The assumed annual rate of return on the two state-administered pension funds is 7.5 percent.
The good return means SERS' unfunded liability for the year was about $200 million less than it otherwise would have been as a result of investment performance.
However, because of the way the system recognizes gains and losses, SERS now has a funded ratio of 58.6 percent and an unfunded liability of $17.9 billion, according to preliminary year-end performance data.
That is up from $14.7 billion as of December 2011.
"The reason the unfunded liability grew this year — despite this good performance — is that SERS recognized the last of the 2008 losses and the employer contribution rate is artificially suppressed by current law," SERS spokeswoman Heather Tyler said, referring to a collared rate of 11.5 percent under Act 120. "SERS' 12 percent return was a great step in the right direction, but it is only one of many steps that will get the plan back to a healthy funded status over about the next 20 years."
Together, SERS and the Public School Employee's Retirement System now have an unfunded liability of $47.4 billion.
PSERS has a funded ratio of 66.4 percent and an unfunded liability of $29.5 billion as of June 2012.
The pension systems rely heavily on investment returns as the primary source of funding.
Gov. Tom Corbett has floated a pension reform proposal that the administration says could save $11.6 billion over the next 30 years.
Corbett is calling on lawmakers to pass legislation that would move new employees into a 401(k)-style defined-contribution system that brings the state in line with much of the private sector.
That change would take effect in 2015 for both the State Employees' Retirement System and Public School Employees' Retirement System. The state match for new hires would be 4 percent.
The governor also wants to change the formula for future benefits in current employees' plans. Beginning in 2015, he has proposed reducing the multiplier used to determine future benefits by 0.5 percent. Final salary under the Corbett model would be based on a five-year average rather than the current three.
Pensionable compensation would be capped at 110 percent of the average salary of the previous four years, while the ceiling on pension income would be set at the Social Security wage base, which is $113,700 for 2013.
Meanwhile, the 2013-14 budget would reduce the annual increase in the employer contribution limit to the pension funds to 2.25 percent, instead of the 4.5 percent increase scheduled to take effect. That amount would increase by 0.5 percent per year until it reaches 4.5 percent again.