Target-Benefit Plan

Definition

A target benefit plan is a type of pension plan that is similar to a defined contribution plan in that it involves fixed contributions, or a fixed range of contributions, which are set independently of a plan’s funded position. Benefits are based on affordability projections. Plan members share plan risk through adjustments to their benefits.


Target-Benefit Plan

What is ‘Target-Benefit Plan’

A benefit plan that is similar to a defined benefit plan since contributions are based on projected retirement benefits. However, unlike a defined benefit plan, the benefits provided to participants at retirement are based on the performance of the investments, and are therefore not guaranteed.

Explaining ‘Target-Benefit Plan’

The target benefit plan also bears some similarity to a money purchase plan as contributions are mandatory. Generally speaking, a target benefit plan is a cross between a money purchase pension plan and a defined benefit plan.

Further Reading