Casting a Wider Net: Court Finds Private Equity Funds Liable for ERISA Withdrawal Liability

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

On March 28, 2016, a district court in Massachusetts found two private equity funds (under the Sun Capital Partners, Inc. umbrella) jointly and severally liable for withdrawal liability imposed on one of its underlying portfolio companies, even though neither private equity fund owned 80 percent or more of the portfolio company. (Ownership of at least 80 percent is a statutory threshold for determining whether a parent-subsidiary controlled group exists.) The district court issued its opinion following remand from the First Circuit Court of Appeals in 2013.


Under the Multiemployer Pension Plan Amendments Act of 1980, as amended (MPPAA), an employer withdrawing from an underfunded multiemployer defined benefit pension plan may face an assessment of withdrawal liability. Under the MPPAA enforcement scheme, “trades or businesses” (the first prong) under “common control” with the withdrawing employer (the second prong) are jointly and severally liable for payment of any assessment of withdrawal liability. Here, Scott Brass, Inc., the portfolio company and signatory employer, withdrew from the plan and was assessed withdrawal liability, but was unable to pay it as a result of bankruptcy.

The First Circuit held that, if an “investment plus” test was satisfied, a private equity fund could be engaged in a “trade or business” (as opposed to being a passive investor) and thereby satisfy the first prong of the test. The First Circuit declined to provide guidelines for what the “plus” in the investment plus test requires, but concluded that the specific facts indicated that one of the Sun Capital private equity funds was engaged in a trade or business.

The First Circuit remanded the case back to the district court for a full determination of (1) whether the other Sun Capital private equity funds were engaged in a trade or business, and (2) whether any of the Sun Capital private equity funds engaged in a trade or business were under common control with the withdrawing employer.

Massachusetts District Court Decision

The district court answered both questions in the affirmative. The district court’s analysis of the limited partnership and management agreements led to its determination that the Sun Capital private equity funds received an economic benefit in the form of offsets and carryforwards for fees, and that these economic benefits demonstrated that the Sun Capital private equity funds were more than passive investors—and therefore satisfied the “plus” requirement in the “investment plus” test.

Regarding the second prong of the test—common control—the district court disregarded the organizational formality that a single Sun Capital private equity fund did not own 80 percent or more of the portfolio company and instead analyzed the economic realities of the arrangement, focusing on the number of similar investments, similar language in the governing documents, and coordinated investment strategies. Although the Sun Capital private equity funds were organizationally separate and individually fell below the 80 percent ownership threshold, in the eyes of the district court, they together formed a partnership-in-fact that was under common control with the withdrawing portfolio company. As a result, the Sun Capital private equity funds were jointly and severally liable for the $4.5 million withdrawal liability assessed against Scott Brass, Inc. as the withdrawing employer.

Key Takeaways

If other courts follow this decision in holding private equity funds liable for the assessments on withdrawing portfolio companies, private equity funds may not be able to rely on numerical thresholds and organizational forms to avoid these liabilities going forward. Instead, each underlying portfolio investment would be subject to a fact-specific analysis to determine potential exposure. Other employers that contribute to multiemployer plans should also be cautious in arranging the structures of interconnected entities.

Courts appear to be increasingly sympathetic to underfunded plans and may continue to expand the reach of the MPPAA to find other ways to impose liability on deep-pocketed but unsuspecting entities that may have some financial relationship to employers facing withdrawal liability. This concern is especially highlighted by the bleak financial future of underfunded multiemployer plans and the multiemployer plan insurance program, which the Pension Benefit Guaranty Corporation has announced will likely be insolvent by 2025 without additional revenue. Certainly, these developments will affect more entities and industries than originally contemplated.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

Written by:

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

Ogletree, Deakins, Nash, Smoak & Stewart, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.