How Pension Lump Sums Are Calculated From 417(e) Segment Rates, and Whether Yours Drops in 2027

A $2,000-a-month single-life pension starting at 65 has a minimum lump sum of $280,091 under the IRS segment rates for August 2026 (4.65%, 5.75% and 6.73%) and the 2026 IRS mortality table. Under February 2026's lower rates the same benefit was worth $294,743, so six months of rising corporate bond yields took $14,652 off a 65-year-old's floor. The younger you are when you take the money, the harder rates hit: a 45-year-old leaving with the same age-65 benefit lost 15.4% over those six months. Whether your own lump sum drops next year depends on two plan settings, the lookback month and the stability period, which decide which month's rates your plan actually uses.

The lump sum scales in direct proportion to the benefit. The benchmark used throughout is $2,000 a month ($24,000 a year), payable for life from age 65, with no survivor portion and no cost-of-living increase; a $1,000 pension under the same rates is worth exactly half of each figure, and a $3,000 pension 1.5 times as much.

The floor the tax code sets

Section 417(e)(3) of the Internal Revenue Code says the present value of a pension, including a single-sum payout, "shall not be less than the present value calculated by using the applicable mortality table and the applicable interest rate." A plan can pay more, and many plan documents use their own formula, but they must compare it with this calculation and pay the larger amount. The Treasury regulation, 26 CFR 1.417(e)-1(d)(5), gives the example of a plan that uses 7% interest and an old mortality table: it must still pay the greater of that result and the 417(e) result.

Two ingredients set the floor:

• The applicable interest rate is not one rate but three. The statute ties it to the "first, second, and third segment rates" built from a corporate bond yield curve for a single month, with no 24-month averaging and without the segment rate stabilization corridor that applies to plan funding. The IRS publishes these monthly on its "Minimum present value segment rates" page.
• The applicable mortality table is a unisex table the IRS publishes each year. For distributions whose stability period begins in 2026, it is the "Unisex" column of IRS Notice 2025-40. For stability periods beginning in 2027, it is the same column in Notice 2026-27.

The lump sum is then the benefit times a present value factor. The regulation's own worked example writes it as "$2,000 × 12 × 10.432": monthly benefit, times 12, times a factor that is the present value of $1 a year of pension, paid monthly, weighted by the chance of being alive for each payment and discounted at the segment rate that applies to that payment's date.

Which segment rate applies to which payment

The segment boundaries are fixed in 26 U.S.C. 430(h)(2)(C) and applied to lump sums by 26 CFR 1.417(e)-1(d)(3). The first segment rate covers payments expected in the first 5 years after the annuity starting date (for a lump sum, the date you are paid). The second covers payments in the following 15 years, so years 5 to 20. The third covers everything after year 20.

The clock starts on the payout date, not at 65. That single rule explains most of what follows. A 65-year-old taking a lump sum has their first 60 monthly payments discounted at the first segment rate. A 45-year-old whose pension cannot start until 65 has no payment due for 20 years, so every payment sits in the third segment.

So when financial news says "pension lump sums fall as rates rise," the rate that matters for you depends on your age. Under 60, short-term rates are irrelevant to your floor. At 45, only the long corporate bond yield matters.

One $2,000 pension under every 2026 rate set

The table values the benefit at each exit age under each monthly segment-rate set the IRS published for January through August 2026. All use the 2026 unisex table, which applies to a plan whose stability period begins in 2026, for example a plan with a one-month stability period and a one-month lookback, where a distribution in March 2026 uses February's rates.

February produced the largest lump sum at every age and August the smallest. From the top to the bottom of that range:

• Exit at 45: $79,891 to $67,601, down $12,290 (15.4%)
• Exit at 50: $114,713 to $100,257, down $14,456 (12.6%)
• Exit at 55: $158,852 to $142,924, down $15,928 (10.0%)
• Exit at 60: $215,853 to $199,673, down $16,180 (7.5%)
• Exit at 65: $294,743 to $280,091, down $14,652 (5.0%)

The dollar loss peaks around 60, while the percentage loss is steepest for the youngest. A 60-year-old has a large balance and a long average wait before the money is paid, so both effects stack.

To value your own benefit, multiply your monthly amount by 12 and then by the factor for your age and rate month. Factors are rounded to four decimals, so the product can differ from the table above by a dollar.

A $1,500 benefit at age 60 under May 2026 rates, for instance, is $1,500 × 12 × 8.6719 = $156,094.

April to June: same months, opposite results by age

Between April and June 2026 the first segment rate rose 0.22 points (4.27% to 4.49%), the second rose 0.09 points (5.34% to 5.43%) and the third fell 0.04 points (6.22% to 6.18%). Headlines would call that "rates went up." The effect on the floor was not uniform:

The 45-year-old gained because their whole value sits in the third segment, which fell. The 65-year-old lost because the first and second segments, which carry most of their payments, rose. The 50-year-old, split between the second and third segments, came out almost exactly even. Two people in the same plan, paid in the same month, can see their lump sums move in opposite directions.

What 1 percentage point is worth at each exit age

The next table moves all three August 2026 segment rates up or down by a full percentage point together and revalues the benefit with the 2026 table.

Sensitivity roughly triples from 65 to 45: about 8% per point at 65 against about 23% to 31% at 45. A fall in rates also adds more than an equal rise subtracts, at every age. That asymmetry (convexity, in bond language) grows with the length of the wait: at 45 a one-point fall adds $21,018 while a one-point rise removes $15,689.

Which segment does the damage? Raising one segment at a time by 1 point from the August 2026 set gives:

Even at 65, the first segment, built from bonds maturing within 5 years, moves the floor by only $2,316 per point. The second segment, built from bonds maturing in years 5 to 20, carries most of the weight from 55 through 65. If you are tracking rates to time a payout, watch the second and third segment columns on the IRS page, not short-term rates.

Lookback month and stability period: which month's rates you get

No plan uses "this month's" rates. Under 26 CFR 1.417(e)-1(d)(4), each plan document must name two settings and apply them the same way to every participant:

• Stability period: how long one set of rates stays in force. The regulation allows "one calendar month, one plan quarter, one calendar quarter, one plan year, or one calendar year." The same period also fixes which year's mortality table applies: the table for the calendar year in which the stability period begins.
• Lookback month: which month's published rates apply to that stability period. It may be "the first, second, third, fourth, or fifth full calendar month preceding the first day of the stability period." A plan may instead use an average of two or more consecutive months from that same window, if the plan spells out how.

The regulation's own illustration: a plan with quarterly stability periods and a third-month lookback uses July 2024 rates for every annuity starting date from October 1 through December 31, 2024. That design lets the plan know each quarter's rates before the quarter begins.

One person, five lawful designs: a 65-year-old with the $2,000 benefit and an annuity starting date of September 1, 2026, under five lawful designs.

The same person, on the same day, could be owed anywhere from $280,091 to $295,013 depending on a line in the plan document. None of these is a better or worse plan; over long periods the designs average out. But the design tells you something useful: how far ahead you can know your number. A calendar-year plan knows its rate for the whole year before January 1. A monthly plan with a one-month lookback only knows next month's.

Look for the setting in the plan's distribution election materials or plan document, in a sentence along the lines of "the applicable interest rate is the rate for the [month] preceding the [plan year / quarter / month] in which the distribution occurs." If you cannot find it, the plan administrator must be able to tell you, because every lump sum the plan pays depends on it.

Will the lump sum drop in 2027?

For a plan with a calendar-year stability period, 2027's rate is fixed by a lookback month between August and December 2026. As of October 31, 2026, the IRS table runs through August 2026, so only one of those five designs already knows its 2027 rate: the fifth-month lookback, which uses August.

For that design the comparison is exact. In 2026 the plan used August 2025 rates (4.20% / 5.29% / 6.08%) with the 2026 table. In 2027 it will use August 2026 rates (4.65% / 5.75% / 6.73%) with the 2027 table from Notice 2026-27.

For a second-month (November) design, the 2027 rate is not yet published. As an illustration only: if November 2026 rates came in equal to August 2026's, the age-65 floor would fall from $295,013 to $280,464, or 4.9%. Every point the segment rates fall back by November would recover roughly the amounts in the sensitivity table above.

The new mortality table pushes slightly the other way. Holding August 2026 rates fixed, switching from the 2026 to the 2027 unisex table raises the floor by $114 at 45, $221 at 55 and $373 at 65, an increase of 0.13% to 0.17%. Rates swamp it.

You are a year older next year

The table above compares the same age across two years. A real person ages. For a deferred benefit, a year closer to 65 means one year less discounting and one year less risk of dying before the pension starts, and that partly or fully offsets a rate rise. Under the fifth-month design (August 2025 rates in 2026, August 2026 rates with the 2027 table in 2027):

• 54 in 2026, 55 in 2027: $147,739 falls to $143,145 (-3.1%)
• 59 in 2026, 60 in 2027: $200,942 falls to $199,970 (-0.5%)
• 64 in 2026, 65 in 2027: $274,635 rises to $280,464 (+2.1%)

The 64-year-old's lump sum goes up despite higher rates. Past 65 the logic flips: waiting a year past the pension start date means a year of $24,000 payments you did not take, and the immediate annuity at 66 under the 2027 assumptions is worth $274,703. Any accrual you earn by working another year raises the benefit itself, which these figures leave out.

How each number was built

Each factor is the sum, over every monthly payment from age 65 to the end of the table at 120, of three terms multiplied together: $1/12, the probability of being alive on that payment date, and a discount factor of (1 + i) raised to the power of minus t, where t is the time in years from the payout date and i is the first, second or third segment rate depending on whether t is under 5, from 5 to under 20, or 20 or more. The assumptions:

• Timing. Payments are monthly and in advance: the first one is due on the 65th birthday, and for a 65-year-old the payout date and first payment coincide. Plans that pay at the start of the following month would show slightly lower values.
• Survival between birthdays. The IRS table gives yearly death probabilities (q at each age). Survival to a date between birthdays is interpolated linearly within the year, the uniform distribution of deaths assumption.
• Death before 65. For a deferred benefit, the factor includes the chance of dying before the pension starts, which 26 CFR 1.417(e)-1(d)(2)(ii)(A) allows for the employer-provided benefit. That is why the regulation's own factor for a 60-year-old is lower than a pure interest discount would give.
• Effective annual rates. The segment rates are treated as annual effective rates with no further adjustment, consistent with the regulation's instruction that the published rates "are to be used for this purpose without further adjustment."
• Benefit form. Single life, no survivor portion, no cost-of-living increase, no early-retirement subsidy.
• Tables. 2026 figures use the Unisex column of Notice 2025-40 (q at 65 = 0.00729); 2027 figures use the Unisex column of Notice 2026-27 (q at 65 = 0.00723).

The method was checked against the regulation itself. 26 CFR 1.417(e)-1(d)(3)(ii), Example 1, values a $2,000-a-month age-65 benefit for a 60-year-old under the 2024 table at assumed rates of 3%, 4% and 5% and states a factor of 10.432, for a minimum lump sum of $250,368. Using the 2024 table from Notice 2023-73 and the same rates, this method gives 10.428, or $250,277: 0.04% below the regulation's figure. The regulation's Example 2 gives 10.704 when death before 65 is ignored; the same method gives 10.7005. If the single payment due exactly on the fifth anniversary is discounted at the first segment rate instead of the second, the two factors become 10.4315 and 10.7039, both within 0.001 of the regulation's figures, so the small gap comes from a timing convention at the segment boundary, not from the tables or rates.

The age-45 August 2026 factor was also rebuilt a second way, as three separately computed pieces. The chance a 45-year-old survives to 65 under the 2026 table is 0.95410. Twenty years of discount at the third segment rate is 1.0673 to the power of -20, or 0.27181. An immediate monthly life annuity at 65, discounted entirely at 6.73%, is worth 10.8613 per $1 a year. Multiplied: 0.95410 × 0.27181 × 10.8613 = 2.8167, matching the table. That shortcut works only at 45 and younger, where every payment falls in the third segment.

Where the statutory floor is not the full answer

The 417(e) calculation is a minimum, and several plan features sit on top of it.

The plan formula may pay more. A plan that uses its own interest rate and table must pay the larger of its result and the 417(e) result, per paragraph (d)(5) of the regulation. In a year when segment rates jump, a plan with a fixed, lower rate in its document could pay above every number on this page.

Your own contributions are valued differently. If part of your benefit comes from mandatory employee contributions, the regulation does not let the plan count the chance of dying before 65 on that portion. In the regulation's Example 2, the factor for that slice is 10.704 against 10.432 for the employer-funded slice, so $500 a month of employee-provided benefit is worth at least $64,224 rather than $62,592.

Early retirement benefits. Before normal retirement age, the regulation's floor is the present value of the benefit payable at normal retirement age, the deferred calculation used throughout this page. Some plans offer an early pension that is reduced by less than its actuarial cost. Whether a lump sum reflects that subsidy depends on the plan's terms, and it can add a great deal at 55 to 62. Ask the administrator whether the lump sum is based on the age-65 benefit or on the early benefit.

Married participants need a spouse's signature. Above the amount a plan can pay out without consent under section 411(a)(11), 26 U.S.C. 417(e)(2) allows a lump sum only if "the participant and the spouse of the participant" consent in writing. The regulation's examples assume "all participant elections are made with proper spousal consent." The survivor annuity a spouse gives up is not priced into the single-life figures on this page.

Partial lump sums. A plan can settle part of the benefit in cash and pay the rest as an annuity. The regulation requires the plan to say which portion the cash settles when different factors apply to different portions.

Educational only, not tax, legal or investment advice. Every benefit on this page is a hypothetical $2,000 single-life pension built to show the arithmetic. Your plan's documents, elections and administrator's calculation govern your actual lump sum.

The Canadian commuted value and this site's calculator

The pension lump sum calculator on this site was written around the Canadian commuted value. Its page describes that figure as the plan actuary's calculation under the Canadian Institute of Actuaries' standards of practice, with prescribed interest rates and mortality assumptions, and notes that only part of it can usually move tax-deferred to a locked-in account because of the Income Tax Act's maximum transfer amount. None of the IRS rules on this page apply to it: no segment rates, no IRS mortality table, no lookback month.

The calculator itself is basis-neutral, so you can still use it with a US offer, as long as you know what it does. It takes the monthly pension, the lump sum, a start age, an indexation rate, one return or discount rate and an age to model to. It discounts each monthly payment at that single rate, compounded monthly, and stops at the chosen age. It has no mortality table, so it treats you as certain to live to that age and certain to die the day after.

For a US plan with no cost-of-living increase, set indexation to 0. Enter $2,000 a month, a start age of 65, a lump sum of $280,091 and a 5.75% rate, and the pension's present value to age 90 comes out at $317,911, about $37,800 above the 417(e) floor. The gap is not about interest: the IRS factor already weights each payment by survival, which is worth 11.67 per $1 of annual pension, while 25 certain years of payments at 5.75% are worth about 13.25. Survival weighting is what brings the value down.

That makes the calculator better at a different job: telling you which return and which lifespan would make the lump sum and the pension equal for you. At 5.75%, the running present value of the pension passes $280,091 at month 233, or about age 84 years and 5 months. Under the 2026 IRS table, the life expectancy at 65 is about 21.2 years, which puts the average unisex 65-year-old a little past that point. If your own health or family history points well past 86, the pension is the better deal at that discount rate; if it points well short, the lump sum is. The Social Security break-even calculator applies the same "how long do I need to live" logic to claiming age.

Comparing the floor with keeping the pension

The 417(e) rates come from a corporate bond yield curve, so the floor is the pension's survival-weighted payments discounted at corporate bond yields for each maturity range. Taking it means you carry three risks the plan used to carry: investment returns, inflation, and living longer than expected.

A simple test is to ask what income the lump sum can produce on its own. $280,091 spread evenly to age 90 at a 5% annual return pays $1,637.38 a month, against the $2,000 the pension pays for life. To match $2,000 a month to 90 from $280,091 you would need a higher return or a shorter horizon. The fixed-period annuity payout calculator runs that arithmetic for any balance, rate and term, though it covers fixed periods only and has no life-contingent option.

Neither side of this comparison is indexed. A $2,000 pension buys less every year; the inflation calculator shows how much less over 20 or 25 years at a rate you choose. A lump sum invested can in principle keep pace, which is part of what you are paying for when you accept a lower expected income.

Tax treatment depends on whether the distribution is rolled over or paid to you. For any portion you take as cash and report as income, the 2026 federal income tax brackets guide shows where a six-figure amount would land. If you also have a 401(k) from the same employer, the 401(k) guide for 2026 covers the contribution limits and growth math on the defined contribution side, which has no 417(e) floor at all because its value is simply the account balance. More planning tools are gathered in the retirement calculators section and the guides hub.

If your plan lets you choose your payout month, find its stability period and lookback month first, then check the IRS segment-rate table to see whether the month your next period will use has posted. Once you have the plan's actual offer, enter it and the monthly pension in the lump sum versus pension comparison with indexation at 0 to see the return and lifespan at which the two are worth the same to you.

Sources

The IRS pages, notices, statute and regulation listed below were last opened on October 31, 2026. Every lump sum, factor and sensitivity on this page is CalculatorVillage's own computation from that date, using the method set out under How each number was built.

• Internal Revenue Service, Minimum present value segment rates: monthly 417(e)(3)(D) segment rates for January to August 2026 and for August, November and December 2025 (page last updated September 29, 2026).
• IRS Notice 2025-40, Updated Static Mortality Tables for Defined Benefit Pension Plans for 2026: the Unisex column applies to distributions with annuity starting dates in stability periods beginning in 2026.
• IRS Notice 2026-27, Updated Static Mortality Tables for Defined Benefit Pension Plans for 2027: the Unisex column for stability periods beginning in 2027.
• IRS Notice 2023-73, Mortality Table for Use in Determining Minimum Present Value for 2024: used only to reproduce the regulation's worked example.
• 26 U.S.C. 417, Office of the Law Revision Counsel: subsection (e)(3), the present value floor, applicable mortality table and applicable interest rate; subsection (e)(2), participant and spouse consent.
• 26 U.S.C. 430, Office of the Law Revision Counsel: subsection (h)(2)(C), the 5-year and 15-year segment boundaries.
• 26 CFR 1.417(e)-1, Electronic Code of Federal Regulations, last amended by T.D. 9987 (January 19, 2024): paragraph (d)(1) present value requirement, (d)(2) mortality, (d)(3) segment application and Examples 1 and 2, (d)(4) stability period and lookback month, (d)(5) alternative assumptions.