Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 - Free CRPC Practice Questions and Study Guide

Target benefit plans are designed to provide a specified level of benefits at retirement, which is calculated based on a target benefit rather than a guaranteed benefit. This core characteristic distinguishes target benefit plans from traditional defined benefit plans. In a target benefit plan, participants bear the investment risk because the final benefit amount is tied to the plan’s investment performance. Therefore, if the investments perform poorly, participants may find that the actual benefit they receive is less than the target benefit, emphasizing that participants are responsible for the outcome based on the investment results.

In contrast, fixed percentage of pay contributions are typical of defined contribution plans. Guarantees regarding benefits are more aligned with defined benefit plans, where the employer bears the investment risks and guarantees payout. Lastly, while contributions to a target benefit plan can indeed have limitations based on regulatory contribution limits, stating that there are no limits is misleading, as there are established guidelines that govern pension plan contributions. This framework emphasizes the individual responsibility placed on participants regarding investment outcomes in a target benefit plan.