What You Need to Know About the FEC's Prior Approval Rule
Originally 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.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.