Federal Election Commission Finalizes New "Member" Rules Governing Trade Association PACs

Change Enhances Ability to Solicit Expanded Categories of Members

On July 30, 1999, the Federal Election Commission ("FEC") published a final rule regarding the definition of "member" of a membership organization, including trade associations. An effective date for the final rule will be announced after a required thirty legislative day Congressional review period closes.

The final rule liberalizes in many respects the definition of "member" that governs the scope of individuals and entities that may be solicited for contributions to a trade association political action committee ("PAC" or in FEC parlance, a "Separate Segregated Fund," or "SSF"). Accordingly, the proposed rules could benefit many trade associations' SSF fundraising efforts.

Current Law

Federal election law provides that an SSF can accept contributions, subject to certain limitations, from any person who may legally make contributions with respect to Federal elections. However, the SSF may actually solicit contributions only from the trade association's "restricted class."

Specifically, a trade association may only solicit contributions for its SSF from:

1. its non-corporate members (e.g., individuals and partnerships) and their families;

2. its corporate members, but only the socalled "restricted class" of those corporations (e.g., executive and administrative personnel, stockholders, and the families of both groups), and only after obtaining written permission from the member corporation (and each member corporation may authorize only one trade association to solicit its restricted class in any calendar year);

3. its own executive or administrative personnel and their families; and

4. its own nonexecutive and nonadministrative employees (who may be solicited only twice yearly under specific solicitation procedures).

In all cases, a variety of detailed procedures and restrictions govern the process for and content of solicitations and fundraising activities for SSFs. In addition, contributions from individuals to SSFs must be voluntary, personal, and non-reimbursed.

As the above definitions indicate, a key predicate to successful trade association SSF fundraising is the scope of "members" that may be solicited for contributions.

Court Decision Required Rule Revision

The FEC definition of "members" was called into question by the decision of the U.S. Court of Appeals for the District of Columbia in Chamber of Commerce of the United States v. FEC. In Chamber, a case directly addressing the FEC's rules on who could be considered a member,

published at 11 C.F.R. 100.8(b)(4)(iv) and 114.1(e), the court held to the FEC's member rule to be unduly restrictive and invalidated it as applied to SSFs headquartered and operated in the District of Columbia.

After the Chamber decision and before the new FEC member rules were published, the FEC definition of "member" stated (expect as applied to District of Columbia SSFs):

(2) Members means all persons who are currently satisfying the requirements for membership in a membership association, affirmatively accept the membership association's invitation to become a member, and either:

(i) have some significant financial attachment to the membership association, such as a significant investment or ownership stake (but not merely the payment of dues);

(ii) are required to pay on a regular basis a specific amount of dues that is predetermined by the association and are entitled to vote directly either for at least one member who has fully participatory and voting rights on the highest governing body of the membership association, or for those who select at least one member of those on the highest governing body of the membership association; or

(iii) are entitled to vote directly for all of those on the highest governing body of the membership association.

11 C.F.R. ' 114(e)(2).

By requiring that "members" for solicitation purposes enjoy significant voting rights . a structure that does not exist in many associations, particularly for those categories of members often designated as "associate" or "allied" members . the current definition has dramatically limited the number of members who may be solicited for contributions to an SSF.

The New Rule

After public hearings, review of comments, and extensive Commission debate, the FEC issued not only a clarification of what constitutes a "membership organization," but also an extremely liberalized definition of "members." Once a final effective date is announced by the FEC, the new rule published at 11 C.F.R. '114(e) will state, among other provisions:

(1) For purposes of this part membership organization means a trade association, cooperative, corporation without capital stock, or a local, national, or international labor organization that:

(i) Is composed of members, some or all of whom are vested with the power and authority to operate or administer the organization, pursuant to the organization's articles, bylaws, constitution or other formal organizational documents;

(ii) Expressly states the qualifications and requirements for membership in its articles, bylaws, constitution or other formal organizational documents;

(iii) Makes its articles, bylaws, constitution, or other formal organizational documents available to its members upon request;

(iv) Expressly solicits persons to become members;

(v) Expressly acknowledges the acceptance of membership, such as by sending a membership card or including the member's name on a membership newsletter list; and

(vi) Is not organized primarily for the purpose of influencing the nomination for election, or election, of any individual to Federal office.

(2) For purposes of this part, the term members includes all persons who are currently satisfying the requirements for membership in a membership organization, affirmatively accept the membership organization's invitation to become a member, and either:

(i) Have some significant financial attachment to the membership organization, such as a significant investment or ownership stake; or

(ii) Pay membership dues at least annually, of a specific amount predetermined by the organization; or

(iii) Have a significant organizational attachment to the membership organization which includes: affirmation of membership on at least an annual basis; and direct participatory rights in the governance of the organization. For example, such rights could include the right to vote directly or indirectly for at least one individual on the membership organization's highest governing board; the right to vote directly for organization officers; the right to vote on policy questions where the highest governing body of the membership organization is obligated to abide by the results; the right to approve the organization's annual budget; or the right to participate directly in similar aspects of the organization's governance.

Of critical importance in the final rule proposed by the Commission is the requirement that a trade association "member" for solicitation purposes could include persons who pay any amount of regular dues, without regard to their voting rights or organizational attachment. This modifies a key restriction that has impeded the fundraising activities of many trade association SSFs. Accordingly, membership organizations, including trade associations with SSFs, should review whether members who previously were barred from receiving solicitations may now be solicited.

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