CINCINNATI — When Barbara Harbin entered hospice care with terminal lung cancer in 2021, she didn’t stop working at Saturday Knight Ltd.
“She was given 90 days to live and she still went and worked at the company” until she was unable to get out of bed six weeks later, said Harbin’s daughter, Melissa Cottman. “That’s how much she loved that place.”
And that’s why it stings that Cottman says she has yet to receive more than $70,000 from Harbin’s ownership stake in the company – 29 months after Harbin’s death.
In a Nov. 13 letter to Cottman, CEO Kristen Vrsansky said the company doesn’t have enough cash to enable distributions from its Employee Stock Ownership Plan.
“Until the company completes a sale or experiences an improvement in its cash situation, it will be unable to contribute or lend the necessary funds to the ESOP for requested cash distributions to participants and beneficiaries,” Vrsansky wrote.
“My mom would be furious,” Cottman said. “She was very outspoken. She didn’t take any crap from nobody.”
What's an ESOP?
More than 14 million people own a piece of companies through ESOPs, which are federally regulated benefit plans in which employees receive stock over time that converts to cash when they leave the company.
As Harbin’s beneficiary, Cottman is one of 98 people with account balances in the FK Holdings Inc. Employee Stock Ownership Plan, which reported $9.7 million in total assets in its most recent Form 5500 filing with the U.S. Department of Labor.
The plan was established in 2007 by Franklin Kling, a Northern Kentucky entrepreneur who started the Saturday Knight Ltd. in 1975 to manufacture and distribute shower curtains.
Over time, the company launched an extensive line of home décor products sold by national retail chains. In 2016, it moved to its current headquarters at 4330 Winton Road in Spring Grove Village, after securing tax breaks from the city of Cincinnati. The deal called for the company to relocate 75 jobs from Amberley Village and invest $1 million to renovate a warehouse building it acquired in 2015 for $3.8 million.
For most of her 45-year career, Harbin was a shipping manager at the company. Cottman said her mom was a big factor in its growth.
“She made sure they got their job done,” Cottman said. “If they were to have 3,200 shipped that day, that number would get done. She even brought work home.”
What are the rules of ESOPs?
ESOP shares are held by a trust that uses company contributions and loans to buy and sell company shares, said Jason Faust, a Chicago-based attorney who advises companies on ESOPs at the McDonald Hopkins law firm. But ESOPs are not like 401(k) plans, which give employees control over their retirement investments.
“It’s basically a notional account,” Faust said. “When John Smith retires, John Smith has 10 ESOP shares. When he’s entitled to a distribution, then we find the cash to pay John Smith the value of his 10 shares.”
When an employee leaves the company, federal rules allow companies to buy back shares over five years. If loans were used to acquire shares, pay outs can take longer, Faust said. But those rules don’t apply if plan documents specify otherwise.
“Payments are always subject to the legal, governing plan document,” Faust said. “They have to be paid according to that schedule and the company’s got to find a way to do it. And if it’s not, then you’re talking breaches of fiduciary duty. It’s just blatantly, blatantly illegal to not pay benefits when they’re otherwise due.”
According to documents provided by Cottman, the FK Holdings plan requires a lump sum distribution “not later than one year after the close of the plan year in which such participant’s death occurs.” Cottman believes that should have led to full payment by the end of last year. But her 2022 annual statement shows Cottman received less than 5% of the value of Harbin’s shares since her death in June 2021.
Company 'committed to fulfilling obligations'
Initially, Cottman said the company told her it would pay the value of Harbin’s shares over five years. She accepted that answer “because I was grieving and didn’t look at all the paperwork,” Cottman said. But that changed this year, when the company told her future payments would depend on the sale of real estate by FK Holdings and its subsidiaries, Saturday Knight and SKL Winton LLC.
“Because of the companies’ recent financial condition, it has been unable to provide cash to the ESOP in the form of discretionary contributions or a loan because doing so would violate forbearance agreements that the companies have entered with their lenders,” attorney Michael Laing wrote to Cottman in April.
The letter said other plan participants had their payments delayed “because of the ESOP’s lack of available cash.” And it said the company signed “a definitive agreement to sell a commercial real estate building” by June 2023. Proceeds would be used to fund distributions, the letter said.
Eight months later, the sale has yet to close. Last week, Cottman said the company told her attorney that the entire business will be sold early next year. Cottman is skeptical that the sale will happen. And she questions whether the proceeds will be enough to pay ESOP account holders what they’re owed.
“I’m pretty sure we all received the same letters,” Cottman said. “And I know a couple people who tried to get their first draw and they got denied as well. So, I’m not the only one going through it.”
The WCPO 9 I-Team reached out to the company and to Laing, but neither answered our questions.
“Saturday Knight is and remains committed to fulfilling its obligations,” CEO Vrsansky wrote in her email response.
Where it stands now
Hamilton County’s auditor values the company’s headquarters at $4 million. Mortgage records filed with the Hamilton County Recorder’s office show the company took out a $4 million term loan and $4 million line of credit against the property in April. The ESOP itself is declining in value and still owes millions of dollars from various loan agreements with the company. The plan’s annual report to the Labor Department showed a 20% decline in net plan assets to $4.8 million in 2022.
Will a company sale fetch enough to cover all obligations? Cottman’s attorney, Ed Lanter, can’t say.
“The eternal optimist in me says there’s a good chance that these transactions are going to close by the end of the first quarter, but the attorney in me says, ‘Prepare to pull the trigger on a lawsuit’ by the middle of March,” Lanter said.
And that puts Cottman in a difficult spot this Christmas, a holiday her mother loved.
“Every year, she would come to my house and she would just smile with the biggest smile when the grandbabies were opening their Christmas gifts,” Cottman said. “She loved Christmas and she loved spoiling her grandkids.”
Cottman said she is seeing a therapist to deal with the loss of her mother.
“It’s really hard taking care of a cancer patient,” she said. “It was like I was in a tornado.”
That’s why the ESOP delays are more than just a financial burden for the daughter of Barbara Harbin.
“It just means more heartache because I have to keep waiting and waiting,” Cottman said. “And it just brings so many memories back of my mom.”
