Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

A target benefit plan is designed to provide a specified benefit at retirement, meaning that contributions to the plan are designed based on projected benefit requirements. However, these contributions are subject to certain limitations, particularly in regards to the annual additions that can be made to each participant’s account. The Internal Revenue Code imposes these limits to ensure that benefits do not disproportionately favor highly compensated employees.

In contrast, a cash balance plan primarily functions like a defined benefit plan but features individual accounts that grow based on a set formula, typically involving an interest credit, without direct limitations on annual additions in the same way. Age-weighted and flat benefit plans also have their own structures and methods of determining contributions and benefits, but these do not specifically have the same types of limitations on annual additions as a target benefit plan does.

Understanding the specifics of how different types of retirement plans work, especially the contributions and limitations placed on them, is crucial for professionals involved in retirement planning and compliance.