Earlier this month, the U.S. Supreme Court denied a request to review the First Circuit Court of Appeals decision in the Sun Capital Partners III, LP v. New England Teamsters and Trucking Industry Pension Fund case, thereby confirming the Appeals Court’s decision that the two separate Sun Capital private equity funds were not under common control with a portfolio company and therefore were not a controlled group as defined in Code Section 414. As a result of the decision, neither fund is liable to the multiemployer pension fund for $4.5 million of withdrawal liability owed by Scott Brass Inc.
While this decision is good news for private equity funds that follow a structure similar to that used by the Sun Capital Partners funds, it is a reminder of the high stakes involved when companies are found to be part of a controlled group. At its heart, the controlled group rule requires that all employees of the controlled group members be treated as if they were employed by one employer when:
A previous tax blog provides an overview of the ownership rules that can cause one legal entity to be part of a controlled group with another entity. Companies that may be part of a controlled group should talk to experienced benefits counsel about these rules.