Alaska teachers, local government workers go weeks without retirement contributions after state retirement division hacked

Thousands of Alaskans who work in the public sector are waiting on retirement contributions deducted from their paychecks starting in November, after the Division of Retirement and Benefits was hacked, state officials said.

The Alaska Office of Information Technology identified suspicious activity in the retirement division servers on Nov. 4, according to Department of Administration spokesperson Forrest Wolfe. State officials decided to resolve the breach by expediting an ongoing process of moving the division’s data from Alaska-based servers to remote servers, Wolfe said.

But a tool used by many public sector employers in the state, including school districts and many local governments, was not immediately usable on the remote servers, known as the cloud.

That means that the Anchorage School District and dozens of other employers have been unable to transfer employees’ retirement contributions to the state. Without transferring the contributions, they cannot be deposited in the employees’ retirement accounts, despite having been deducted from their paychecks.

Wolfe said last month that the e-Reporting tool “would need additional updates before it was migrated to the cloud.” The tool would be “in the final testing phase” this month, he added. On Wednesday, Wolfe said the state estimated the tool would be operating at the end of the month.

But affected workers say they have been given little information about their system outage and a timeline for receiving their delayed contributions.

“The communication from the state has been absolutely terrible,” said Dan Maclean, a science teacher at Service High School in Anchorage. He said the state has not responded to his requests for information on the delayed payments.

“They’re totally stonewalling us because it makes them look bad, and they owe us a lot of money,” Maclean said.

‘Awaiting further instruction’

The reporting tool is not used by the state itself or by the Municipality of Anchorage, meaning two of the largest public sector employers in the state are spared from the ongoing delays in retirement contribution deposits. Their contributions were up to speed by the end of November, Wolfe said on Wednesday.

But the outage has affected 137 employers in the state, including more than 50 school districts, 11 housing authorities, and dozens of cities and boroughs, according to information provided by the Department of Administration. Wolfe said the department can’t estimate the total number of Alaskans affected — or the total dollar value of delay contributions — until the outage is fixed.

“The interest that all of us have lost over the last couple of months will have a permanent effect on the growth of our accounts, and we’re already in fear of not being able to retire with dignity,” said Brianna Bierma, also a science teacher at Service High School.

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Wolfe said that the division has a “work-around” that allows employers to submit contributions to the state manually. Only 63 employers, or around half of those affected — the Anchorage School District among them — were using the work-around method for inputting contribution information as of Friday, according to information from the Department of Administration.

Nils Andreassen, executive director of the Alaska Municipal League, said the retirement division has been working with local governments to manually input payroll withholdings, while also working on fixing the problem in the system. But some questions will still need to be answered after the problem is resolved.

“Once the technical side of this is fixed and we’re able to process those contributions again, there will be outstanding questions to address,” he said. “Is there a loss of earning during that period? Is that something that the state will have to address?”

In an email sent Thursday from the Anchorage School District to its employees, benefits director Thai Walty said that ASD’s benefits department is “awaiting further instruction from the state on an alternative solution” due to the system outage. Walty instructed district employees to contact the state with further questions.

In response to emails from the Daily News seeking further information, ASD spokesperson Corey Allen Young said the district “stands ready to upload all backlogged employer and employee retirement contributions as soon as the State has identified a method for doing so.”

National Education Association of Alaska President Tom Klaameyer said the delays are “unacceptable” and called for better communication from the administration.

‘When the fiduciary fails’

Some beneficiaries have been calling on the state to provide them interest on the backlogged payments. They point to a state law that dictates that retirement contributions must be deposited within 15 days after the close of the payroll period. According to the law, if contributions are made late, the beneficiaries must receive interest, assessed from the date that contributions were originally due.

But state Sen. Jesse Kiehl, a Juneau Democrat, said that law was written to refer to employers, like school districts and local governments, in case they transfer the funds late to the state. Lawmakers had not anticipated a failure by the state, he said.

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“Nobody ever contemplated the possibility that the fiduciary would fail,” said Kiehl. But even without an explicit statute, the state could be responsible for a fix, he said.

“When the fiduciary fails, we know where the responsibility for penalties goes, where responsibility to make whole goes. And it ain’t the diligent employer,” said Kiehl.

In response to questions about whether the state would provide beneficiaries with interest, Wolfe said Wednesday that the Department of Administration is “awaiting guidance from the Department of Law and our tax consultants on this matter.”

The outstanding interest payments could amount to thousands or millions of dollars, after a nearly three-month deposit delay that affected thousands of workers and coincided with market gains.

But when Bierma, a biology teacher at Service High School, recently asked the retirement division about receiving interest payments on the late contributions, a state employee told her the division “has no statutory authority to pay interest on late contributions,” according to an email shared with the Daily News.

Bierma said that last year, the state deposited retirement contributions in some Anchorage teachers’ accounts one month late. At the time, affected teachers were given a 7.5% interest payment to make up for the delay, she said.

“It feels as if the state is gaslighting us, because it’s such a massive problem. It’s a hugely costly problem now, and it’s to their advantage not to pay that interest,” she said.

The problems in the retirement division’s system come amid an initiative championed by Gov. Mike Dunleavy to modernize the state’s IT systems by migrating them to the cloud, which Dunleavy said last year would improve information security and government services.

The Legislature has appropriated tens of millions of dollars in recent years to modernize the state’s IT systems and migrate them to remote servers, including more than $17 million appropriated in 2023 to the Department of Administration to modernize the Division of Retirement IT system — a project that was meant to be completed by June 2024.

Kiehl, who last year oversaw the Senate budget subcommittee responsible for the Department of Administration, said he is “deeply, deeply concerned” about problems that led to the department’s inability to process retirement contributions on time.

The department deserves credit for identifying the hack into the retirement system and quickly isolating it, Kiehl said. But he wondered why the department didn’t have “backups and what-ifs and safeguards” that allowed the division to keep doing its job despite the hack.

“There is a fundamental level of competence you just have to have, and we just don’t. So we’re going to have to spend some time and effort on this,” said Kiehl.