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The Supreme Court Won't Review Sun Capital Partners -- What That Means for Private Equity

"Technically, the Sun Capital Partners appellate decisions are precedent only in the First Circuit ... Private equity funds may still argue that different standards should apply in other circuits. However, another court reviewing these same issues ... could follow the Sun Capital Partners analysis. It is also possible that the Supreme Court will decide to review the threshold 'trade or business' issue if there is a split among the circuits in subsequent decisions. But private equity funds can't count on that. What steps can private equity funds take to protect themselves?" [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019; cert. pet. denied Oct. 5, 2020)]  MORE >>

Latest Sun Capital Decision Offers Little Relief to Private Equity Funds (PDF)

"The First Circuit's decision ... is of limited precedential value for private equity funds and their counsel. There remains a risk that, under different circumstances, a multi-fund ownership structure like the one used by Sun Capital (with no one investor owning more than 80%) might still constitute a partnership-in-fact. And, the First Circuit left untouched its prior controversial determination that the Sun Capital Funds were 'trades or businesses' under their 'investment plus' analysis." [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]   MORE >>

Some Less Egregious Aggregation? First Circuit Reverses the District Court in Sun Capital Partners

"The First Circuit's reversal of the latest District Court opinion in Sun Capital Partners is a welcome decision that overturns the District Court's arguably overbroad application of the aggregation and liability rules as applied in the ERISA context. The most recent Sun Capital Partners decision also provides some potentially significant guidance on when funds within the same fund family might indeed effectively be aggregated notwithstanding that neither fund individually owns 80% or more of the underlying company. However, fund sponsors should keep in mind that the First Circuit's initial 'trade or business' decision remains in effect." [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

The Sun Capital Case Could Have Broader Implications for Employee Benefit Plans

"[O]ne wonders whether the Sun Capital decision could ultimately have broader implications in the world of employee benefits and executive compensation, where the controlled group rules arise in many contexts. If a private equity fund and one or more of its portfolio companies can be treated as a controlled group (and, therefore, as a single employer) under the 'investment plus' standard of Sun Capital, the constituent entities could experience a number of undesirable consequences: [1] The retirement plans maintained by the controlled group members would be subject to coverage and nondiscrimination testing based on the entire combined workforce of the fund and the portfolio companies; [2] There would be joint and several liability for any defined benefit pension plan unfunded benefit obligations (not just for multiemployer plans); [3] Employees who move from one portfolio company to another may not be considered to have separated from service in a way that would trigger the right to receive benefit payments; [and] [4] The employers would have to be combined for purposes of applying the employer shared responsibility requirements of the Affordable Care Act (a/k/a the play or pay mandate)." [Sun Capital Partners III, L.P. v. New England Teamsters & Trucking Ind. Pension Fund, No. 12-2312 (1st Cir. July 24, 2013)]  MORE >>

Court of Appeals Finds Sun Life Acted Arbitrarily and Capriciously in Disability Case

Excerpt: After reviewing the quality and quantity of the medical evidence, the court found that 'the entirety of the medical evidence available to Sun Life was not reviewed in a 'deliberate' or 'principled' fashion, which is a factor suggesting that Sun Life's ultimate determination was arbitary.' The fact that DeLisle worked for two weeks after leaving her employer and listed 'lack of work' as her reason for leaving her employer did not amount to persuasive evidence that she was able to complete the duties of her job on April 17, 2002. For these and other reasons, the Sixth Circuit agreed with the district court and concluded that Sun Life had acted arbitrarily and capriciously.

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The Sun Life UnretirementSM Index

Excerpt: The Sun Life Financial UnretirementSM Index is a new national study on American attitudes toward retirement that will be updated several times each year. Sun Life created this Index because American attitudes toward retirement today are dramatically different from those of previous generations. As traditional views on the 'golden years' continue to evolve, so will the financial needs and retirement lifestyles of future generations. The UnretirementSM Index will monitor these generational and demographic changes. [Results of the first study]  MORE >>

Applying Sun Capital: District Court Finds Private Equity Fund Liable for ERISA Withdrawal Liability

"This decision ... is arguably the first time a district court applied the 'investment plus' and 'partnership-in-fact' tests for determining potential withdrawal liability in the private equity context since the First Circuit issued its rulings in Sun Capital ... in 2013 and 2019." [Longroad Asset Management LLC v. Boilermaker-Blacksmith National Pension Trust, No. 23-0738 (W.D. Mo. Aug. 19, 2025)]  MORE >>

District Court Permits Sun Life to Proceed with Fraud Counterclaim in Dispute Over ERISA-Governed Long-Term Disability Benefits

"[The court] explained that McKeown 'owed the Fund a separate and distinct duty under Illinois tort law not to misrepresent that she had access to test results that revealed her psychological impairment.' For this reason, the court concluded that Sun Life's fraud claim is not preempted by ERISA." [McKeown v. Sun Life Assurance Company of Canada, No. 16-748 (N.D. Ill. Mar. 10, 2021)]  MORE >>

Practical Guidance Regarding Multiemployer Pension Plan Obligations Post-Sun Capital

"[T]he decision ... suggests that funds may want to consider the following questions in developing their investment structure: [1] Will multiple investment funds hold a single portfolio company investment? [2] Can a new entity be established to administer the joint investment? [3] Do the private equity sponsors maintain common control over the multiple investment funds? [4] Can day-to-day corporate and financial practices operate separately amongst the multiple investment funds? [5] Are the ultimate decision makers in the private equity fund the same in each investment fund?" [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]   MORE >>

Sun Capital Wins -- But All Private Equity Funds May Not

"How can a private equity fund investor be tagged with pension withdrawal liability? ... How did the Court determine there was no partnership? ... How are private equity investors still at risk of withdrawal liability? ... How does a private equity fund relying on the venture capital operating company exception to the plan asset rules deal with the partnership factor of control over the business when the fund holds less than 80% of the target or portfolio company?" [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

First Circuit Overturns the Sun Capital, But Risks Remain for Private Equity

"[P]rivate equity funds that do have a controlling interest in a portfolio company with defined benefit plan liabilities or multiemployer plan withdrawal liability should not rely on the notion that such funds are not engaged in a trade or business to insulate them from joint and several liability." [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

Sun Capital Reversal Offers Important Takeaways Regarding Portfolio Company Pension Liabilities

"[S]teps that investment funds may wish to consider ... [1] Using a separate acquisition vehicle ... to make any joint acquisitions, as well as using a special purpose entity to serve as the general partner or managing member of such acquisition vehicle, rather than the fund's general partner. [2] Specifically including language regarding the intent not to form a partnership into the documentation forming the investment vehicle. [3] Dividing the investment between two or more independently managed funds with distinct portfolios and investors in order to support a finding that funds are separate and have not joined to form [a] partnership. " [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

New Sun Capital Ruling: Private Equity Funds Avoid Portfolio Company Pension Liabilities But Caution Still Advised

"[T]his ruling provides some comfort but risks still remain.... Any single fund (including parallel entities) should avoid acquiring 80% or more ownership of the portfolio company to avoid ERISA controlled group liability.... [T]he sponsor should carefully consider how to use related funds and commonly-controlled vehicles to own the balance of the investment, to best support an analysis that no partnership-in-fact has been formed.... Private equity funds should continue to strengthen due diligence efforts regarding pension plans ... Fund disclosure documents should include discussion of the risk of ERISA controlled group liability[.]" [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

Sun Capital Partners Wins Appeal, But Decision May Not Help Private Equity Funds

"Among the reasons this decision may not be helpful for other private equity funds is that many of them do make parallel investments.... Another entity is litigating the issue of whether its fund IV is engaged in a trade or business in two other jurisdictions.... This most recent Sun Capital Partners decision doesn't prevent plans or the PBGC from continuing to pursue private equity funds for pension liabilities." [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

First Circuit Hands Down Significant Private Equity Ruling in Sun Capital Litigation

"The court's conclusions appear to be based, at least in part, on the clear disincentive a decision imposing liability would create with respect to 'much-needed private investment in underperforming companies with unfunded pension liabilities.' " [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

Recent Sun Capital Decision Reverses Lower Court's Ruling That Funds Are Liable for a Portfolio Company's Withdrawal Liability

"While the Court of Appeals' decision should make it more difficult to establish a controlled group where no investor by itself has the required ownership to result in such a relationship, the decision in this case does not preclude the possibility that under other facts two funds could be deemed to form a partnership under federal law." [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

Sun Capital Prevails in Withdrawal Liability Dispute, But Pension Risks Remain for Private Equity Funds

"[The First Circuit] determined that, while certain factors weighed in favor of a 'partnership-in-fact' ... the preponderance of the factors tilted against the existence of the 'partnership-in-fact' ... [By] not modifying or overruling the 'partnership-in-fact' doctrine applied by the lower court, the First Circuit's recent decision leaves room for another court to weigh the 'partnership-in-fact' factors differently and arrive at an alternative conclusion[.]" [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, Nos. 16-1376, 19-1002 (1st Cir. Nov. 22, 2019)]  MORE >>

The 'Partnership in Fact' Doctrine of the Sun Capital Partners Case: More Egregious Aggregation under ERISA?

"[T]he First Circuit in its 2013 decision expressly rejected the Multiemployer Plan's claim ... that the Sun Funds had engaged in a transaction to evade or avoid withdrawal liability and that, therefore, the 70%/30% split should be disregarded for purposes of ERISA aggregation....By inserting a partnership-in-fact in the investment structure specifically designed to avoid the 80% threshold, the [2016 District Court decision] creates the possibility that any number of affiliated funds could be deemed to have created a partnership and effectively be subject to the ERISA liabilities of their portfolio companies." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)]

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Sun Capital Decision May Affect Structuring of Private Investment Funds

"Although the Sun Capital decision was limited to multiemployer pension plan liability, and was likely motivated in part by policy considerations unique to multiemployer pension plans, the legal principles ... may extend to other pension liability (e.g., unfunded liability under a traditional defined benefit pension plan), as well as the application of the coverage and discrimination rules applicable to 401(k) and other defined contribution plans that are dependent upon 'controlled group' status."  MORE >>

Sun Capital: An Opportunity to Consider Fund Tax Structures (PDF)

"The court chose to look beyond the 'organizational formalities' employed by the funds and to assert that ... state law forms cannot be elevated over substance when it comes to analyses under ERISA.... The Sun Capital court's 'common control' analysis is interesting in that it amounts to what is essentially a conclusion under the tax law regarding a de facto partnership; yet, the case is not a tax case, the [IRS] is not a party and there is no reason to believe the IRS has ever or will ever assert a partnership-in-fact under these facts."

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