Labor Department Issues Final Rule for Union Trusts

It was a regulation five years in the making, with organized labor filing two successful court challenges along the way. But the U.S. Department of Labor (DOL) has issued its final rule regarding union trust funds. On September 30, the department posted a rule on its Web site ( requiring more disclosure for union-sponsored pension plans, credit unions, training funds and other trusts. The Federal Register subsequently published it on October 2. The rule had been finalized in July 2007. Led by Labor Secretary Elaine Chao, the department in October 2003 created a new form, “T-1,” in hopes of discouraging embezzlement and other mismanagement. The final rule, here, as with previous attempts, is in accordance with objectives set forth by the Labor-Management Reporting and Disclosure Act (LMRDA) of 1959, also known as the Landrum-Griffin Act. 


This past March the Labor Department published a notice in the Federal Register clarifying the contents of the T-1, which uses the same template as the newly-revamped LM-2 general reporting form required of larger unions since the start of 2004. With good reason officials believed that trust funds were subject to pilferage because union bosses, along with fund managers and trustees, had been able to hide or falsify financial data. The new T-1 does not ban any particular expenditure, but simply gives union members more opportunities to see where their money goes. Because so many trust funds have operated outside the reach of existing anti-fraud safeguards, many unions were conducting large-scale transactions through them – and not all of them honest. 


From the start, labor leaders claimed the T-1 exceeds the bounds of the Labor Secretary’s authority and adds unjustifiable compliance costs. Yet as with the expanded LM-2 form, any competent accountant could file accurate reports in a relatively short time. More importantly, theft or otherwise illegal transfers of assets from benefit funds to other accounts has imposed a high toll on members. In recent years, we have seen: San Francisco Plumbers Local 38 divert roughly $36 million in benefit funds toward covering operating losses of a resort spa in rural Northern California; a Maryland couple embezzle nearly $1 million from an Operative Plasterers & Cement Masons apprenticeship fund and federal grants; and two Chicago lawyers and their boss plead guilty to arranging or receiving kickbacks in a scheme to divert Illinois teachers’ union pension funds to favored investors. Aside from acts of outright theft, fiduciaries of defined-benefit union pension plans often invest funds on the basis of political affinity more than financial prudence, a practice that has contributed toward benefit plan shortfalls and possibly is in violation of Employee Retirement Income Security Act (ERISA) statutes. 

Aside from necessity, another argument for the T-1 is that it contains many exceptions, and thus isn’t as burdensome as it looks. Only labor organizations with $250,000 or more in total annual receipts are required to file. Trust funds in which the union contributes less than 50 percent of receipts during the most recent fiscal year aren’t covered either. Additionally, unions won’t have to file on behalf of the following types of organizations: 1) political action committees, if publicly available reports are filed elsewhere with appropriate federal or state agencies; 2) so-called “527” political fundraising organizations; 3) any covered trust for which an independent audit has been conducted in accordance with standards set forth in the final rule; 4) benefits subject to the Federal Employees Health Benefits Act; 5) organizations required to file a Form 5500 with the Employee Benefits Security Administration. Organized labor, predictably, is not happy. But as with Form LM-2, officials will adapt. Their track record leaves little room for avoidance. (U.S. Department of Labor, 9/30/08).