On October 5, 2020, the U.S. Supreme Court denied certiorari in New England Teamsters and Trucking Industry Pension Fund v. Sun Capital Partners III, LP, et al.1 The Supreme Court’s decision not to review the First Circuit’s holding should provide private equity funds with added certainty that they are unlikely to bear the costs of pension withdrawal liability so long as they take appropriate precautions in managing their portfolio companies, as further described below.

The following provides an update of key takeaways from the First Circuit’s decision, in light of the Supreme Court’s denial of certiorari:

  • Private equity funds that jointly hold an entity will likely not be subject to pension withdrawal liability if they adhere to corporate formalities, expressly disclaim a partnership, show independent activity (including diverse limited partners), and limit the exercise of mutual control over management of the jointly held entity;
  • A failure to take these precautions may cause a court, when asked to evaluate whether an implied partnership-in-fact exists for purposes of potential withdrawal liability, to look through entities’ express corporate form;
  • Courts will evaluate and try to balance the competing interests of imposing withdrawal liability and disincentivizing private investment, which could worsen the financial position of multiemployer pension plans, and not imposing liability, leaving the PBGC to assume some of the cost and to enforce a statutorily capped rate likely below what pension workers are entitled to receive;
  • Since the Supreme Court did not grant certiorari, other circuit courts may still take up this issue in the future, which could lead to a circuit split; and
  • Congress and the PBGC may ultimately determine whether private investors should bear the costs of withdrawal liability under the MPPAA under these circumstances by modifying applicable laws and regulations.