SALEM, Ore. -- The bull market has been very good to the Public Employee Retirement System.

The fund had a $1.7 billion surplus on a projected liability of $49.8 billion as of Dec. 31, 2005. And the fund earned returns of 15 percent in 2006 and 3.4 percent in the first quarter of this year, meaning the surplus has likely increased.

The Oregon Investment Council, the six-member board that oversees pension investments for the state, met this week with PERS board members to review the system's first formal asset-liability study since 1999.

The study forecasts likely investment returns on the fund against projected liabilities for retirees. Results guide decisions about what the investment managers and plan administrators need to change to meet projected pension obligations.

The surplus marked an impressive turnaround from four years ago, when the fund faced a projected actuarial shortfall of $17 billion.

"Bull markets have a way of doing that: They solve a lot of problems," said Richard Solomon, a Portland accountant who chairs the OIC.

The big returns in the public pension portfolio were driven in part by decisions made years ago to invest aggressively in the private equity and real estate sectors. Both plays have delivered in the past five years.

As for what need to be done now, the consultant that performed the asset-liability study, Strategic Investment Solutions Inc., recommended five ways the OIC could allocate its investments among stocks, bonds and other assets. It concluded that even the most conservative approach could deliver the funds' needed return of 8 percent annually.

Solomon said the sheer size of the public employee retirement fund makes it difficult to tweak asset allocations in the short run. Moreover, just as the fund has ridden the bull market to its current surplus, a bear market could send the fund back into a shortfall.