Employee Benefits and Private Equity Alert- Circuit Court ruling on withdrawal liability is significant for private equity sponsors

On July 24, 2013, the First Circuit U.S. Court of Appeals (the “Circuit Court”) reversed a prior District Court ruling that found two related private equity funds were not conducting a “trade or business” that would make them liable for the obligations owed to a multi-employer pension plan, in which one of their jointly-owned portfolio companies was a participant. To understand the potential impact of this case, it is important to remember that Title IV of ERISA provides that “trades or businesses” that are members of a “controlled group of corporations” under common control are jointly and severally liable under ERISA for certain types of liabilities owed by the other members of their controlled group. The applicable case involved withdrawal liability owed to a multi-employer pension plan. However, the case could also have implications for liabilities related to single employer defined benefit pension plans and COBRA obligations.