Under what circumstances is a target benefit plan most appropriate for small business owners?

A target benefit plan is particularly suited for small business owners who seek to provide higher retirement benefits for older key employees. This type of plan allows employers to specify a target benefit for each participant, which can be especially advantageous when the workforce consists of older employees who may need to catch up on retirement savings as they approach retirement.

For these older employees, especially key personnel, a target benefit plan can provide the flexibility to define contribution levels that can lead to substantial growth of retirement benefits in line with their pre-retirement financial goals. The approach helps these employers effectively retain valuable employees by ensuring their retirement plans are sufficiently funded to meet the anticipated benefit levels.

In contrast, maximizing benefits for younger employees or completely eliminating investment risks do not align as closely with the purpose of target benefit plans, which focus on achieving target funding levels rather than equally distributing benefits or risk. Thus, for small business owners who prioritize supporting older employees with enhanced retirement savings, a target benefit plan is an appropriate choice.