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February 15, 2009

Target Benefit Plan

Your Guide



A target benefit plan is a defined contribution plan which includes some characteristics of a defined benefit plan and some characteristics of a money purchase pension plan.

Defined benefit feature
Contributions are based on a formula that uses some of the factors used for calculating contributions to defined benefit plans- typically the flat benefit or unit credit formula. However, unlike a defined benefit plan where benefits are usually definitely determinable (e.g. a monthly pension of x% of compensation for life, starting at retirement), benefits are based on contributions to the plan and earnings/losses.

Money purchase pension feature
Similar to a money purchase pension plan, contributions are mandatory, they are made to individual accounts, limited to IRC § 415(c), which is $45,000 for 2007, and benefits are the balances remaining from contributions, and earnings/losses.

Referring Cite

IRC§401(a), Treas. Reg. §§1.401(a)(4)-8(a), 1.401(a)(4)-8(b), 1.401(a)(4)-12

Additional Helpful Information

Target benefit plans are ideally suited for employers that wants to skew contributions in favor of older employees and wants to offer some of the features of a defined benefit plan without being subject to guaranteeing benefits and paying PBGC insurance premiums

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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