The Colorado Supreme Court on Monday unanimously upheld part of a 2010 law that made significant changes to the Public Employees’ Retirement Association, including a reduction in the annual cost-of-living increase awarded to retirees.

Reduction in the COLA drew a lawsuit from retirees shortly after Senate Bill 10-001 was signed into law, and lower courts issued conflicting rulings on the issue. The PERA system covers all Colorado teachers and a wide variety of other state and local civil servants.

The law eliminated payments associated with cost of living in 2010 and cut retirees’ annual benefit increases from 3.5 percent to 2 percent starting in 2011. Future increases could drop below 2 percent under certain conditions. (While the increases are commonly referred to as cost of living raises, they aren’t pegged to inflation or consumer prices.)

Plaintiffs argued they had a constitutional, contractual right to the 3.5 percent annual increase.

The supreme court’s ruling said, “We hold that the PERA legislation providing for cost of living adjustments does not establish any contract between PERA and its members entitling them to perpetual receipt of the specific COLA formula in place on the date each became eligible for retirement or on the date each actually retires.”

PERA doesn’t have an estimate for how much is saved every year by the COLA reduction. The law as a whole was projected to reduce PERA’s unfunded liability by $9 billion.

Observers of the case believed that overturning of the COLA reduction would significantly weaken the law’s ability to improve PERA’s financial health.

When the lawsuit was filed, plaintiffs estimated the COLA reduction could cost the typical retiree more than $165,000 over 20 years.

Here are the highlights of reaction to the ruling.

Rich Allen, president of Save PERA COLA, said, “Needless to say we are disappointed in the decision. It seems to us to be a major departure from the rule of law to allow a public entity to unilaterally abrogate an agreement to which they willingly and legally entered merely because they don’t feel like paying the costs anymore.” Read the full statement here.

The Coalition for Retirement Security, which represents several employee groups and which backed SB 10-001, said, “We are very thankful to the Colorado Supreme Court in upholding the changes we advocated for in Senate Bill 1. Senate Bill 1 represents shared sacrifice by retirees, employees and employers. This shared sacrifice put PERA on the track to being fully funded and today the Supreme Court upheld that sacrifice as legal.”

“Through the shared sacrifice approach recommended by the PERA board, the Colorado General Assembly responded after the Great Recession, and the Colorado Supreme Court agreed with our collaborative approach,” said Gregory W. Smith, PERA executive director.

A Denver District judge dismissed the lawsuit in June 2011, but the Colorado Court of Appeals reinstated it in October 2012 in a mixed ruling, saying PERA retirees have a contractual right to a cost-of-living adjustment but that they are not guaranteed the fixed 3.5 percent.

The state and PERA appealed that second ruling in November 2012, and the high court agreed to take the case in August 2013.

Teachers and school administrators dominate the system with more than half of the membership. There are 58,986 education retirees who received about $2 billion in benefits in 2012, an average of about $3,000 a month. The average retirement age for both School and DPS retirees is a little above 58 years old. The entire system has about 106,000 retirees.

Supreme court Justices Allison Eid and Monica Marquez didn’t participate in the case.