Updated: September 1, 2026

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Pension plans that offer a lump-sum cashout compute the number using IRS minimum-present-value segment rates set under section 417(e) of the Internal Revenue Code. When those rates rise, the minimum lump sum falls for the same monthly annuity.

A participant offered a buyout in a rising-rate month often sees the cash figure drop by five figures or more. The underlying pension has not changed. Only the discount rate has.

The calculator below runs three things against the most recently published IRS segment rates. It shows the minimum present value the plan must legally hit. It shows the sensitivity of that number to parallel shifts of 25, 50, and 100 basis points. It shows the flat annual discount rate at which a lump-sum offer you enter breaks even against the monthly annuity stream. Math, not personalized advice.

Pension lump sum calculator: IRS 417(e) segment-rate method

A qualified defined-benefit plan must value a lump-sum cashout using the IRS section 417(e) minimum-present-value segment rates. Higher segment rates mean a smaller minimum lump sum for the same monthly pension. This calculator shows the minimum present value at the current published rates and how much it moves when rates shift.

Segment rates in use: S1 4.42% (years 1-5), S2 5.47% (years 6-20), S3 6.31% (years 21+). Published for May 2026. Source: IRS Minimum Present Value Segment Rates.

Your age today Life expectancy in additional years Monthly pension offered (USD) Lump sum offered by the plan (USD, optional)

Single life 75% joint and survivor 100% joint and survivor

Minimum present value at current segment rates

Sensitivity: how the minimum lump sum moves when rates shift

Break-even discount rate vs. the lump-sum offer

Methodology and assumptions

Present value uses the IRS 417(e) three-segment approach. Each future monthly payment is discounted at the annual segment rate that applies to the year it is paid, converted to a monthly rate: segment 1 for payments in years 1 through 5, segment 2 for payments in years 6 through 20, segment 3 for payments in year 21 and later. This mirrors the piecewise application of segment rates under Rev. Rul. 2007-67 and Treasury Regulation 1.430(h)(2)-1(c). Real plans use rates for a specific applicable month set by the plan document; the calculator uses the most recently published month for illustration.

Joint-and-survivor factors: 75% option reduces the participant benefit by roughly 12%; 100% option by roughly 20%. Actual reductions vary by plan, mortality assumptions, and spouse age. Enter your plan-specific number for a precise result.
Life expectancy: enter the number of additional years you expect to collect. Social Security period life tables give roughly 18-20 additional years at age 65 for the average US adult; longevity in your family may differ.
Break-even rate: the single flat annual discount rate that makes the present value of the monthly annuity equal to the lump-sum offer. Computed by bisection on the level-payment present-value formula.
Sensitivity scenarios: apply a parallel shift to all three segment rates. Real segment-rate moves are not always parallel across the curve.

Educational estimate only. Not tax, actuarial, or financial advice. Your plan's Section 417(a)(3) relative-value statement is the authoritative disclosure for your specific offer.

The 417(e) segment rates are published monthly by the IRS. This page uses the rates published for May 2026. Refresh page to see updates when the IRS releases new figures. Sources: IRS Minimum Present Value Segment Rates, 26 U.S.C. Section 417(e)(3), Treasury Regulation 1.430(h)(2)-1(c).

Table of contents show

How the 417(e) segment-rate method works

Section 417(e)(3) requires a qualified defined-benefit plan to value a lump-sum distribution at no less than the present value of the accrued benefit. That present value uses the IRS-published segment rates and the applicable mortality table. Rev. Rul. 2007-67 and Treasury Regulation 1.430(h)(2)-1(c) set the three-segment structure the plan must use.

Each future payment is discounted at one of three annual rates based on when the payment falls. Segment 1 applies to payments in years 1 through 5. Segment 2 applies to payments in years 6 through 20. Segment 3 applies to payments in year 21 and later.

The IRS publishes new segment rates each month. Plans usually lock in the rates from a specific applicable month set in the plan document. The rates that value your offer may be one to five months old, not the most recent set.

Reading the sensitivity output

The sensitivity table applies a parallel shift to all three segment rates and shows the resulting minimum present value. Rates and lump-sum values move in opposite directions, which is standard bond-math behavior.

On a $2,200 per month single-life annuity valued over 20 years at current rates, a 100-basis-point parallel rise cuts the minimum lump sum by roughly seven to eight percent. The dollar move is larger for longer-duration streams: younger participants, longer collection horizons. It is smaller for shorter-duration streams: older participants, shorter horizons, period-certain features.

Real segment-rate moves are not always parallel. Segment 3 sometimes moves less than segment 1 in a given month. That changes the shape of the discount curve rather than its level. The parallel-shift scenario is a reasonable approximation for a single decision window.

Reading the break-even output

The break-even rate is the flat annual discount rate that makes the present value of your monthly annuity equal to the lump-sum offer you enter. Above the break-even rate, the invested lump sum wins the IRR math over your chosen horizon. Below it, the annuity wins in expectation, provided you live long enough to collect it.

Two cautions on the break-even output. First, the calculator uses one flat rate for the entire horizon. Realistic portfolio returns arrive in a sequence. A bad early sequence can permanently damage the invested lump-sum path. Sequence-of-returns risk is not captured in a single-rate break-even.

Second, the break-even values the annuity at the horizon you enter. Living materially longer than that shifts the math toward the annuity. A serious diagnosis shortening your horizon shifts it toward the lump sum.

Which discount rate does your plan actually use?

Under Treasury Regulation 1.417(e)-1(d), the plan document must specify a single “applicable month” and a “stability period.” Together these determine which month’s segment rates apply to lump-sum distributions during a given plan year. Common patterns:

Applicable month set to the fifth month before the plan year begins, stability period equal to the full plan year. A plan year starting January 1 uses the segment rates published for August of the preceding year across all twelve months.
Applicable month set to the month preceding the distribution, stability period equal to one month. A distribution taken in June uses the rates published for May.
Intermediate variations: applicable month one to five months before the stability period, stability period one, three, six, or twelve months.

The Summary Plan Description discloses which convention the plan uses. For large plans, the Section 417(a)(3) relative-value statement does the same. Ask for both in writing before you sign the election form. The calculator on this page uses the most recently published month for illustration. The number that will govern your actual distribution is set by your plan’s specific applicable month.

The Section 417(a)(3) relative-value statement

Internal Revenue Code section 417(a)(3) and Treasury Regulation 1.417(a)(3)-1 require the plan to furnish a written comparison. The comparison expresses the actuarial present value of each optional form of benefit against the plan’s qualified joint and survivor annuity. The statement gives each option’s value as a percentage or dollar equivalent of the QJSA.

If the lump-sum figure on the statement sits at or above the QJSA present value, the plan considers the offer economically equivalent to the annuity at its assumed rates. If the lump sum sits below the QJSA present value, the plan is offering less value than the annuity at its own rates.

The statement is a required disclosure, not an optional handout. Ask for it in writing if the election packet does not include one. Compare the plan’s stated present value of the annuity against the calculator’s IRS minimum present value at the applicable month’s rates for a rough consistency check.

Joint-and-survivor election reminder

If you are married, federal law defaults you to a qualified joint and survivor annuity. That option pays the surviving spouse a percentage of your benefit after your death, typically 50%, sometimes 75%.

Electing a single-life annuity or a lump-sum cashout requires notarized spousal consent. The requirement sits in ERISA section 205 and IRC section 417(a)(2).

The calculator’s 75% and 100% joint-and-survivor options apply an approximate reduction to the participant benefit. The actual reduction depends on your plan’s mortality assumptions and spouse age. Use the number your plan quotes for the specific option you are considering.

Limitations of this calculator

Educational tool only, not tax, actuarial, or financial advice. Specific limitations:

Applies segment rates as spot rates within each segment. This is the standard interpretation under Treasury Regulation 1.430(h)(2)-1(c). Some plan actuaries use slightly different bootstrapping methods that can move the number by a fraction of a percent.
Uses a level monthly payment. Cost-of-living adjustments, period-certain riders, temporary annuity features, and Social Security level-income options are not modeled.
Assumes payments begin immediately at the current age. Deferred annuities require present-value adjustment for the deferral period.
Life expectancy is a user input rather than a mortality-table calculation. Real 417(e) valuations use the IRS-prescribed mortality table for the year of distribution, which changes annually.
Ignores taxes. Ordinary income tax applies to annuity payments as received. A lump sum rolled to an IRA defers tax until distribution.

For the actual distribution number your plan will pay, request the Section 417(a)(3) relative-value statement. Also request the plan’s own present-value quote. Use this calculator to sanity-check both against the IRS floor.

Pension Lump Sum Calculator: IRS 417(e) Segment-Rate Method

How the 417(e) segment-rate method works

Reading the sensitivity output

Reading the break-even output

Which discount rate does your plan actually use?

The Section 417(a)(3) relative-value statement

Joint-and-survivor election reminder

Limitations of this calculator

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Sources cited