An upcoming New Jersey State Supreme Court decision could undo pension system changes negotiated by Gov. Chris Christie.

New Jersey's already low bond rating could take a further dip if the state Supreme Court rules that annual cost of living adjustments to retirees' pension benefits are contractually protected, according to Moody's Investors Service.

Moody's analysts Baye Larsen and Marcia Wagner said in report issued Aug. 17 that an "unfavorable court decision" in Gov. Chris Christie's pension litigation regarding COLAs could cause the state's A2 rating to go down.

A Superior Court decision overturned a lower court decision in June 2014 and determined that COLAs to retirees' pension benefits are contractually protected under the state constitution. The New Jersey Supreme Court will soon be hearing the case to determine if the COLA freeze under Christie's 2011 pension reform plan substantially impairs retirees' contractual benefits and if it "was necessary to serve an important public purpose," according to Moody's.

"New Jersey still faces outstanding pension litigation that, if found against the state, could meaningfully worsen their pension funding position," said Larsen and Wagner. "Successful litigation against the 2011 COLA freeze would materially increase the pension funds' unfunded liability and the annual contribution needs."

The New Jersey Supreme Court ruled 5-2 in June that a section of Christie's 2011 pension reform law that called for ramp-up of the state's pension system over a seven-year period was not legally enforceable. The decision allowed Christie to proceed with $1.57 billion in unfunded actuarial accrued liability pension payments he vetoed for the 2015 fiscal year.

Christie spokesman Brian Murray said the Moody's report highlights why reforms to New Jersey's pension system are so needed.

"The real long-term issue confronting New Jersey's finances is the massive costs of our bloated pension and health benefits system that must be reformed," said Murray in a statement. "The problem is the unwillingness of Democrats in the legislature to come to the table and fix a broken system."

A New Jersey Education Association member retiring in just a few years will contributes just $126,000 to his or her pension and health benefit costs over 30 years and take out $2.4 million in benefits, he said.

"The math does not work at all and it must be fixed now," Murray said.

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