‘You’re the owners now’

When retirement means turning the keys of the company over to the employees Trucking company founders Howard Schillinger and Dan Palus wanted to retire without letting the business they worked so hard to build over nearly 20 years wind up in the wrong hands or, worse, liquidated, with the employees suddenly out of a job. They considered some purchase offers for their company, Coldstream Logistics in Marshall, but none really fit. And word had leaked out to employees that the company may be up for sale, causing anxiety, said Andrew Schillinger, son of company co-founder and Coldstream’s vice president. The answer the company co-founders came up with was to sell Coldstream to its 60 employees through an employee stock ownership plan, which was finalized in November. Drivers were told about the sale in phone calls from Howard Schillinger. “The bad news is we sold the company,” he said. “The good news is you’re the owners now.” “Nobody’s disappointed,” he added. “It’s the best-case scenario for everybody.” Dan Zugell, senior vice president of Cranberry-based Business Transition Advisors Inc., which helped broker the Coldstream transaction, remembered the day Mr. Schillinger announced the deal. “When he called the meeting, they thought it was bad news,” Mr. Zugell said. “But the room just exploded.” ESOPs, which were codified by Congress in 1974, allows a loan to be drawn against a company’s balance sheet and structured in such a way that the proceeds can be used to buy out the owners, turning the company into what is in essence a retirement plan. Each employee receives an ownership share based on years of service. After an ESOP conversion, business profits are no longer taxable, and revenue that previously would’ve gone to pay taxes is instead used to pay off the loan. Employees pay nothing and gain retirement benefits that can be better than a conventional 401(k). “When employees have an ownership stake, they think of their business differently,” Mr. Zugell said. “They’re no longer working for an owner.” There are about 7,000 employee-owned companies in the U.S., including 348 in Pennsylvania, according to the Pennsylvania Center for Employee Ownership. Altoona-based convenience store chain Sheetz Inc. and Nicklas Supply, a bath and plumbing fixture supply company in Cranberry, are among the local outfits that have undergone an ESOP conversion. Rutgers University research has shown that ESOPs in closely held companies appear to increase sales, employment and sales per employee by about 2.3% to 2.4% per year over what would’ve been expected without the ESOP. Conventional investment advice counsels against concentrating retirement assets in one company — think Enron — but ESOP companies were much more likely than non-ESOP outfits to have other retirement plan offerings for employees, according to the National Center for Employee Ownership, an Oakland, Calif.-based trade group. Moreover, U.S. Labor Department research found that ESOPs have higher rates of return than the more common 401(k) plans. Coldstream was founded by two executives of large food and agricultural companies who saw a need for transporting products made by numerous small and family-owned frozen food companies to distribution centers, where the loads could be consolidated and delivered to grocery store chains. And like other truckers, Coldstream has had problems recruiting and retaining drivers, Mr. Schillinger said, despite raising wages 30% in 2021. The industry driver shortage could exceed 160,000 in 2030, according to the American Trucking Associations Inc., which blamed driver training schools turning out far fewer drivers than normal in 2020 and increased number of driver retirements. The average turnover rate for carriers with more than $30 million in revenue was 89% in 2021, up two points from 2020, according to the ATA, an Arlington, Va.-based trade group. For smaller carriers, the driver turnover rate was 11%. But Mr. Schillinger sees Coldstream’s ESOP conversion as a recruiting advantage, offering a retirement perk that competitors don’t have. The company recently hired a full-time driver employee recruiter. “It’s still relatively new. We’re still getting the word out,” he said about ESOP ownership change. “But 2022 is going to be a different story for us.”

Kris B. Mamula: [email protected] or 412-263-1699 First Published December 30, 2021, 6:00am?