Target Benefit plan

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A Target Benefit plan is a type of pension plan that contains features of a defined contribution plan but is made to appear like a defined benefit plan.

It is similar to defined benefit plan in that the annual contribution is determined by a formula to calculate the amount needed each year to accumulate (at an assumed interest rate) a fund sufficient to pay a projected retirement benefit, the target benefit, to each participant upon reaching retirement. It is similar to a defined contribution plan in that the plan does not guarantee any benefit will be paid. The plan's only obligation is to pay whatever benefit can be provided by the amount in the contributor’s account. The actual earnings on the individual accounts may differ from the estimated earnings used in the assumptions and the investment performance of that account through the years.^[1]