Public pension plans threaten the financial health of U.S. cities and states more than taxpayers realize, billionaire investor Warren Buffett said.

"Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made," Buffett wrote in his annual report to shareholders of Berkshire Hathaway Inc. released on March 1. "During the next decade, you will read a lot of news—bad news—about public pension plans."

Obligations to retirees have weighed on governments from Puerto Rico to the bankrupt city of Detroit. Illinois lawmakers passed a bill last year to bolster the worst-funded U.S. state pension system. New Jersey Governor Chris Christie said last week that Detroit shows what could happen if his state doesn't limit obligations to workers.