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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.

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


Optimal investment strategies and intergenerational risk sharing for target benefit pension plans
www.sciencedirect.com [PDF]
… Canadian target benefit plans (TBPs) are collective pension schemes featuring fixed contributions (or contributions that vary within a narrow, pre-set range), and a target benefit level based … funding/investment policy outlines the mechanism for adjusting the plan's actual benefit …

Optimal investment and benefit payment strategy under loss aversion for target benefit pension plansOptimal investment and benefit payment strategy under loss aversion for target benefit pension plans
www.sciencedirect.com [PDF]
… Canadian target benefit plans (TBPs) are collective pension schemes featuring fixed contributions (or contributions that vary within a narrow, pre-set range), and a target benefit level based … funding/investment policy outlines the mechanism for adjusting the plan's actual benefit …

Bring Back the Target Benefit Plan!Bring Back the Target Benefit Plan!
search.ebscohost.com [PDF]
… Canadian target benefit plans (TBPs) are collective pension schemes featuring fixed contributions (or contributions that vary within a narrow, pre-set range), and a target benefit level based … funding/investment policy outlines the mechanism for adjusting the plan's actual benefit …

Target-Benefit Plans in Canada–An Innovation Worth ExpandingTarget-Benefit Plans in Canada–An Innovation Worth Expanding
papers.ssrn.com [PDF]
… Canadian target benefit plans (TBPs) are collective pension schemes featuring fixed contributions (or contributions that vary within a narrow, pre-set range), and a target benefit level based … funding/investment policy outlines the mechanism for adjusting the plan's actual benefit …

Pooled Target-benefit Pension Plans: Building on PRPPsPooled Target-benefit Pension Plans: Building on PRPPs
www.questia.com [PDF]
… Canadian target benefit plans (TBPs) are collective pension schemes featuring fixed contributions (or contributions that vary within a narrow, pre-set range), and a target benefit level based … funding/investment policy outlines the mechanism for adjusting the plan's actual benefit …

Analysis of Target Benefit Plans with Aggregate Cost MethodAnalysis of Target Benefit Plans with Aggregate Cost Method
summit.sfu.ca [PDF]
… Canadian target benefit plans (TBPs) are collective pension schemes featuring fixed contributions (or contributions that vary within a narrow, pre-set range), and a target benefit level based … funding/investment policy outlines the mechanism for adjusting the plan's actual benefit …



Q&A About Target-Benefit Plan


What is a target benefit plan?

A target benefit plan is similar to a defined benefit plan in that 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 investments and are therefore not guaranteed.

What does it mean when you say that target-benefit plans bear some similarity to defined-benefit plans?

Target-benefit plans also provide for fixed pensions as do defined-benefit plans.

Can you give an example of how both money purchase and target-benefit pension plans differ from each other?

Money purchase pension schemes require employees to contribute towards their own future pensions while employers make contributions only if they choose to do so. In contrast, with the help of a target-benefit scheme, employers can decide whether or not they want to contribute towards employee's future pensions.

How does a target benefit differ from a money purchase pension plan?

Contributions to money purchase plans are mandatory while they are voluntary in case of target-benefit plans.

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