Labor Organization Annual Financial Reports, 18172-18177 [E9-9175]

Agencies

• DEPARTMENT OF LABOR
• Office of Labor-Management Standards

[Federal Register Volume 74, Number 75 (Tuesday, April 21, 2009)]
[Proposed Rules]
[Pages 18172-18177]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9175]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Office of Labor-Management Standards

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: Notice of proposed rulemaking; request for comments.

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

SUMMARY: This Notice of Proposed Rulemaking proposes to withdraw a rule 
published in the Federal Register on January 21, 2009, pertaining to 
the filing by labor organizations of the Form LM-2, an annual financial 
report required by the Labor-Management Reporting and Disclosure Act of 
1959, as amended (LMRDA). On February 3, 2009, the Department's 
Employment Standards Administration (ESA) Office of Labor-Management 
Standards (OLMS) published a request for comments about issues of law 
and policy raised by this rule (74 FR 5899), consistent with directions 
from the new Administration to review all regulations that had not yet 
become effective. On February 20, 2009, the Department of Labor 
postponed the effective date of this rule until April 21, 2009, to 
allow additional time for the Department to review comments received 
pursuant to the earlier notice, which were due by March 5, 2009, and to 
permit labor unions to delay development and implementation of costly 
changes to their accounting and recordkeeping systems and procedures 
pending this review. A further extension of the rule's effective date 
and an

[[Page 18173]]

extension of the rule's applicability date were proposed on March 19, 
2009, and the effective date is delayed until October 19, 2009 in a 
document published elsewhere in this issue of the Federal Register. 
Upon consideration of the comments received on questions of law and 
policy raised by the January 21 rule, the Department proposes its 
withdrawal, because the rule was issued without an adequate review of 
the Department's experience under the relatively recent revisions to 
Form LM-2 in 2003 and because the comments indicate that the Department 
may have underestimated the increased burden that would be placed on 
reporting labor organizations by the January 21 rule. Finally, the 
Department has concluded, based on the comments received, that the 
provisions related to the revocation of a small union's authorization 
to file a simpler form because it has been delinquent or deficient in 
filing that form are not based upon realistic assessments of such a 
union's ability to file the more complex form and are unlikely to 
achieve the intended goals of greater transparency and disclosure.

DATES: Comments must be received on or before May 21, 2009.

ADDRESSES: You may submit comments, identified by RIN 1215-AB62, only 
by the following methods:
    Internet--Federal eRulemaking Portal. Electronic comments may be 
submitted through https://www.regulations.gov. To locate the proposed 
rule, use key words such as ``Labor-Management Standards'' or ``Labor 
Organization Annual Financial Reports'' to search documents accepting 
comments. Follow the instructions for submitting comments. Please be 
advised that comments received will be posted without change to https://www.regulations.gov, including any personal information provided.
    Delivery: Comments should be sent to: Denise M. Boucher, Director 
of the Office of Policy, Reports and Disclosure, Office of Labor-
Management Standards, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Room N-5609, Washington, DC 20210. Because of security 
precautions the Department continues to experience delays in U.S. mail 
delivery. You should take this into consideration when preparing to 
meet the deadline for submitting comments.
    The Office of Labor-Management Standards (OLMS) recommends that you 
confirm receipt of your delivered comments by contacting (202) 693-0123 
(this is not a toll-free number). Individuals with hearing impairments 
may call (800) 877-8339 (TTY/TDD). Only those comments submitted 
through https://www.regulations.gov, hand-delivered, or mailed will be 
accepted. Comments will be available for public inspection at https://www.regulations.gov and during normal business hours at the above 
address.

FOR FURTHER INFORMATION CONTACT: Denise M. Boucher, Director, Office of 
Policy, Reports and Disclosure, Office of Labor-Management Standards, 
Employment Standards Administration, U.S. Department of Labor, 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 proposed rescission of the January 21, 2009 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. Section 
208 also provides that the Secretary shall 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, and 
to revoke this authorization to file simplified reports 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. Secretary's Order 01-2008, issued May 30, 2008, and 
published in the Federal Register on June 6, 2008 (73 FR 32424), 
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.

II. Background

A. Introduction

    The proposal to rescind the January 21, 2009 rule is part of the 
Department's continuing effort to fairly effectuate the reporting 
requirements of the LMRDA. The LMRDA's various reporting provisions are 
designed to empower labor organizations and their members by providing 
the means and information to ensure a proper accounting of labor 
organization funds. The Department believes that a fair and transparent 
government regulatory regime must consider and balance the interests of 
labor organizations, their members, and the public. Any change to a 
union's recordkeeping, accounting, and reporting practices must be 
based on a demonstrated and significant need for additional 
information, consideration of the burden associated with such 
reporting, and any increased costs associated with reporting additional 
information.
    On January 21, 2009, OLMS published in the Federal Register (74 FR 
3677) a rule revising the Form LM-2 (used by the largest labor 
organizations to file their annual financial reports). The rule would 
require labor unions to report additional information on Schedules 3 
(Sale of Investments and Fixed Assets), 4 (Purchase of Investments and 
Fixed Assets), 11 (All Officers and Disbursements to Officers) and 12 
(Disbursement to Employees). The rule also would 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 authorization to file the simplified 
annual report, Form LM-3, where appropriate, after investigation, due 
notice, and opportunity for a hearing. The rule was scheduled to take 
effect on February 20, 2009, and apply to labor unions whose fiscal 
years began on or after July 1, 2009.
    Consistent with the memorandum of January 20, 2009, from the 
Assistant to the President and Chief of Staff, entitled ``Regulatory 
Review'' and the memorandum of January 21, 2009, from the Director of 
the Office of Management and Budget (OMB), entitled ``Implementation of 
Memorandum Concerning Regulatory Review,'' on February 3, 2009, OLMS 
published a request for comments (74 FR 5899) on a proposed 60-day 
extension of the effective date of the January 21 rule and requesting 
comment on legal and policy questions relating to the rule, including 
the merits of rescinding or retaining the rule.
    On February 20, 2009 (74 FR 7814), OLMS extended the effective date 
of the January 21 rule until April 21, 2009, to allow additional time 
for the Department to review questions of law and policy concerning the 
regulations, for the public to comment on the merits of the rule, and, 
meanwhile, to permit unions to delay costly development and 
implementation of any necessary new accounting and recordkeeping 
systems and procedures pending this further consideration. On March 19, 
2009, OLMS published a proposed rule to further extend the effective 
date until October 19, 2009 and to extend the applicability date until 
January 1, 2010. The effective date is delayed until October 19, 2009 
in a document

[[Page 18174]]

published elsewhere in this issue of the Federal Register.

B. The LMRDA's Reporting Requirements

    In enacting the LMRDA in 1959, a bipartisan Congress sought to 
protect the rights and interests of employees, labor organizations and 
the public generally as they relate to the activities of labor 
organizations, employers, labor relations consultants, and their 
officers, employees, and representatives. The LMRDA was the direct 
outgrowth of a congressional investigation conducted by the Select 
Committee on Improper Activities in the Labor or Management Field, 
commonly known as the McClellan Committee. The LMRDA addressed various 
ills through a set of integrated provisions aimed at labor-management 
relations governance and management. These provisions include 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.
    The Department has developed several forms for implementing the 
LMRDA's union financial reporting requirements. The annual reports 
required by section 201(b) of the Act, 29 U.S.C. 431(b) (Form LM-2, 
Form LM-3, and Form LM-4), contain information about a labor 
organization's assets, liabilities, receipts, disbursements, loans to 
officers and employees and business enterprises, payments to each 
officer, and payments to each employee of the labor organization paid 
more than $10,000 during the fiscal year. The reporting detail required 
of labor organizations, as the Secretary has established by rule, 
varies depending on the amount of the labor organization's annual 
receipts. 29 CFR 403.4.
    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 of 
less than $250,000 for its fiscal year may elect to file Form LM-3 
instead of Form LM-2. See 29 CFR 403.4(a)(1). The Form LM-3 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 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 aggregate amounts of its assets, liabilities, receipts, 
disbursements, and payments to officers and employees.
    In 2003, the Department enacted extensive changes to the Form LM-2, 
the largest regulatory change to that form in the history of the LMRDA 
(``2003 rule,'' 68 FR 58374 (Oct. 9, 2003)). As a result of the 
changes, labor organizations with annual receipts of $250,000 or more 
are required to file a Form LM-2 report electronically and to itemize 
receipts and disbursements of $5,000 or more, as well as receipts not 
reported elsewhere from, or disbursements to, a single entity that 
total $5,000 or more in the reporting year. Such disbursements are 
required to be reported in specific categories such as 
``Representational Activities,'' and ``Union Administration.'' The 
changes eliminated a category entitled ``Other Disbursements'' and, 
overall, sought much more detailed reporting. Labor organizations were 
permitted to report sensitive information for some categories that 
might harm legitimate union or privacy interests with other non-
itemized receipts and disbursements, provided the labor organization 
indicated that it has done so and offered union members access to 
review the underlying data upon request pursuant to the statute (29 
U.S.C. 436).
    The 2003 rule also included schedules for reporting information 
regarding delinquent accounts payable and receivable, and it required 
labor organizations to report investments with a book value of over 
$5,000 and exceed 5% or more of the union's investments. Another new 
schedule required labor organizations to report the number of members 
by category, and allowed each labor organization to define the 
categories used for reporting. Finally, the 2003 rule required 
reporting labor organizations to estimate the proportion of each 
officer's and employee's time spent in each of the functional 
categories on the Form LM-2 and report that percentage of gross salary 
in the relevant schedule.

III. Proposal To Rescind

    For the reasons discussed below, the Department is proposing to 
rescind the January 21, 2009 rule (74 FR 3678). Rescission of the 
January 21 rule would not affect the filing of the Form LM-2 as 
prescribed by the 2003 rule or the Form LM-3, thereby ensuring 
disclosure of financial information to union members and the public as 
required under the LMRDA. The Department invites comments on its 
proposal to rescind the January 21 rule.

A. Proposal To Rescind the 2009 Changes to Form LM-2

1. Background
    The January 21, 2009 rule modified Form LM-2 by requiring labor 
organizations to disclose additional information about their financial 
activities to their members, this Department, and the public. On the 
revised form, labor organizations would provide additional information 
in Schedule 3 (``Sale of Investments and Fixed Assets'') and Schedule 4 
(``Purchase of Investments and Fixed Assets''), which the rule 
justified by stating that the changes would allow verification that 
these transactions were performed at arm's length and without conflicts 
of interest. 74 FR at 3684-87. Schedules 11 and 12 were also revised to 
require reporting of the value of benefits paid to and on behalf of 
officers and employees. 74 FR at 3687-91. The preamble to the rule 
stated that this change would provide a more accurate picture of total 
compensation received by labor organization officers and employees. 74 
FR at 3689. Labor organizations would report on Schedules 11 and 12 
travel reimbursements indirectly paid on behalf of labor organization 
officers and employees. 74 FR at 3687-88. The Form LM-2 changes also 
included 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. 74 FR at 3691-93. These new 
schedules would require the reporting of additional information, by 
receipt category, of aggregated receipts of $5,000 or more. Id.
    The preamble to the rule published on January 21, 2009, explained 
these changes to the Form LM-2 as an attempt to 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. 74 FR at 3680-81. The 
modifications were intended as enhancements designed to provide members 
of labor organizations with additional and more detailed information 
about the financial activities of their labor organization that

[[Page 18175]]

had not previously been available through the Form LM-2 reporting. Id.
2. Reasons for Rescission of the Changes to Form LM-2
    Numerous labor organizations responded to the Department's February 
3, 2009 notice proposing to delay the effective date of the January 21 
rule and requesting comments on the merits of the rule, urging the 
Department to rescind the rule and claiming that the Department 
underestimated its costs. Several labor organizations identified what 
they viewed as two fundamental flaws with the 2009 regulations. First, 
they argued that the regulations had been promulgated without any 
meaningful review of the effect of the 2003 rule, leaving unverified 
the assumptions underlying the 2003 revision that union members would 
benefit from the itemization and other changes introduced in 2003. The 
commenters also noted that the 2009 rule came only a few reporting 
cycles after the significant changes associated with the 2003 rule. 
Second, they argued that the Department's burden estimates for the 2009 
rule were based on estimates used in the 2003 rulemaking rather than 
the actual costs incurred by labor unions in reshaping their 
recordkeeping and accounting systems to comply with the changes 
associated with the 2003 rule.
    The Department's revised Form LM-2 reporting and recordkeeping 
requirements were published in 2003, but labor organizations did not 
file initial reports under this revised system until 2005. The 
Department agrees with the commenters and now believes that it was a 
mistake to propose further changes to the Form LM-2 reporting 
requirements so soon after the 2003 rule, without proper consideration 
of the effects of these changes, both in terms of benefits and costs. 
Without undertaking such review, the Department could not adequately 
weigh the competing interests of transparency and union autonomy.
    A federation of labor organizations and an international labor 
organization each stated that the Department had failed to demonstrate 
that the revised form would aid in the detection or prevention of 
corruption, noting its view that internal controls established by 
unions are the more effective approach. This commenter also asserted 
that the Department's annual reports fail to demonstrate that enhanced 
reporting has assisted the Department's compliance efforts. The 
Department acknowledges that the January 21 rule did not adequately 
consider the effects of the 2003 changes, particularly regarding the 
assumed potential benefits of the changes. Further, the Department 
agrees that additional review would be beneficial to determine how the 
2003 rule helped identify financial corruption before deciding that 
additional regulatory changes would facilitate this purpose.
    The Department also received comments from individuals and public 
policy groups that opposed the rescission of the rule, explaining their 
views that the regulations enhanced the transparency and accountability 
of labor unions. One of these groups urged the Department to discount 
any claims by labor unions that the regulations would entail 
substantial financial burden, stating that labor unions had 
consistently overstated costs associated with the Department's 2003 
revision to the Form LM-2. This policy group argued that the January 21 
rule will provide increased financial disclosure that will benefit 
union members, and it provided cites to legislative history and recent 
examples of union financial wrongdoing to illustrate the necessity of 
more stringent reporting laws. This group went on to present what it 
thought was the key policy issue related to this rule: Whether the 
Department should have imposed even more stringent disclosure 
requirements for labor organizations, which would prevent, in its view, 
the concealment of expenditures made by union officials. It urged the 
Department to err on the side of increased disclosure, arguing, without 
further support, that the increased disclosure outweighed the burden.
    The Department agrees with the contention that financial 
transparency is necessary to protect against union fraud and 
corruption, enhance accountability among union officials, and that it 
is necessary for members to effectively engage in union self-
governance. A review of the usefulness of the information that has been 
reported since the Form LM-2 was revised in 2003, as well as an 
examination of data regarding the burden placed on unions by that 
revision, will provide a better basis for determining whether 
additional changes are necessary in order to properly balance the need 
for transparency with the need to protect unions from excessive burdens 
imposed by reporting and disclosure requirements.
    A failure to consider the utility of increased reporting and its 
attendant burdens can result in a reporting regime not intended by the 
Congressional authors of the LMRDA. The Department is obliged to 
consider the intent of Congress to ``strike a balance between too much 
and too little legislation in this field.'' 105 Cong. Rec. 816 (daily 
ed. Jan. 20, 1959) (quoting Senator John F. Kennedy), reprinted in 2 
NLRB Leg. Hist. of the LMRDA, at 969. A federation of labor unions 
pointed out that Congress expressed a preference that ``the major 
recommendations of the [McClellan] select committee [be implemented] 
within a general philosophy of legislative restraint.'' S. Rep. No. 187 
(1959), reprinted in 1 NLRB Leg. Hist. of the LMRDA, at 403). Another 
federation of labor unions noted that the Department's Form LM-2 
rulemaking failed to take into account what it sees as an imperative 
underlying the LMRDA, i.e., that restraint and great care must be shown 
in regulating union internal affairs so as not to undermine union self 
government by the union's members. A similar point was raised by 
another commenter, explaining that Congress expressed a preference to 
avoid impeding legitimate unionism, citing to remarks by Senator Frank 
Church (105 Cong. Rec. 6024 (daily ed. Apr. 25, 1959), reprinted in 2 
NLRB Leg. Hist. of the LMRDA, at 1233), and again by another commenter, 
citing to remarks by Senator John F. Kennedy, who observed that 
Congress intended ``to permit responsible unionism to operate without 
being undermined by either racketeering tactics or bureaucratic 
controls.'' 105 Cong. Rec. 816 (daily ed. Jan. 20, 1959), reprinted in 
2 NLRB Leg. Hist. of the LMRDA, at 969).
    The Department now believes that the January 21 rule failed to 
appropriately consider the experience of reporting under the 2003 Form 
LM-2 rule, including the burden of the reporting requirements. Further 
consideration of that experience will enable the Department to 
determine whether the Form LM-2, as revised by the 2003 rule, reflects 
a proper balance of the need for transparency and union autonomy. For 
these reasons, the Department proposes rescission of the January 21 
rule.

B. Proposal To Rescind the Procedure To Revoke the Form LM-3 Filing 
Authorization

1. Background
    The Department also proposes to rescind the part of the January 21 
rule that established standards and procedures for revoking the 
simplified report filing authorization provided by 29 CFR 403.4(a)(1) 
for those labor organizations that are delinquent in their Form LM-3 
filing obligation, fail to cure a materially deficient Form LM-3 report 
after notification by OLMS, or where other situations exist where 
revoking the Form LM-3 filing

[[Page 18176]]

authorization furthers the purposes of LMRDA section 208.
    Under the revocation procedure, when there appear to be grounds for 
revoking a labor organization's authorization to file the Form LM-3, 
the Department could conduct an investigation to confirm the facts 
relating to the delinquency or other possible ground for revocation. If 
the Department after investigation found grounds for revocation, the 
Department could send the labor organization a notice of the proposed 
Form LM-3 revocation stating the reason for the proposed revocation and 
explaining that revocation, if ordered, would require the labor 
organization to file the more detailed Form LM-2. The letter would 
provide notice that the labor organization has the right to a hearing 
if it chooses to challenge the proposed revocation, and that the 
hearing would be limited to written submissions due within 30 days of 
the date of the notice. In its written submission, the labor 
organization would be required to present relevant facts and arguments 
that address, in part, whether the circumstances concerning the 
delinquency or other grounds for the proposed revocation were caused by 
factors reasonably outside the control of the labor organization; and 
any factors exist that mitigate against revocation.
    After review of the labor organization's submission, the Secretary 
would issue a written determination, stating the reasons for the 
determination, and, as appropriate based on neutral criteria, inform 
the labor organization that it is required to file the Form LM-2 for 
such reporting periods as he or she finds appropriate.
2. Reasons for Rescission of the Revocation Procedure
    After further review and consideration of the public comments 
received on this point, the Department believes that the January 21 
rule establishing the revocation procedure and standards did not 
adequately assess the burden on the smaller labor organizations and the 
realistic likelihood that, in light of that burden, the rule will 
accomplish the intended results of increased transparency and more 
disclosure. Rather, the Department believes that there is no realistic 
likelihood that most small unions would have the information or means 
to file the more detailed Form LM-2. Further, as discussed above, the 
LMRDA requires a balancing of transparency and union autonomy. 
Therefore, the Department proposes to rescind the January 21 rule 
establishing the revocation procedure and standards.
    Section 208 mandates that the Secretary shall issue simplified 
reports for labor organizations for which she finds that ``by virtue of 
their size a detailed report would be unduly burdensome,'' but also 
permits the Secretary to revoke such filing authorization if ``the 
purposes of this section would be served thereby.'' Therefore, the 
``purposes'' of section 208 must include ensuring that a more detailed 
report for a smaller union would not be ``unduly burdensome'' by virtue 
of its size, as the Secretary is required to issue less detailed 
reports for smaller unions under these circumstances. The Department 
thus needed to create a balance between the need for financial 
transparency with the need to limit the burden and intrusion upon 
smaller labor organizations.
    The January 21 rule did not adequately address this balance, and it 
did not explain why a more detailed financial disclosure report for a 
smaller union would not be ``unduly burdensome.'' The rule calculated 
burden based on a projection that 96 filers would be required to file 
the Form LM-2. This burden is necessarily understated. Form LM-3 
filers, not merely those whose right to file a Form LM-3 is revoked, 
will be burdened to some extent. In order to file a Form LM-2, steps 
must be taken at the start of the fiscal year. Accounting systems and 
procedures must be in place that will track and maintain the data 
required by the Form LM-2. In this regard, the comments of an 
international union are instructive. It explained the difficulty it has 
experienced in converting the financial records of its affiliates to 
enable compliance with the Form LM-2 reporting requirements in 
circumstances involving trusteeship. (Under the labor organization 
reporting requirements an international union must file a Form LM-2 for 
any affiliate in trusteeship, regardless of its receipt size.) This 
commenter advised that the international's auditors face an ``almost 
impossible'' task in retroactively converting financial records for use 
on Form LM-2 reporting. The difficulty for an LM-3 filer filing on its 
own behalf would be greater.
    Based on consideration of these comments, the Department now 
concludes that there is no realistic likelihood that most small unions 
would have the information or means to file the more detailed Form LM-2 
and that the revocation procedures established by the January 21 rule 
will be unlikely to result in more disclosure. Moreover, the Department 
does not believe that it provided sufficient support in the final rule 
for the conclusion that revocation will reduce delinquency and 
deficiencies in reporting. Rather, the Department believes that its 
final rule was counter-intuitive, because there is no justification in 
the rulemaking record that counters the logical conclusion that Form 
LM-3 filers required to file Form LM-2 reports pursuant to revocation 
may also fail to submit timely and accurate Form LM-2 reports.
    Several commenters voiced support for a compliance-based approach, 
including the Department's use of international unions to aid in 
compliance, rather than what they viewed as a more punitive approach in 
the January 21 rule. One international union also commented that, in 
its experience, small local unions fail to file timely or complete Form 
LM-3 reports because of inadequate staff to prepare the forms or the 
lack of finances to hire an accountant, which, the commenter noted, are 
in addition to the similar reasons offered by the Department in its 
NPRM. See 73 FR 27354. Another commenter added to the rule's list of 
reasons for delinquent and deficient filings the following: part-time 
officers, who are full-time employees outside of the union and lack 
accounting knowledge; few personnel and a lack of financial resources 
because of size; and simplified accounting systems. Given the above, 
the commenter asked how a typical Form LM-3 filer could be expected to 
file the more detailed and time-consuming Form LM-2, with aggregation, 
itemization, functional categorization, and a more complicated 
accounting system. The commenter added that Form LM-3 filers would not 
have enough time to change systems, and it believed it is not possible 
to recreate some of the records that would be necessary to accurately 
submit a Form LM-2 report. This filer concluded that the revocation 
procedure, which focused on isolated occurrences, was punitive and did 
not advance the interests of members or the LMRDA, and it advocated a 
compliance-based system that used international unions, as this process 
has worked in the past.
    The Department agrees with comments that advocated a compliance 
assistance approach, particularly one drawing upon the cooperative 
efforts of national and international unions, rather than a revocation 
procedure. For the reasons stated, a revocation procedure is not likely 
to improve delinquency and deficiencies in Form LM-3 reporting, and it 
could actually decrease these statistics since filers may have greater 
difficulty successfully meeting the Form LM-2 reporting

[[Page 18177]]

requirements. The Department instead believes that a compliance 
assistance approach is more likely to increase proper reporting than a 
revocation approach that is counter-intuitive and likely to damage 
compliance assistance efforts.
    One public policy organization commented that the effects of the 
revocation had been inflated by some commenters, and that until the 
Secretary is given the authority to issue civil monetary penalties to 
delinquent and deficient filers, the revocation procedure should serve 
as that penalty. The commenter went on to state that the approach 
seemed harmless and thus not problematic. The Department disagrees with 
this commenter. The purposes for which the Secretary may revoke an 
organization's authorization to file a simpler form are the purposes of 
transparency and enhanced disclosure, not punishment. As shown above, 
those purposes are not served by imposing a requirement that there is 
no realistic expectation that most small labor organizations will be 
able to meet.
    Other commenters listed several possibly detrimental consequences 
of the revocation procedure, such as the diversion of union officials 
from grievance handling and other core business; the resignation of 
union officials; and the merger and imposition of trusteeships by 
international unions. The Department believes that the January 21 rule 
did not adequately address these comments, as it failed to 
appropriately balance the need for transparency with the need to limit 
burden and intrusion upon smaller unions. Further, the Department does 
not believe that it can justify revocation by merely lessening or 
playing down the acknowledged increased burden imposed by the Form LM-2 
reporting requirements. As a matter of policy, the Department does not 
intend to encourage or discourage the participation of union members 
from running and serving in union office, nor does it otherwise desire 
to unnecessarily interfere in the internal affairs of unions. The 
Department intends to implement the LMRDA with as little interference 
as possible, with the overarching goal of empowering members to govern 
their unions democratically. Compliance assistance is a vital aspect of 
this approach, as are audit and enforcement options and both are better 
approaches than a revocation procedure that is viewed as punitive to 
Form LM-3 filers.

IV. Regulatory Procedures

Executive Order 12866

    This proposed rule has been drafted and reviewed in accordance with 
Executive Order 12866, section 1(b), Principles of Regulation.

Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., 
requires agencies to prepare regulatory flexibility analyses, and to 
develop alternatives wherever possible, in drafting regulations that 
will have a significant impact on a substantial number of small 
entities. The Department does not believe that this proposed rule will 
have a significant economic impact on a substantial number of small 
entities, as the rule contains no collection of information and 
relieves the additional burden imposed upon labor organizations through 
the rescission of the regulations published on January 21, 2009. 
Therefore, a regulatory flexibility analysis under the Regulatory 
Flexibility Act is not required. The Secretary has certified this 
conclusion to the Chief Counsel for Advocacy of the Small Business 
Administration.

Unfunded Mandates Reform

    This proposed rule will not include any Federal mandate that may 
result in increased expenditures by State, local, and tribal 
governments, in the aggregate, of $100 million or more, or in increased 
expenditures by the private sector of $100 million or more.

Paperwork Reduction Act

    This proposed rule contains no new information collection 
requirements for purposes of the Paperwork Reduction Act of 1995 (PRA) 
(44 U.S.C. 3501 et seq.). The January 21, 2009 rule would increase the 
burden of reporting under OMB No. 1215-0188, if the Department 
determines rescission is inappropriate and the January 21, 2009 rule 
become effective. Under the January 21, 2009 rule the total burden 
hours per Form LM-2 respondent would be increased by approximately 
60.06 hours, and the total burden hours will be increased by 274,539. 
The average cost per Form LM-2 respondent would be increased by $1,939 
and the total cost would be increased by $8,863,038. If this proposed 
rule is adopted these increases in reporting burden under OMB No. 1215-
0188 will not occur. The Department will seek OMB approval of any 
revisions of the existing information collection requirements, in 
accordance with the PRA.

Small Business Regulatory Enforcement Fairness Act of 1996

    This proposed rule is not a major rule as defined by section 804 of 
the Small Business Regulatory Enforcement Fairness Act of 1996. This 
rule will not result in an annual effect on the economy of $100,000,000 
or more; a major increase in costs or prices; or significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of the United States-based companies to 
compete with foreign-based companies in domestic and export markets.

List of Subjects in 29 CFR Part 403

    Labor unions, Reporting and recordkeeping requirements.

Text of Proposed Rule

    Accordingly, for the reasons stated herein, the Secretary proposes 
to withdraw the rule published on January 21, 2009 (74 FR 3677) and 
retain the text of the regulations prior to that date.

    Signed in Washington, DC, this 16th day of April 2009.
Shelby Hallmark,
Acting Assistant Secretary for Employment Standards.
Andrew D. Auerbach,
Deputy Director, Office of Labor-Management Standards.
[FR Doc. E9-9175 Filed 4-20-09; 8:45 am]
BILLING CODE P