The Alaska Division of Retirement and Benefits has begun working through a website outage that delayed retirement contributions for roughly 32,000 Alaskans, according to the Department of Administration.
Retirement Division Director Kathy Lea said that after a months-long delay in processing retirement contributions, the state will be on the hook for compensating the beneficiaries for lost investment earnings. But the exact amount of money the state will be required to pay beneficiaries won’t be known for months.
The contribution delays have affected thousands of public-sector workers in the state — including those working for school districts, cities and boroughs that rely on a state-run retirement system. It has not affected employees of the Municipality of Anchorage and direct employees of the state.
The origin of the problem was an intrusion into the Retirement Division servers that occurred on Nov. 4, leading the state Office of Information Technology to disconnect the servers from the internet.
The Department of Administration addressed the compromised servers by expediting a move of retirement information onto remote servers, known as the cloud. But when the division attempted to transfer a tool used by most public employers to report retirement contributions to the state, it failed, requiring weeks of work by the division to bring the system back online.
“The program had been written in an older version of Java, and it needed to be updated before it could migrate,” Lea said during a presentation to the House State Affairs Committee last month. “We contracted with the vendor who originally programmed e-reporting, and they began to update it. It wasn’t a simple update because it was so many versions behind. There was a lot of re-programming that had to be done.”
In the meantime, contributions from 1,600 payrolls — coming from dozens of employers enrolled in the state’s PERS and TRS retirement systems — were delayed, affecting the retirement accounts of around 32,000 Alaskans.
Since November, employers like the Anchorage School District have been subtracting retirement contributions from employees’ paychecks, but instead of transferring those contributions directly to Division of Retirement, the employers have been forced to hold on to the funds until the state is ready to process them.
The Division of Retirement says it will take around three months to work through the backlog due to its size.
“We can’t have all employers start reporting payrolls at the same time, or they’ll overwhelm the program and it will crash,” Lea told lawmakers.
Lea said that retirement beneficiaries would be compensated for their lost retirement earnings during the system outage, because the Internal Revenue Services required such compensation. The promise of compensation came after several weeks in which the state had been noncommittal about whether beneficiaries would receive additional funds to make up for lost potential investment earnings during the outage.
“Since we’re crossing the three-month grace period that the IRS provides us, the employees will be compensated for lost earnings on their accounts,” Lea told lawmakers. But she said that the division “can’t calculate how much that is until we process all the payrolls” — meaning it could be months until the Division has a clear estimate of the cost of such compensation.
Lea said she didn’t know if compensating beneficiaries would require an additional appropriation of funds from state lawmakers, or if the Division of Retirement could use funds that already exist in the state’s various retirement accounts.
“So participants should not expect that addition coming immediately, but we will notify them when it has been calculated and how much for their particular account will occur,” said Lea.
In a message sent last week, the division told affected employees that the “compensation method used will calculate lost earnings on delayed plan contributions/deferrals from the date your first payroll should have posted up to the day contributions and deferrals are posted into your account and ready for investment.”
Forrest Wolfe, a spokesperson for the Department of Administration, said this week that the division is “currently working with our record-keeping firm to determine how we will calculate the amount of compensation.”
Depending on how the compensation is calculated, the total cumulative amount owed by the state to impacted workers could be in the millions of dollars.
Lea said depending on the size of the eventual compensation needed, it could require new funding subject to approval from lawmakers. But according to the division’s timeframe, the current legislative session could be in its final days — or altogether over — by the time the calculation is complete.