Page 2 of the T-1, much like Page 2 of the LM-2, is a listing of questions posed by the DOL. Compared to the LM-2, which has 13 items to complete, the T-1 has 9 items. Even though the union is providing the answers, remember the questions are posed to the trust. “Yes” responses to Items 16 through 20 require disclosure of additional details in Item 25.
The first 2 T-1 questions (Items 16 and 17) should be very familiar to LM-2 filers – they’re almost word-for-word identical to questions in the LM-2. Item 16 asks, “During the reporting period did the trust discover any loss or shortage of funds or other property? (Answer “Yes” even if there has been a repayment or recovery.)” Common circumstances for answering “Yes” to Item 16 are lost computers or mobile phones, theft, or credit card fraud – all of which should be detailed in Item 25. Item 17 asks, “…did the trust acquire or dispose of any goods or property in any manner other than by purchase or sale” – like a union, this response could be “Yes” if the trust received donated assets, gave away items like apparel or training materials, or if the trust experienced a casualty to real property.
Items 18 through 20, generally speaking, inquire about loan activity that, in the LM-2, would be reported in the separate Loans Receivable and Loans Payable schedules. There are no such schedules in the T-1, so certain loan activity is disclosed in these Items. Item 18 asks about liquidation, reduction or write-off of any liabilities, not just loans payable. Item 20 asks the same for any loans receivable “due from officers or employees of the reporting labor organization without full receipt of principal and interest”. And Item 19 asks “has the trust extended any loan or credit during the reporting period to any officer or employee of the reporting labor organization at terms below-market rates?”
Things get more dubious when the trust is an ERISA plan, whereas the labor organization would be considered a party-in-interest to the plan and any loan or extension of credit is a specifically prohibited transaction. As a best practice, tread lightly and avoid loan activity between the union and trust, especially if the trust is an ERISA plan.
Items 21 through 24, instead of asking “Yes” or “No” questions, require entering the trust’s total assets, liabilities, receipts and disbursements, respectively. Compared to the LM-2, in which Statements A and B report the makeup of assets, liabilities, receipts and disbursements by detailed sub-categories, the T-1 only requires the totals. While this makes T-1 reporting less complex compared to the LM-2, keep in mind you’ll still need good records to calculate these totals accurately and efficiently. And just like the LM-2, the instructions require reporting certain assets and liabilities like accounts receivable and payable, loans receivable and payable, and other assets and liabilities, while receipts and disbursements are reported on a cash basis.
Without a modern, flexible accounting platform, like NetSuite, the cash to accrual conversion requires significant time and manual effort – it’s almost like keeping two sets of books. Cloud-based accounting software helps you get to the right numbers, right away, at the click of a button. If your union now needs to file a T-1 (or multiple T-1s), in addition to an LM-2, it’s now more important than ever to consider the benefits of an upgrade. Unsure what your next step should be? Let’s talk.