State Comptroller Thomas DiNapoli likes to point out that he oversees one of the nation’s best-funded public pension systems. That’s true—although, given the competition, it’s not nearly as impressive as it may sound.

As Nicole Gelinas of the Manhattan Institute writes in the New York Post today, local governments have had to “skimp on everything else” to keep up with the skyrocketing pension bills necessary to keep generous retirement benefits flowing.

Those payments would be much higher if New York State’s pension fund, like all of its private counterparts and most public funds in other countries, was required to “discount” future liabilities at a low-risk or risk-free interest rate rather than simply assuming it will always hit its return target of 7.5 percent a year. Gelinas continues:

And to make our required 7.5 percent annual return, the state is spending more on expenses, mostly higher fees to Wall Street — $575 million this year, up from $145 million a decade ago. A full 23 percent of fees go to private equity, even though it’s only 8 percent of the portfolio.

And New York’s pension fund is at a “record-high value,” as DiNapoli said, because the Federal Reserve has spent the past half-decade keeping interest rates at zero — meaning large Wall Street investors can borrow for free and push the value of all assets up. Like any bubble, it can’t last forever — and it will hurt when it pops.

The issue was explored last week in a debate pitting DiNapoli, a Democrat, against his Republican election opponent, Onondaga County Executive Bob Anatonacci. Analyzing that encounter, Gelinas noted that Antonacci favored a shift to a defined-contribution pension system, which would require employees to share more of the risk of market downturns. The Republican also endorsed structural reforms, such as repeal of the Triborough Amendment, as a way to help local governments reduced fixed costs.

Meanwhile, chiming in today with another critical perspective on New York’s Common Retirement Fund is Iliya Atanasov of the Boston-based Pioneer Institute, who writes at PublicSectorInc that DiNapoli has been evading some pointed questions about a recent deal with Goldman Sachs Asset Management.

The New York fund’s investment fees of $575 million amount to a relatively small investment expense ratio of 32 basis points, Atanasov notes. However, he adds:

It is not clear whether this relatively low ratio includes often hidden transaction and maintenance fees within opaque instruments such as real-estate trusts and hedge funds, but even at this rate, the Goldman deal would cost the CRF $6.4 million annually, or $32 million over its projected five-year duration.

With so much pension money at stake, why didn’t Mr DiNapoli’s office publicize the selection process, a clear rationale for the investment and the performance objectives he has (or so one hopes) for Goldman? What value are Goldman’s undoubtedly well-compensated analysts and investment bankers supposed to add?

Similar questions have been raised on this page.

Meanwhile, the Legislature has yet to send the governor a bill, passed by both houses with virtually no debate at end of their session in June, which would expand the “basket” of alternative investment allocations for the state’s pension funds.