The California Supreme Court declined to give local governments carte blanche to hike health premiums for retired workers, saying on Monday that retirees could have a right to such benefits in some circumstances.

Governments across California have been closely watching the lawsuit -- filed against Orange County -- with pension and other retirement-related expenses a growing concern as they consume more of their already strained budgets.

Ernest Galvan, an attorney for the retirees, said the decision should remove people like his clients from the debate over how to make up budget shortfalls.

This opinion sets up a seawall around people who have already retired, Galvan said.

Jennifer Nock, an attorney for Orange County, said the California Supreme Court's opinion requires retirees to demonstrate a clear legislative intent by local government to provide the health benefits.

The county is very confident that the retirees will not be able to demonstrate that intent in this case, Nock said.

The extent to which public employees' retirement benefits can be altered, if at all, is being contested in courts in several states, said Keith Brainard, research director at the National Association of State Retirement Administrators.

What we have so far is a mixed bag, Brainard said. This whole area of what you can change and how much is developing before our eyes.

One way to rein in the expenses is to change retirement benefits for future employees. But that does not provide the kind of near-term savings that governments could post if they were able to legally roll back benefits earned by current and retired employees.

Last week, Rhode Island lawmakers passed a bill to suspend cost-of-living adjustments for those collecting state pensions and raise the retirement age for most employees.

Orange County eliminated a subsidy it had been paying for retiree health benefits, amounting to a cash value of more than $3,000 per year for each of its retirees, according to court documents.

The Retired Employees Association of Orange County sued in 2007, arguing that the county violated an implied contract with the retirees. The county disagreed, saying in court filings that an unfunded liability of $400 million is at stake.

In its unanimous opinion released on Monday, the California high court said the right to benefits could be implied from a county ordinance or resolution.

However, the court declined to say whether Orange County retirees had such rights, according to the opinion. The case is now expected to return to a federal appeals court for further proceedings.

The case in the Supreme Court of California is Retired Employees Association of Orange County, Inc. v. County of Orange, S184059.

Court California Supreme court Lawsuit