Political Action Committees – Federal Election Law and Separate Segregated Funds

September 21, 2010

Federal Election Law

Federal election law generally provides regulations on the way American political campaigns for Congress and the presidency raise money and disclose the amount and sources of contributions.  The Federal Election Campaign Act of 1971 (“FECA”) and its subsequent amendments govern nearly all aspects of federal campaign finance activity including (1) the size of contributions to political campaigns, (2) the source of such contributions, (3) public disclosure of campaign financial information and (4) public financing of presidential campaigns.  FECA requires every candidate or committee active in a federal campaign to establish a central committee through which all contributions and expenditures must be reported.  Among other requirements, such committees must file with the Federal Election Commission (“FEC”) a quarterly report of receipts and expenditures which must list any contribution or expenditure of $100 or more and must include extensive information about donors.  The FEC makes this information available for public inspection.  FECA continues the ban on contributions by corporations and labor unions.  That is, FECA prohibits corporations and labor unions from using their general treasury funds to make contributions or expenditures in connection with federal elections.  The law also provides for contribution limits on all other sources of funding sharply limiting the amount any individual, committee or group can contribute to candidates or political committees in any election.  See the FEC Campaign Guide for Corporations and Labor Organizations regarding the scope of permissible activities in federal elections. These prohibitions could change as a result of the Citizens United case decided in January, 2010 and this area will need to be monitored .            

Types of Political Action Committees

            There are several different types of political action committees (“PACs”) which include (1) corporate or labor separate segregated funds (“SSFs”), (2) nonconnected committees and
(3) leadership PACs. 

Separate Segregated Funds

Corporations and labor organizations generally are prohibited from making contributions or expenditures in connection with federal elections.  The Federal Election Campaign Act and the Federal Election Commission regulations permit corporations and labor organizations to set up political committees which may make contributions to and expenditures on behalf of federal candidates and other committees.  Federal election law refers to a corporate or labor political committee as a “separate segregated fund” or SSF which is more commonly referred to as a “political action committee” or PAC.  Money contributed to a separate segregated fund is held in a separate bank account from the general corporate or union treasury.  A corporation or union that sponsors an SSF is called the connected organization.  The connected organization may use its general treasury funds to pay for the costs of operating and raising money for the SSF.  The connected organization may also exercise control over its committee.  Corporations and unions often adopt bylaws to govern their SSFs.  However, bylaws are not required under the law and they do not have to be filed with the FEC except when requested.