IRS 417(e) Formula
Got a buyout offer? Find out if the number is fair. This runs the same IRS 417(e) formula your plan administrator is legally required to use -- so you see the math before you decide.
The gross monthly amount before taxes, as shown in your plan statement.
Unisex uses the IRS-required table plans must use for the minimum lump sum. Male/Female give a personal longevity estimate only.
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Results are estimates for educational purposes only. Not financial advice. Your plan may use different rates or lookback months. Verify with your plan administrator before making any retirement decision. Terms of use.
IRS formula. No approximations.
The IRS publishes new segment rates every month. Many calendar-year plans lock in the November rates for the following year, which is the set shown below. Higher rates produce lower lump sums.
| Rate Set | Segment 1 (yrs 1-5) | Segment 2 (yrs 6-20) | Segment 3 (yr 21+) | Applies To |
|---|---|---|---|---|
| November 2025 Current | 4.07% | 5.15% | 6.01% | 2026 plan year |
| November 2024 | 4.66% | 5.25% | 5.57% | 2025 plan year |
| November 2023 | 5.50% | 5.76% | 5.83% | 2024 plan year |
| November 2022 | 5.09% | 5.60% | 5.41% | 2023 plan year |
| November 2021 | 1.02% | 2.72% | 3.08% | 2022 plan year |
| November 2020 | 0.53% | 2.31% | 3.09% | 2021 plan year |
| November 2019 | 2.04% | 3.09% | 3.68% | 2020 plan year |
| November 2018 | 3.43% | 4.46% | 4.88% | 2019 plan year |
| November 2017 | 2.20% | 3.57% | 4.24% | 2018 plan year |
| November 2016 | 1.79% | 3.80% | 4.71% | 2017 plan year |
| November 2015 | 1.76% | 4.15% | 5.13% | 2016 plan year |
| November 2014 | 1.40% | 3.88% | 4.96% | 2015 plan year |
| November 2013 | 1.19% | 4.53% | 5.66% | 2014 plan year |
| November 2012 | 0.97% | 3.50% | 4.60% | 2013 plan year |
| November 2011 | 1.99% | 4.47% | 5.26% | 2012 plan year |
IRS segment rates update monthly. We'll email you when new rates publish and when they move enough to affect your lump sum.
Every calculator uses the official IRS formula for that specific topic -- no approximations.
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The Pension Protection Act of 2006 changed how pension lump sums are calculated. Before 2008, plans used the 30-year Treasury rate as a single discount rate. Today, three segment rates derived from investment-grade corporate bond yields are used, each applying to a different window of your expected payment stream.
Segment 1 applies to pension payments you'd receive in years 1 through 5 of retirement. Segment 2 applies to payments in years 6 through 20. Segment 3 applies to everything beyond 20 years. Each segment rate comes from an average of high-quality corporate bond yields for maturities that match the duration of that payment window.
The IRS publishes these rates monthly in Notices. Most pension plans use a lookback month: either November (most common), October, or August of the prior year. Check your Summary Plan Description to confirm which month your plan uses.
For each monthly payment in your expected retirement, the calculator computes a present value factor. A payment you'd receive in month 1 is barely discounted. A payment you'd receive in month 120 (year 10) is discounted for the full 10 years at the Segment 2 rate. A payment arriving in year 25 is discounted for all 25 years at the Segment 3 rate. Each payment gets one rate, picked by how far away it is, applied to its whole term (Treas. Reg. 1.417(e)-1(d)(3)). The rates aren't chained segment by segment.
Summing all those discounted payments produces the present value: what a rational investor would pay today to receive that exact stream of future cash flows at current market interest rates.
November 2020 rates were 0.53%, 2.31% and 3.09%. At those rates a $3,000/month pension starting at 65 was worth about $580,000 as a lump sum, and about $563,000 at November 2021 rates. At November 2025 rates (4.07%, 5.15% and 6.01%), the same pension comes to about $443,000. All three use the 2026 mortality table. The annuity itself didn't change. The market's required rate of return did, and the math responds accordingly.
Pension lump sums incorporate mortality probabilities: the chance you'll actually live to receive each future payment. This calculator uses the IRS applicable mortality table for 2026 (Notice 2025-40, unisex column). Each monthly payment is weighted by the probability of surviving to that month before discounting. The sum runs to age 120. This matches your employer's actuary's methodology. Minor differences in the offered amount reflect the exact projection year, plan-specific rounding, or the lookback month your plan uses.
The IRS requires pension plans to use three segment rates derived from high-quality corporate bond yields to discount future monthly payments to a present value. Each payment is discounted by the segment rate that applies to when it arrives: Segment 1 covers years 1-5, Segment 2 covers years 6-20, and Segment 3 covers year 21 and beyond. This method is defined in IRS Section 417(e). The resulting present value is the minimum lump sum your plan must offer if it offers one.
For 2026 plan years (using November 2025 rates): Segment 1 is 4.07%, Segment 2 is 5.15%, and Segment 3 is 6.01%. These rates are published monthly in IRS Notices and are based on that month's corporate bond yield curve.
The right answer depends on your health, life expectancy, investment discipline, whether your spouse needs survivor income, and whether you have other guaranteed income sources. The annuity wins if you live past your break-even age (typically 78-83 for most retirees). The lump sum wins if you are in poor health, a disciplined investor, or have strong reasons to want capital flexibility. Run the calculator to find your specific break-even age.
Higher segment rates mean future payments are discounted more aggressively. The logic: if you could invest $500,000 at 5% annually, you'd replicate a $2,083/month payment stream yourself. At 2%, you'd need $1.25M to do the same. So when rates rise, the theoretical amount needed to replicate your annuity falls, and your lump sum offer decreases. With November 2020 rates (Segment 1 at 0.53%), lump sums were the highest of the past decade.
Yes. A direct rollover to a traditional IRA or 401(k) is not taxable in the year of the transfer. If you receive the check directly, 20% is withheld for federal taxes and you have 60 days to deposit the full original amount into a qualifying account (including the 20% withheld) to avoid taxation. Almost everyone should request a direct rollover to preserve the full principal.
The calculator uses the standard IRS 417(e) methodology: payment-by-payment discounting using the three segment rates. Your plan may use a different lookback month (August or October instead of November), which would change the rates slightly. Section 417(e)(3) sets a floor: a plan can use its own interest rate or mortality basis only if the result is at least the 417(e) amount, so an offer below this number is worth questioning. Always verify results against your Summary Plan Description and the official lump sum worksheet your employer provides.