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

Target benefit plans actually do allow for contributions, but they operate differently than typical defined contribution plans like a 401(k). Specifically, contributions to target benefit plans are not based on a percentage of an individual's salary but are instead determined based on the benefit goal that the plan sets for participants.

In essence, while employers can contribute a defined amount to target benefit plans to help meet a targeted retirement benefit, contributions are not categorized or capped in the way a standard 401(k) plan operates. Therefore, saying that contributions are not allowed under target benefit plans is a fundamental misunderstanding of how they function.

The limitation for contributions in target benefit plans relates to the actuarial calculations needed to reach the retirement benefit goals, rather than specifying a strict percentage of payroll. This creates a more dynamic contribution structure, tailored to meet future benefit targets instead of fixed percentages tied directly to current salary levels.