Sun capital: PE funds face increased ERISA exposure

Abstract

Purpose To explain the implications of a March 2016 US District Court decision in Sun Capital concerning two private equity funds’ joint and several liability for the withdrawal from a multiemployer pension plan by a bankrupt portfolio company. Design/methodology/approach Explains controlled group liability under Title IV of ERISA, strategies employed by private equity funds to avoid such liability, two earlier stages of the Sun Capital litigation, and the rationale for the current court decision. Makes observations. Findings The court held that two private equity funds were jointly and severally liable under Title IV of ERISA for multiemployer pension plan withdrawal liability incurred by a bankrupt portfolio company that was jointly owned by the funds based on the novel (and troubling) rationale that a “partnership in fact” existed between the funds, despite neither fund separately owning a sufficient percentage of the portfolio company to be exposed to joint and several liability under Title IV’s controlled group rules. The decision is disturbing because it marks a significant change in the law; it upsets longstanding strategies used by funds and other investors to insulate themselves from ERISA liabilities. Originality/value Expert analysis from experienced employee benefits and compensation lawyers.