The major changes to the Public Employees' Retirement Association include increasing employee and employer contributions by 2 percent, and reducing cost-of-living increases for current retirees from 3.5 percent this year, capping them at 2 percent.

The changes must be approved by lawmakers when they return to work in January.

Michael Coulter, a state employee and former state compensation committee member, said the cap on cost-of-living increases will hurt current retirees who already are struggling to make ends meet.

He said the state has a commitment to people who worked 30 years for the state with an understanding that their retirement benefits would be protected.

"Any reduction in the cost-of-living allowance is a violation of that agreement," Coulter said, and he warned it could end up in court.

Meredith Williams, PERA's executive director, said all of the state pension fund's 429,000 members will have to make sacrifices or the fund will go bankrupt over the next three decades.

"I think it's really important that the system be sustainable for all participants. A benefit not paid is not worth anything," he said.

State Treasurer Cary Kennedy said the proposed changes spread the pain among all participants.

"We can't afford to continue with business as usual. We have developed a solution that responds to the magnitude of the problem. Public employees, like all employees, recognize that they have to make some sacrifices today in order to protect their long-term retirement security."

PERA spokeswoman Katie Kaufmanis said PERA has $32 billion in assets and will still be able to pay benefits for many years.

PERA was able to recoup some of its losses from the stock market in the early part of this decade. It had a $13 billion funding deficit at the end of 2007 but estimated it was on schedule to eliminate the gap.

PERA's $41 billion portfolio took another big hit in the current recession, losing nearly 25 percent of its value through the end of November 2008.