Which plan type allows for age-weighted employer contributions for older employees?

Which plan type allows for age-weighted employer contributions for older employees?

• A. Cash balance pension plan.
• B. Money purchase pension plan.
• C. Traditional defined benefit pension plan.
• D. Target benefit pension plans.

Answer: (D)

The correct answer is the Target benefit pension plan. This type of plan allows for the allocation of contributions in a way that can benefit older employees more than younger employees. Specifically, target benefit plans are designed to provide retirement benefits that are based on a predetermined target rather than guaranteeing a specific benefit amount like a traditional defined benefit plan. In a target benefit plan, employer contributions can be weighted to accommodate the shorter time horizon that older employees have until retirement. This means that contributions may be more generous for older participants in order to help them reach their retirement income goals more effectively. This feature reflects an age-weighted structure, making it particularly beneficial for teams with a mix of employees at varying ages. The other plan types do not typically allow for age-weighted contributions in the same way. For instance, cash balance pension plans generally function like hybrid plans that combine elements of defined benefit and defined contribution plans, but they don’t operate on the same age-weighted principles. Similarly, while money purchase pension plans and traditional defined benefit pension plans have their own rules regarding contributions, they do not inherently emphasize or allow for additional contributions based on an employee’s age. Thus, the design of target benefit plans is significant in its flexibility to adapt contributions based on the age and

The correct answer is the Target benefit pension plan. This type of plan allows for the allocation of contributions in a way that can benefit older employees more than younger employees. Specifically, target benefit plans are designed to provide retirement benefits that are based on a predetermined target rather than guaranteeing a specific benefit amount like a traditional defined benefit plan.

In a target benefit plan, employer contributions can be weighted to accommodate the shorter time horizon that older employees have until retirement. This means that contributions may be more generous for older participants in order to help them reach their retirement income goals more effectively. This feature reflects an age-weighted structure, making it particularly beneficial for teams with a mix of employees at varying ages.

The other plan types do not typically allow for age-weighted contributions in the same way. For instance, cash balance pension plans generally function like hybrid plans that combine elements of defined benefit and defined contribution plans, but they don’t operate on the same age-weighted principles. Similarly, while money purchase pension plans and traditional defined benefit pension plans have their own rules regarding contributions, they do not inherently emphasize or allow for additional contributions based on an employee’s age. Thus, the design of target benefit plans is significant in its flexibility to adapt contributions based on the age and