By Jan E. Messerschmidt

Last month, a group of three Cohen Milstein clients—the El Paso Firemen & Policemen’s Pension Fund, the San Antonio Fire & Police Pension Fund, and the Indiana Public Retirement System—filed an amended complaint as co-lead plaintiffs in a securities lawsuit against InnovAge and its officers and directors. InnovAge was among the five worst-performing initial public offerings in 2021.

The filing describes how InnovAge, a national healthcare company providing medical care to ailing seniors, focused on aggressive enrollment of patients for profit at the expense of the healthcare the company was obligated to provide. On average, during the period at issue, InnovAge received a fixed amount of $95,000 per year per enrolled patient, meaning that the fastest and simplest way to grow revenue was to increase enrollment. But unbeknownst to investors, InnovAge’s rapid enrollment growth resulted in severe staff shortages, high caseloads, significant delays, and lack of contracts from specialists, leading to systemic deficiencies and substandard care. Nevertheless, InnovAge focused its resources on hiring sales and marketing staff and ignored substandard home and clinical care for its participants.

In May of 2016, InnovAge became the first Program of All-Inclusive Care for the Elderly (PACE) organization to achieve for-profit status. PACE, a joint Medicare and Medicaid program, provides comprehensive, community-based medical and social services to frail and elderly people. For decades, PACE programs were operated almost exclusively by nonprofits. But InnovAge’s previous CEO, Maureen Hewitt, who served until January of this year, led the company’s aggressive lobbying campaign to transform InnovAge from a regional nonprofit to the first national for-profit PACE provider. To do so, Hewitt secured the partnership of Thomas Scully, the Administrator of the Centers for Medicare and Medicaid Services (CMS) under President George W. Bush and a general partner at the private equity firm Welsh, Carson, Anderson & Stowe (WCAS).

As Hewitt and InnovAge’s private equity leadership prioritized growth in enrollment, the goal was to advance InnovAge’s vision of rapid growth by providing healthcare to the burgeoning senior population in the United States, a massive market on which InnovAge was poised to capitalize. Shortly after WCAS invested in InnovAge’s for-profit conversion in 2016, Scully set a target of taking InnovAge public in as few as four years, citing the growth of the senior population and the market for PACE around the country. As Scully later put it: “I’m saying this lovingly: PACE is like community co-op grocery stores, I’m hoping someday it becomes Whole Foods.”

Over the next four years, the company’s prioritization of enrollment led to explosive growth in revenue, and by early 2020, WCAS and Scully began to implement their exit strategy by soliciting bids for a full or partial sale of InnovAge through either a strategic acquisition or an initial public offering. In July 2020, Apax Partners agreed to buy a stake in InnovAge from WCAS in a deal that valued the Company at $950 million. Under the deal, Apax and WCAS jointly controlled InnovAge, with each owning 49% stakes. The deal’s $950 million valuation of InnovAge represented a 480% increase from WCAS’s investment in the company just four years earlier.

On March 4, 2021, InnovAge launched its IPO, with the company boasting to investors that its meteoric growth was due to its provision of comprehensive care for vulnerable seniors, even though InnovAge was consistently failing to provide timely specialist care and adequate home health services. As a result, InnovAge’s market value rose to $3.2 billion on March 4 and to a high of $3.5 billion the following week, which was approximately 3.6 times its valuation by WCAS and Apax just months earlier.

In the months that followed, however, InnovAge’s systemic problems were slowly revealed. Last September, CMS notified the company that the government agency was suspending enrollment at InnovAge’s Sacramento, California center after an audit of the facility found that InnovAge “substantially failed” to “provide to its participants medically necessary items and services that are covered PACE services.” InnovAge also revealed last year that CMS and the state of Colorado had decided to suspend enrollment at InnovAge’s Colorado facilities, and the company is currently under investigation by the Colorado Attorney General. In just the first six months of 2022, CMS has suspended enrollment in existing centers or canceled agreements for new centers in Florida, Indiana, New Mexico and San Bernadino, California.

As a result of these revelations, InnovAge’s stock price plummeted to $4.71 by December 27, 2021, an 80% drop from its all-time high in March—just nine months earlier. The case is El Paso Firemen & Policemen’s Pension Fund, San Antonio Fire & Police Pension Fund, and Indiana Public Retirement System v. InnovAge Holding Corp., et al., No. 21-cv-02270 (D. Colo.).

The number of pet owners surged during COVID-19. Although the exact percentage differs among sources, the pet industry reported a three to four percent increase in the number of families who introduced furry family members in 2020 and 2021.

As product liability lawyers, we are always on the lookout for products that could bring harm to our families—toys with toxic lead paint, seatbelts that malfunction, medications that cause harm. But what about our furry family members? Are we equally as vigilant about the products that can cause them harm? A quick Google™ search reveals that the potential harm to our furry family members looms large.

The manufacture and sale of pet products is big business. In 2020, the pet industry recorded sales of $103.6 billion, an increase of $6.5 billion since 2019. Of that, $42 billion was spent on pet food & treats. While the Food & Drug Administration is responsible for regulating animal drugs, feeds/foods, and medical devices, it does not regulate animal grooming products, toys, and clothing, which are generally overseen by other governmental agencies that regulate consumer goods such as the Consumer Product Safety Commission and the Federal Trade Commission.

With 70 percent of U.S. households (90.5 million homes) reporting ownership of at least one pet supporting a $103.6 billion-dollar, quasi-regulated marketspace, the potential for product liability claims should not be overlooked.

If you’re married and enrolled in a pension plan with Intel, your plan’s Survivor Annuity may have been miscalculated in violation of the Employment Retirement Income Security Act (ERISA). Learn more about the Intel case.

If you are a married person who receives a monthly pension check from a private company, you should be on alert that the company might be shortchanging you by paying you less than the actuarial equivalent value of your pension.  A federal law, ERISA, contains many protections for the pensions of retirees including actuarial equivalence requirements, anti-forfeiture rules, and joint and survivor annuity requirements.

For example, you are legally entitled to receive the same economic value (“actuarial equivalence,” as discussed below) for your spousal pension as for if you took your pension as a single life annuity (also discussed below). In other words, ERISA requires that the pensions paid to married retirees are worth the same overall as the pensions paid to single retirees.

Several lawsuits have been filed claiming that companies are failing to pay their married retirees actuarially equivalent pensions—and specifically that they are systematically underpaying married retirees (and their surviving spouses). In cases against IBM, CITGO and AT&T (filed by our law firm), the retirees allege that their plan used outdated mortality tables to calculate their spousal pensions, which resulted in an unlawful “marriage penalty.”

Here’s what you need to know:

What Is the Survivor Annuity?

If you are a married retiree, you will receive pension benefits in the form of a joint and survivor annuity—a benefit that pays monthly pension payments for your life and for the life of your surviving spouse (unless you and your spouse opt out).

Generally, a retiree’s pension benefit is expressed as a “single life annuity,” meaning it pays a monthly benefit just to the retiree for his or her entire life.

For married retirees, however, the default pension is a joint and survivor annuity, which is a spousal annuity that provides the retiree with monthly pension payments for her/his own life, and then, pays a percentage of that monthly pension to the surviving spouse for his/her life. This joint and survivor annuity is expressed as a percentage of the retiree’s monthly payment that will be paid to the surviving spouse (i.e., 50%, 75%, or 100% of the retiree’s monthly pension).

How Is the Survivor Annuity Calculated?

To calculate the amount of a joint and survivor annuity, the plan starts with the amount of the retiree’s single life annuity, and then uses actuarial assumptions to convert it to a joint and survivor annuity. When the plan makes that conversion, ERISA requires the amount of joint and survivor annuity is “actuarial equivalent” to the amount of the single life annuity. Actuarial equivalence is a computation designed to ensure that, all else being equal, all forms of benefit payments have the same economic value.

Generally, an actuarial equivalence computation considers both an interest rate and the expected longevity of the retirees and their spouse. The interest rate reflects the time value of money, while the mortality table reflects the expected likelihood of each payment being paid to the retiree or surviving spouse based the statistical life expectancy of a person at a given age.

When plans make these actuarial conversions, ERISA provides several protections to ensure that married retirees get the same economic value from their pensions as single retirees. For example:

  1. ERISA requires that every joint and survivor annuity is “the actuarial equivalent of a single annuity for the life of the participant.”
  2. ERISA requires that, if an employee’s accrued benefit “is to be determined as an amount other than an annual benefit commencing at normal retirement age [of 65] . . . the employee’s accrued benefit . . . shall be the actuarial equivalent of such benefit[.]”
  3. ERISA provides that an employee’s right to their vested pension payments is non-forfeitable and states that paying retirees less than the actuarial equivalent value of their accrued pension results in an illegal forfeiture of their vested pensions.

Echoing the statute’s actuarial equivalence requirements, Treasury regulations make clear that actuarial “[e]quivalence may be determined] on the basis of consistently applied reasonable actuarial factors.”[i]

Why Does This Matter?

Some pension plans may violate some or all these rules by using outdated mortality and interest rate assumptions when converting a retiree’s single life annuity to a joint and survivor annuity. Using up-to-date mortality assumptions is vital to ensuring actuarial equivalence of benefits, as the average life expectancy in the U.S. has increased significantly in the last forty years. Outdated assumptions result in underestimated lifespans. Importantly, this can result in underestimated monthly pension payments for married retirees and their spouses who choose a joint and survivor annuity—in other words, a marriage penalty.

How Can I Tell If My Pension Is Affected by A Marriage Penalty?

Whether you’re already retired, considering retirement, or even just enrolled in your company’s pension plan, knowing your rights is a vital first step. Take the time to leaf through your pension resources, particularly the “Summary Plan Document,” which outlines the way your pension plan works and which you are entitled to by law. Ask yourself questions like:

  • What types of benefit options (lump sum, single life annuity, joint and survivor annuity) are available to me?
  • Does the plan state that the benefits are actuarially equivalent?
  • Which mortality table does the plan use to calculate benefits?

At the end of the day, you may want an understanding about the value of the pension that you worked years to earn. ERISA protects an employee’s right to get the full value of their vested pensions. Those rights are non-forfeitable. If a company pays a retiree less than the actuarial equivalent value of their pension, the company may be causing an illegal forfeiture of a person’s hard-earned retirement income.

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For further information, consider these resources:

The content above is for informational purposes only and should not be read or interpreted as legal advice. Please reach out to a lawyer for legal advice.

[i]   26 C.F.R.§ 1.401(a)-11(b)(2).

About The Authors:

Michelle Yau, chair of Cohen Milstein’s Employee Benefits/ERISA practice, has spearheaded some of the most significant ERISA class actions in the nation. In 2022, Chambers USA named her a “Top Ranked” individual in ERISA Litigation and in 2021, she was named a Law360 Benefits MVP.  Ms. Yau combines ardent dedication to protecting her clients’ retirement assets with rare insight into complex financial transactions and actuarial issues, informed by her Wall Street and government experience. Ms. Yau can be contacted at: 202 408 4600 / myau@cohenmilstein.com.

Contact us to learn how you may be affected by this lawsuit.

IBM retiree Joshua Knight has filed a proposed class action involving the IBM Personal Pension Plan, Bloomberg Law reports. The lawsuit, filed in the U.S. District Court for the Southern District of New York, challenges how IBM calculates retirement benefits for some workers who choose pensions that continue making payments to their surviving spouses after their deaths.

Read more about the lawsuit at Bloomberg Law.

On August 10, 2020, I received what would become the greatest news of my life: my wife and I found out we were expecting our first child. As we began daydreaming about the new addition to our family, the realities of life also began setting in. Not only would we be contending with the unique challenges posed by the pandemic, but we also began to evaluate how two type-A professionals would deal with childcare.

My wife is a dentist, and the dental industry has historically struggled to provide meaningful “parental leave,” as the practice inherently requires the doctors to physically be present to treat patients. Leave in the dental field is typically unpaid, with a strong encouragement (whether driven by patient care, finances, or other motivators) to return as promptly as possible.

Historically, the legal field also does not lay claim as a pioneer in promoting parental leave. Fortunately, there is a slow but steady shift towards recognizing the value of paid childcare leave in general. However, those gains tend to focus primarily, if not exclusively, on maternity leave.

In 2019, my firm introduced a new leave policy offering 10 weeks leave for all parents, in addition to medical recovery time for birth parents. As a first-time parent, I had no idea what this truly entailed. Moreover, as a first-time father, I only had a conceptual idea of what my role would even be during our child’s early days. What was to ensue would change me not only as a lawyer but as a person altogether.

By Christopher Lometti and Richard E. Lorant
Securities Litigation 101
Shareholder Advocate Spring 2022

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Over the past few years, companies including Alphabet, Boeing, Pinterest, Victoria’s Secret, and Wynn Resorts have agreed to sweeping corporate governance reforms to settle derivative lawsuits brought by their shareholders. Though mainstream news outlets have focused on the behavior that led to these lawsuits and the groundbreaking settlements themselves, we thought it would be helpful to discuss the nature of these “indirect” lawsuits and how they differ from other securities class actions.

Let’s start with some differences.

In a traditional securities class action, shareholder plaintiffs sue the company and certain of its officers and directors for violations of securities laws. In a derivative class action, shareholder plaintiffs sue corporate leaders on behalf of the company for breaching their fiduciary duty to the company and harming long-term shareholder value. In other words, shareholders “stand in the shoes” of the corporation to protect the present and future value of their stock holdings.

This leads to another important difference. While plaintiffs in a securities class action typically seek to recover monetary damages directly from the company and individual defendants, the goal of a derivative lawsuit is to address corporate governance and/or internal-control weaknesses that exposed the company to reputational and financial damage. While a settlement may include a financial contribution from defendants or their insurers, that money goes to the corporation—and is frequently tied to commitments to effectuate corporate governance changes to enhance the company’s long-term value.

Courts have made clear that before filing a derivative lawsuit it is advisable for a shareholder to first exercise her statutory shareholder rights to seek certain types of documents from the company. This “books and records demand,” which takes the form of a letter sent to the company’s Board of Directors, seeks internal non-public documents that enable a shareholder to better evaluate her concerns and, if warranted, file a derivative lawsuit with allegations supported by the documents the company produces.

It is also worth noting that derivative lawsuits must clear a high bar early in the proceeding. Plaintiffs must convince the court that it was necessary to file the lawsuit; merely demanding that the Board of Directors make the necessary governance changes would be “futile” because the directors are insufficiently independent to correct the wrongdoing. In some cases, the documents produced by the corporation in response to a books and records demand may provide support for why a pre-suit demand on the board would be futile.

Unlike federal securities litigation, derivative lawsuits are not subject to the Private Securities Litigation Reform Act of 1995 (PSLRA), which directs judges to select as lead plaintiff the movant or movants with the largest presumptive losses, if they are typical and adequate class representatives. In derivative litigation, the “relative economic stakes of the competing litigants in the outcome of the lawsuit” is just one of six factors judges use to select lead plaintiffs. So sophisticated institutional investors who may not have the largest position in the company may be appointed based on the quality of their legal pleadings, ability to represent the class, willingness to lead the case, and selection of counsel, among other factors, providing they pledge to remain shareholders throughout the litigation.

All these characteristics make derivative litigation an interesting option for pension funds of all sizes who are interested in enhancing the longterm value of their holdings by addressing shortcomings in a variety of areas, including corporate governance, workplace safety, environmental compliance, DEI (diversity, equity, and inclusion), and cybersecurity.

Fiduciary Focus

The Great Resignation. The Great Reassessment. The Great Refresh. There’s no shortage of monikers for the phenomenon that began in 2021 and continues today. Americans first quit work in record numbers in April 2021, according to the U.S. Bureau of Labor Statistics (BLS). They broke that record again in July and August of 2021 before hitting an all-time high of 4.5 million “quits” in November. Defined as voluntary separations initiated by employees, “quits” are an indicator of workers’ willingness or ability to leave jobs, the BLS says. The trend doesn’t appear to be fading: the BLS reported well over 4 million quits in both January and February of this year.

The Great Resignation has affected almost every industry and impacted employers across the country, including pension plans. What does the trend look like in the pension world and what lessons can we learn from peers? We asked colleagues from two different-sized state retirement systems to tell us how their systems have been affected by the Great Resignation, what challenges it has created for them, and how they’ve responded.

Recognize the New Reality

“We really are in a new world,” says Laura Gilson, Chief Legal Counsel at the Arkansas Public Employees Retirement System (APERS), a pension system with 64 employees. Gilson notes that a confluence of events with multifaceted causes has shaped this new reality. The COVID-19 pandemic was clearly a primary impetus, as it caused workers to reflect on their careers and their lives. While the pandemic may have triggered the Great Resignation, however, changes in demographics also play a role, Gilson says. Millennials and Generation Z, who now make up the largest portion of the workforce, are also more than twice as mobile as older employees, according to a late 2021 survey. More than three-quarters of Gen Z workers (ages 18-24) and nearly-two thirds of Millennials (ages 25-40) surveyed said they would soon be hunting for new jobs, compared to only one-third of baby boomers (ages 57-75). Just as there wasn’t a single cause of the Great Resignation, Gilson notes, no single answer can address all the challenges it has created.

Flexibility is Key

Janet Bray, Chief Organizational Excellence Officer at the Teacher Retirement System of Texas (TRS), says flexibility is key for employers. She notes: “It is important for employers to consider work-life balance,” observing that today the need to balance personal needs and business needs is critical. That statement is confirmed by recent studies, including research conducted by Oracle, which found that 88% of workers have changed their definition of “success”—with work-life balance (42%), mental wellness (37%), and workplace flexibility (33%) now top priorities.

In April, TRS was able to onboard the largest new hire class in its history, bringing the total number of TRS employees to 892. The new hires are comprised primarily of call center staff, who now work 100% remotely. The ability to offer remote work has proven key to successfully recruiting new employees.

Gilson reports that APERS has also successfully moved call center staff to remote work and that removing the distractions inherent to a crowded call center room has increased performance. Productivity is tracked in real time by supervisors, who are able to see metrics such as how much time staff spends on calls and how many calls they take, and APERS has found that technology has not impeded the successful transition to remote work.

Both pension plans are careful to note that while flexible work arrangements are becoming the norm, 100% remote working may not be appropriate or available for many positions. Bray says many TRS managers are offering a hybrid work arrangement with 2-3 days a week in the office. Gilson agrees that different positions may require different accommodations when it comes to remote work. For example, when she recruited last year for a part-time attorney position, all applicants expected—indeed, required—that the work would be performed remotely. She notes that the position probably would have been remote, at least temporarily, due to the pandemic, but that the pandemic had shifted power to the applicants. She is currently recruiting for a full-time attorney position and anticipates that the position may not be filled by someone who works 100% remotely.

Work Within the Confines—and Change Them When You Can

Gilson points out that government pension plans often have to work within the confines of the governmental system in which they operate. For example, in her case, remote work was allowed at that time under State of Arkansas government directives. Pension plans may have to be increasingly creative within those limits when recruiting new employees in today’s marketplace. Furthermore, according to Bray, if the opportunity exists to change those limitations, it may well be worth pursuing such efforts.

For example, TRS staff brought to its Board the results from a classification and compensation review that the system had undertaken. The review demonstrated the impact of the Great Reassessment on TRS, including direct costs (such as a 67% increase in costs to pay out annual and overtime leave at separation, difficulty in hiring key positions that require skills that are in high demand, and paying a premium for contract work that could be done at less expense by TRS employees) and indirect costs (increases in workload and burnout). Detailing the pressing need, staff recommended that TRS leave the state classification and compensation plan and adopt a TRS-specific classification structure, which was permitted by state law. At its February meeting, the TRS Board agreed and authorized implementation of a new classification structure.

Bray calls the new classification structure “a powerful tool for TRS” that will make it easier to conduct labor market comparisons, adjust classification system parameters as necessary to reflect the skills needed by the agency, and recruit talent using job titles that make sense in the market. A new salary structure will give TRS the flexibility it needs to respond to market shifts and the ability to vie against businesses who are often competitors for candidates to fill jobs.

Play Your Strong Suit—Mission and Culture

In the end, retirement systems’ most powerful tool may come down to the mission and culture of their organization. Bray notes that nearly every Texan knows someone who has made a significant impact in their lives and who is a member of the TRS system—a teacher, coach, counselor, or family member—and it is this support for the community and desire to be a part of the community that is crucial. Gilson agrees and adds that having a culture that values staff and prioritizes employee well-being in a collaborative environment is critical to today’s workforce and necessary to attract and retain the best and brightest.

That message resonates with Bray, who says that “executive management at TRS values the input of employees.” She notes that the executive director and the deputy executive director promote an open-door policy and regularly hold “employee huddles” that serve as pulse checks around the agency. Another aspect of the organizational culture within TRS is its serious commitment to diversity, equity, and inclusion in the workforce, which includes a high-level director of Diversity, Equity and Inclusion. “If I had known that work could be like this”, Bray says, “I would have been here a lot sooner.” And that’s a valuable lesson for all pension plans as we adapt to the changes wrought by the Great Resignation.

By Jan E. Messerschmidt

A federal judge last month granted preliminary approval to a settlement in which KPMG LLP, the global auditing firm, agreed to pay $35 million to shareholders of the now-defunct Miller Energy Resources, Inc. The substantial settlement, which culminated six years of litigation, is a significant victory for the class of investors, who needed to clear the high bar for auditor liability in securities fraud cases. On June 30, plaintiffs are scheduled to seek final approval of the settlement from Judge Thomas A. Varlan of the U.S. District Court for the Eastern District of Tennessee.

Cohen Milstein serves as court-appointed Co-Lead Counsel for the class of Miller Energy investors in the case, which was originally filed in March 2016. In their complaint, plaintiffs alleged that KPMG recklessly or intentionally failed to meet its obligations as the independent auditor of Miller Energy and perpetuated a massive fraud by signing off on the oil and gas firm’s $480 million valuation of its Alaskan oil reserve assets, which were later revealed to be largely worthless. KPMG’s role in Miller Energy’s fraud, plaintiffs alleged, led to millions of dollars in investor losses and Miller Energy’s eventual bankruptcy.

Miller Energy catapulted itself from an oil and gas penny stock to a behemoth company traded on the New York Stock Exchange following its 2009 acquisition of the Alaskan oil assets. Though Miller Energy purchased those oil reserve assets for only $2.25 million in a bankruptcy fire sale, the company spent the next five years telling investors that the assets were in fact worth $480 million. After Miller Energy replaced its small auditing firm with the global powerhouse KPMG in 2011, the company continued to file financial statements that represented the gargantuan valuation of the Alaska assets, all with KPMG’s blessing.

But as the Securities and Exchange Commission (SEC) would later find, KPMG’s tenure as Miller Energy’s auditor was replete with “repeated instances of [highly] unreasonable conduct.” By 2014, the truth finally began to emerge, with Miller Energy announcing a staggering $265.3 impairment charge to the Alaska assets, followed by a $149.1 million impairment the following year. Over the following months, the company announced it was suspending dividend payments, the SEC filed charges against the company, the New York Stock Exchange delisted Miller Energy stock, and, in October 2015, Miller Energy filed for Chapter 11 bankruptcy, later admitting that the Alaska assets were worthless all along—and that its years of financial statements to the contrary, all with KPMG’s blessing, were a sham.

In August 2017, the SEC confirmed what plaintiffs had alleged, announcing charges against KPMG and its lead partner on the Miller Energy engagement “for “improper professional conduct and securities law violations by KPMG” relating to its review and audit of Miller Energy’s financial statements. The SEC concluded that KPMG repeatedly turned a blind eye to evidence that the Alaskan assets were grossly overvalued, in violation of its legal and professional duties as an independent auditor. As a result of its misconduct, the SEC ordered KPMG to conduct a comprehensive review of its quality controls for audits and training materials with the oversight of an independent monitor, pay a civil money penalty of $1 million, and disgorge all of its Miller audit fees plus interest, a total of more than $5 million.

From the very start, however, plaintiffs faced tough odds in their attempt to hold KPMG liable. Courts typically require plaintiffs to meet a higher standard for finding auditors liable for securities fraud than defendant companies or their officers and directors, making it rare for auditor cases to even withstand motions to dismiss, let alone reach a favorable settlement or judgment. For the next five years, though, Cohen Milstein successfully fought against KPMG’s determined effort to defeat the lawsuit, surviving three motions to dismiss and multiple rounds of class certification and Daubert briefing in both the district court and the Sixth U.S. Circuit Court of Appeals.

Coming on the heels of the successful motion to dismiss decision obtained by Cohen Milstein in a separate case pending against Deloitte, another “Big Four” audit firm, the $35 million settlement agreement with KPMG shows that even under the high standards applicable to such cases, auditors can be held to account if they fail to adhere to their obligations to objectively and independently evaluate the accuracy of a public company’s financial statements.

The Spring 2022 issue of the Shareholder Advocate includes:

Download the Spring 2022 edition of the Shareholder Advocate (PDF).

The persistent gender- and race-based pay gaps have many contributors. A recurring culprit is employers’ reliance on candidates’ prior inequitable pay, a phenomenon known as “start low, stay low.” Another is applicants’ lack of information about what the job should pay.

While some have placed the onus on underpaid employees to cure inequities through increased negotiation — which is itself a questionable proposition, given the evidence that women often experience penalties for such self-advocacy — negotiations are unlikely to have their desired leveling effect if candidates only know their past compensation, and not that of their potential colleagues.

To get closer to pay parity, the law should — and in some cases does — require employers to increase their provision of information while limiting their requests for financial figures from applicants.

Other jurisdictions should follow the lead of Colorado, New York City and Washington, which have recently required employers to advertise salary ranges with job postings.

Eliminate Reliance on Past Pay

Crafting employees’ salaries based on their prior pay essentially creates different starting lines for negotiation, disadvantaging women and people of color who are systemically underpaid

To avoid exacerbating past discrimination, 21 states and several localities have curbed employers’ ability to ask candidates about salary histories.

Some states, like California, go even further and prohibit considering prior pay even when applicants volunteer it.

Courts, as well as a state statute in Massachusetts, have trended toward the conclusion that reliance on previous compensation cannot insulate employers from claims of pay discrimination.

Despite this tremendous progress, two states — Wisconsin and Michigan — have taken the unfortunate step of prohibiting localities from enacting salary history bans.

Even worse, Mississippi is currently considering cementing this discriminatory practice, as the state’s equal pay law, which has been approved by the Legislature, has an explicit loophole permitting employers to justify differences in pay based on differences in prior pay.

Moreover, currently permissible questioning about applicants’ salary expectations may be serving as an end-run around bars on prior pay inquiries.

Predictably, there exists an expectation gap for women and people of color that strongly correlates with the wage gap.

Not only may certain candidates have depressed expectations because of a dearth of information, but, as Robin Bleiweis from the Center for American Progress has written, the “economic and other societal biases that devalue” certain individuals’ work — resulting in lower pay in their current positions — “likely inform [their] expectations and may effectively present the same structural barrier to equal pay as questions about prior salary.”

For these reasons, some courts have already recognized that applicants’ salary demands do not necessarily reflect nondiscriminatory reasons that could justify pay discrepancies.

To ensure that past discrimination does not sneak into negotiations, laws should prohibit reliance on past pay, whether the result of direct inquiries or indirect probing on salary expectations.

Increase Transparency Around Plausible Compensation

Studies have consistently shown that pay secrecy policies, which ban employees from discussing their compensation, worsen inequalities in compensation.Yet employers persist in explicitly prohibiting or strongly discouraging workers from sharing with each other information about what they are paid.

Without access to information about what others earn, employees are in the dark about how their pay compares to that of their peers.

As a result, more than a dozen states have explicitly protected workers’ ability to discuss their compensation with each other. Nonsupervisors also have some cover under federal law to discuss their wages.

Recently, some jurisdictions have taken a further step to level the playing field by passing pay transparency laws.

Under laws passed in Colorado, New York City and, recently, Washington state, employers must affirmatively post the anticipated salary range for a given position.

Other places, like California, Connecticut, Maryland, Nevada and Rhode Island, require employers to make this information available upon request or at certain stages in the interview process.

Such proactive measures are of crucial importance to new hires, who have yet to meet their future co-workers, and to individuals who are less plugged into networks, often for reasons stemming from a problematic lack of inclusivity.

And in this era of increased remote work, without the proverbial watercooler, side conversations that create a whisper network of information exchange are far less likely to occur.

These legislative developments make great strides in putting the ball in employers’ court to do the heavier lifting toward closing discriminatory pay gaps.

To ensure that the policies have their desired sea change, a few things must occur.

First, pay transparency cannot be limited to base salary, but must also include all forms of compensation, including bonus amounts and form, e.g., cash versus equity.

Second, when workplaces post huge ranges in job ads, they should also use and advertise objective factors that are considered in placing a candidate on the pay spectrum.

And finally, employers must foster a culture where openness around compensation — from the top down — is not only tolerated but encouraged.

After all, hiring managers should welcome pay transparency measures that allow them to invest time interviewing only those applicants for whom the possible paycheck is not deal breaker.

Conclusion

Legislators should continue shifting the burden of closing gender-based and other pay gaps to employers by providing employees with more information, while protecting employee salary history from discovery by the employer.

Such a one-way flow of information starts to balance the scales of employer-employee bargaining power, which are currently uneven due to employers’ outmatched information access about their internal operations, and likely also that of their competitors.

By keeping past pay out of consideration and telling applicants what they can expect to earn upfront, such compensation policies go a long way in giving women and people of color more balanced positions in negotiations, and hopefully helping to address the scourge of unequal pay.