Union dues transmitted through vacation funds

P/OPINION 75-95

                                                    404(a)(l)✓
                                                    406


                        December 17, 1975


Dear              :

This is in reply to your letter dated October 7, 1975,
to the Secretary of Labor, inquiring about continuation
of the practice under which part of the money deducted
from employees' compensation and forwarded to various
vacation and holiday funds may be reforwarded to the
union to pay working dues. You explained that this
procedure has been established to save the various
employers from having to make multiple deductions, and
emphasized that is is done only upon express authorization
of the employee involved. You further explained in a
conversation with             of my staff that pending
our decision about the legality of this practice under
the Employee Retirement Income Security Act of 1974 ("ERISA"),
no dues money is being forwarded to the unions, and that as
a consequence that various building trades unions with which
your association deals are facing financial difficulties.

This response is addressed to the two possible legal obstacles
under ERISA which you believe the proposed deduction arrangement
might raise. We do not think either one is necessarily
an impediment, provided all the conditions discussed below
are satisfied.

The first possible legal obstacle is the exclusive purpose
rule in section 404(a)(1) of the Act. Your question was
whether all money paid to the vacation and holiday plans
must be used exclusively for the benefit of participants
and beneficiaries, or whether some of it may be forwarded
to an employee organization as working dues. We think
the answer depends upon the purpose for which the money
is paid to the plan. If it is clearly stated in the
documents that a portion of the money is not intended to
become a plan asset, but is sent to the plan for transmission
to the union, we think that portion does not become a plan
asset and therefore is not covered by the exclusive purpose
rule.
2


P/OPINION 75-95



The second possible obstacle is the prohibition under
section 406(a)(1)(C) against transactions involving the
furnishing of services between the plan and a party
in interest. The plan by collecting dues on behalf of the
union and by transmitting such dues to the union, is
providing a service to the union, which falls within the
scope of section 406(a)(1)(C). On June 2, 1975 a proposed
class exemption was published permitting such transactions
between multiemployer plans and parties in interest under
certain conditions. This exemption provides that adminis-
trative services may be furnished by a plan to a partici-
pating employee organization provided the terms of the
arrangements are at least as favorable to the plan as an
arm's length transaction, and certain other conditions
specified in the proposed class exemption are met.
We call your attention to the material beginning near the
bottom of the third column on page 23800 of the enclosed
excerpt from the Federal Register. The Department of Labor
and the Internal Revenue Service have under consideration
the comments received on the proposed class exemption
and expect to publish the permanent class exemption covering
the provision of administrative services in the near future.

Although the fact situation you present could raise issues
under section 302(c) of the Labor-Management Relations Act
of 1947, as amended, we have offered no opinion on that
issue and have specifically addressed our response to the
provisions of ERISA discussed above.

Sincerely,