CRPC Practice Exam 2026 – Complete Test Prep Guide

Money purchase plans, profit-sharing plans, and target benefit plans are classified as defined contribution plans. In these types of plans, the employer, employee, or both make contributions to individual accounts for the employees. The retirement benefit is based on the contributions made and the investment performance of those contributions over time, rather than a predetermined payout based on salary or years of service, which is characteristic of defined benefit plans.

In defined contribution plans, there is typically no guaranteed benefit at retirement; instead, the account balance is subject to investment risk. This means that the amount available at retirement can vary depending on factors such as market performance and the timing of contributions. This flexibility is a significant distinguishing feature of defined contribution plans, making them suitable for a wide range of employees and employers.

Other classifications, such as cash balance plans, have attributes of both defined benefit and defined contribution plans. Hybrid plans also incorporate elements from both plan types, typically designed to provide employees with a predictable retirement benefit while also allowing for contributions that vary based on investment performance. However, the specific plans mentioned—money purchase, profit-sharing, and target benefit plans—fit clearly within the defined contribution category due to their structure and the way retirement benefits are accumulated.