Key takeaways:

• The First Circuit Court of Appeals recently held that the normal activities of a private equity investment fund are sufficient to constitute a trade or business for purposes of the controlled group liability provisions of the Employee Retirement Income Security Act (“ERISA”).
• If this conclusion is correct, the consequence would be that the assets of a fund can be exposed to liability if a portfolio company that the fund is deemed to control under ERISA incurs a withdrawal liability with respect to a multiemployer plan or sponsors an ERISA plan that terminates when it is underfunded, such as in a bankruptcy situation.
• This also means that one portfolio company could become obligated for the pension liabilities of another portfolio company, if both are “controlled” by the same fund.
• The ruling leaves open the possibility that private equity funds may avoid controlled group liability if their investment is divided between multiple funds such that the 80% control element under ERISA is not met.