Gordon Storjohann's Financial Structures Give Small Businesses Something to Build On

By Jay Hipps, Hacienda Network Staff Writer

Choosing a career path can often be a difficult choice. Finding the right combination of elements that meet with one's talents and interests is often challenging. Sometimes, the choice is determined by the emergence of new markets or technologies. For Gordon Storjohann of American Qualified Plans, it took an act of Congress to create his niche.

"When the Employee Retirement Income Security Act (ERISA) was passed in 1974, Congress put into law Employee Stock Ownership Plans (ESOPs)," he says. "When Congress passed this portion of the law, it was almost like it was made to fit my background."

Storjohann was born in Iowa and moved with his parents to Yuma, Arizona in 1948, where he grew up. After graduating from the University of Arizona in 1962 with a degree in marketing and finance, he served on active duty as a Navy pilot for five years and in the reserves for another four, flying out of Alameda. As a reserve, he took his first job in finance after being hired by DuPont's investment group, a position that also won him an opportunity to study at the New York Institute of Finance. He returned to the Bay Area with DuPont working on investments for the company's pension and profit-sharing plans but left them to pursue an opportunity with Pacific Retirement Plans, then a small firm in Burlingame.

"In 1969 or '70, I decided I wanted to get into more of the consulting on setting up pension and profit-sharing plans," he explains. "I felt much, much more comfortable consulting on structures and retirement plans, not the investment side. I just didn't feel real comfortable telling company trustees where they should be investing their money.

"When you're consulting on a project like putting in a pension plan or a profit sharing plan, on the other hand, it's all driven by tax (advantages). If you're making a good profit, then it's a matter of what kind of plan you should go into, whether it's a pension plan, a defined benefit plan, a money purchase pension plan, or a profit sharing plan. Each of those different types of plans are appropriate for different types of companies. So I felt very comfortable in that type of consulting area."

Storjohann enjoyed setting up the structure for the plans but not choosing the investments. To draw an analogy, it's the difference between being a builder and an interior designer. He liked setting up the structure and leaving the furnishings up to his clients.

After four years with Pacific Retirement Plans, a new opportunity presented itself when Congress passed ERISA, which Storjohann calls "the most massive re-write of the pension system that we've ever had in history." He got a call from a headhunter who inquired if he would be interested in designing and installing ESOPs for a firm in San Francisco. After turning down the offer, he got a call at home two days later from a man named John Menke, one of the founders of the firm, and agreed to meet with him. After researching the new plans, he made an amazing discovery.

"The discipline of Employee Stock Ownership Plans is number one, you have to know the tax law around qualified plans," he explains. "You have to understand what the eligibility rules are, what the vesting rules are, what retirement rules are, what allocation rules are, and a lot of other things that you just have to know. If you know that, you can easily work in pension and profit sharing.

"But to be in ESOPs, you have to understand corporate finance, you have to understand cash flow, you have to understand the corporation's relationship to profits and value, because when we're going in there, we also have to discuss how we're going to set the value of the company. That just fit me perfectly."

Amazed at the opportunity, he conferred with the owner of Pacific Retirement Plans. "He said, 'I think you ought to do it - it's more in your line.' So I did."

The new firm restructured within a year and Storjohann negotiated an equity position in the company that emerged, Menke & Associates. In 1982, tired of commuting from Pleasanton to San Francisco in the days before BART's Hacienda station, he sold his share of the firm and founded American Qualified Plans.

"We're what you call a full service Employee Stock Ownership consulting firm," he says. "We come in and do the financial design of the plan, then we write up the specs and submit them to the Internal Revenue Service for approval. It's just like profit sharing except ESOPs are designed by law to invest in company stock versus investing in outside stocks or other securities. We also do the annual administration of the plans and the corporate appraisal plan. Everything we do is in house, so it's a turnkey type of operation."

ESOPs occupy a unique niche in the world of qualified benefit plans. "The way the law was written, it was primarily to influence owners of private companies to set up an ESOP as a method to transition ownership from one generation to another, whether it's within the family or with succession management that generally doesn't have the money to buy the company. The ESOP is a means where you can take tax-deductible earnings of the corporation and not pay tax on the earnings and instead use it to start buying stock from the owner. That allows the owner to turn an illiquid investment in his company into a tax-deferred sale of his company stock, or pay capital gains, either way."

ESOPs have turned out to be a wonderful solution for small, privately held corporations - Storjohann's firm has over 100 clients from coast to coast - and he takes a lot of satisfaction from the service the company provides.

"The most satisfying part of this is really watching business owners gain the ability to get cash out and start a transition, whether they're now going to be able to transition with family or with existing management. They have that luxury of starting to cash in and then plan for that transition. They love it and they think we're heroes to get them going. And then, when we put in a plan, one of the steps is to do an employee meeting, when we meet with employees and answer all their questions. All of a sudden the company that they've been working for for 10 or 15 years, they're going to be an owner! You get a lot of satisfaction from that."

Storjohann thinks that the only reason that ESOPs are not more common is because many people fear loss of control over management issues and confidential financial information. "We had those same questions in 1975, after it was put into law, and we still get them in 2005. It hasn't changed. If people knew the real structure and operation and the advantages and the tax advantages of the whole thing, we couldn't even begin to handle all the work."

One person who does know the value of an ESOP is Jack Tapson, the founder and owner of Pacific Retirement Plans, Storjohann's one-time boss and the man who first encouraged him to pursue a career in ESOPs. "He's retiring soon and we've put an ESOP plan into his company," Storjohann says. "They'll start their first stock sales from the plan next year."

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