diff --git a/JoshHeaps.Net/Content/Socialism/capital-accounts.md b/JoshHeaps.Net/Content/Socialism/capital-accounts.md index a7071fd..0ac085b 100644 --- a/JoshHeaps.Net/Content/Socialism/capital-accounts.md +++ b/JoshHeaps.Net/Content/Socialism/capital-accounts.md @@ -17,7 +17,7 @@ Every member has a personal account on the co-op's books. It works like a saving - **Each year, part of your share of the profits goes into it** instead of being paid out as cash. - **It earns interest.** -- **It's paid out to you**, when you leave or once it passes a set size, whichever comes first. +- **It's paid back to you** on a fixed schedule: each year's credit about five years after it's made, whether or not you still work there. Meanwhile, the co-op gets to use that money to grow. In effect it's a loan from the members to their own business. That's why Mondragon valued it: a firm that can't sell shares to outsiders can still keep its own earnings working ([Morris, *The Mondragón System*, 1992](https://www.ilsr.org/wp-content/uploads/2013/03/mondragon-3.pdf)). @@ -51,18 +51,40 @@ Members can also raise their own salaries instead of taking profit, but that doe ## How it's paid out -- **When you leave**, your balance stops sharing in future losses and becomes a fixed amount the co-op owes you, earning the plain Treasury rate until it's paid. It's paid in equal parts over up to five years, so one big departure can't drain the firm's cash. Balances under $10,000 are paid all at once. +- **Each year's credit is paid back after five years.** The money credited to your account for 2030 is paid to you in 2035, the 2031 credit in 2036, and so on, oldest first, each after that year's audited accounts are closed. Each co-op can set the wait anywhere from three to seven years in its bylaws. It's one of the two ways US worker co-ops already pay out accounts, called a "roll-over" ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)). The co-op gets to use each year's credit for years, and nobody's savings are stuck until they retire. +- **The wait is fixed when the credit is made.** A vote to change it applies only to credits made starting the year after the vote, so senior members can't speed up their own money or slow down anyone else's. +- **Leaving doesn't change the schedule.** When you leave, your balance is fixed at the end of that year, after that year's profit or loss is counted, so nobody can quit just ahead of a bad year and escape it. After that it stops sharing in losses, earns the plain Treasury rate, and each year's credit is still paid on its own date. +- **Small balances are paid early, for everyone.** Once anyone's whole balance is under $2,000, member or not, it's paid at the next payout date. That keeps a co-op from tracking small sums for years, and since it doesn't depend on leaving, nobody gains by quitting. - **There's no penalty for leaving.** Mondragon used to cut the payout by up to 30% for people who quit. This model doesn't, because a core promise of [the tenure cap](worker-ownership.md) is that you can change jobs without losing what you've built. -- **Accounts are capped at one year's pay.** Anything above that is paid out every year, in cash or into the member's own retirement account, where it can be invested in anything. Nobody should end up with most of their savings tied to the same company that pays their wages. -- **On death, the account goes to your estate**, paid within two years. It's your property. +- **Accounts are capped at one year's pay,** measured as the highest pay in the last three years, so nobody can cut their own pay to get their money sooner. Anything above that is paid out every year in cash, which a member can put in their own retirement account and invest in anything. Nobody should end up with most of their savings tied to the same company that pays their wages. +- **Any payout can be spread out.** Members get 90 days' notice of each payout and can ask for it in up to 12 monthly payments, so one check doesn't push a family over a limit for public benefits ([How a Locked Co-op Is Taxed](taxes.md#benefits)). +- **On death, the account goes to the person you name,** your spouse unless you name someone else with their written consent, on the normal schedule. - **In a divorce, a court can split the account.** The former spouse gets a separate account of their own, with no vote, paid out on the normal schedule. +- **Every year, each person gets a statement** showing each credit, any losses charged to it, and the date it will be paid. Former members get one too. A dispute gets a written answer within 90 days and can go to an outside arbitrator from the federation's list, or to court. + +### Why not pay it out when you leave? + +Mondragon pays members their accounts when they retire or leave, and so do some US co-ops. This model doesn't, because of a federal pension law. Under the Employee Retirement Income Security Act (ERISA), any program an employer runs that holds back workers' income "for periods extending to the termination of covered employment or beyond" is a pension plan ([29 U.S.C. 1002(2)(A)](https://www.law.cornell.edu/uscode/text/29/1002)). The Labor Department's rule says the same about bonuses "systematically deferred to the termination of covered employment" ([29 CFR 2510.3-2(c)](https://www.law.cornell.edu/cfr/text/29/2510.3-2)). Members are the co-op's employees ([Owners Are Still Workers](labor-law.md)). There's a case that a co-op's profit allocations are an owner's share, not an employer's bonus, but the model doesn't stake members' savings on winning it. + +A pension plan would break the account. Its money has to be held in a trust, apart from the business ([29 U.S.C. 1103](https://www.law.cornell.edu/uscode/text/29/1103)), and the plan can't lend to the employer ([29 U.S.C. 1106](https://www.law.cornell.edu/uscode/text/29/1106)). The whole point of the account is that the co-op uses the money. + +**A fixed schedule is designed to stay outside the law's definition, but that isn't settled.** In 1995 the Labor Department said a company's profit-based program wasn't a pension plan because it didn't "expressly provide for a deferral of income to the termination of covered employment." But that program paid nothing to people who quit, and the Department pointed to that. It also warned that a program can still become a pension plan "as a result of surrounding circumstances," such as "an inordinate percentage" of participants being near retirement age when payments arrive ([Advisory Opinion 95-23A](https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/erisa-section-3-3-employee-pension-benefit-plan-advisory-opinion-1995-23a.pdf)). Here, people who leave are still paid afterward, on the same dates as everyone else. A court could count that against the design. So: + +- **Nothing about the payout depends on leaving:** not the date, not the amount, not the small-balance rule. +- **The wait is short and the same for everyone,** at most seven years, not tied to age or retirement. +- **The account isn't sold as retirement savings.** A co-op that wants to help members save for retirement does it the ordinary way, with a regular retirement plan held outside the business. +- **The first pilot co-ops ask the Labor Department for an advisory opinion on their real bylaws, and the bank pays.** An opinion only covers the co-op that asked, on its own facts, so the bank also asks the Department for a rule any employer could use, for profit-sharing paid on a short fixed schedule. It doesn't ask Congress for an exemption only co-ops would get. + +**The cost is capital.** Money paid back after five years is money the co-op can't keep using for fifteen. So a co-op that wants to invest more has to keep more in its permanent reserve, and that weakens the model's answer to the horizon problem ([Investing for the Long Run](the-long-run.md#who-pays-for-an-investment-and-when)). ## Protecting the co-op, and the people who stay A payout system can also be used to strip a failing firm. People who see trouble coming leave first and get paid in full, while everyone who stays absorbs the loss. So: -- **Every payout must pass a solvency test.** No payment may push the co-op below its loan requirements or a minimum cash level set in its bylaws when it's founded. -- **If a payout fails the test, it's paused for at most two years.** Interest keeps building, and nobody's account is cancelled. While any former member's payout is paused, **current members get no cash profit share, no bonuses and no raises above the going rate.** Nobody gets paid ahead of the people who are waiting. +- **Every payout must pass a solvency test.** No payment may push the co-op below its loan requirements or a minimum cash level set in its bylaws when it's founded. Members can't lower that minimum without the bank's consent. +- **If payouts fail the test, they're paused, all together, for at most two years.** Credits from the same year are treated the same whether their owner still works there or not, and the oldest are paid first when money allows. Paused amounts earn the Treasury rate plus two points, since the people waiting are carrying extra risk. While any payout is paused, **current members get no cash profit share, no bonuses and no raises above the going rate.** Nobody gets paid ahead of the people who are waiting. +- **After two years, a pause becomes a debt with a schedule.** Whatever is still unpaid becomes a note the co-op repays in equal parts over five years, still behind its lenders, and the [insurance pool](savings-guarantee.md) covers former members' insured amounts if the co-op fails. So the worst case for a member who leaves is a long wait: up to seven years for the last credit, plus the pause, plus the note. The co-op's bylaws have to say so in plain words. +- **Losses are spread evenly.** When a loss is charged to members' accounts, it's charged to every year's credits that haven't been paid yet, in proportion, not to the newest or the oldest first. So the timing of payouts can't be used to dodge a loss. - **Payouts rank behind the co-op's lenders.** In a bankruptcy, members' accounts are paid only after the co-op's creditors. That's the honest cost of being an owner, and it's the main reason for the one-year-of-pay cap. - **The co-op doesn't lend to members against their accounts.** That would just be an early withdrawal by another name. Members can use their account as collateral with an outside lender. - **Savings are insured, up to a point.** Every locked co-op belongs to a members' savings insurance pool, paid for by the co-ops. It covers workers' final unpaid wages, former members' unpaid payouts up to $50,000, and a protected slice of current members' accounts. See [Protecting Members' Savings](savings-guarantee.md). diff --git a/JoshHeaps.Net/Content/Socialism/high-turnover.md b/JoshHeaps.Net/Content/Socialism/high-turnover.md index efbed0f..bb30b39 100644 --- a/JoshHeaps.Net/Content/Socialism/high-turnover.md +++ b/JoshHeaps.Net/Content/Socialism/high-turnover.md @@ -55,7 +55,7 @@ A retirement plan and a co-op aren't the same, and the same study found that peo Existing home care co-ops charge refundable fees of $25 to $1,000, often taken from paychecks a little at a time (PHI, 2005). That's a real cost for someone earning an aide's wage, and in many states a deduction from pay needs the worker's written permission. -So in this model, **the buy-in comes out of the member's own profit shares, not their paycheck.** It's capped at $1,000. Until it's covered, part of each profit share goes toward it instead of being paid out in cash, though never the cash a member needs to pay tax on their share. A member can choose to pay it faster from their pay if they ask in writing. Either way, it sits in their own [capital account](capital-accounts.md) and comes back to them when they leave. +So in this model, **the buy-in comes out of the member's own profit shares, not their paycheck.** It's capped at $1,000. Until it's covered, part of each profit share goes toward it instead of being paid out in cash, though never the cash a member needs to pay tax on their share. A member can choose to pay it faster from their pay if they ask in writing. Either way, it sits in their own [capital account](capital-accounts.md) and is paid back to them on the account's normal schedule, whether or not they stay. ### A short probation @@ -89,7 +89,7 @@ Some things make it less harsh than it sounds: - **The vote doesn't ramp.** A member who stays one year has the same vote as one who stays thirty. - **Time on the ramp adds up.** Someone who leaves and comes back within a few years picks up where they left off, and protected leave, like parental or medical leave, counts as time worked ([Worker Ownership](worker-ownership.md)). That matters in care work, where many workers, most of them women, step out for a while to care for their own families. -- **Whatever they built goes with them.** A member's account is paid out when they leave, and small balances are paid all at once ([Member Capital Accounts](capital-accounts.md#how-its-paid-out)). +- **Whatever they built goes with them.** A member's account keeps paying out on its normal schedule after they leave, and small balances are paid all at once ([Member Capital Accounts](capital-accounts.md#how-its-paid-out)). - **In care work, the profit is small anyway.** At home care's thin margins, a full share is worth a couple of thousand dollars a year, and a typical member's is less ([Member Capital Accounts](capital-accounts.md)). For these workers, most of what matters is pay, hours and a say in how the work is done. A co-op can choose the short end of the ramp. This page doesn't shorten it further, because the founding plan sets that range on purpose. A longer ramp was meant to let a co-op hire without every new member cutting into everyone else's share right away. Under tax law, it only does that if the co-op pays the difference as wages for years of service ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)). Whether low-margin, high-turnover co-ops should be allowed a much shorter ramp is an open question ([Open Problems](open-problems.md)). diff --git a/JoshHeaps.Net/Content/Socialism/index.md b/JoshHeaps.Net/Content/Socialism/index.md index 76d8cd0..fae3413 100644 --- a/JoshHeaps.Net/Content/Socialism/index.md +++ b/JoshHeaps.Net/Content/Socialism/index.md @@ -13,7 +13,7 @@ summary: A working model for building an economy where the people who do the wor This model doesn't buy, seize or convert anyone's company. Instead it builds new worker-owned companies alongside existing ones, then lets customers and workers choose between them. -- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally, per hour worked, which is how federal tax law lets co-ops pay tax on it only once. Salaries still exist, and hard jobs still pay more. Part of each year's profit builds up in a personal account that's paid out when you leave, and part goes into a permanent reserve that keeps the business investing. Members can't drain it through high pay or let the equipment quietly wear out, and big bets get an outside opinion first. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. A fair, fast process deals with members who won't do the work, with protections so it can't be turned on the wrong people. Members are the co-op's employees, so they get the minimum wage, overtime and injury insurance like anyone else. Where the law leaves owners out, of unemployment insurance in some states or of union protection, the co-op's charter fills what it can. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. Equal shares give members a reason to turn down growth into lower-paying work, so co-ops can grow by starting new co-ops they invest in instead. [Worker Ownership](worker-ownership.md), [Does Sharing the Profit Mean Less Effort?](free-riding.md), [When People Don't Stay Long](high-turnover.md), [Owners Are Still Workers](labor-law.md), [When Growing Means Sharing](growth.md), [Member Capital Accounts](capital-accounts.md), [How a Locked Co-op Is Taxed](taxes.md), [Protecting Members' Savings](savings-guarantee.md) and [Investing for the Long Run](the-long-run.md) +- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally, per hour worked, which is how federal tax law lets co-ops pay tax on it only once. Salaries still exist, and hard jobs still pay more. Part of each year's profit goes into a personal account that pays it back a few years later on a fixed schedule, whether or not you've left, which is designed to keep it outside federal pension law, and part goes into a permanent reserve that keeps the business investing. Members can't drain it through high pay or let the equipment quietly wear out, and big bets get an outside opinion first. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. A fair, fast process deals with members who won't do the work, with protections so it can't be turned on the wrong people. Members are the co-op's employees, so they get the minimum wage, overtime and injury insurance like anyone else. Where the law leaves owners out, of unemployment insurance in some states or of union protection, the co-op's charter fills what it can. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. Equal shares give members a reason to turn down growth into lower-paying work, so co-ops can grow by starting new co-ops they invest in instead. [Worker Ownership](worker-ownership.md), [Does Sharing the Profit Mean Less Effort?](free-riding.md), [When People Don't Stay Long](high-turnover.md), [Owners Are Still Workers](labor-law.md), [When Growing Means Sharing](growth.md), [Member Capital Accounts](capital-accounts.md), [How a Locked Co-op Is Taxed](taxes.md), [Protecting Members' Savings](savings-guarantee.md) and [Investing for the Long Run](the-long-run.md) - **A small public bank lends to worker co-ops.** It charges market rates, so it only succeeds if co-ops can really compete. Its whole job is to be willing to lend to a kind of company other banks won't. Spain, Italy and the US have all tried versions of this, and the pilot is built around what went right and wrong. [The Bank](the-bank.md) and [Has This Been Tried?](precedents.md) - **Owners who want to sell to their workers can.** The bank lends for these sales on a separate track, with its own $100 million and its own test. Only healthy firms qualify, there's no new tax break, the price is capped at an independent appraisal, the seller shares the risk, and the whole workforce votes. [When an Owner Wants to Sell to the Workers](buyouts.md) - **Co-ops funded this way stay co-ops forever.** They can't be sold to conventional owners, and members can't vote to cash out what earlier members built. An independent lock-holder can veto any attempt, including selling the business off piece by piece. If a co-op goes bankrupt, only another co-op can buy it whole, and its workers get a real chance to be that buyer. That needs an amendment to federal bankruptcy law, drafted here. [The Lock](the-lock.md), [When a Locked Co-op Goes Bankrupt](bankruptcy.md) diff --git a/JoshHeaps.Net/Content/Socialism/labor-law.md b/JoshHeaps.Net/Content/Socialism/labor-law.md index 0c18e08..70f8d01 100644 --- a/JoshHeaps.Net/Content/Socialism/labor-law.md +++ b/JoshHeaps.Net/Content/Socialism/labor-law.md @@ -34,9 +34,10 @@ That makes the stake a bit harder to earn in work, since hours after the co-op f Overtime is paid at one and a half times a worker's "regular rate," and a bonus that workers are promised in advance usually has to be added into that rate ([29 CFR 778.211](https://www.law.cornell.edu/cfr/text/29/778.211)). Both the profit share and the [team bonuses](free-riding.md#team-bonuses-the-members-design) are promised in advance. -There's a way out for the profit share. A written profit-sharing plan that pays out of the whole business's profits, by a set formula such as hours worked, isn't added into the regular rate. But the plan has to be open at least to every worker covered by the wage law, not just members, though it can require a minimum length of service ([29 CFR 549.1](https://www.law.cornell.edu/cfr/text/29/549.1)). So: +There's a way out for the profit share. A written profit-sharing plan that pays out of the whole business's profits, by a set formula such as hours worked, isn't added into the regular rate. But the plan has to be open at least to every worker covered by the wage law, not just members, though it can require a minimum length of service ([29 CFR 549.1](https://www.law.cornell.edu/cfr/text/29/549.1)). It has other conditions too: -- **The standard profit share is written to meet that rule**, or the co-op recalculates each worker's overtime at the end of the year. +- **The model's profit share probably doesn't meet it.** The part credited to members' accounts isn't paid "within a reasonable period" or put in a trust, as the rule requires. And a share "may not be diminished because of any other remuneration," but the model's pay rule takes part of above-market pay out of the profit share ([Investing for the Long Run](the-long-run.md#the-rules)). +- **So the whole profit share is added into the overtime rate.** Every year, once the profit share is set, the standard payroll service recalculates overtime for every worker who had any and pays the difference. Overtime is a small share of hours in most co-ops, so the cost is small. - **Team bonuses are always added into the overtime rate.** The standard payroll service does the math. ### Meetings are work @@ -111,6 +112,6 @@ The board has gone the other way when *everyone* who works there is an owner and - **The charter is weaker than law.** A member fired for organizing gets an outside arbitrator, not the labor board. Until the NLRA is changed, that's the protection. - **The NLRA change is new federal law,** and it may never pass. Opponents will say it's odd for owners to organize against themselves. The answer is that a member has one vote among many, and the managers they elect can still treat them badly. - **State unemployment law changes slowly.** Until states adopt the model law, members in some states have no unemployment cover unless their co-ops set up their own. Making that cover required would raise costs only for co-ops in those states. The pilot leaves it optional and counts who went without. -- **The founding setup hasn't been tested.** Whether unpaid work before the co-op is formed is really outside wage law, and whether the profit share meets the overtime rule, are questions for the Labor Department's opinion letter. Until it answers, the bank's lawyers decide, and they could be wrong. +- **The founding setup hasn't been tested.** Whether unpaid work before the co-op is formed is really outside wage law is a question for the Labor Department's opinion letter, and whether members' accounts stay outside pension law is another ([Member Capital Accounts](capital-accounts.md#why-not-pay-it-out-when-you-leave)). Until it answers, the bank's lawyers decide, and they could be wrong. - **Workers without papers are still left out** of membership, and so out of the profit share. - **This is a map, not legal advice.** State rules differ and change, and the Department of Labor's table is from 2021. Instead of every co-op paying a lawyer, the bank keeps a checked set of rules for each state and runs a shared payroll service that handles minimum wage, overtime and insurance. diff --git a/JoshHeaps.Net/Content/Socialism/open-problems.md b/JoshHeaps.Net/Content/Socialism/open-problems.md index af5fd53..e20ac1b 100644 --- a/JoshHeaps.Net/Content/Socialism/open-problems.md +++ b/JoshHeaps.Net/Content/Socialism/open-problems.md @@ -11,9 +11,9 @@ An honest list of what the model hasn't solved yet, most dangerous first. 1. **Adverse selection on founders.** *(The most dangerous.)* The lock removes the exit, and profits are shared with every member. In the success case a co-op founder ends up with somewhere between a fifth and a twentieth of what a conventional owner of the same firm would ([The Founder Problem](founder-problem.md)). For founders without wealth the gap in what the bet is *worth* is smaller, but at the top it's decisive. If the strongest founders go conventional, the bank's portfolio is the rejected pool, and the test fails for reasons that say nothing about co-ops. The pilot can at least tell how much of a result is down to founders: [Co-ops or Their Founders?](who-founds.md) measures founders on both sides from government records, and the verdict has to say how much their backgrounds explain. That doesn't change pass or fail, because if the lock keeps strong founders away, that's part of what the lock does. Still open: nothing yet makes the deal better for the founders the model most needs, and with about 400 co-ops, "too few to tell" is a likely answer. -2. **The horizon problem.** *(Mostly answered.)* Members near retirement have little reason to vote for investments whose payoff arrives after they leave. The evidence from France and Italy finds no underinvestment where co-ops must keep a reserve, and [Investing for the Long Run](the-long-run.md) closes the main routes around this model's reserve: pay above the going rate, sales of assets, development spending, high pay that turns into losses, and worn-out equipment still in use. A warning light shows when a co-op stops replacing its equipment, and big bets get an independent opinion before members vote. Still open: nothing forces a co-op to maintain what it has, a bad bet that fails after its backers leave falls on the people who came after, and it's unsettled whether 30% is enough and whether the account rate is right. Letting members sell their places to incoming workers was rejected, because that is how the plywood co-ops ended up sold. +2. **The horizon problem.** *(Mostly answered.)* Members near retirement have little reason to vote for investments whose payoff arrives after they leave. The evidence from France and Italy finds no underinvestment where co-ops must keep a reserve, and [Investing for the Long Run](the-long-run.md) closes the main routes around this model's reserve: pay above the going rate, sales of assets, development spending, high pay that turns into losses, and worn-out equipment still in use. A warning light shows when a co-op stops replacing its equipment, and big bets get an independent opinion before members vote. Still open: nothing forces a co-op to maintain what it has, a bad bet that fails after its backers leave falls on the people who came after, and it's unsettled whether 30% is enough and whether the account rate is right. Members' accounts now pay back within three to seven years ([Member Capital Accounts](capital-accounts.md#why-not-pay-it-out-when-you-leave)), so they help less with long-lived investments than accounts held until members leave. Letting members sell their places to incoming workers was rejected, because that is how the plywood co-ops ended up sold. -3. **Members' savings sit inside their employer.** *(Partly answered.)* [Member capital accounts](capital-accounts.md) are capped at a year's pay, protected by a solvency test, and now insured by a pool the co-ops pay for ([Protecting Members' Savings](savings-guarantee.md)). It covers final wages, former members' payouts and a protected slice of current accounts. Premiums are now estimated from Europe's wage guarantee funds and US closure and default rates: at least 0.25% of payroll for final wages, and probably 2% to 3% a year of covered savings, which takes nearly all the interest on a protected slice. The reserve target is sized for a five-year wave of failures like 2008–2012, and cover for current members' savings waits until the pool has its own track record. Still open: the pool has no government backing, so a worse recession could outrun it; the estimates rest on rough data, not co-ops; the reserve takes about fifteen years to build; and it needs a federal charter to avoid fifty states' insurance laws. +3. **Members' savings sit inside their employer.** *(Partly answered.)* [Member capital accounts](capital-accounts.md) are capped at a year's pay, protected by a solvency test, and now insured by a pool the co-ops pay for ([Protecting Members' Savings](savings-guarantee.md)). It covers final wages, former members' payouts and a protected slice of current accounts. Premiums are now estimated from Europe's wage guarantee funds and US closure and default rates: at least 0.25% of payroll for final wages, and probably 2% to 3% a year of covered savings, which takes nearly all the interest on a protected slice. The reserve target is sized for a five-year wave of failures like 2008–2012, and cover for current members' savings waits until the pool has its own track record. Still open: the pool has no government backing, so a worse recession could outrun it; the estimates rest on rough data, not co-ops; the reserve takes about fifteen years to build; and it needs a federal charter to avoid fifty states' insurance laws. Also open: an account paid out when a member leaves would probably be a pension plan under federal law, which would forbid the co-op from using the money. So accounts now pay each year's credit back on a fixed schedule of three to seven years, whether or not the member has left. That's designed to stay outside pension law, but it isn't settled until the Labor Department answers. It gives up the trust, disclosure and fiduciary rules that pension law would bring, which the model only partly replaces, and it leaves the co-op less of its members' money to invest for the long run. 4. **Is the lock too rigid?** A co-op that should be sold (a better operator exists, the members want out) can only go to another co-op. If the co-op sector is small, that buyer pool is tiny, and viable firms may be liquidated instead of rescued. The federation as buyer of last resort is a partial answer. Critics on the right add a sharper version: a lock that outlasts a repaid loan by generations is a permanent restriction on selling property, bought with one loan, and it binds members who never agreed to it. The lock is now built to hold in layers, including an independent lock share and rules against selling the business piece by piece ([The Lock](the-lock.md#how-the-lock-is-made-to-hold)). Its biggest legal gap is bankruptcy: federal bankruptcy law generally overrides limits on selling a bankrupt company's property, so the lock only holds in bankruptcy if Congress amends that law. [When a Locked Co-op Goes Bankrupt](bankruptcy.md) drafts that amendment. It's modeled on how bankruptcy law already treats charities. Only co-ops can buy a failed co-op whole, its workers can keep it running and bid with the wages they're owed, and creditors who never chose to lend are paid the lock's cost from the federation fund. It still needs Congress, a later Congress can repeal it, and while the co-op sector is small, some viable businesses will be broken up for lack of a co-op buyer. Italy offers a softer model: a co-op there can convert into an ordinary company, but its accumulated reserves go to the co-op development fund, not to the members ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). That would keep the part of the lock that stops members cashing out what earlier generations built, and drop the part that stops a firm from ever changing hands. diff --git a/JoshHeaps.Net/Content/Socialism/savings-guarantee.md b/JoshHeaps.Net/Content/Socialism/savings-guarantee.md index 604e6a4..5cdbf65 100644 --- a/JoshHeaps.Net/Content/Socialism/savings-guarantee.md +++ b/JoshHeaps.Net/Content/Socialism/savings-guarantee.md @@ -32,7 +32,7 @@ Every locked co-op belongs to a **members' savings insurance pool**. It protects **1. Final wages.** If a co-op fails owing its workers pay, the pool pays up to eight weeks of each worker's unpaid wages and earned time off. For a low-paid worker, this is usually the biggest loss, and US bankruptcy law only partly protects it: unpaid wages get priority, but only up to $17,150 per worker, and only after secured lenders are paid ([11 U.S.C. § 507(a)(4)](https://www.law.cornell.edu/uscode/text/11/507)). -**2. Former members' payouts.** When someone leaves, their account becomes a fixed amount the co-op owes them, paid over up to five years (see [Member Capital Accounts](capital-accounts.md#how-its-paid-out)). They no longer work there and have no say in how it's run, so this is the clearest case for protection. The pool covers these unpaid payouts up to $50,000 per person. +**2. Former members' payouts.** When someone leaves, their account becomes a fixed amount the co-op owes them, paid on the account's normal schedule, three to seven years after each credit was made (see [Member Capital Accounts](capital-accounts.md#how-its-paid-out)). They no longer work there and have no say in how it's run, so this is the clearest case for protection. The pool covers these unpaid payouts up to $50,000 per person. **3. A protected slice of current members' accounts.** A current member's account is different. It's their share of the risk of owning the business, and they help run it. So only a slice is protected: 80% of the first $10,000. That protected slice earns the plain Treasury rate. Only the part of the account that's still at risk earns the extra two percentage points (see [Member Capital Accounts](capital-accounts.md#how-the-account-grows)). Nobody gets paid a premium for risk they don't carry, and every member keeps some skin in the game. diff --git a/JoshHeaps.Net/Content/Socialism/taxes.md b/JoshHeaps.Net/Content/Socialism/taxes.md index 9d3aa6f..3e68bcf 100644 --- a/JoshHeaps.Net/Content/Socialism/taxes.md +++ b/JoshHeaps.Net/Content/Socialism/taxes.md @@ -101,7 +101,7 @@ If the IRS wins, members pay about 15% more on their profit shares. Low-paid mem Profit shares count as income for Medicaid, health insurance subsidies, food assistance and housing aid, even when they're kept in an account. A lump sum can push a family over a limit for a month or a year. So: - the lower-income defaults above keep account credits from counting until they're paid; -- members can ask for their payout when they leave in installments, so one payment doesn't push them over a limit for savings, like the one for Supplemental Security Income; +- anyone can ask for a payout from their account in up to 12 monthly payments, so one payment doesn't push them over a limit for savings, like the one for Supplemental Security Income; - the federation offers benefits advice to every member, along with the templates and training it already supplies ([The Federation](federation.md)). ## Getting certainty diff --git a/JoshHeaps.Net/Content/Socialism/the-long-run.md b/JoshHeaps.Net/Content/Socialism/the-long-run.md index 0ad9af1..e29a32f 100644 --- a/JoshHeaps.Net/Content/Socialism/the-long-run.md +++ b/JoshHeaps.Net/Content/Socialism/the-long-run.md @@ -46,7 +46,7 @@ The horizon problem bites when the members voting today pay for an investment wh **1. The reserve.** At least 30% of every year's profit goes into the co-op's permanent reserve (see [Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes)). No current member can ever take that money home, so paying for the line this way doesn't cut our machinist's share this year. (The line's cost still counts against profit a little each year, as point 3 explains.) The reserve is money that already belongs to the co-op's future, and it gets spent on the co-op's future. -**2. Members' accounts.** Money members leave in their [capital accounts](capital-accounts.md) isn't lost when they leave. It's paid back to them with interest. So if the co-op keeps more of this year's profit in members' accounts to pay for the new line, the machinist gets her money back when she retires. Her real cost is the wait, and the risk that the co-op fails. +**2. Members' accounts.** Money members leave in their [capital accounts](capital-accounts.md) isn't lost when they leave. It's paid back to them with interest. So if the co-op keeps more of this year's profit in members' accounts to pay for the new line, the machinist gets her money back, by default five years later, whether or not she's still there. Her real cost is the wait, and the risk that the co-op fails. Five years is shorter than most machines last, so for long-lived investments this helps less than it would if accounts were held until members left. Federal pension law is why they aren't ([Member Capital Accounts](capital-accounts.md#why-not-pay-it-out-when-you-leave)). **3. Spreading the cost over time.** A business doesn't count the whole price of a machine as a cost in the year it's bought. It spreads the cost over the machine's working life. A $2 million line that lasts 20 years counts as $100,000 of cost a year. This is called *depreciation*, and it's how ordinary accounting already works. The profit split is based on profit after depreciation, so the machinist isn't charged for the years after she leaves. The bank does the same with repayment: loans for buildings and long-lived equipment are paid back over the asset's working life, up to 25 years for real estate, the same limit the SBA's main loan program uses ([SBA, types of 7(a) loans](https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans)). @@ -77,7 +77,7 @@ That leaves four ways the horizon problem can still get in. **3. Development projects can be spread out, like machines.** A co-op can designate a specific development project *before* it starts spending on it: designing a new product or a better production process, or building software. For the profit split only, its cost is then spread over up to five years, the same way a machine's is. - **Only real development qualifies.** It has to meet the test international accounting standards already use to decide when development creates a real asset: it's technically doable, the co-op intends to finish it and can, and it's likely to earn money ([IAS 38](https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/)). Those standards specifically exclude training, advertising and start-up costs, and so does this rule. Those stay costs of the year they're spent. -- **The people who chose it carry the risk.** If a project is abandoned or written down within five years, the cost that hasn't yet been charged comes out of the capital accounts of the people who were members when it was designated, including former members whose payouts haven't been made yet. Payouts take up to five years anyway, so the money is usually still there. That makes the rule useless for pushing costs onto the next group of workers. +- **The people who chose it carry the risk.** If a project is abandoned or written down within five years, the cost that hasn't yet been charged comes out of the capital accounts of the people who were members when it was designated, including former members whose payouts haven't been made yet. Each credit waits three to seven years before it's paid, so much of the money is usually still there. That makes the rule useless for pushing costs onto the next group of workers. - **Limits.** The total cost still waiting to be charged can't exceed half of the co-op's average profit over the last three years, measured before any spreading. Only co-ops with an independent audit can use the rule, and the auditor checks each open project every year. - **It only changes how costs are divided between this year's members and future ones.** It doesn't touch the co-op's tax return or its reports to the bank. The co-op publishes both numbers side by side. diff --git a/JoshHeaps.Net/Content/Socialism/worker-ownership.md b/JoshHeaps.Net/Content/Socialism/worker-ownership.md index c78b1b1..45a7c1e 100644 --- a/JoshHeaps.Net/Content/Socialism/worker-ownership.md +++ b/JoshHeaps.Net/Content/Socialism/worker-ownership.md @@ -21,7 +21,7 @@ Protected leave (parental, medical, caregiving) counts as tenure, so taking time Membership itself comes automatically after a short probation, unless a worker opts out. In jobs like home care, where most people move on within a year or two, that's what keeps a co-op from becoming a club of the few who stay ([When People Don't Stay Long](high-turnover.md)). -Where does the profit share actually go? Part is paid in cash each year, and part builds up in a personal account that's paid out when you leave. See [Member Capital Accounts](capital-accounts.md). +Where does the profit share actually go? Part is paid in cash each year, and part goes into a personal account that pays each year's share back after about five years. See [Member Capital Accounts](capital-accounts.md). Why the cap: uncapped tenure weighting builds a gerontocracy of shares and chains people to their first employer. Capped at a career-fraction, people can change companies, move cities, start over, and still reach a full share with plenty of career left.