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22 September 2025

Applying Sun Capital: Federal Court Finds Private Equity Fund Liable For ERISA Withdrawal Liability

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On August 19, 2025, the U.S. District Court for the Western District of Missouri issued a notable opinion in Longroad Asset Management LLC v. Boilermaker-Blacksmith National Pension Trust...
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On August 19, 2025, the U.S. District Court for the Western District of Missouri issued a notable opinion in Longroad Asset Management LLC v. Boilermaker-Blacksmith National Pension Trust where it addressed whether a private equity fund and its management entities could be held liable for multiemployer plan withdrawal liability under ERISA. The court found that Longroad Capital Partners III, LP (the "Limited Partnership") was an "employer" for purposes of ERISA withdrawal liability on the basis that, because it was actively managing its portfolio companies, its conduct went "beyond mere passive investment activity and satisfied the 'plus' factor under the investment plus framework." However, the court also held that the management company (Longroad Asset Management, LLC or "LAM") and the general partner (Longroad Partners III GP, LLC or "General Partner") should not be treated as a partnership-in-fact with the Limited Partnership because their roles were limited to a passive general partner and a contractual management agent, with no shared ownership, profits or joint business conduct. As a result, the court said LAM and the General Partner were not considered employers for purposes of ERISA withdrawal liability.

This decision is significant because it 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 v. New England Teamsters & Trucking Industry Pension Fund in 2013 and 2019. (See our prior Alerts here and here for background.) Up to this point, this area of ERISA jurisprudence has been fairly dormant, and while the Sun Capital analysis has influenced acquisition structures over the last decade, some sponsors have also questioned whether the decision may have been an anomaly. While Longroad is only a single district court holding, it demonstrates how a court could find that a private equity fund qualifies as a "trade or business" under ERISA if it goes beyond passive investment and actively manages its portfolio companies. That said, the ruling does not extend beyond multiemployer plan withdrawal liability, so it should not give reason to worry about expansion of the theory to single employer plans or other issues that hinge on identifying the employer/controlled group such as nondiscrimination testing for tax-qualified retirement plans and certain welfare plans.

Joint and Several Liability for Pension-Related Liabilities Under ERISA

The Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA") amended ERISA to require withdrawing employers to pay their share of a pension plan's unfunded liabilities. Under MPPAA, this withdrawal liability applies not only to the employer participating in the plan, but also to its controlled group. Since all members of the employer's common controlled group are jointly and severally liable for the withdrawal liability, an employer cannot avoid liability by splintering into separate entities.

Under ERISA Sec. 4001, "all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer and all such trades and businesses as a single employer." In other words, for another entity to be liable for the withdrawal liabilities of the employer, it must be (1) a "trade or business" and (2) under "common control" with the withdrawing employer. The first prong is a factual inquiry that considers the entity's activities. The second prong is a bright-line test that considers whether the entity has an 80% ownership interest in a withdrawing employer. When an entity fails to satisfy the 80% ownership test to establish common control on its own, a court will consider whether that entity should be treated as a partnership-in-fact with other affiliated entities in the structure in order to clear that threshold.

Case Background

The dispute in Longroad arose when the Boilermaker-Blacksmith National Pension Trust sought over $1.7 million in withdrawal liability from the Limited Partnership, the General Partner and LAM, which stemmed from certain collateralized loans that LAM purchased from JP Morgan Chase Bank (which the bank had made to Brown-Minneapolis Tank-Northwest, LLC ("BMT-NW")—the loans were collateralized by substantially all of BMT-NW's assets).1 The pension fund argued that the Longroad entities, through their investment and management activities, were jointly and severally liable for withdrawal liability that was attributable to BMT-NW. The Longroad entities sought a declaration that they were not "employers" under ERISA and thus not liable. The court's analysis focused on whether they were trades or businesses under common control with the withdrawing employer, and whether they should be aggregated as a "partnership-in-fact."

Court's Rulings

  1. The Limited Partnership Was Found to Satisfy the Investment Plus Standard for Employer Status under ERISA
    1. Active Management and Operational Involvement – According to the court, the Limited Partnership was more than a passive investor and instead was actively managing its portfolio companies. The court cited the Limited Partnership's private placement memorandum, which explicitly described a strategy of "active management of the reorganization process," "achieving effective control over the governance of the business," and providing "strategic and operational direction necessary to grow the business, maximize cash flow and improve the overall prospects of the business."
    2. Use of LAM as a Management Agent and Delegation of Authority – The Limited Partnership carried out its investment strategy through LAM. This entity, which was acting under a management agreement and with authority delegated by the General Partner, was responsible for identifying investments, overseeing accounting and regulatory matters, and managing the operations of portfolio companies. The court found that LAM's actions were, in substance, actions of the Limited Partnership itself, since LAM acted solely on the Limited Partnership's behalf.
    3. Board Appointments and Strategic Oversight – The Limited Partnership, through LAM, appointed its principals to the boards of directors of its portfolio companies. These principals were not passive observers but were instructed to perform the duties of board members, which included oversight of company performance and operations. The Limited Partnership also embedded operating advisors within portfolio companies to provide expertise and, in some cases, take on senior management roles during and after restructurings.
    4. Creation and Control of Subsidiaries – The Limited Partnership, through LAM, created subsidiary entities to acquire and manage investments. It exercised authority to oversee and direct the operational affairs of these subsidiaries and their portfolio companies, including by making key financial and strategic decisions.
    5. Continuity and Regularity of Activities – The court emphasized that the Limited Partnership's activities were not isolated or sporadic. Its active management and operational involvement were conducted with "continuity and regularity" over multiple years, spanning both the investment and harvesting periods of the fund's lifecycle.
  2. The General Partner and Management Company Were Not Found to Be Part of a "Partnership-in-Fact" with the Limited Partnership
    1. General Partner
      1. Role as a Pass-Through Entity: The General Partner was a Delaware LLC with no employees or bank accounts. Its only function was to serve as the sole general partner of the Limited Partnership, and it owned a de minimis interest in the Limited Partnership.
      2. Delegation of Authority: The General Partner contracted with LAM to manage the Limited Partnership's business affairs and delegated all of its responsibilities and powers to LAM. It did not engage in any business activities aside from this delegation.
      3. Lack of Operational Activity: The General Partner did not participate in the management, control or operation of the Limited Partnership's investments or portfolio companies. Its activities were limited to retaining LAM and holding a nominal ownership interest.
      4. No Community of Interest: There was no evidence that the General Partner shared in the profits or losses of the Limited Partnership beyond its tiny ownership stake, nor did it act jointly with the Limited Partnership in carrying on any business or financial operation.
    2. Management Company (LAM)
      1. No Ownership Interest: LAM had no ownership interest in the Limited Partnership or the relevant portfolio companies. Its only indirect interest was a nominal stake through its ownership of the General Partner, which the court found de minimis and legally insufficient for aggregation.
      2. Contractual Management Role: LAM's relationship with the Limited Partnership was strictly contractual. It provided management services in exchange for a fee that did not vary based on the profitability of the Limited Partnership's investments. LAM did not share in the profits or losses of the Limited Partnership or its portfolio companies.
      3. No Sharing of Profits or Losses: LAM's compensation was limited to management fees, not a share of investment returns. It did not file joint tax returns, make financial contributions, or otherwise participate in the economic risks or rewards of the Limited Partnership's business.
      4. Actions as Agent, Not Partner: All actions LAM took on behalf of the Limited Partnership were expressly authorized by the management agreement or by delegated authority from the General Partner. LAM acted solely as an agent, not as a co-venturer or partner.

Implications for Private Equity Sponsors

The outcome in Longroad, as in Sun Capital, turned heavily on the facts: the structure of the entities, the contractual arrangements and the actual conduct of the parties. Unlike in Sun Capital, which analyzed the existence of a partnership-in-fact between two investing funds (Sun Capital Partners III, LP and Sun Capital Partners IV, LP), this new decision provides some comfort that management companies and general partners may not necessarily form a partnership-in-fact with the investing funds. That said, risk remains for private equity funds that take an active role in managing portfolio companies, especially if they approach or exceed the 80% ownership threshold or blur the lines between entities.

The court's analysis of the Limited Partnership's activities underscores that the line between passive investment and active management is critical. When a fund's activities include operational involvement, board appointments and strategic direction—especially when these are ongoing and central to the fund's business model—courts may be more likely to find that the fund meets the investment plus standard, exposing the fund to potential withdrawal liability if a portfolio company withdraws from a multiemployer plan. As evidenced by Sun Capital and Longroad, courts will look beyond formalities to the substance of the relationships and activities between the withdrawing employer and the investing funds.

Given the fact-specific analyses that the courts conducted in these two cases, it would be advisable for private equity sponsors to:

  • Evaluate potential ERISA withdrawal liability in connection with acquisition of controlling interests in portfolio companies, with respect to any funds that have an active management strategy.
  • Maintain clear separations between management entities, general partners and investment funds.
  • Avoid sharing profits and losses or commingling assets between entities, unless intended.
  • Document the absence of intent to form a partnership between entities and ensure separate tax filings and bank accounts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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