Key Features
- Combines elements of
benefit and contribution plans
- Work best for middle-age
participants
A target benefit plan is a
type of pension plan which
combines elements of defined
benefit and defined contribution
plans. The projected retirement
benefit is defined by formula as
with a defined benefit pension
plan. This becomes the "target"
benefit. Funding is actuarially
determined based upon the target
benefit and that amount is
allocated to the participant's
account.
After the first year,
actuarial valuations to
redetermine the contributions
are not made. The contribution
remains constant for the benefit
being targeted. Gains or losses
are allocated to the
participant's account based upon
the experience of the plan. At
retirement the participant
actually receives the then value
of the account held in his or
her behalf.
Target benefit plans are
intended to combine the benefits
of both defined benefit and
defined contribution plans, in
that they allow older
participants to receive a
disproportionate share of the
contributions, and at the same
time they allow the accounts to
grow based upon actual
investment performance. They
tend to work best for middle-age
participants.
Since target benefit plans
are legally considered to be
defined contribution plans,
contributions on behalf of a
participant are limited to the
lesser of $40,000 or 25% of
current compensation. |
