In an opinion issued in October 2012, the Federal District Court of Massachusetts provided clarity on the question of whether a private equity fund can be liable for the ERISA pension obligations of its portfolio companies, including multiemployer withdrawal liability and defined benefit pension plan underfunding. This summer, the U.S. Court of Appeals for the First Circuit had a different interpretation. The case was Sun Capital Partners v. New England Teamsters & Trucking Industry Pension Fund.
The issue was whether a private equity firm is engaged in a trade or business for purposes of the Internal Revenue Code’s controlled group rules. Generally, under section 414(c) of the code, two or more trades or businesses under common control are treated as a single entity for various employee benefit plan purposes. As such, they are jointly and severally liable for pension plan funding obligations and multiemployer plan withdrawal liability. Common control includes a parent-subsidiary relationship where the parent owns at least 80 percent of the subsidiary.
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