A target benefit plan is a retirement plan that requires employers to make minimum contributions to each employee’s retirement account each year.
The risk of actual investment performance rests with the worker. But employers are required to make contributions at a level designed to reach a certain payout goal — the “target” — for each employee, based in part on the employer’s estimates of how the investments will perform and in part on the employee’s age.
Unlike a money purchase plan, older employees in a target plan will get larger contributions because they have less time to reach retirement. And unlike a defined benefit plan, the end result is not guaranteed.