Happy New Year! It’s that time when we all vow to better ourselves in the months ahead. Resolutions abound, and they need not be limited to individual self-improvement. Employers too have many opportunities for betterment in the New Year. In the area of employee benefits, we offer these four goals for 2018.
Both the Internal Revenue Code (the “Code”) and the Employee Retirement Income Security Act (“ERISA”) contain rules that aggregate trades and businesses under common control. For the most part, these rules are intended to prevent abuses that might result from breaking a venture up into separate entities. For example, a professional practice might want to split itself into two entities, one covering owners and the other covering rank-and-file employees, for the purpose of providing generous pension benefits to the former and not the latter. This approach is not allowed under the Code’s rules governing entities under common control.
Private equity arrangements too involve multiple, and in many cases, related entities that serve an important and legitimate purpose: to provide, among other things, access to capital and management resources to underperforming (or “portfolio”) companies. While the particulars of private equity arrangements vary widely from fund to fund, there is typically at the heart of each fund a limited partnership to which investment services are provided by a general partner. The limited partners provide the capital and the general partners provide, or provide access to, some combination of capital and managerial expertise.
A recent case, Sun Capital Partners III, LP, Sun Capital Partners III, QP LP, and Sun Capital Partners IV, LP v. New Eng. Teamsters and Trucking Indus. Pension Fund, No. 10-10921 DPW (D. Mass. Mar. 28, 2016) (“Sun Capital”), which deals with multi-employer pension liability under Title IV of ERISA, illustrates how things can go horribly wrong when the regulatory concerns that give rise to separate rules governing controlled groups clash with the practical exigencies of the private equity world. Sun Capital upends much of the conventional wisdom about private equity investments in portfolio companies with multi-employer pension exposure. While it’s too soon to know for certain, this could prove to be a seminal case for private equity investments with consequences in areas far removed from pension liability.
This post examines the history, holding, and implications of Sun Capital.
Continue Reading Private Equity Funds, Controlled Groups, and Multi-Employer Plan Withdrawal Liability: The Lessons of Sun Capital Partners vs. New England Teamsters and Trucking Industry Pension Fund