A federal district court has determined that a private equity fund is liable for pension withdrawal obligations linked to its portfolio companies, while exempting its general partner and management company from similar responsibility. This ruling, arising from the case of Longroad Asset Management LLC v. Boilermaker-Blacksmith National Pension Trust, underscores complex interpretations of the Employee Retirement Income Security Act (ERISA) regarding withdrawal liabilities.
Under ERISA, employers participating in multiemployer pension plans are obligated to cover their share of unfunded vested benefits upon withdrawal. The law’s “controlled group” rules extend this liability to businesses under common control with the withdrawing employer, generally requiring joint and several liability for the unfunded benefits. In this case, the court found that the private equity fund, which held a 95% interest in the portfolio companies, met the criteria for common control.
The private equity fund in question, Longroad Capital Partners III, LP, was established to invest in businesses with the aim of enhancing their value for future sales. The fund, managed by its general partner, Longroad Partners III GP, LLC, raised $283 million from twenty-eight limited partners to facilitate its investments.
The case stems from the withdrawal of two of the fund’s portfolio companies from the Boilermaker-Blacksmith National Pension Trust in 2015. In 2023, the fund received a demand for payment totaling $1,762,249 in withdrawal liability, which led to a legal challenge from the fund, the general partner, and the management company, asserting they were not part of the controlled group.
The court sided with the pension trust, stating that the fund’s significant ownership and active management role in the portfolio companies established it as a trade or business under the “investment-plus” test articulated in Sun Capital I. This ruling highlighted the fund’s extensive involvement, including appointing board members and embedding operational advisors to drive profitability.
Despite this, the court declined to extend liability to the general partner or the management company. It determined that neither entity constituted a partnership-in-fact with the fund, as they lacked common ownership and the general partner functioned merely as a conduit for management responsibilities. The court emphasized that the management fee received by the sponsor did not depend on the performance of the portfolio companies, further distancing those entities from liability under the law.
This decision serves as a cautionary tale for private equity firms regarding the potential implications of their operational involvement in portfolio companies. While it clarifies the circumstances under which a fund could face withdrawal liabilities, it also reassures sponsors that liability theories based on partnership-in-fact may be challenging to establish, particularly for entities without direct ownership stakes or operational control.
The ruling was delivered on August 19, 2025, and has significant ramifications for the private equity landscape, prompting firms to carefully assess their governance structures and the extent of their management activities to mitigate potential pension liabilities.
