CHEYENNE - The Wyoming Retirement System is in good shape but faces a challenge as baby boomers retire, says a new legislative audit of the system.

"As baby boomers retire, greater numbers of retirees will be relying on plan benefits yet there will be proportionately fewer contributing members," said the Legislative Service Office staff report to the Legislature's Management Audit Committee.

Since 1994, annual pension payments have exceeded contributions.

The legislative auditors recommended, among other things, that Wyoming Retirement System officials do a better job of explaining to members why, since 2004, their cost-of-living raises have steadily decreased at a time of robust economic growth in the state.

Those members also must keep in mind, however, that most receive fully paid retirement benefits and no deduction is made from their paychecks, the report added.

The system can allow cost-of-living increases of up to 3 percent as long as it is actuarially sound. The system's board set an increase of 1 percent for 2007.

In his reply to the audit report, Wyoming Retirement System Director Thomas Mann said states with mandated cost-of-living hikes are struggling with the same issues as Wyoming. Montana had to reduce its guarantee from 3 percent to 1 percent.

"Automatic COLAS are the most expensive part of a pension plan," Mann wrote.

The system's board, he said, will ask the Legislature to increase contributions to allow improved cost-of-living increases to retirees. The board also will discuss with the Legislature the pros and cons of mandatory hikes.

Bob Kuchera, employee representative for the Wyoming Public Employees Association, said last week that he's been doing a lot of explaining to members about what happened and why and the process.

"Most of this came from the huge raises the teachers got, and the teachers are large contributors to the system," Kuchera said.

He said many teachers are baby boomers who will retire in one to four years.

Because the retirement pay is based on the highest pay over 36 consecutive months, the teachers' retirement pay will be based on substantially higher salaries than they earned in prior years.

"As a result, it's put the system in a bind. They probably can't give the 3 percent, would be my guess," Kuchera said.

"It's hard to fathom, especially for state employees, because they didn't get those large raises. They keep thinking, 'What happened?'" he said.

He points out the state employees are in the Wyoming Retirement System with a lot of other public employees.

"We're always glad to see people get pay raises," Kuchera said. But sometimes the consequences are difficult to foresee or explain to WPEA members.

Public school employees make up 47 percent of the system's members, the audit report said.

Kuchera said his group agrees with Mann about the need for increased contributions to the system.

Kuchera said he was a social worker for years, then was promoted as an agency deputy director, and his retirement pay was based on the higher administrative salary.

He noted that government employees received only modest pay raises.

"We hope we can get something for the poor little guy who was in the system for years and retired years ago," Kuchera said. "They rely on that 3 percent so much."

The first public employees retirement plan created by the 1943 Legislature was designed to benefit teachers. Since then it has expanded to serve the need of Wyoming's non-federal work force.

The Wyoming Retirement System today manages seven defined benefit plans and one deferred compensation plan with combined assets of $6.2 million, the report said.

The big plan covers 73,387 employees and retirees of the state, the university, school districts and local governments. The smaller plans under the system are for volunteer and paid firefighters, law enforcement, the judiciary, game wardens, Highway Patrol and Division of Criminal Investigation employees.

Capital bureau reporter Joan Barron can be reached at (307) 632-1244 or at joan.barron@casperstartribune.net.