Pension ruling offers relief to private equity funds

Nov 19, 2012

By Tim Kiladze

The Globe and Mail


For five years U.S. private equity funds have lived with uncertainty about their obligations to fund the pensions of their portfolio companies, but a new ruling in Massachusetts offers hope that they could get off the hook.

In 2007, Pension Benefit Guaranty Corp., a U.S. federal agency that seeks to protect pension benefits in private-sector defined benefit plans, ruled that pension funds that own 80 per cent or more of a portfolio company could be liable for plan under-funding in the event of a bankruptcy.

“It was a real shock to people because based on prior case law and authority, people assumed that private equity funds were not trades or businesses, “ noted Carol Buckmann, a lawyer who specializes in pensions and benefits at Osler Hoskin & Harcourt LLP in New York. Under the law, only trades or businesses were liable for pension benefits.


However, no one’s getting too excited just yet. “This isn’t the last word on it, of course,” Ms. Buckmann said. “But it’s a very well-reasoned decision and it’s a very clear repudiation.”

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