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
- Optimal investment strategies and intergenerational risk sharing for target benefit pension plans – www.sciencedirect.com [PDF]
- Optimal investment and benefit payment strategy under loss aversion for target benefit pension plans – www.sciencedirect.com [PDF]
- Bring Back the Target Benefit Plan! – search.ebscohost.com [PDF]
- Target-Benefit Plans in Canada–An Innovation Worth Expanding – papers.ssrn.com [PDF]
- Pooled Target-benefit Pension Plans: Building on PRPPs – www.questia.com [PDF]
- Analysis of Target Benefit Plans with Aggregate Cost Method – summit.sfu.ca [PDF]
