Today, who is and will be responsible for funding pension liabilities is a primary consideration in both private and public sector restructurings. The filing of the city of Detroit bankruptcy case is just the most recent example of how this issue is impacting the public sector. In the private sector, the disposition of pension plans and resulting liabilities claims both in and outside of bankruptcy has become a driving consideration in restructurings and merger-and-acquisition due diligence and strategy.
The emergence of private equity funds as a player is well known. One commentator reported that investor commitments have grown from $10 billion in 1991 to $680 billion in 2008. Many private equity funds promote their ability to manage turnarounds as the means to obtain returns in a relatively short period of time. The extent to which the funds themselves can be held liable for unfunded pension and withdrawal liabilities of companies they invest in was recently addressed by the U.S. Court of Appeals for the First Circuit in Sun Capital Partners III LP v. New England Teamsters and Trucking Industry Pension Fund, No. 12-2312 (1st Cir. 2013). In an opinion issued July 24, that the court noted was a case of first impression, the court reversed a decision of the district court and held private equity fund entities could be responsible for withdrawal liability for a pro rata share of unfunded vested benefits to a multiemployer pension fund of a bankrupt portfolio company. In a lengthy opinion, the court analyzed the structure of private equity investment vehicles and the complexities of the withdrawal liability provisions of the Employee Retirement Income Security Act to reach its decision.
Management of Investments by Private Equity Funds
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