Labor Organization Annual Financial Reports, 3678-3820 [E9-503]

Agencies

• Employment Standards Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 74, Number 12 (Wednesday, January 21, 2009)]
[Rules and Regulations]
[Pages 3678-3820]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-503]



[[Page 3677]]

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

Part II





Department of Labor





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



Employment Standards Administration



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



29 CFR Parts 403 and 408



Labor Organization Annual Financial Reports; Final Rule

Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / 
Rules and Regulations

[[Page 3678]]


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

DEPARTMENT OF LABOR

Employment Standards Administration

29 CFR Parts 403 and 408

RIN 1215-AB62


Labor Organization Annual Financial Reports

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

ACTION: Final Rule.

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

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

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

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

SUPPLEMENTARY INFORMATION: 

I. Statutory Authority

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

II. Background

A. Introduction

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

[[Page 3679]]

become more important to members.\2\ Moreover, labor organization 
members today are better educated, more empowered, and more familiar 
with financial data and transactions than ever before. As labor 
organization members, no less than as consumers, citizens, or 
creditors, they expect access to relevant and useful information in 
order to make fundamental investment, career, and retirement decisions, 
evaluate options, and exercise legally guaranteed rights.
---------------------------------------------------------------------------

    \1\ There are now more large labor organizations affiliated with 
a national or international body than ever before. At the close of 
FY 2005, 4,452 labor organizations, including 101 national and 
international labor organizations, reported $250,000 or more in 
total annual receipts. Unless otherwise noted, all estimates are 
based on data from the OLMS electronic labor organization reporting 
system (``e.LORS'') for FY 2005.
    \2\ The balance between wages/salaries paid to workers and their 
``other compensation'' has changed significantly during this time. 
For example, in 1966, over 80% of total compensation consisted of 
wages and salaries, with less than 20% representing benefits. U.S. 
Department of Labor, Report on the American Workforce (2001) 76, 87. 
By 2007, wages dropped to 70.8% of total compensation and benefits 
grew to 29.4% of the compensation package. U.S. Department of Labor, 
Bureau of Labor Statistics Chart on Total Benefits, available on the 
Web site of the Bureau of Labor Statistics, https://www.bls.gov.
---------------------------------------------------------------------------

B. The LMRDA's Reporting and Other Requirements

    In enacting the LMRDA in 1959, a bipartisan Congress made the 
legislative finding that in the labor and management fields ``there 
have been a number of instances of breach of trust, corruption, 
disregard of the rights of individual employees, and other failures to 
observe high standards of responsibility and ethical conduct which 
require further and supplementary legislation that will afford 
necessary protection of the rights and interests of employees and the 
public generally as they relate to the activities of labor 
organizations, employers, labor relations consultants, and their 
officers and representatives.'' 29 U.S.C. 401(a).
    The statute was the direct outgrowth of a congressional 
investigation conducted by the Select Committee on Improper Activities 
in the Labor or Management Field, commonly known as the McClellan 
Committee, chaired by Senator John McClellan of Arkansas. In 1957, the 
committee began a highly publicized investigation of labor organization 
racketeering and corruption; and its findings of financial abuse, 
mismanagement of labor organization funds, and unethical conduct 
provided much of the impetus for enactment of the LMRDA's remedial 
provisions. See generally Benjamin Aaron, The Labor-Management 
Reporting and Disclosure Act of 1959, 73 Harv. L. Rev. 851, 851-55 
(1960). During the investigation, the committee uncovered a host of 
improper financial arrangements between officials of several 
international and local labor organizations and employers (and labor 
consultants aligned with the employers) whose employees were 
represented by the labor organizations in question or might be 
organized by them. See generally Interim Report of the Select Committee 
on Improper Activities in the Labor or Management Field, S. Rep. No. 
85-1417 (1957); see also William J. Isaacson, Employee Welfare and 
Benefit Plans: Regulation and Protection of Employee Rights, 59 Colum. 
L. Rev. 96 (1959).
    The statute was designed to remedy these various ills through a set 
of integrated provisions aimed at labor organization governance and 
management. These include a ``bill of rights'' for labor organization 
members, which provides for equal voting rights, freedom of speech and 
assembly, and other basic safeguards for labor organization democracy, 
see 29 U.S.C. 411-15; financial reporting and disclosure requirements 
for labor organizations, their officers and employees, employers, labor 
relations consultants, and surety companies, see 29 U.S.C. 431-36, 441; 
detailed procedural, substantive, and reporting requirements relating 
to labor organization trusteeships, see 29 U.S.C. 461-66; detailed 
procedural requirements for the conduct of elections of labor 
organization officers, see 29 U.S.C. 481-83; safeguards for labor 
organizations, including bonding requirements, the establishment of 
fiduciary responsibilities for labor organization officials and other 
representatives, criminal penalties for embezzlement from a labor 
organization, a prohibition on certain loans by a labor organization to 
officers or employees, prohibitions on employment and officeholding of 
certain convicted felons in a labor organization, and prohibitions on 
payments to employees, labor organizations, and labor organization 
officers and employees for prohibited purposes by an employer or labor 
relations consultant, see 29 U.S.C. 501-05; and prohibitions against 
extortionate picketing, retaliation for exercising protected rights, 
and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529, 
530.
    Financial reporting and disclosure was conceived as a partial 
remedy for these improper practices. As noted in a key Senate Report on 
the legislation, disclosure would discourage questionable practices 
(``The searchlight of publicity is a strong deterrent.''); aid labor 
organization governance (Labor organizations will be able ``to better 
regulate their own affairs. The members may vote out of office any 
individual whose personal financial interests conflict with his duties 
to members.''); facilitate legal action by members against ``officers 
who violate their duty of loyalty to the members''; and create a record 
(The reports will furnish a ``sound factual basis for further action in 
the event that other legislation is required.''). S. Rep. No. 187 
(1959), at 16, reprinted in 1 NLRB Legislative History of the Labor-
Management Reporting and Disclosure Act of 1959, at 412.
    Section 201 of the LMRDA requires labor organizations to file 
annual, public reports with the Department, detailing the labor 
organization's financial condition and operations. 29 U.S.C. 431(b). 
The Department has developed several forms for implementing the LMRDA's 
financial reporting requirements. The annual report forms (Form LM-2, 
Form LM-3, and Form LM-4), require information about a labor 
organization's assets, liabilities, receipts, disbursements, loans to 
officers and employees and business enterprises, direct and indirect 
payments to each officer, and payments to each employee of the labor 
organization paid more than $10,000 during the fiscal year.\3\ The 
reporting detail required of labor organizations, as the Secretary has 
established by rule, varies depending on the amount of the labor 
organization's annual receipts. 29 CFR 403.4.
---------------------------------------------------------------------------

    \3\ The format of Forms LM-2 and LM-3 remained essentially 
unchanged from the early 1960s, when the Department issued the first 
and second generation of rules under the Act, until October 2003 
when the revised Form LM-2 was issued. See, e.g., 25 FR 433 (Jan. 
20, 1960); 28 FR 14383 (Dec. 27, 1963). The Form LM-4 was adopted by 
a final rule in 1992 with an effective date of December 31, 1993. 
See 57 FR 49356-49365 (Oct. 30, 1992). The effective date was 
subsequently postponed until December 31, 1994. See 58 FR 28304 (May 
12, 1993). The Form LM-4 was then revised slightly and adopted by a 
final rule with the same December 31, 1994 effective date. See 58 FR 
67594 (Dec. 21, 1993).
---------------------------------------------------------------------------

    Labor organizations with annual receipts of at least $250,000 and 
all labor organizations in trusteeship (without regard to the amount of 
their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4. 
This form may be filed voluntarily by any other labor organization. The 
Form LM-2 requires receipts and disbursements to be reported by 
functional categories, such as representational activities; political 
activities and lobbying; contributions, gifts, and grants; union 
administration; and benefits. Further, the form requires filers to 
allocate the time their officers and employees spend according to 
functional categories, as well as the payments that each of these 
officers and employees receive, and it compels the itemization of 
certain transactions

[[Page 3680]]

totaling $5,000 or more. This form must be electronically signed and 
filed with the Department.\4\
---------------------------------------------------------------------------

    \4\ 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.
---------------------------------------------------------------------------

    Forms LM-3 and LM-4 were developed by the Secretary to meet the 
LMRDA's charge that she develop ``simplified reports for labor 
organizations and employers for whom [s]he finds by virtue of their 
size a detailed report would be unduly burdensome,'' 29 U.S.C. 438. A 
labor organization not in trusteeship that has total annual receipts 
less than $250,000 for its fiscal year may elect, ``subject to 
revocation of the privilege,'' to file Form LM-3 or Form LM-4, 
depending on its total annual receipts, instead of Form LM-2. See 29 
CFR 403.4(a)(1).\5\ The Form LM-3, which may be used by a labor 
organization with annual receipts of $10,000 or greater, but less than 
$250,000, is a five-page document requiring labor organizations to 
provide particularized information by certain categories, but in less 
detail than Form LM-2. A labor organization not in trusteeship that has 
total annual receipts less than $10,000 for its fiscal year may elect, 
``subject to revocation of the privilege,'' to file Form LM-4 instead 
of Form LM-2 or Form LM-3. 29 CFR 403.4(a)(2). The Form LM-4 is a two-
page document that requires a labor organization to report only the 
total amounts of its assets, liabilities, receipts, disbursements, and 
payments to officers and employees.
---------------------------------------------------------------------------

    \5\ The 2003 rule set this amount at $250,000. However, the rule 
inadvertently failed to change the figure in 29 CFR 403.4(a)(1) from 
$200,000 to $250,000. As part of this final rule, the Department has 
revised section 403.4(a)(1) by correcting it to read ``$250,000.'' 
See text of regulation.
---------------------------------------------------------------------------

    With regard to each of these reports, the LMRDA states that the 
Secretary of Labor shall ``prescribe the[ir] form and publication * * * 
and such other reasonable rules and regulations * * * as he may find 
necessary to prevent the circumvention or evasion of such reporting 
requirements.'' 29 U.S.C. 438. This final rule revises the Form LM-2 
and establishes a procedure and standards for revocation of a labor 
organization's simplified filing privilege. The revised Form LM-2 will 
provide greater transparency of labor organization finances and 
effectuate the goals of the LMRDA.

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

A. Form LM-2

1. Introduction
    The Department proposed changes to enhance the Form LM-2 by 
requiring labor organizations to disclose additional information about 
their financial activities to their members, this Department, and the 
public. Each of the changes proposed has been adopted in the final 
rule, with some modifications in response to public comment received on 
the proposals. On the revised form, labor organizations will provide 
additional information in Schedule 3 (``Sale of Investments and Fixed 
Assets'') and Schedule 4 (``Purchase of Investments and Fixed Assets'') 
that will allow verification that these transactions are performed at 
arm's length and without conflicts of interest. Schedules 11 and 12 
have also been revised to require reporting of the value of benefits 
paid to and on behalf of officers and employees. This change will 
provide a more accurate picture of total compensation received by labor 
organization officers and employees. Labor organizations will report on 
Schedules 11 and 12 travel reimbursements indirectly paid on behalf of 
labor organization officers and employees. This change will provide 
more accurate information on travel disbursements for labor 
organization officers and employees. The enhancements also include 
additional schedules corresponding to the following categories of 
receipts: Dues and Agency Fees; Per Capita Tax; Fees, Fines, 
Assessments, Work Permits; Sales of Supplies; Interest; Dividends; 
Rents; On Behalf of Affiliates for Transmittal to Them; and From 
Members for Disbursement on Their Behalf. These new schedules will 
require the reporting of additional information, by receipt category, 
of aggregated receipts of $5,000 or more. The $5,000 threshold for 
itemization is used throughout the Form LM-2. This change is consistent 
with the information currently provided for disbursements. Finally, the 
Department is amending the Form LM-2 instructions to conform to the 
requirements of the Form T-1 published on October 2, 2008.\6\
---------------------------------------------------------------------------

    \6\ When the current Form LM-2 was revised in 2003, the 
Department also established a Form T-1. The latter was vacated by 
the DC Circuit in American Federation of Labor and Congress of 
Industrial Organizations v. Chao, 409 F.3d 377 (2005). See 
discussion at 73 FR 57412, 57413 (Oct. 2, 2008). The Form LM-2 
instructions contained descriptive information about the Form T-1. 
As discussed in its proposal to revise the Form LM-2, 73 FR at 
57416, the Department noted that it had proposed to establish a new 
Form T-1 (73 FR 11754 (Mar. 4, 2008)) and that a final Form T-1 rule 
would affect the instructions to the Form LM-2. Because the Form T-1 
published on October 2, 2008, 73 FR 57412, differs in some respects 
from the Form T-1, as described in the 2003 rule, the Department has 
revised the relevant portion of the Form LM-2 instructions to 
reflect the new Form T-1. The most significant changes have been 
made to Section X of the General Instructions. Compare the language 
of the new Form LM-2 instructions, at pages 4-6, with the language 
in the new Form T-1 instructions, at pages 1-3, shown at 73 FR at 
57457-59. Minor changes have been made to sections II and VII of the 
General Instructions; items 10 (``Trusts or Funds'') and 11 
(``Political Action Committee Funds''); and Schedule 7 (``Other 
Assets'').
---------------------------------------------------------------------------

    The Department also sought comment on three specific questions: 
Whether the functional categories on the Form LM-2 should be changed in 
order to improve their usability to members of labor organizations and 
the public; whether the confidentiality exception from the Form LM-2 
instructions should be narrowed, clarified or removed; and ``whether 
all transactions greater than $5,000 should be identified by amount and 
date in the relevant schedules, permitting, however, labor 
organizations, where acting in good faith and on reasonable grounds, to 
withhold information that otherwise would be reported, in order to 
prevent the divulging of information relating to the labor 
organization's prospective organizing or negotiat[ing] strategy.'' 73 
FR at 27352-53. Comments were received on these questions; however, 
with the exception of a clarification about the use of the 
confidentiality exception for reporting payments under a job targeting 
or market recovery program, the Department has made no changes to the 
Form LM-2 on the points for which specific comments were requested.
    The Department framed the request regarding the appropriateness of 
the functional reporting categories as follows:

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

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

[[Page 3681]]

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

[[Page 3682]]

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

[[Page 3683]]

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

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

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

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

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

[[Page 3684]]

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

[[Page 3685]]

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

[[Page 3686]]

for bona fide transactions made with a registered securities exchange. 
Those transactions that do not qualify for the exception, i.e., 
securities purchased outside these highly regulated channels, will be 
of particular interest to members, the public, and the Department. 
These are the types of transactions that are subject to abuse whether 
it is abuse by the labor organization or the independent investment 
manager. Therefore, the Department has chosen not to create an 
exception for investment manager transactions.
    A number of commenters expressed a concern that the additional 
information required for the sale and purchase of investments on 
Schedules 3 and 4 will be deceptive. A national labor organization 
argued that the value of a given stock transaction cannot be understood 
absent an understanding of market conditions, news affecting that 
particular stock and market segment at the time of sale and the 
investment manager's strategy resulting in the sale. Additionally, it 
stated that the ``market price'' of a tangible item, such as a car, 
cannot be objectively determined without knowledge of the degree of 
wear-and-tear, local market conditions, and the like. Without these 
essential facts a national labor organization stated that listing the 
name of the purchaser and the date of the sale may well lead union 
members to conclude that a buyer received a windfall when, in fact, 
that is not the case. The labor organization suggested that the 
Department retain the current reporting format, aggregating the total 
of all such sales and purchases and the net effect on assets.
    The Department disagrees with the suggestion that the proposed 
changes to Schedules 3 and 4 will be deceptive. As discussed earlier, 
members will be able to assess without difficulty whether the sale or 
purchase of an asset and its price appears appropriate given its timing 
and the existing market conditions. Unlike the previous Form LM-2, 
members wi