[Editor’s Note: The following update is authored by Ropes & Gray LLP]
In a decision (Sun Capital) with important implications for private equity sponsors, the U.S. Court of Appeals for the First Circuit has concluded that a private equity fund can be held liable for ERISA liabilities incurred by portfolio companies in which the fund has a sufficient stake. While the First Circuit did not determine in this case whether the fund’s ownership stake in the portfolio company was sufficient to impose liability, under its decision a fund owning 80% or more of a portfolio company could be liable for the portfolio company’s unpaid ERISA Title IV defined benefit pension plan liabilities.
The Sun Capital Decision
Under ERISA, “trades or businesses” under “common control” are aggregated, with each group member jointly and severally liable for ERISA Title IV defined benefit pension plan liabilities incurred by other members.
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