In Sun Capital Partners III, LP v. New England Teamsters and Trucking Industry Pension Fund, the First Circuit Court of Appeals held that an investment fund managed by private equity firm Sun Capital Advisors, Inc. (“Sun Capital”) was a “trade or business” rather than a passive investor with respect to one of Sun Capital’s portfolio companies. On remand, the lower court will determine whether the investment fund was under common control with the portfolio company and therefore liable for the portfolio company’s multiemployer pension plan withdrawal liability. If Sun Capital’s petition for a rehearing is denied, the decision will provide significant support to the Pension Benefit Guaranty Corporation (PBGC) and multiemployer pension plans when they seek to recover pension liabilities owed by insolvent portfolio companies.
Under the Employee Retirement Income Security Act of 1974 (ERISA), employers have joint and several liabilities, including withdrawal liability under a multiemployer pension plan, with each “trade or business” under common control with the contributing or sponsoring employer. The PBGC has interpreted this aspect of ERISA broadly. In 2007, the PBGC Appeals Board ruled that a private equity fund was a trade or business and was therefore liable to the PBGC for the funding shortfall of its portfolio company’s terminated defined benefit plan. (The fund had acknowledged that it was under common control with the portfolio company.)
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