April 6, 2016

PBGC May Be Able to Pursue Equity Funds for Employer Liability Payments

The recent court decision in Sun Capital Partners, III, LP v. New England Teamsters and Trucking Industry Pension Fundwhich deals with a multiemployer pension fund’s claim for withdrawal liability, could give the Pension Benefit Guarantee Corporation (PBGC) a claim against equity fund investors in a company that terminates its underfunded single-employer pension plan. In 2013, in Sun Capital Partners, III, LP v. New England Teamsters & Trucking Industry Pension Fundthe First Circuit Court of Appeals found that one of two equity funds invested in the withdrawing company was engaged in a “trade or business” because its activities were more than passive investment. The Court referred to this as “investment plus.” On remand for factual determinations, the lower court has now found that a second equity fund was engaged in a “trade or business” on the same basis and the two equity funds should be treated as a “partnership-in-fact.” The consequence of the partnership finding was that the court combined the ownership interests of the two equity funds (70% and 30%) to find that they were in a controlled group with the withdrawing company, and thus liable for withdrawal liability payments. 

While the purpose of withdrawal liability was a key element in the decisions, a similar purpose argument could be made with respect to liability to the PBGC when an underfunded single-employer plan terminates. Indeed, the PBGC Appeals Board already made such a finding in a 2007 case (cited in the PBGC’s amicus brief to the First Circuit in the Sun Capital case).

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