Freedom Foundation

U.S. Dept. of Labor adopts financial transparency regulation for union trusts

On Friday, the U.S. Department of Labor (DOL) announced a final regulation extending financial transparency requirements to certain trusts operated by labor unions.

The new rule implements a Freedom Foundation recommendation to make unions and their affiliates more accountable for their use of funds provided by employers and intended to be used for employees’ benefit.

Since 1959, the Labor-Management Reporting and Disclosure Act (LMRDA) has required unions representing any private-sector employees to file annual financial reports with the Office of Labor-Management Standards (OLMS) within DOL.

The LMRDA specifically defines “trusts in which a labor organization is interested” and authorizes DOL to adopt regulations “to prevent the circumvention or evasion of [the LMRDA’s] reporting requirements.”

Accordingly, during the George W. Bush administration, DOL implemented a regulation requiring trusts operated by unions subject to the LMRDA to file annual financial reports. DOL successfully defended the rule against unions’ legal challenges, but the regulation was rescinded during the Barack Obama administration before any reports were filed.

The final regulation announced Friday by DOL largely mirrors the previous version adopted during the Bush years and will require trusts with annual receipts exceeding $250,000 over which unions exert majority control of funds and/or board leadership to file annual T-1 reports with OLMS disclosing certain financial information, such as staff and officer compensation and all receipts and disbursements over $10,000.

These reports will be publicly available, allowing union members and watchdog organizations to monitor trust activity for any misconduct and, hopefully, discouraging any malfeasance from occurring in the first place.

The Freedom Foundation pointed out last year that, in the absence of such transparency requirements, two recent, high profile criminal investigations and prosecutions of union officials in the United Auto Workers and International Brotherhood of Electrical Workers involved embezzlement and misuse of union operated trust funds meant to provide training and apprenticeship opportunities.

While most trusts covered by the new rule are managed by unions representing primarily private-sector employees, some affected trusts operate for the benefit of “partial-public employees” and are taxpayer funded. As the Freedom Foundation explained in its July 2019 comment to DOL formally supporting the proposed rule,

“Increasingly, unions representing home care aides serving Medicaid-eligible clients with disabilities are forming trusts to administer various employee benefits provided with Medicaid dollars…

Similar unions representing groups of employees like home caregivers, child care providers and other ‘partial-public employees’ compensated with public funds are increasingly seeking to establish similar employment benefits trusts funded with tax dollars. While some may fall under the Employee Retirement Income Security Act and file Forms 5500, others do not, leaving a significant transparency gap and creating an environment in which misconduct by those labor officials charged with administering the funds is harder to detect. Adopting the proposed rule would help close this loophole to the benefit of both the employees in whose name the trust funds are managed and the taxpayers financing the benefits.”

In Washington state, for instance, SEIU Local 775 operates at least four trusts that are funded almost exclusively by taxpayers, to the tune of hundreds of millions of dollars annually, to provide various benefits to home caregivers serving Medicaid beneficiaries. Two of these trusts are not currently subject to any meaningful state or federal financial transparency requirements but will presumably be covered by the new regulation.

In its comments on the proposed rule, the Freedom Foundation provided several suggestions to help strengthen the regulation and contended DOL should try to “maximize[] the application[] of the regulation within legal limits.”

While the final rule did not go as far as it could have, its restraint and concessions to various union concerns appear designed to help it withstand legal challenge. Indeed, unions will presumably redeploy the same delay-through-litigation strategy that allowed a union-friendly administration to pull the plug on the previous rule in 2009.

The final rule did, however, incorporate six technical corrections and minor errors spotted by the Freedom Foundation and highlighted in its comments to DOL.

Although DOL has recently done good work in streamlining and repealing regulations that hinder jobs and enterprise, the importance of new regulations like the final T-1 rule and a similar proposed rule to extend financial transparency requirements to certain unions should not be overlooked.