Federal Appeals Court Concludes PE Funds are Potentially Liable for Pension Obligations of Portfolio Companies

A recent decision by the First Circuit Court of Appeals in Sun Capital Partners III, L.P. et al. v. New England Teamsters & Trucking Industry Pension Fund may have important implications for private equity funds that own portfolio companies with underfunded pension obligations. In its decision, the court held that a private equity fund that had an investment in a portfolio company that was managed by the fund’s general partner and its manager was a “trade or business” with potential joint and several liability under the Employee Retirement Income Security Act of 1974 (ERISA) for that portfolio company’s withdrawal liability from a multiemployer pension plan. As such, the private equity fund could be required to use its assets to fund the pension liability if the additional “common control” requirements were satisfied.

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