Target Benefit Plan 

A target-benefit plan is a defined-contribution plan in which the employer sets a specific amount for the benefit at retirement. Annual contributions to target-benefit plans are limited to the lesser of $4,000 or 100% of salary. Target-benefit plans use individual accounts with each employee bearing the investment risk and receiving the investment return.

Actuarial and interest assumptions are used in conjunction with the benefit formula to determine the amount of funds necessary for level annual contributions.

Advantage:

permits fast accumulation of substantial retirement benefits for the older owner-employee, while minimizing costs for lower-paid employees.
 

Disadvantage:

the actual benefit may be less than the target-benefit due to investment results.

The popularity of these plans has fallen because the same plan objectives can be met by all weighted and cross-tested profit-sharing plans that do not require an annual contribution.