State Supreme Court justices on Thursday sharply questioned whether lawmakers broke a contract with TERI employees when the Legislature made sweeping changes in the state retirement system.

The TERI lawsuit centers on a law passed by the General Assembly that requires all state retirees who continue to work to start making a 6.25 percent contribution to the retirement system.

Previously, a program incentive was that employees were exempt from the contribution.

Four employees sued the state, claiming it broke a contract. A judge later expanded the case to include all 22,000 working state retirees.

At stake are the current and future retirement benefits of more than 300,000 South Carolinians who are part of the $25 billion state retirement system — and a potential $500 million bill to be picked up by taxpayers and other members of the retirement system.

Overturning the legislation, state officials said, would threaten the retirement system’s solvency.

Justices raised a handful of issues during nearly 90 minutes of oral arguments:

• Does the state legislation creating TERI constitute a contract?

• Has the state unlawfully taken away compensation from TERI employees?

• What authority does the court have to rule in the case, and how should it implement the decision?

State attorney Bobby Stepp said there is no guarantee of employment — and therefore benefits — for any state employees. It would be dangerous, he said, to treat legislation as a contract unless specified. TERI was a policy, he said, and employees were wrong to assume it could not change.

“That is the great gulf — that TERI created some kind of special employment status,” he said.

Cam Lewis, attorney for the state employees, said both the state and the employees agreed to terms.

“You retired with the understanding that you wouldn’t have to pay contributions and that you would get your entire allowance,” Lewis said. “You can’t unretire.”

Chief Justice Jean Toal questioned Stepp about language in the law stating both sides “shall agree” to the terms of TERI. A question for the court, she said, was did the Legislature intend this to be a contract?

Justices also questioned whether the new benefits in the legislation equaled those employees previously enjoyed.

David Fitzgerald, one of the TERI employees who filed the lawsuit, said after the hearing that the facts of the case favor the employees: The state changed an agreement it already had approved.

“It really is a simple issue,” he said. “People want to make it more complex.

Fitzgerald wrote Gov. Mark Sanfordand legislators about the potential problem last year, and said only one senator responded.

“I’m very frustrated our leadership would do this,” he said. “To me, it’s arrogance.”

Attorneys said they did not know when to expect a decision, which typically happens 45 to 90 days after a case is heard.

Reach O’Connor at (803) 771-8435 or johnoconnor@thestate.com