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Investment Plus Partnership-in-Fact = Withdrawal Liability

April 14, 2016

Authors

Chris Rylands and Brian Berglund

Investment Plus Partnership-in-Fact = Withdrawal Liability

April 14, 2016

by: Chris Rylands and Brian Berglund

Org ChartPreviously, we wrote about the First Circuit decision that a private equity fund constituted a “trade or business” under ERISA as amended by the Multiemployer Pension Plan Amendments Act (“MPPAA”). That dry description is actually very significant since it would mean that private equity funds and their other portfolio companies could be responsible for withdrawal liability, potentially in the millions of dollars, when a portfolio company withdraws from a multiemployer plan. Based on a recent District Court case in that same dispute, it may be even harder for private equity funds and their portfolio companies to escape liability, which could have implications for those companies and the companies that buy them.

By way of background, multiemployer pension plans are pension plans into which (as the

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Piercing the Veil: Private Equity Fund Found to be “Trade or Business” Under MPPAA

August 6, 2013

Authors

benefitsbclp

Piercing the Veil: Private Equity Fund Found to be “Trade or Business” Under MPPAA

August 6, 2013

by: benefitsbclp

On July 24, 2013, in a case of first impression (Sun Capital Partners III LP vs. New England Teamsters & Trucking Indus. Pension Fund, No.12-2312), the First Circuit held that a private equity fund was a “trade or business” under ERISA as amended by the Multiemployer Pension Plan Amendment Act (“MPPAA”), and thus potentially liable for withdrawal liability incurred by its portfolio company if that company was under common control with the fund.* The court applied an “investment plus” test and found that the private equity fund was not merely a “passive investor” but had sufficient management and operational involvement with its portfolio company so as to make it a trade or business.

Sun Fund IV and Sun Fund III (collectively, the “Sun Funds”) are two funds held by private equity firm Sun Capital Advisors, Inc. Together, the Sun Funds held 100% of the

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Multiemployer Withdrawal Liability “Insurance”

April 11, 2012

Authors

benefitsbclp

Multiemployer Withdrawal Liability “Insurance”

April 11, 2012

by: benefitsbclp

In a recent decision, the Sixth Circuit Court of Appeals upheld an indemnification of multiemployer plan withdrawal liability in an collective bargaining agreement.

In the case, the employer and labor union had bargained that the union would indemnify the employer for any withdrawal liability from the multiemployer plan. The union, however, subsequently disclaimed its representation of the employees. As a result of that disclaimer, the union was no longer the exclusive bargaining representative of the affected employees and the collective bargaining agreement terminated. As a result, the employer effected a withdrawal from the multiemployer pension to which it had been obligated to contribute and incurred a substantial withdrawal liability.

It so happened that the pension fund in question was the Central States Southeast and Southwest Areas Pension Fund, which is known to have had funding problems for some time. When the pension fund assessed withdrawal liability on the

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