Target Benefit Plan Definition

A target benefit plan is a type of retirement plan where employers are obligated to make regular contributions to their employees' retirement accounts. This plan places the responsibility of investment performance on the employee, while the employer is required to contribute a certain amount to reach a predetermined payout goal. This amount is calculated based on the employer's projections of investment performance and the employee's age. Unlike a money purchase plan, older employees will receive larger contributions due to their shorter time until retirement. However, unlike a defined benefit plan, the final outcome is not guaranteed. This structure gives employees some control over their investments while also providing a level of financial security.