As was the case for most investors, 2019 was a good year for Oregon’s underfunded public pension fund. And that should bring a rare sigh of relief to pension managers, lawmakers and government employers around the state.

The Public Employees Retirement Fund generated investment returns of 12.2% through the end of November and saw another bump in December as public equities, which make up a third of the pension fund portfolio, advanced another 3 percent. That compares to total returns of 0.48 percent in the previous year.

The fund’s value at the end of odd-numbered years – along with its calculated liabilities – are critical for policymakers because that’s what is used to set public employers’ contribution rates in the following two-year budget cycle. So the pension contributions employers will be required to make starting in July 2021 are based on the value at the year-end 2019.

According the system’s actuary, Matt Larrabee of Milliman, strong investment returns shaved some $3 billion of the system’s $27 billion unfunded liability, perhaps more when the year-end results are tallied.

The unfunded actuarial liability “might be down in the $24 billion range or a little less depending on how the equity returns shake out,” Larrabee said.

The system’s funded status has also improved a bit. PERS now has 72 or 73 cents in assets for every dollar in liabilities. And that’s good news when it comes to employer contribution rates starting in 2021, helping arrest the steep spikes of the last few biennia.

According to the actuary’s forecast, contribution rates will likely remain relatively flat for the foreseeable future if the system continues to achieve average investment returns close to assumption, which is 7.2 percent annually. Systemwide, employers are paying an average base pension contribution rate of about 25 percent of payroll and about 18 percent of payroll after they receive rate offsets from any side accounts they’ve established with PERS.

Investment returns certainly helped stabilize rates. But the biggest factor was lawmakers’ decision to extend the repayment period for the system’s deficit for eight years, effectively refinancing its rather massive debt, which increases cost and risk over time.

Indeed, it’s not all good news. Almost 11 years into the longest economic expansion on record, PERS had made little or no progress on its funding woes, largely because the PERS Board and lawmakers have let employers off the hook with moves like extending the payback period. Investment managers still face a headwind in the form of lower interest rates, which hold down returns on the pension fund’s bond portfolio. And with stock market valuations again at all-time highs, pension watchers expect returns to be lower in the next few years.

“We’ve had a good run,” said Larrabee, but investment returns come back to the average over time.