Private Equity Fund Found Liable for Pension Obligations of Bankrupt Portfolio Company

In a significant decision by the PBGC, the government agency responsible for insuring certain underfunded pension plans, the PBGC determined that, under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the activities of a private equity fund constituted that of a "trade or business" and, therefore, the fund was in the same "controlled group" as one of its portfolio companies. Accordingly, the PBGC ruled that the private equity fund was jointly and severally liable for the funding shortfall associated with the bankrupt portfolio company's pension plan. This article provides an analysis of the PBGC's decision, a description of the immediate implications of the decision on private equity funds, as well as a discussion of the possible effects of the Internal Revenue Service adopting the PBGC's characterization of a private equity fund as a "trade or business" under the Internal Revenue Code.