The size of future checks for thousands of retired teachers and other civil servants is now in the hands of five Colorado Supreme Court justices.

The court heard an hour of oral arguments Wednesday morning in the case of Justus v. State, a lawsuit that challenges reductions in retiree cost-of-living payments by the Public Employees’ Retirement Association (PERA).

A 2010 law (Senate Bill 10-001), eliminated payments associated with cost of living that year 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.)

PERA doesn’t have an estimate for how much is saved every year by the cost of living allowance (COLA) reduction, which was a major element of SB 10-001. The law as a whole was projected to reduce PERA’s unfunded liability by $9 billion.

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

The legal issue before the supreme court is whether retirees have a contractual right to the 3.5 percent COLA.

Lawyers for each side presented starkly opposing views to the high court on Wednesday.

The COLA “is part and parcel of the pension,” said Richard Rosenblatt, who represents the retirees who filed the original suit. A retiree’s main pension benefit together with the COLA “clearly is a contract.”

But Sean Connelly, representing PERA, argued, “There is no contractual right to a COLA fixed at a certain point.” He urged the justices to overturn the Court of Appeals and accept the trial court’s dismissal of the case.

Both Connelly and Solicitor General Dan Domenico, representing the state, noted that COLA payments have fluctuated several times over the last few decades, and that those changes have applied to retirees.

As usually is the case, the lawyers offered differing interpretation of several prior court cases, including one dating back to 1920, that involve pension rights.

Four of the five justices asked questions during the arguments, but their queries didn’t hint at any clear leanings on the case.

The case originally was filed within days of SB 10-001 becoming law (see story). A district court judge ruled in 2011 that the state and PERA could reduce the payments. But the Colorado Court of Appeals ruled in 2012 that pensioners do have a contractual right to the COLA in effect at the time of retirement but gave the state a possible out. The appeals court concluded the courts “must still determine whether any impairment of the right is substantial and, if so, whether the reduction was reasonable and necessary to serve a significant and legitimate public purpose.” (Read appeals court decision here.)

There are no set deadlines for the court to rule on a case after oral arguments. In a recent big public policy case, the Lobato v. State school funding suit, the court ruled a little less than three months after arguments were held.

Chief Justice Nancy Rice announced that Justices Allison Eid and Monica Marquez would not be participating in Justus v. State. Justices typically don’t announce why they’re not participating.

PERA history and stats

After PERA’s investment portfolio was hit hard by the 2008 recession, SB 10-001 was an attempt to change some of the system’s operations in order to put it on a path to financial solvency in 30 years. PERA has about $26 billion promised without funding to back it up.

Subsequent legislative attempts to tinker with the 2010 revamp have been rebuffed, but the 2014 session approved a bill that will launch three studies of the system (see story).

Teachers and school administrators dominate the 196,435-member system, with 129,205 members in the School and Denver Public Schools (DPS) divisions — over 65 percent 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.