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Public Pensions: Brace Yourself, Says Buffett

The news about public-sector pension plans has not been good, and a reputable crystal ball does not see improvement in sight. The “Pension Pulse” blog reports that Berkshire Hathaway Chief Executive Warren Buffett has warned in a letter to Berkshire shareholders that promises local and state governments made to provide pensions to retirees will become even harder to fulfill and will tighten the financial vise squeezing those governments and those plans.

And the fever will not break quickly, Buffett says. He told shareholders that the bad news will continue for the next 10 years.

Buffett faults public entities promising unaffordable pensions, coupled with an unwillingness among public officials and citizens to fund the pension obligations. And he says that legal changes that chipped away at language allowing employers to terminate or even change their plans in the first place have exacerbated the situation.

Pension Pulse says the Thomson Reuters unit Lipper reports that in 2013, municipal bond funds had net outflows of $62.6 billion, more than four times the previous record set in 1994. And the blog adds that Natalie Cohen, head of muni research at Wells Fargo Securities, has acknowledged that a problem still exists.

But there are some rays of hope, however tepid. Pension Pulse says that municipal bond funds have had net inflows most weeks this year. And Cohen notes that some state and local governments have made changes that better enable them to meet their obligations.