38. Which of the following statements is correct regarding a target benefit plan

Question

38. Which of the following statements is correct regarding a target benefit plan?

A. The maximum benefit a participant can actually receive depends on the initial actuarial computation according to the plan's formula.

B. These plans typically best serve young, highly paid professionals looking to maximize retirement benefits.

C. If the actuary’s investment assumption is lower than the actual investment performance, the participant’s total benefit will be greater than the targeted benefit.

D. These plans have become more popular in recent years because they are less expensive than traditional defined benefit plans.

Explanation / Answer

Target benefit plans are similar to defined benefit plans in that the annual contribution is determined by a formula to calculate the amount needed each year to accumulate (at an assumed interest rate) a fund sufficient to pay a projected retirement benefit, the target benefit, to each participant upon reaching retirement.

therfore the correct answer is B. These plans typically best serve young, highly paid professionals looking to maximize retirement benefits.

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