(Bloomberg) -- Along with death and taxes, Californians havecounted on another inevitability: once pension promises are made to publicemployees, they can’t be rolled back.

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That belief, which has guided officials as they deal withmounting bills to cash-strapped retirement plans, was shaken inAugust when a state appellate court said benefit cuts arepermissible if the pensions remain "reasonable" for workers.

The Marin Association of Public Employees, which lost itslawsuit seeking to prevent the county from reducing the finalsalary levels used to calculate pension payments, says it will askthe state’s Supreme Court to overturn the ruling. If upheld, itwould give California and its local governments a way to cut costsjust as lackluster investment returns threaten to leave them underpressure to pump more money into retirement plans.

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"It signals that there’s potentially additional reform optionson the table that never were there before," said Thomas Aaron,senior analyst at Moody’s Investors Service. "That offers anadditional way for governments facing budgetary challenges to tryand bring their costs down."

State and local pensions across the U.S. have $1.8 trillion lessthan needed to cover all the benefits owed in the decades ahead,according to Federal Reserve Board data. The need to make up forsuch shortfalls has contributed to credit-rating cuts to Illinois,New Jersey and Chicago. Such financial pressure has also been acutein California, where it helped bankrupt the cities of Stockton, SanBernardino and Vallejo.

Efforts to reduce retirement costs have focused on steps such assteering new employees into 401(k)-style plans or persuading unionsto consent to measures such as increasing retirement ages orcutting cost-of-living adjustments. While the California court casehas no impact beyond the state, it could inspire challengeselsewhere by local governments seeking to push through changes overthe objections of workers.

"Courts around the country faced with similar litigation wouldlikely hold in a similar fashion," wrote Bank of America MerrillLynch analysts led by Philip Fischer in a note to clients.

The case in Marin County, a community north of San Franciscothat’s among the wealthiest in the U.S., centers around the formulafor calculating retiree payouts. Empowered by state law that soughtto prevent "pension spiking" -- which involved boostingcompensation at the end of one’s career in order to elevate pensionchecks -- the county in 2013 barred elements such as payments forwaiving health insurance from being included in the formula thatdetermines how much retirees receive.

The union sued, saying such factors are considered part ofworkers’ regular pay and that the county violated legal precedentsknown as the California rule. Established through court decisions,the guideline prevents benefits for current employees from beingdecreased unless they received an offsetting advantage.

The appellate court in San Francisco upheld the trial court’sdecision against the union that the new calculations didn’t violateworkers’ rights. It also said that lawmakers have the power tochange the formula before retirement.

“While a public employee does have a ’vested right’ to apension, that right is only to a ’reasonable’ pension-- not animmutable entitlement to the most optimal formula of calculatingthe pension,” the court said.

The judges didn’t define what’s reasonable. That’s sure to leadto lawsuits if officials try to adjust benefits outside ofcollective bargaining for their current workforce, said RollieKatz, executive director of the Marin union, which plans to appealby Sept. 26, the deadline.

"There have been promises made. That’s pretty fundamental in oursociety," said Katz, whose organization represents 1,300 membersfrom custodians to office assistants. "They need to be kept."

The ruling may give them an incentive to find ways to limitbenefits, said Chuck Reed, a former mayor of San Jose, California,who’s pushing pension overhauls nationwide through a group calledthe Retirement Security Initiative.

"Going from an absolute ’no’ to a ’yes, if it’s reasonable’ is ahuge shift in the political debate as well as the legal debate,"Reed said. "In order to save their jurisdictions from insolvency,some systems will be motivated to try to make some changes."

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