Skip to page content
Office of Labor-Management Standards
Bookmark and Share

Office of Labor-Management Standards (OLMS)

Bonding Requirements

Section 502(a) of the Labor-Management Reporting and Disclosure Act of 1959, as amended (LMRDA), and provisions of Section 7120 of the Civil Service Reform Act of 1978 (CSRA) establish bonding requirements for certain officers and employees of labor organizations. Every union covered by the LMRDA or the CSRA is subject to the bonding requirements except for unions whose property and annual receipts do not exceed $5,000 in value.

The required bonds are a type of insurance agreement which guarantees reimbursement to the union for any financial losses caused by fraudulent or dishonest acts by officers or employees, such as theft, embezzlement, or forgery. The bonding requirements are not based on the idea that particular individuals or organizations are inherently dishonest. Rather, bonding is required because experience has shown that when people are entrusted with the money or property of another, there will be instances when individuals will cause a loss through fraud or dishonesty. Bonding is therefore required to insure the union against such a loss.

The law provides that any person who "handles" union funds or property must be bonded for at least 10% of the funds handled during the union's preceding fiscal year up to a maximum of $500,000. An individual is considered to be "handling" union funds if his/her duties or authority provide access to union funds resulting in a significant risk of loss of funds if that person engages in fraudulent or dishonest acts. For example, a person who receives dues, fees, etc., from members is clearly "handling" union funds and therefore must be bonded. Also, however, any officer or employee who has authority to sign checks on the union's account is "handling" union funds and must be bonded even if he/she has no physical contact with the funds. Individuals who typically must be bonded include union officers (both elected and non-elected), employees such as business agents, trustees, key administrative and professional staff, and clerical personnel.

On the reverse is a detailed worksheet designed to assist you in computing the amount of bonding coverage required. A quick formula for computing the approximate amount of bonding coverage required is:

Liquid Assets + Total Receipts x 10%=Amount of coverage required per person

Liquid assets, for purposes of this formula, are those assets that are quickly and easily negotiable. Cash on hand, deposits in any type of financial institution, certificates of deposit, U.S. Treasury securities, corporate stocks and bonds, and accounts and loans receivable are common examples of liquid assets. Property of a relatively permanent nature, such as land, buildings, furniture, and fixtures is not a liquid asset.

The required bond must be obtained from a company on the U.S. Treasury Department list of approved bonding companies. The companies know whether they are approved and your national or international union may be able to assist you. You can also obtain a copy of the list from the nearest OLMS office. In addition to the requirement of placing the bond with a company on the Treasury Department list, the law prohibits placing the bond through an agent or broker or with a company in which any union or any officer, agent, shop steward, or other union representative has any direct or indirect interest.

It is possible for a bond to cover more than one union. For example, many national or international unions obtain a bond covering both their organization and their affiliated unions. Contact your national or international union if you have any questions about whether your union is covered by such a bond.

The following checklist will help you stay in compliance with the bonding requirements:

  • Refigure the amount of bonding coverage required for each fiscal year immediately after the close of the last fiscal year. (Figures required for the bonding computation must be compiled for your union's annual financial report Form LM-2, LM-3, or LM-4 as well.)
  • If your union's bonding requirements have increased from the last year's coverage, obtain amended coverage immediately.
  • Make sure every person who "handles" funds is covered. (The easiest way is to obtain standard "blanket" coverage for all persons who handle funds.)
  • Make sure the company issuing the bond is on the U.S. Treasury Department list of approved companies.

If you have any questions about the bonding requirements or their application to your organization, contact the nearest OLMS office. Copies of an explanatory pamphlet, "Bonding Requirements Under the LMRDA and the CSRA," and the LMRDA bonding regulations, 29 CFR Part 453, are also available from the nearest OLMS office.

Additional Tips for International Unions

National and international unions that purchase bonding coverage for their affiliates should examine the timetables established for affiliates to report the funds handled during the fiscal year. The amount of bonding coverage must be set at the start of each fiscal year. This can be of particular importance if the amount of bonding coverage must be increased because of an increase in the amount of funds handled during the fiscal year. The LMRDA prohibits any person who is inadequately bonded from receiving, handling, disbursing, or otherwise exercising custody or control of any of the labor organization's funds or property. Unless the parent organization requires each affiliate to report the amount of funds handled immediately after the close of the fiscal year and then promptly arranges for adequate bonding coverage if an increase is required, adequate coverage may lapse for several months or longer, which is a violation of the LMRDA.