Associations, Nonprofits and Political Organizations Report - Fall 2022
Date: November 8, 2022
What You Need to Know About the FEC's Prior Approval Rule
By: James A. KahlOriginally published by ASAE here
The Federal Election Commission’s “prior approval rule” limits an association’s ability to solicit contributions from employees of its corporate members. Associations seeking to grow their federal PACs need to understand which activities are covered by this rule, along with the steps they can take to mitigate risks.
Associations that sponsor federal political action committees (PACs) can solicit contributions from a wide range of their employees and individual members. However, the Federal Election Commission’s “prior approval rule” limits an association’s ability to solicit contributions from employees of its corporate members. Associations seeking to grow their federal PACs need to understand which activities are covered by this rule as well as steps they can take to mitigate risks.
What Is the Prior Approval Rule, and What Are the Risks?
An association may solicit contributions for its connected PAC from the association’s “restricted class” employees (i.e., its employees with managerial, supervisory, policymaking, or professional responsibilities), its individual members, and the family members of these individuals.
The association may also solicit contributions from a corporate member’s “restricted class” (i.e., the company employees listed above, along with its stockholders and family members), but only if it obtains the written prior approval of the corporate member. A separate approval is required for each calendar year.
This rule has a broad reach because the FEC views virtually any communication that “encourages” support for the PAC as a “solicitation.” For instance, an article about the PAC in an association publication is a solicitation if it provides information on how to contribute to the PAC or if it commends employees who have contributed to the PAC. An illegal solicitation will occur if the article is sent to an individual who is not covered by a prior approval or is not otherwise solicitable. Similarly, it is risky for a corporate employee who is not covered by a prior approval to serve on the association’s board or PAC board for fear that any substantive discussions about PAC activities could be an impermissible solicitation. These types of seemingly innocent communications and interactions could give rise to FEC investigations and possible civil fines for the association.
Is There Any Way to Avoid the Prior Approval Rule?
If an association with corporate members is willing to make some significant changes in its organizational structure, it can expand the group of individuals (including member employees) it can solicit without a prior approval. Generally speaking, there are three options under FEC rules and opinions for doing this: (1) add an individual membership class; (2) convert from a corporate membership to an individual membership organization; or (3) form an affiliated individual membership non-profit organization. In each case, the “new” individual members could be solicited for PAC donations without a prior approval.
Before pursuing one of these approaches, an association should think through carefully whether the benefits of some additional PAC contributions justify the structural, governance, compliance, and possible cultural changes for the organization. Bylaws would almost certainly have to be revised under the first two approaches.
The new individual members under each approach would have to satisfy the FEC’s detailed definition of “member.” These individuals would, for example, have to pay annual membership dues or have some type of participatory rights, such as the ability to vote directly or indirectly for at least one individual on the organization’s highest governing board. Under the third approach, an entirely new entity would have to be formed, which would trigger new compliance obligations like filing state and IRS reports.
How Can Associations Make Sure They Comply With the Prior Approval Rule?
Leaving aside such organizational restructuring, there are some commonsense steps for managing the risks of the prior approval rule.
Work within the FEC rules. Don’t create circumstances that could inadvertently lead to violations. Only appoint individuals to a PAC board who are covered by a prior approval or are otherwise solicitable. It is a virtual certainty that these individuals will participate in discussions that constitute solicitations.
In addition, carefully tailor presentations about the PAC to the association’s board of directors or its government affairs committee if members of those bodies are not covered by a prior approval. Remember that you are allowed to provide factual information about the PAC’s functions, fundraising, and political contributions, provided you do not “encourage” PAC support.
Remind board of directors or GA committee members who are not covered by a prior approval that they can question the propriety of a PAC discussion or recuse themselves from a meeting if they have concerns.
Finally, the FEC has a “safe harbor” rule for PAC fundraising at large association meetings and conventions that is relatively easy to implement and a great way to avoid illegal solicitations. Make sure your PAC team understands this rule in advance of your next annual meeting.
Knowledge is everything. Association members, employees, and volunteers—especially those involved in managing and overseeing the PAC—need to understand the prior approval rule. A short “do’s and don’ts” fact sheet explaining the rule will go a long way to preventing inadvertent missteps.
In particular, corporate members should be reminded that granting prior approval does not obligate their employees to contribute to the PAC, and they have control over the scope of the prior approval. For example, they can limit the approval to just a few senior employees or limit the number of PAC solicitations per year. These assurances may help assuage concerns about signing a prior approval form.
Protecting Against Increased Antitrust Risks in a More Aggressive Enforcement and Litigation Environment
By: Jeffrey A. Leon, David L. Cahn, Jeffrey P. AltmanThe law provides professional and industry associations the ability to serve as a forum for cooperation among competitors where that cooperation benefits the public. But associations need to be very careful in structuring the form and nature of their cooperative efforts. Antitrust regulators and private plaintiffs have not hesitated to step in and challenge the actions of associations, when association activities are perceived as interfering with competition. The courts also have eroded some traditional immunities and protections against antitrust claims.
Association activities have come under challenge numerous times in the last decade, and the scrutiny of association activities seems to be increasing. The focus is primarily directed at two types of association activities: (1) information exchanges and data collection and (2) standard setting and licensure. This is in addition to the more traditional focus on the mere opportunity association meetings provide for direct interaction among competitors, which associations must proactively address through the adoption of appropriate antitrust policies, antitrust compliance warnings delivered before each meeting (and referenced in the minutes), and attorney monitoring for particularly sensitive meetings.
The FTC and DOJ have developed joint guidelines on information exchanges and data collection, and it is important that your association be aware of those guidelines and whether your current practices run afoul of the guidelines. In addition, while not set forth in a single set of guidelines, the DOJ has issued a number of “business review letters” addressing its views on certain types of standard setting and licensure activities. The business review letter is a process where an organization considering a certain action can ask the DOJ for its opinion on whether the proposed practice is likely consistent with the antitrust laws.
Another area of increasing vulnerability is the erosion by the courts of the immunities and protections that associations have traditionally enjoyed in helping to populate and work with state licensing and regulatory boards. Although professionals and industry experts can and should provide invaluable expertise to regulatory boards, the courts have held that the members of such boards can be held liable for implementing standards, licensing and certification programs that limit innovation or competition against established providers, if there is little oversight by state officials and the regulatory board is controlled by licensed providers. An association or its leaders who encourage or participate in such actions also may be the subject of antitrust claims if their efforts are not properly structured to avoid antitrust exposure.
If an association is not careful, it can get into real trouble as antitrust investigations and litigation are serious business, at minimum involving significant expenditures of attorneys’ fees defending the investigation/lawsuit. Private litigation exposes an association to treble (triple) damages and paying the fees and costs of the plaintiff(s). Many associations have learned the heavy cost of antitrust litigation the hard way. Even with antitrust insurance coverage that every association should consider, the time and attention to such litigation can be enormously disruptive.
Whiteford has lawyers with deep experience in the antitrust laws and in the counseling of associations and private business on ensuring antitrust compliance and protecting the organization from antitrust exposure. Given the increasing focus of regulators and private plaintiffs on association activities, it might be wise to engage counsel to conduct an antitrust risk and compliance audit which will involve attorneys interviewing association personnel to look for potential risk areas, reviewing available insurance coverage, as well as the development of protective guidelines and procedures to insulate and protect the association from antitrust risk.
O-1 Visa Issues
By: Peter D. GuatteryU.S. trade and professional organizations periodically encounter inquiries from foreign nationals looking for support for a visa application for the United States. The individual is invariably asking for the organization to provide them with a “recommendation” or “opinion” letter to support their O-1 visa application. The inquiry usually raises multiple questions for the organization -- Are we required to provide the letter? What happens if we say yes (or no) to the request? Will the immigration service investigate us if we provide the letter? - and so on. In other cases, the organization is looking more for guidance on how to set limits on such “recommendations,” given that most of the individuals who come to them are not members of the organization.
Generally, these inquiries are little reason for concern. The person is only asking in order to satisfy a requirement for their desired visa classification, and there are few concerns about any immigration related consequences for the organization regardless of how they choose to respond.
The O-1 nonimmigrant visa is intended for an individual who possesses extraordinary ability in the sciences, arts, education, business, or athletics, or who has a demonstrated a record of extraordinary achievement in the motion picture or television industry and has been recognized nationally or internationally for those achievements. One key requirement of the O-1 visa application process for certain classes of individuals is the “written advisory opinion,” which must come “from a peer group (including labor organizations) or a person with expertise in the beneficiary’s area of ability.”
The purpose of the advisory opinion is for a third party to weigh in on the particular qualifications and achievements of the applicant. For someone in the fields of science, education, business or athletics, that would mean showing that the person is one of the small percentage who has risen to the very top of their field. For someone in the arts, that may mean the person has a degree of skill and recognition substantially above that ordinarily encountered, such that they are prominent, renowned, leading, or well-known in the field of arts.
In fact, USCIS specifically advises petitioners to obtain the “peer group” advisory opinion. As a result, many individuals may reach out to a specific trade or professional organization which represents their field of work. For example, a professional chef would look to food industry groups, engineers to organizations representing their respective practice areas, and musicians to those organizations focused on the relevant field of music. In some cases, USCIS may ask a petitioner for a letter from a specific organization which they know of from prior applications.
There is no obligation for any organization to provide the requested “opinion.” The individual may always look elsewhere for a supporting organization, or provide recommendation letters from individuals where no peer group is available. Some organizations will only provide recommendations to members, and others may support an application if the person has truly notable experience or skills.
If there is an interest in responding, an initial question to ask is whether the organization is the correct “peer” organization to issue such a consultation letter. A non-profit which advances the interests of the kitchen industry is not the proper organization for an up and coming chef. However, a peer group of yoga professionals could properly offer an opinion on a master yogi from abroad.
Before agreeing to provide any letter, an organization should also consider the following questions:
- Is the person a member of your organization?
- Are they known to others within the organization?
- What are their credential and professional background?
- Do they have any notable achievements or award?
- Have they worked for a prestigious organization or company?
- Based on the above, are we able to provide a meaningful opinion letter?
Some organizations limit their support to members of the organizations. Others will be sparing; offering an opinion, only where the person’s credentials are meaningful to them. For example, a chef who has worked at numerous acclaimed restaurants in high level positions, or an author and speaker who is known in the field, but does not necessarily have recognition more generally, may both be cases meriting a favorable opinion. In either case, a letter is of little value unless it is favorable.
A favorable letter would normally describe the individual's achievements in the field of endeavor, and any specific special skills or abilities they may have. You may also be asked to give an opinion on whether the job being offered requires the services of a person of extraordinary ability. More simply, the organization may state that it has “no objection” to the individual being granted an O-1 visa based on the credentials provided.
Organizations have little reason to be concerned about any consequences to them as a result of providing a supporting letter. Though they should be mindful that by doing so may beget more requests, which may ultimately make them the organization of choice for applicants and maybe even USCIS. Thus, it makes sense to develop minimum requirements for when such letters may be given, which would include who is eligible, from the organizations’ standpoint, to merit support. It is also important to ensure that others in the organization are aware of the policy, so that letters come from a single source.
In sum, the O-1 recommendation letter can be an important component of successful O-1 visa applications, and serves a valuable purpose in brining persons with real expertise to the U.S. to share their knowledge and benefit the field of endeavor. That may very well benefit the organization and its mission, which may, in turn, make that “opinion” all that more worthwhile.
State Mandated Retirement Programs
By: Mary Claire ChesshireMaryland’s mandated retirement plan is up and running. Virginia’s and Delaware’s plans are not far behind.
The State of Maryland now requires all private employers, with few exceptions, to provide a retirement savings vehicle for employees. The MarylandSaves program is now active and employers that have at least one W-2 employee can expect to receive notices alerting them to sign up or obtain an exemption.
Delaware is expected to roll out its mandated retirement program in 2025 and Virginia is expected to do so in 2023.
If your business or organization already provides a retirement program – pension, profit sharing, 401(k), 403(b), etc. – your business or organization cannot participate and does not need to enroll in the MarylandSaves program. However, you should apply for exemption on the MarylandSaves website to avoid further inquiries.
If your business or organization does not use an automated payroll service, you do not need to participate in MarylandSaves. The program is intended to coordinate with automated payroll systems for purposes of transmitting employees’ contributions.
The MarylandSaves program features an “auto-enrollment” requirement. This means that employees will be automatically enrolled in the savings program at a 5% contribution level, unless the employee opts out of participation. Contributions increase by 1% per year up to a maximum contribution of 10% of pay. Once enrolled, employees can opt out at any time and re-enroll at any time.
Employees are allowed to designate the investment of their accounts in a variety of mutual funds, including target date “Lifecycle” funds. The MarylandSaves program also includes an emergency savings fund option.
The investments in the program are on a “Roth” basis, that means contributions are deducted post-tax and, if Roth requirements are met, distributions are tax fee. However, employees who could not establish Roth IRAs individually because of income limits cannot contribute under the MarylandSaves program.
There are no fees to an employer participating in the program. Participating employees are assessed an asset fee of 18 basis points of their account value and a $30 annual account fee.
Note: as counselors to employers, we caution our clients against providing any assistance to employees with respect to the investment of their accounts. The program is designed to insulate employers from any claims of fiduciary liability from employees. Providing investment advice could jeopardize that immunity. Employees should be referred, instead, to the MarylandSaves website and outreach to the program administrator.
More information is available at Marylandsaves.com, but feel free to call us if you need to discuss further.
Attorney Spotlight - Mark Franco
Mark Franco is Counsel in the Associations, Nonprofits and Political Organizations practice group. He advises professional and trade associations, private credentialing organizations and other nonprofit entities on a variety of legal matters in an outside general counsel role. He enjoys working with nonprofit, tax exempt organizations because of the important social purposes these organizations serve. Mark is the Vice Chair of the Institute for Credentialing Excellence’s Diversity, Equity and Inclusion Task Force and was recently appointed to the organization’s Accreditation Services Council. Mark also sits on the Board of Directors for the Council of Engineering and Scientific Specialty Boards, is a member of the ASAE Ethics Committee and is the public member of the Accreditation Council for Orthopedic Manual Physical Therapy Education. Mark is a regular presenter on certification matters and a contributing author to Certification: The ICE Handbook, 3rd Edition.
In his free time, Mark is an avid tennis player and also enjoys teaching the game to others. He loves eating the foods of different cuisines from all over the world, but is also happy to cook a good meal to share from his own Filipino culture. Mark is a big Sci-Fi enthusiast and hopes to see aliens in his lifetime.