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.
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.
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- Target-Benefit Plans in Canada–An Innovation Worth Expanding – papers.ssrn.com [PDF]
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- Analysis of Target Benefit Plans with Aggregate Cost Method – summit.sfu.ca [PDF]