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The New Jersey Supreme Court hears oral arguments in Trenton last year. (Patti Sapone | NJ Advance Media for NJ.com)

(Patti Sapone | NJ Advance Media for NJ.com)

TRENTON -- The state Supreme Court on Thursday upheld a landmark 2011 law freezing cost-of-living adjustments for retired government workers, a decision that will slowly erode the value of pensions paid to 800,000 current and former public employees.

The 6-1 ruling is a major legal victory for Gov. Chris Christie's administration, which warned that restoring the annual increases would hurl a pension system already underfunded by $59 billion closer to insolvency.

"State taxpayers have won another huge victory," Christie said. "One that spares them from the burden of unaffordable benefit increases for public employee unions."

The lawsuit filed by a group of retired prosecutors hinged on whether the legal promise not to reduce workers' pensions includes cost-of-living adjustments. Christie and state lawmakers suspended the regular increases in 2011 as part of a sweeping overhaul of employee benefits that also raised the retirement age and required workers to pay more for their pensions and health care.

Public workers sued, arguing before the court in March that their cost-of-living adjustments have the same protections as the pensions themselves and cannot be reduced, while a lawyer for the state said COLAs fall outside that "non-forfeitable," or absolute, right.

Assistant Deputy Attorney General Jean P. Reilly agued if there's any ambiguity in the language of the 1997 law, which granted a non-forfeitable right to the "benefits program," it should be interpreted narrowly and in the state's favor.

Writing for the majority, Justice Jaynee LaVecchia agreed, finding "In this instance, proof of unequivocal intent to create a non-forfeitable right to yet-unreceived COLAs is lacking. Although both plaintiff retirees and the state advance plausible arguments on that question, the lack of such unmistakable legislative intent dooms the plaintiffs' position."

The COLA suspension was part of a broader law requiring public employees and the state to pay more into the pension system. The overhaul was undertaken to reduce the state's massive pension debt by $140 billion over 30 years and preserve the fund. Freezing cost-of-living adjustments was projected to save more than $70 billion of that total.

With this ruling, it could be decades before many public workers' COLAs can be restored. Under the law, they won't receive increases until the individual pension plans that make up the pension fund are much healthier, which the statute defines as at least 80 percent funded.

In his dissent, Justice Barry Albin, wrote that in drafting the law the Legislature could have, but didn't explicitly exclude COLAs from the contractual right. Public workers made life decisions based on what seemed a plainly-written promise that they would receive regular adjustments, he added.

"Many public employees may not have retired or may have deferred their retirement had COLAs not been guaranteed as part of their pension benefits program," Albin said. "Although the Legislature had the right to suspend COLAs for those public employees whose pension benefits had not vested and who had yet to retire, it did not have the right to do so for those public employees who retired expecting that the state would keep its word."

Wendell Steinhauer, president of the New Jersey Education Association, the state's largest public union, called the freeze "theft, plain and simple."

"I am outraged that the court has condoned the actions of Governor Christie and the New Jersey Legislature taking away the COLAs that our members have earned over the course of their careers," he said.

A ruling overturning the freeze could have forced the state to reimburse retirees for their losses since 2011 and to reinstate COLAs, swamping the state with billions of dollars in new liabilities and intensifying the pension fund's financial distress. The bigger checks to retirees would have moved up the timeline for insolvency, which for one fund could be as soon as 2024.

Moody's Investors Service has warned the $59 billion in unfunded liabilities could rise by a third if the state and local governments are forced to restore retirees' cost-of-living increases.

The full contribution recommended by actuaries -- well above what the state actually pays -- for this year would immediately jump from $4.4 billion to $5.7 billion. And for the governor to stick to his current payment schedule next year he would need to kick in $400 million more than planned and $1 billion more than the state is to pay in this year.

Moody's lead analyst for New Jersey, Baye Larsen, weighed in Thursday, saying the decision "eliminates a major threat to the state's fiscal stability, which is already challenged by narrow reserves and large, rapidly growing pension costs."

Thursday's ruling marked the second major state Supreme Court decision on the 2011 pension reform law and victory for the Christie administration in as many years. In June 2015, the high court ruled a piece of the law requiring Christie to gradually increase annual payments into the system couldn't be enforced.

In both cases, the court invalidated what public workers believed to be contractual obligations binding the state to make annual contributions or pay out COLAs.

"Based on this decision, all public employees should be gravely concerned that their remaining pension benefits have any legal protections left," said Charles Ouslander, a retired prosecutor and plaintiff in the case. "In addition, given the court's past decision ... that upheld underfunding of the pension system, despite another contractual obligation, pensioners are now only left with the obligation to pay increased contributions with nothing in return."

Samantha Marcus may be reached at smarcus@njadvancemedia.com. Follow her on Twitter @samanthamarcus. Find NJ.com Politics on Facebook.