Current Structuring May Not Shield Private Equity Firms From ERISA Liabilities

On March 28, 2016, the U.S. District Court for the District of Massachusetts held that two private equity funds within Sun Capital were jointly and severally liable under the Employee Retirement Income Security Act of 1974, as amended (ERISA), for the $4.5 million multiemployer pension plan withdrawal liability of a portfolio company. This landmark decision appreciably changes the landscape for private equity investment in companies with pension plans or potential pension liabilities.

Practical Takeaways

Whether the analytical principles underpinning the Sun Capital decisions spread beyond the First Circuit or impact other areas of the law where controlled group concepts apply is an open question. However, even outside of the First Circuit, private equity firms and those buying portfolio companies from private equity owners should consider the following in light of Sun Capital: