered jointly by 
trustees appointed by labor organization(s) and employer(s) are known 
as Taft-Hartley trusts. By requiring that labor organizations file the 
Form T-1 for specific section 3(l) trusts, labor organization members 
and the public will receive some of the same benefit of transparency 
regarding the trust that they now receive under the Form LM-2, thereby 
preventing a labor organization from using the trust to circumvent or 
evade its reporting obligations.
    This final rule takes into account the Department's earlier efforts 
in 2003 and 2006 to implement a Form T-1. In fashioning this final 
rule, and as discussed in greater detail in the proposed rule, the 
Department relies on guidance from the United States Court of Appeals 
for the District of Columbia Circuit in its review of the 2003 Form T-1 
rule (68 FR 58374, Oct. 9, 2003), American Federation of Labor and 
Congress of Industrial Organizations v. Chao, 409 F.3d 377 (DC Cir. 
2005) and the District Court for the District of Columbia in its review 
of the 2006 Form T-1 rule (71 FR 57716, Sept. 29, 2006), American 
Federation of Labor and Congress of Industrial Organizations v. Chao, 
496 F. Supp. 2d 76 (D.DC 2007). See 73 FR 11757. Thus, this final rule 
limits the labor organization's reporting requirement to those trusts 
in which the labor organization has managerial control or financial 
dominance, as defined in this rule.
    The Department initially provided for a 45 day comment period 
ending April 18, 2008. 73 FR at 11754. In response to a number of 
requests, the Department published a notice extending the comment 
period to May 5, 2008. 73 FR 16611. The Department received 556 
comments on the Form T-1 proposed rule. Of these comments, 
approximately 88 were unique comments. The remaining comments were form 
letters endorsing the proposal. Comments were received from labor 
organizations, employer, trade and public interest groups, Taft-Hartley 
plans, accounting firms, a Member of Congress and labor organization 
members.

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.'' LMRDA, section 2(a), 29 U.S.C. 401(a). 
The statute creates a comprehensive scheme 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.
    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 labor organization 
racketeering and corruption; 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 also were 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. Rep. No. 85-
1417 (1957); see also, William J. Isaacson, Employee Welfare and 
Benefit Plans: Regulation and Protection of Employee Rights, 59 Colum. 
L. Rev. 96 (1959).
    The statute was designed to remedy these various ills through a set 
of integrated provisions aimed at labor organization governance and 
management. These include a ``bill of rights'' for labor organization 
members, which provides for equal voting rights, freedom of speech and 
assembly, and other basic safeguards for labor organization democracy, 
see LMRDA, sections 101-105, 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 LMRDA, sections 201-06, 211, 29 U.S.C. 431-36, 441; 
detailed procedural, substantive, and reporting requirements relating 
to labor organization trusteeships, see LMRDA, sections 301-06, 29 
U.S.C. 461-66; detailed procedural requirements for the conduct of 
elections of labor organization officers, see LMRDA, sections 401-03, 
29 U.S.C. 481-83; safeguards for labor organizations, including bonding 
requirements, the establishment of fiduciary responsibilities for labor 
organization officials and other representatives, criminal penalties 
for embezzlement from a labor organization, loans by a labor 
organization to officers or employees, employment by a labor 
organization of certain convicted felons, and payments to employees for 
prohibited purposes by an employer or labor relations consultant, see 
LMRDA, sections 501-05, 29 U.S.C. 501-05; and prohibitions against 
extortionate picketing and retaliation for exercising protected rights, 
see LMRDA, sections 601-11, 29 U.S.C. 521-31. As explained in the 
Department's 2002 proposal and 2003 rule (67 FR 79280, 79290; 68 FR at 
58374), the reporting regimen had hardly changed in the more than 40 
years since the Department issued its first reporting rule under the 
LMRDA. The original rule was published in 1960. See 25 FR 433, 434 
(1960).
    Section 201 of the LMRDA requires labor organizations to file 
annual, public reports with the Department, detailing the labor 
organization's financial condition and operations during the reporting 
period, and, as implemented, 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, any loans (of any 
amount) to any business enterprise, and other disbursements. 29 U.S.C. 
431(b).

[[Page 57414]]

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. This information is reported 
on the Form LM-2 by labor organizations that have $250,000 or more in 
total annual receipts.
    Section 202 of the LMRDA requires all labor organization officials 
to annually disclose any income or interests, as there identified, they 
have received that pose an actual or potential conflict of interest. 
See 29 U.S.C. 432. A labor organization official must also identify any 
income paid to, or financial interests held by, the official's spouse 
or minor children, if such payment is from or interest is held in a 
business or company under circumstances that could give rise to a 
conflict of interest. Id. The section 202 information is reported on 
the Form LM-30. Section 203 of the Act also requires an employer, with 
certain exceptions, to annually file a report showing in detail, the 
date and amount of any payment, loan, promise, agreement or arrangement 
to any labor organization or representative of a labor organization and 
a full explanation of any such transaction. See 29 U.S.C. 433. The 
section 203 employer information is reported on the Form LM-10.
    With regard to each of these reports, the LMRDA states that the 
Secretary of Labor shall ``prescribe the[ir] form and publication * * * 
and such other reasonable rules and regulations (including rules 
prescribing reports concerning trusts in which a labor organization is 
interested) as [it] finds necessary to prevent the circumvention or 
evasion of such reporting requirements.'' 29 U.S.C. 438. This final 
rule adopts the Form T-1 to require labor organizations to report on 
certain section 3(l) trusts so as to provide labor organization members 
with an accounting of how funds are invested or otherwise expended by 
the trust. The Form T-1 provides transparency of labor organization 
finances and effectuates the goals of the LMRDA.

C. Overview of the Form T-1 Final Rule and Reasons for the Rule

    This final rule provides that the largest labor organizations, 
those with total annual receipts of $250,000 or more, must file a Form 
T-1 for those section 3(l) trusts in which the labor organization, 
either alone or in combination with other labor organizations, has 
management control or financial dominance. For purposes of this rule, a 
labor organization must file a Form T-1 for a trust if 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 receipts during the 
annual reporting period; contributions made pursuant to a collective 
bargaining agreement shall be considered contributions by the labor 
organization.
    The Form T-1 requires that the labor organization itemize major 
transactions of the trust during the annual reporting cycle on two 
schedules: Schedule 1, which would separately identify any individual 
or entity from which the trust received ``major receipts'' of $10,000 
or more, individually or in the aggregate during the reporting period; 
and Schedule 2, which would separately identify any entity or 
individual that received ``major disbursements'' of $10,000 or more, 
individually or in the aggregate, from the trust during the reporting 
period. The final rule does not require itemization of receipts by a 
trust made pursuant to a collective bargaining agreement or 
disbursements made by the trust pursuant to a written agreement that 
specifies the detailed basis on which the payments are to be made by 
the trust. The Form T-1 includes a Schedule 3 that requires disclosure 
of the names of all officers of the trust, all employees of the trust 
who receive $10,000 or more during a reporting period, and all direct 
or indirect disbursements to each of these officers and employees.
    The Form T-1 provides for a number of exemptions or alternative 
means of compliance with the reporting requirement. No Form T-1 is 
required for any trust that meets the statutory definition of a labor 
organization as such trust would already file a separate Form LM-2, LM-
3 or LM-4. An exemption is provided for trusts that are established as 
a Political Action Committee (PAC) or as a political organization under 
section 527 of the Internal Revenue Code, 26 I.R.C. section 527, 
provided timely, complete and publicly available reports are filed with 
the appropriate federal or state agency. This final rule includes an 
exemption for trusts that constitute a federal employee health benefit 
plan subject to the provisions of the Federal Employees Health Benefits 
Act (FEHBA), 5 U.S.C. 8901 et seq., and for trusts where the plan 
administrator is required to file an annual report under ERISA (Form 
5500 exemption). The requirements of the Form 5500 exemption are 
discussed more fully below. The final rule also includes an alternative 
means of compliance by filing an audit of the trust, provided the audit 
is prepared according to standards set forth in the Form T-1 
instructions and the audit is filed with a Form T-1 with Items 1-15 and 
Items 26 and 27 completed.
    This final 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. 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.\1\ The Form T-1, by disclosing information to 
labor organization members, among 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'').
---------------------------------------------------------------------------

    \1\ The fiduciary duty owed by trustees and others 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 or a principal. Although a fiduciary's own duty to a 
trust's beneficiaries, like the duty owed by an agent to a 
principal, include disclosure and accounting components (See 
Restatement (Third) of Trusts Sec.  2; 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 and help 
ensure a trustee's observance of his or her fiduciary duty.
---------------------------------------------------------------------------

    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 (see 29 U.S.C. 432), 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 Form T-1 reporting 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;

[[Page 57415]]

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 
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.
    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). 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, administration, and enforcement of ERISA has 
ameliorated much abuse, but many section 3(l) trusts are not covered by 
ERISA and the annual reporting under ERISA serves a different purpose 
than the reporting under the LMRDA. 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 final 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 trust officers and to 
employees of the trust who received more than $10,000 from the trust.
    The need for the Form T-1 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, which was to be used to fund 
kickbacks to the labor organization officers, while 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 (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. 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 might have deterred the 
wrongdoers from engaging in the offending conduct in the first place.
    As the foregoing discussion makes clear, the Form T-1 rule, as set 
forth in this final rule, will add necessary safeguards to deter 
circumvention and evasion of the LMRDA's reporting

[[Page 57416]]

requirements. 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.\2\
---------------------------------------------------------------------------

    \2\ The instructions to the Form LM-2 were published as part of 
the 2003 final rule. The instructions contain some information 
relating to the Form T-1. The Department will revise the relevant 
portions of the Form LM-2 instructions to conform with today's final 
rule.
---------------------------------------------------------------------------

III. Comments on the Proposal and the Department's Response to the 
Comments

A. Determining Management Control and Financial Dominance

    The final rule adopts a modified management control and financial 
dominance test for determining those trusts for which a labor 
organization is required to file the Form T-1.
    The Department has clarified the test to better identify how to 
determine whether a labor organization's contributions to the section 
3(l) trust during a reporting period trigger a reporting obligation. As 
a general rule, a labor organization must file a report only if 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 receipts during the 
annual reporting period; contributions made pursuant to a collective 
bargaining agreement shall be considered contributions by the labor 
organization. The Department has also modified two terms used in the 
proposed rule in determining whether a labor organization must file a 
Form T-1 for a section 3(l) trust by:
     Substituting ``receipts'' in place of ``revenues,'' the 
term used in the proposal; the change addresses accounting concerns 
raised by some commenters; and
     Substituting the phrase ``contributions made pursuant to a 
collective bargaining agreement shall be considered the labor 
organization's contributions'' in place of ``contributions made on 
behalf of the labor organization or its members shall be considered the 
labor organization's contribution''; this change clarifies that only 
contributions by employers that are required under an agreement 
negotiated by labor organizations should be counted as labor 
organization contributions and that other contributions, including 
contributions made by employees themselves should not be counted as 
labor organization contributions.
    The Department received numerous comments on the proposed 
management control and financial dominance test. Most commenters 
opposed the proposed test, focusing on its application to Taft-Hartley 
trusts.\3\ Commenters asserted that the proposal was contrary to the 
decisions in court challenges to the Department's earlier efforts to 
establish a Form T-1: AFL-CIO v. Chao, 409 F.3d 377 (DC Cir. 2005) 
(2003 final rule); AFL-CIO v. Chao, 496 F. Supp. 2d 76, 90 (D.DC 2007) 
(2006 final rule); violated ERISA or at least created unnecessary 
burden for section 3(l) trusts subject to ERISA; ignored the legal 
status of trusts and the fiduciary duty that trust officials owe to the 
trust exclusively, not to the labor organizations or employers 
participating in the trust; and mistakenly characterized contributions 
by employers on behalf of employees to the trusts as contributions by 
or on behalf of the participating labor organizations. Some commenters 
expressed concern about practical difficulties associated with the 
proposal, including how to differentiate between labor organization 
members and others as beneficiaries under the trust and how to measure 
the trust's revenues during a reporting period to determine whether 
labor organization contributions constitute a majority of such 
revenues.
---------------------------------------------------------------------------

    \3\ Labor organizations hold financial interests in various 
types of section 3(l) trusts, some of which they jointly administer 
with employers and others that are wholly administered by labor 
organizations or a trustee or trustees selected by labor 
organizations. Although the Department received numerous comments 
about its proposal, none suggested that the test was inappropriate 
for trusts other than those operated jointly with employers. The 
comments instead focused on the application of the test to ``Taft-
Hartley'' trusts, i.e., joint labor organization and employer trusts 
established pursuant to section 302 of the Taft-Hartley Act. 29 
U.S.C. 186(c)
    It deserves emphasis that the managerial control test will not 
trigger a Form T-1 filing requirement for Taft-Hartley funds because 
they have boards whose directors are divided equally between 
employers and labor organizations. (The managerial control test 
requires labor organizations to appoint a majority of the board.) 
Thus, only where the labor organization or a combination of labor 
organizations are responsible for a majority of the receipts of the 
trust (financial dominance test) will a Form T-1 be required for the 
trust, and, as discussed later in the text of this preamble, this 
will apply in the relatively small number of instances where a Taft-
Hartley fund does not fall within the exemption for entities filing 
the Form 5500. Although many commenters asserted, in effect, that 
labor organizations should not have to file a Form T-1 for any Taft-
Hartley trust, they fail to acknowledge, as further discussed in the 
text of the preamble, that the DC Circuit recognized the 
Department's ability to fashion a reporting obligation based either 
on managerial control or financial dominance.
---------------------------------------------------------------------------

Whether the Management Control and Financial Dominance Test Is 
Justified and Consistent With Form T-1 Court Decisions
    A Member of Congress expressed a concern--which is representative 
of several other comments--that the Department's proposal failed to 
heed the instructions provided by the court of appeals and the district 
court in the above cited cases. With respect to the 2006 rule, the same 
commenter stated:

    Without any explanation or justification * * * the 2006 final 
rule stated that in order to determine whether unions have financial 
domination over a trust, ``contributions by an employer on behalf of 
the union members as required by a collective bargaining agreement 
are considered to be contributions of the union as are any 
contributions otherwise made on the union's behalf.'' Id. at 57,746. 
By counting employers' contributions to trusts as union 
contributions, the rule continued to require disclosure from the 
vast majority of trusts in which unions are interested, since 
employers routinely make the majority of contributions to thousands 
of multi-employer Taft-Hartley funds that provide pension, health, 
and other benefits to union workers.

    Another commenter asserted that the Department's proposal ``is 
based on a basic misunderstanding of collective bargaining.'' A third 
commenter described the Department's proposal as based on the mistaken 
basis that ``employers have no interest in how a trust invests and 
spends its money.'' The Department disagrees with the assertion that 
the determination that a labor organization has financial dominance 
based on employer contributions pursuant to a collective bargaining 
agreement is either unexplained or unjustified. The ``financial 
dominance'' test was developed in response to the DC Circuit's opinion 
in AFL-CIO v. Chao. In that case, the court vacated the Department's 
2003 Form T-1 final rule (68 FR at 58374) on the ground that the 
Department exceeded its authority by ``requiring general trust 
reporting.'' Id. at 378-79, 391. As explained in the NPRM, the court 
held 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.'' 73 FR 11757.
    The NPRM further explained:

    [T]he court focused its inquiry on the extent of the labor 
organizations' relationship

[[Page 57417]]

with section 3(l) trusts and indicia of their management control or 
financial domination of the trusts. Id. at 388-89. * * * [T]he 
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.
    * * *
    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 DC 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.

    73 FR at 11761. The NPRM also explained:

    [T]ypically 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.

    Id.
    With respect to the Department's current proposal, a Member of 
Congress expressed the following opinion:

    The Department * * * does not explain how an employer's 
contributions to an employee benefit fund (which is jointly 
administered by labor and management trustees) on behalf of its 
employees could cause a union to exercise such financial domination. 
The Department's failure to explain the legal and empirical 
justifications for this controversial policy [has] deprive[d] 
interested parties of the opportunity to provide meaningful comments 
on the proposal and test the Department's analysis. In addition, 
because the District Court noted that the question of whether an 
employer's trust contributions cause union financial domination of 
trusts is an ``empirical'' question, the Department's failure to 
present any empirical information makes it very likely that the 
District Court will vacate the rule for a third time.

    Another commenter stated that the Department relied heavily on a 
presumption that employer contributions to jointly-trusteed funds are 
tantamount to union contributions for the purposes of establishing 
``union domination'' of the trusts, adding that unions cannot 
unilaterally compel employers to make contributions.
    The NPRM explained the Department's rationale for establishing 
employer contributions as indicia of financial control over a trust by 
labor organizations. The NPRM sketched the contemporary and historical 
instances of the diversion of trust funds to labor organization 
officials and third parties working with them, including instances of 
trusts funded with employer contributions and theoretically subject to 
the control of trustees appointed by labor organizations and employers 
and subject to strict fiduciary duties. Trusts that are set up pursuant 
to collective bargaining agreements between a labor organization and 
the employer, the terms of which, and level of contributions to, are 
established in those agreements are subject to considerable influence 
by the labor organization.\4\ At the same time, the Department fully 
recognizes that labor organizations do not have a free hand in setting 
contribution amounts. As several commenters recognized, the amount of 
an employer's contributions to such a trust is part of the employer's 
total labor costs. How the employer's ``labor outlay'' is allocated is 
of relatively greater concern to the labor organization than the 
employer, a factor that directly affects the amount of a trust's 
funding, especially to the extent that money is allocated on some 
basis, such as training, that does not serve equally each particular 
individual's interests, such as where there is an across the board 
increase in health benefits or in the hourly rate of pay. As such, 
contributions paid into the trust by employers provide an effective 
gauge of the labor organizations influence over a trust's financial 
operations.
---------------------------------------------------------------------------

    \4\ In its proposal, the Department noted that in other 
contexts, effective, de facto, or practical control is an 
appropriate measure of control, explaining that such a standard 
would also be consistent with the DC Circuit's opinion. In the 
proposal, the Department observed that some legal commenters had 
expressed the view that practical control over many Taft-Hartley 
trusts had been ceded to labor organizations. 73 FR at 11762. The 
Department invited comment on whether this observation was accurate 
and, if so, for this reason or other independent reasons, whether 
the Department should establish a reporting threshold that is based 
on less than predominant labor organization control over a section 
3(l) trust. No commenter supports this observation as accurate and 
several stated that it was contrary to their experience. As such the 
Department has retained the filing thresholds contained in the NPRM 
instead of adopting lower thresholds.
---------------------------------------------------------------------------

    In order to prevent circumvention or evasion for purposes of 
reporting, it is necessary to equate employer payments to the trust on 
behalf of employees as contributions by the labor organization, not in 
the sense that the contributions are the property of the labor 
organization, but rather that the amount of those contributions serves 
as a proxy for measuring the labor organization's influence over the 
trust. As the D.C. Circuit explained, notwithstanding a trust's funding 
by an employer, such trusts are properly regulated by the Department 
under 29 U.S.C. 208, because ``[f]or such trusts, the union has used 
its bargaining power to establish the trust, to define the purposes for 
which funds may be used, to appoint union representatives to the 
governing board * * * and to obligate the employer to direct funds to 
the trust's account.'' AFL-CIO v. Chao, 409 F.3d 387. Under the 
proposed and final rule, in contrast to the 2003 rule, a labor 
organization is required to file a Form T-1 only where the labor 
organization has predominant managerial control over the trust or the 
trust's revenues are ``dominated by union member funds,'' i.e., funds 
contributed on their behalf by an employer. See 403 F.3d at 391.
    Inasmuch as Taft-Hartley trusts by definition are funded by 
employer payments under these agreements, the commenters' assertion, in 
essence, is reduced to the proposition that Taft-Hartley trusts cannot 
be subject to the Form T-1 reporting obligation given the source of 
their funding. This position, however, ignores the D.C. Circuit's 
rejection of this theory. 409 F.3d at 387 (``[Section 3(l)'s] terms do 
not dictate a narrow conception of union financial operations such that 
as the AFL-CIO maintains, Taft Hartley * * * plans funded by employer 
rather than union contributions * * * would be beyond the reach of [the 
Department's] authority under section 208''). Moreover, this position 
also lacks support under the district court's decision in AFL-CIO v. 
Chao, 496 F. Supp. 2d 76 (D.D.C. 2007) (vacating the 2006 Form T-1 
Final Rule on procedural grounds). That decision simply noted that the 
AFL-CIO had asserted that the Department's determination to include 
employer contributions as part of a labor organization's financial 
stake in a trust lacked an ``empirical basis.'' See 496 F.

[[Page 57418]]

Supp. 2d at 90. The court did not suggest that it agreed with the 
assertion. Id. This result is consistent with D.C. Circuit's 
recognition of the Department's authority to require labor 
organizations to report on the financial operations of Taft-Hartley 
trusts and the Court's acknowledgment of the Department's finding that 
a joint training fund (Taft-Hartley trust) could be required to file a 
Form T-1. See 409 F.3d at 387. As observed by the district court, 
``[t]he DC Circuit's 2005 decision * * * left the Secretary ample 
discretion in fashioning a new rule'' and that ``included within the 
bounds of that discretion * * * was the decision to equate employer 
contributions made pursuant to a collective bargaining agreement with 
contributions from the unions themselves.'' 496 F. Supp. 2d at 87. 
Additionally, as discussed above, the Department's position fully 
recognizes that the funding of section 3(l) trusts is dependent upon 
collective bargaining. Because the amount of the contributions to a 
trust is tied directly to the collective bargaining agreement, it is 
entirely appropriate to use the payments made by an employer pursuant 
to that agreement as a proxy for measuring the influence of the labor 
organization over the trust. Where those contributions comprise a 
majority of the trust's receipts, it is also entirely appropriate to 
require labor organizations to file a Form T-1.
    Under the final rule, management control or financial dominance is 
determined by looking at the involvement of all the labor organizations 
contributing to or managing the trust. As noted by the D.C. Circuit, 
the Department's experience 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 several labor organizations with 
common affiliation, industry, or location, participate in a trust, but 
none alone holds predominant management control over or dominates the 
trust financially. 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, thereby denying members of the 
participating labor organizations 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.
Whether the Management Control and Financial Dominance Test Is 
Necessary in Light of, and Can Be Reconciled With, Other Regulatory 
Regimes
    Commenters asserted that the proposal exceeds the Department's 
authority under the LMRDA and ignored ERISA's effectively exclusive 
regulation of Taft-Hartley trusts.
    Some commenters stated that Congress did not intend the Department 
to regulate employee benefit trusts under the LMRDA, and instead sought 
to regulate these trusts, mandate disclosure, and prevent misconduct 
through ERISA and the Welfare and Pension Plans Disclosure Act of 1958 
(WPPDA), the pension law that preceded ERISA.\5\ Accordingly, the 
commenters assert that the Department should withdraw its proposed 
financial dominance test, which has the primary effect of imposing 
LMRDA reporting requirements on ERISA plans.
---------------------------------------------------------------------------

    \5\ A commenter asserted, without elaboration, that the 
Department's proposal violates section 302(c) of the LMRA. The 
Department disagrees with this statement. As evinced by section 208 
of the LMRDA, Congress expressly recognized the Department's 
authority to require labor organizations to report on the financial 
interests of section 3(1) trusts. Moreover, there is a clear 
distinction between the reporting requirements of the LMRDA and the 
substantive requirements of section 302(c); that section strictly 
limits payments by employers to trusts in which labor organization 
have an interest without indicating that these requirements would 
``preempt'' reporting requirements of the LMRDA or ERISA.
---------------------------------------------------------------------------

    Most of the commenters objected to the financial dominance test on 
the ground that the trustees of a Taft-Hartley trust owe an absolute 
duty of loyalty to the trust--to the exclusion of any duties to either 
the labor organization or the employer. They explained that the funding 
of the trust by agreement between the labor organization and the 
employer does not evince labor organization (or management) control 
over the trust.
    There is no merit to the claim that ERISA was intended to supplant 
the LMRDA insofar as requiring labor organizations to report on the 
financial interests of trusts in which they hold management control or 
financial dominance. Section 514(d) of ERISA states: ``Nothing in this 
subchapter shall be construed to alter, amend, modify, invalidate, 
impair, or supersede any law of the United States [with exceptions not 
here pertinent] or any rule or regulation issued under any such law.'' 
29 U.S.C. 1144(d). The WPPDA contained a similar provision, casting 
doubt on the assertion that these Acts constrain the Department's 
authority under the LMRDA. See WPPDA section 10(b) (72 Stat. at 1003 
(1958) (WPPDA does not exempt any person from any duty under any 
present or future federal law affecting the administration of employee 
welfare or pension benefit plans)). In the Department's view, the LMRDA 
and ERISA serve complementary purposes. There also is an evident 
similarity between the duty labor organizations officials owe to their 
labor organization and the duty trust officials owe to their trust.
    Contrary to an implicit premise underlying many of the comments 
that ERISA and the LMRDA are co-extensive insofar as labor 
organization-related trusts are concerned, ERISA applies to only a 
subset of the section 3(l) trusts. Some section 3(l) trusts are not 
covered at all by ERISA. Title I of ERISA covers only pension and 
``employee welfare benefit plans'' established or maintained (1) by any 
employer engaged in commerce or in any industry or activity affecting 
commerce; or (2) by any employee organization or organizations 
representing employees engaged in commerce or in any industry or 
activity affecting commerce; or (3) both. 29 U.S.C. 1003(a). While 
there is considerable overlap between section 3(l) trusts and ERISA 
``employee welfare benefit plans,'' some funds in which labor 
organizations participate 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 annual reports. See, e.g., 29 CFR 2520.104-20 (welfare 
plans with fewer than 100 participants); 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 (2004 ed.), available 
at https://www.dol.gov/ebsa/pdf/rdguide.pdf.
    Several commenters stated that section 302 of the Labor Management 
Relations Act (Taft-Hartley Act) contains structural requirements 
designed to avoid any possibility of labor organization dominance, 
including a requirement that payments must be held in trust for the 
sole and exclusive benefit of employees and their dependents, and a 
requirement of an annual audit. They assert that section 302 was 
enacted precisely ``to ensure that the funds in such a trust are not 
used as a labor organization `war chest'.'' NLRB v. Amax Coal Co., 453

[[Page 57419]]

U.S. 322 (1981). By definition, therefore, they argue that trusts that 
are subject to section 302 cannot be subject to labor organization 
dominance and therefore pose no risk of ``circumvention or evasion'' of 
the LMRDA's reporting requirements. In the NPRM, the Department 
explicitly recognized the fiduciary duties that apply to trustees under 
ERISA. Nothing in the proposal suggested that trustees routinely ignore 
these duties and put the interests of their labor organizations or 
their own interests ahead of their obligation to the trust. The 
Department recognizes that most trustees faithfully observe their 
duties. Nonetheless, it cannot be doubted that there are also instances 
where those duties are ignored with the attendant loss of funds held in 
trust for the labor organization and its members.
    This rule is prophylactic; as such, of necessity it must require 
reporting even where trustees faithfully observe their duties. At the 
same time, its reach is necessary to empower labor organization members 
to determine whether transactions between the trust and other 
individuals and entities are proper. In many instances, the rule also 
allows labor organization members and this Department to determine 
whether transactions by or with the trust created a reciprocal 
reporting obligation on labor organization officials and employers who 
have separate reporting obligations under the LMRDA. As stated in the 
NPRM, ``[b]ecause a labor organization's obligation to submit a Form T-
1 overlaps with the responsibility of the labor organization officials 
[pursuant to 29 U.S.C. 432] 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.''
    As an additional benefit, the transparency provided by the rule may 
have the salutary benefit of deterring individuals from engaging in 
improper or illegal transactions. Neither as proposed nor modified in 
this final rule does the reporting obligation interfere with ERISA. 
Indeed, given that labor organizations now have no obligation to file 
Form T-1 for many if not most trusts subject to ERISA, the arguments 
against the proposal on this basis lose much of their force.
    Where trusts are not subject to ERISA or not required to file the 
annual reports required of most ERISA-regulated trusts, the Form T-1 
reporting obligation provides labor organization members their first 
opportunity, in most instances, to receive an annual report on the 
financial operations of their labor organization's section 3(l) trusts.
Whether the Management Control and Financial Dominance Test Creates 
Unwarranted Compliance Difficulties
    Some commenters expressed concern about the practical difficulty of 
determining whether a trust beneficiary was a labor organization member 
or not. Some commenters noted that although the trusts have records 
distinguishing between contributions submitted pursuant to collective 
bargaining agreements--as distinct from contributions submitted on 
behalf of non-bargaining unit groups, the trusts do not have records 
permitting them to differentiate employer contributions made on behalf 
of labor organization members from contributions made on behalf of non-
labor organization employees. These commenters stated that in order to 
provide such data labor organizations would be required to ask 
participating employers to take on an additional reporting obligation 
to the plans. A commenter explained that in order to determine whether 
the 50% revenue threshold was met, the trust and the labor organization 
would have to exchange records to identify trust participants who are 
members of the labor organization, a task that would require 
significant time.
    These concerns are based upon a simple misunderstanding of the 
proposal and are easily resolved. As discussed in the NPRM, 73 FR 
11758-61, the labor organization exercises effective control over a 
trust if it directly contributes the trust's funds or if it negotiates 
with an employer for employer funding of the trust. Whether the 
individuals on whose behalf contributions are made pursuant to a 
collective bargaining agreement are themselves members of the labor 
organization is irrelevant. Thus, it is not necessary to determine how 
many beneficiaries of the trust are members or non-members of the labor 
organization to determine whether the threshold has been met; instead 
the relevant factor for making this determination is the amount of 
receipts contributed pursuant to the collective bargaining agreement, 
whether made on behalf of members or non-members.
    Contributions made pursuant to a collective bargaining agreement by 
an employer will be considered contributions of the labor organization 
(as, of course, would contributions by the labor organization itself). 
The instructions and regulation have been revised accordingly. 
Consequently, the phrase ``contributions made on behalf of the labor 
organization or its members shall be considered the labor 
organization's contribution'' has been revised to read ``contributions 
made pursuant to a collective bargaining agreement shall be considered 
the labor organization's contributions.''
    Contributions received by the trust on behalf of persons 
represented by the labor organization but who are not members of the 
labor organization (such as agency fee payers) would thus be included 
within the definition of ``receipts.'' The test is whether the 
contributions are made pursuant to a collective bargaining agreement. 
The test is not whether the beneficiaries of the trust are labor 
organization members.
Whether Financial Dominance Should Be Measured by ``Receipts'' or by 
``Revenue''
    Several commenters asked the Department to clarify how to determine 
whether the labor organization's contributions comprised a majority of 
the trust's revenues during the reporting period. In the NPRM, the 
Department, as noted above, framed its financial dominance test in 
terms of a labor organization's contributions (more than 50%) of the 
trust's revenues during the annual reporting period. The term 
``revenue'' was used by the D.C. Circuit in discussing how the 
Department could properly fashion a reporting obligation where a labor 
organization or labor organizations financially dominated a trust. See 
AFL-CIO v. Chao, 409 F.3d at 390. The court did not define this term, 
nor suggest that its usage was to limit the Department to an approach 
constrained by the technical meaning ascribed to the term by 
accountants.
    Some commenters noted that the term ``revenue'' has a different 
meaning than ``receipts.'' One commenter, noting that accounting 
professionals use slightly different interpretations of what 
constitutes ``revenue,'' proposed the following as included within its 
reach--contributions, interest and liquidated damages charged for 
delinquent contributions, all investment income, realized gains, 
grants, rents, reimbursements and other income, grants and employee 
elective deferrals to 401(k) and cafeteria plans. Some commenters 
asserted that if ``revenue'' is defined in such a way as to include 
income such as capital gains, interest, dividends and the like, then 
many trusts will fall in and out of Form T-1 coverage depending on 
market returns. They explained that this could result in a lack of 
disclosure in good financial years, and conversely, could require 
reporting in poor financial years. The resulting shifting reporting 
requirements

[[Page 57420]]

would lead to a lack of consistent reporting on these trusts and create 
confusion for labor organization members. Thus, for example, if 
``revenue'' includes all amounts received from the sale of securities, 
even when promptly reinvested or ``rolled over,'' the amount of 
``revenue'' attributable to the trust could easily dwarf any other 
source of income or receipts, reducing the number of Form T-1 reports 
filed.
    The Department agrees tha