3734 / What is a target benefit plan?

A target benefit plan is a money purchase pension plan under which contributions to an employee’s account are determined by reference to the amounts necessary to fund the employee’s stated benefit under the plan.¹ Consequently, allocations under a target plan are generally weighted for both age and compensation. Although a target benefit plan is a type of defined contribution plan, it is subject to certain minimum funding requirements ( Q 3742 to Q 3746).

Safe harbor requirements for target plans are set forth in the cross testing regulations under IRC Section 401(a)(4), under which a target plan will be deemed to be nondiscriminatory.²

Special rules apply to target plans for meeting the requirements of IRC Section 411(b)(2), which states that a plan may not discontinue or reduce a participant’s benefit accruals or allocations because the participant reaches a particular age.³