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Target Benefit Plans While technically a defined contribution plan, a target benefit plan is actually a hybrid plan. In such plans, the employer sets a target benefit for employees. Each year contributions are made to the employee's account based on actuarial assumptions that project the annual funding needed to reach that benefit. In that sense, the target benefit plan mimics a defined benefit plan. However, the actual earnings on the individual accounts may differ from the estimated earnings used in the assumptions. Thus, because the benefit actually received cannot be determined in advance, the target benefit plan is like a defined contribution plan. Regardless, contributions and earnings accumulate tax free until withdrawn by the participant. Target benefit plans have become less common in recent years due to the increasing popularity and flexibility of 401(k) plans and profit sharing plans. |
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