The Associated Press

SALEM — Four years after Oregon's state pension system appeared to be on the brink of disaster it is now among the healthiest in the nation, according to a new report.

Back in 2003, the Public Employees Retirement System faced a long-term shortfall of $17 billion. After a series of reforms and robust investment returns, the shortfall dropped to $800 million by the end of 2006.

The situation should look even brighter by the end of the year because investment returns are again beating expectations.

"We have really recovered substantially from where we were," said Bill Hallmark, whose firm recently completed a 2006 Actuarial Report on PERS finances.

Hallmark found that PERS had enough investments to cover 96 percent of its future payments at the end of 2006. That's better than the national average among states, which is 86 percent, according to an October survey by the National Association of State Retirement Administrators.

Four years ago, PERS had less than 70 percent of the money it needed.

The new report, combined with PERS' 10.4 percent investment return through Sept. 30, are an indication of coming cost savings to governments.

Hallmark projected that PERS costs statewide could drop $124 million per year, the equivalent of 1.7 percent of all employees' salary, when PERS sets its rates for government employers for 2009-2011.

Paul Cleary, PERS executive director, said three factors have returned the pension system to solid financial health: legislative reforms that reduced payments to workers and retirees; investment returns; and bonds sold by state and local governments to pay off some of the unfunded debt that accrued.

PERS money, including proceeds of most of the bonds, are invested by advisers to the Oregon Investment Council.

"We've been earning over 15 percent a year in the last five years," Cleary said.