Benefits Partner Discusses Implications of Sun Capital Case For Private Equity Fund Managers in Compliance Intelligence

An August 6 Compliance Intelligence article quotes benefits partner Jon Zorn in an article titled, “Court Ruling Threatens PE Fund Pension Liabilities.” Mr. Zorn discusses the implications of the First Circuit’s recent ruling in the case Sun Capital Partners III LP v. New England Teamsters & Trucking Industry Pension Fund for private equity fund managers. He notes that the decision, which stated that the fund was considered a trade or business, “is raising some eyebrows and causing people to be concerned.”

Mr. Zorn explained that although the court emphasized that its decision was based on the specific facts of the case, “If the principles of this case were applied to other PE funds that had sufficient ownership in a portfolio company, the investing funds could be liable for the ERISA pension liabilities of that portfolio company.” He added, “This will provide a lot more reason for PE funds to pay close attention to those situations where there are likely to be pension liabilities in the portfolio companies in which they invest.”

Commenting on another element of the opinion, Mr. Zorn explained, “The court seemed to acknowledge that investing funds are free to structure their investments in a way that minimized this risk of exposing the fund to pension liabilities, which is obviously good news for PE investors.”