The Hawaii Employees’ Retirement System achieved its best investment return in nearly three years last quarter and hit an all-time high in assets to further the state’s efforts in whittling down a $12.44 billion shortfall.

Hawaii’s largest public pension fund — which provides retirement, disability and survivor benefits to more than 120,000 active, retired and inactive state and county employees — boosted its investments 4.6 percent in the fiscal third quarter that ended March 31, according to a report presented to ERS trustees Monday by Portland, Ore.-based Pension Consulting Alliance LLC. It was the best performance since the portfolio gained 5.3 percent in the October-December quarter of 2014.

Assets rose by nearly $462 million during the three-month period to $15.4 billion.

“Over the last 18 months the ERS has repositioned over $11 billion in assets to better manage the risk of the portfolio,” ERS Chief Investment Officer Vijoy Chattergy said. “We did that by conducting a dozen searches during that period, and we’ve hired approximately close to two dozen new (portfolio) managers, some with new strategies. We have similarly terminated most of our legacy managers in traditional equity funds. We accomplished (the repositioning process) in a very cost-effective manner.”

The ERS fund not only beat the returns of its policy benchmark (4.1 percent) and median public fund (4.4 percent) last quarter, but now has surpassed both of those measures over periods of one, three, five and 10 years. The policy benchmark is a combination of different indexes that correspond with the underlying strategies of the ERS investments. The median fund consists of 72 funds with assets greater than $1 billion.

All of the ERS portfolio’s asset classes surpassed their benchmarks last quarter.

The pension fund could get some additional help with its unfunded liability after a Senate bill passed in the recent legislative session that would increase taxpayer contributions on a phased-in basis. The bill has been sent to Gov. David Ige for his review and signature.

Under SB 936 the employer contribution rate for general employees will rise to 24 percent of the employee’s pay by fiscal year 2021 from its current level of 17 percent. It will increase in fiscal year 2018 and fiscal year 2019 by 1 percentage point each year, increase by 3 percentage points in fiscal year 2020 and go up by 2 percentage points in fiscal year 2021.

The employer contributions for police and fire employees will rise to 41 percent by fiscal 2021 from its current 25 percent. It will increase 3 percentage points in both fiscal years 2018 and 2019, and then 5 percentage points in both fiscal years 2020 and 2021.

The added money from taxpayers will raise an additional $34.6 million in fiscal 2018, $70.7 million in fiscal 2019, $176 million in 2020 and $252 million in 2021.

The pension fund’s investment return increased 10.3 percent through the first nine months of the fiscal year and is well on its way to surpassing this fiscal year’s assumed rate of return of 7.55 percent. Beginning July 1 the ERS’ new annualized investment target will be 7 percent to reflect anticipated market conditions. Similarly, the nation’s two largest pension funds, the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), decided over the previous several months to lower their expected return rate to 7 percent.

“If and when the governor signs (the bill) into law, it will reduce the funding period (to be 100 percent whole) from 66 to 30 years,” said state Director of Finance Wes Machida, who also is an ERS trustee. “If the (ERS) fund were to hold at 10.3 percent for the remainder of the fiscal year, the actuary indicated it could reduce the funding period by up to two years.”