Virginia’s retirement system may pave the way for state and local governments to escape some of the pain in balancing their budgets — for now.

Gov. Bob McDonnell is proposing steep cuts in contributions to state and teacher pension plans to help balance the state’s two-year budget by reducing expenses by more than $600 million. he also is advocating reduced retirement benefits for future employees to substantially reduce the future exposure of the Virginia Retirement system.

But retirement system officials warn that reduced payments now would have to be made up in future budgets, and that reforms for new employees would take decades to fully realize.

“Some of the legislators probably are under the impression that [the proposed changes] will cure the VRS problem — it doesn’t,” VRS Director Robert P. Schultze told his board of trustees yesterday. “It takes so long to phase in.”

Local governments would pay hundreds of millions of dollars less toward teacher retirement plans under the governor’s proposals, but they fear a day of reckoning that will cost taxpayers more and make it harder to attract public employees in the future.

“It’s just borrowing from the future,” said Robley S. Jones, lobbyist for the Virginia Education Association, whose teacher members account for the biggest pension plan administered by the $48 billion state system. “Down the road, future taxpayers are going to have to ante up.”

On Wednesday, the same day that McDonnell announced his budget proposals at the Capitol, the Pew Center for the States issued a national report that decried an estimated $1 trillion gap between the liabilities facing state retirement systems and the money available to pay for them. The report warned that states are flirting with disaster by not fully funding their pension plans and other benefits.

“It is irresponsible to defer dealing with the problem because the costs will only go up,” said Susan K. Urahn, managing director of the center.

The report rated Virginia’s pension plans in the middle of the pack but based the ranking on data from mid-2008, before the recession drained billions of dollars from state retirement system investments.

On the other hand, the VRS investments have rebounded in value, a factor that McDonnell’s advisers say could more than compensate for sharply reduced contributions to pension plans over the next two years.

“You can have contributions reduced up front and end up with plans better funded,” said Finance Secretary Richard D. “Ric” Brown.

R. Ronald Jordan, executive director of the Virginia Governmental Employees Association, acknowledged the long-term concern about the system’s health but said that “in the short term, it’s a calculated risk that’s worth taking.”

The problem is the widening gap between what retirement experts say is necessary to fully fund the pension plans and what the state is willing to pay. Virginia’s pension plans were funded at 84 percent of their future liabilities for state employees last summer and 76 percent for teachers; by 2013, VRS projects the plans would fall below 62 percent of their obligations for state employees and 59 percent for teachers at current contribution rates.

McDonnell and his predecessor, Gov. Timothy M. Kaine, proposed sharp reductions in the contributions that state and local governments make to pension plans. Kaine proposed forgoing contributions altogether in the fourth quarter, saving the state $135 million while costing the system about $338 million, to help balance this year’s budget.

Kaine also proposed a much smaller increase in contributions for the next two years than recommended by the VRS board last fall, while seeking to shift a portion of the cost to state employees over the biennium.

This week, McDonnell proposed to restore state contributions for all current employees, while embracing legislation that would shift a portion of the cost to new workers and reduce their future benefits. he also proposed big cuts in contributions for state worker and teacher retirement, and no new payments for other benefits.

Localities would save more than $500 million under the governor’s proposals, but they are uneasy about the tradeoff. most local officials don’t like the fiscal policy, said Mary Jo Fields, a budget analyst at the Virginia Municipal League. “On the other hand, they’ll be glad to take that money because money is so short.”

Fields said the cuts would push the problem into the future, while counting on the stock market to make up the difference.

“It’s a gamble,” she said.

Contact Michael Martz at (804) 649-6964 or .