Discussant: Peter Merrill, Price Waterhouse Coopers LLP
Joel Dickson noted that the tax treatment of pensions allows for a trade-off of present for future tax rates and the inside build-up of assets over the investment horizon. The value of this tax trade-off is uncertain because tax rates may vary considerably over the life cycle. Recent public policy proposals allow investors to reduce tax code risk, notably the Roth IRA and Roth 401(k). He made the point that a risk-averse investor will prefer a Roth IRA even when the expected future tax rate is unchanged.
Peter Merrill made the point that in a Roth IRA world, the ability to avoid higher future tax rates allows for increased consumption in both periods.
