Pension Lump Sum vs Annuity 2027: 417(e) Rates and Break-Even

What sets the lump sum: the Code, the regulation and two tables

Everything in this section is in the statute, the regulation or the two IRS documents we saved on October 23, 2026.

Source: 26 U.S.C. 417, Treas. Reg. 1.417(e)-1 (Cornell Legal Information Institute), IRS Notice 2026-27 and Notice 2025-40, read and saved on October 23, 2026.

Two consequences are easy to miss. First, the figure on your plan’s statement is only the minimum: a plan may pay more, never less. Second, the segment rates are not a single interest rate. A pension that starts at 65 and is valued at 65 has its first five years of payments discounted at the first segment rate, years six to twenty at the second and everything after at the third, so a one-point move in all three has a bigger effect than a one-point move in only the short rate.

The rates the IRS has published

The IRS table lists, for each month, the three rates for plans whose stability period begins that year. The page was last reviewed on September 29, 2026, and its newest row is August 2026. The rates were higher in the summer of 2026 than a year earlier.

Source: IRS, Minimum present value segment rates (irs.gov/retirement-plans/minimum-present-value-segment-rates), page last reviewed or updated September 29, 2026.

The 2027 unisex mortality rates (the probability of dying within a year) in Notice 2026-27 are 0.00370 at 60, 0.00500 at 62 and 0.00723 at 65. In Notice 2025-40 the 2026 rates were 0.00373, 0.00504 and 0.00729. Those are the small changes behind the 0.1% effect above.

Lump sum per $1,000 a month, by lookback month

This is the table the top results do not have: the minimum lump for each published month, using the 2027 mortality table, for a single-life pension of $1,000 a month with no raises. The first three columns are an immediate pension at that age. The last column is the lump sum for a 55-year-old whose $1,000 a month starts at 65.

Source: our arithmetic from the IRS segment rates and the Notice 2026-27 mortality table; monthly payments at the start of each month, survival interpolated within each year. Not a quote from any plan.

How we calculated it, and a check. We discount each monthly payment at the segment rate of the bucket it falls in, weight it by the chance the person is alive, and add them up. To test the method we ran the example in Treas. Reg. 1.417(e)-1(d)(3)(ii)(A): age 60, deferred to 65, rates of 3%, 4% and 5%, the 2024 table in Notice 2023-73. The regulation gets a factor of 10.432 and we get 10.428; without the probability of death before 65 it gets 10.704 and we get 10.700. That is a 0.04% gap, so the figures here are close to, but not exactly, what a plan’s actuary would produce. Plans have their own rounding, their own early-retirement subsidies and their own optional forms.

Reading the table: one month of rate movement can change the lump more than a year of ageing. Between February and August 2026 the age-65 minimum fell from $147,579 to $140,232, which is 5.0% (our arithmetic), and nothing about the pension changed.

Same plan, one year earlier

Many plans use a calendar-year stability period with a lookback of two to five months. For a plan with a five-month lookback, the 2026 lump used the August 2025 rates and the 2026 table, and the 2027 lump uses the August 2026 rates and the 2027 table.

Source: our arithmetic from the IRS segment rates and the Notice 2025-40 and Notice 2026-27 mortality tables. The two effects multiply, so they do not add exactly.

This is the point that the standard advice, “rates up means a smaller lump,” leaves without a number. For a pension that has not changed, a participant whose 2027 stability period is set by the five-month lookback sees a minimum about 4% below the 2026 minimum. Whether the November 2026 rate, the one a two-month lookback uses, is higher or lower than August’s is not known today.

How sensitive is it to the rates still to come?

Source: our arithmetic. A parallel move of 1.00 point in all three segment rates, 2027 mortality table.

From lump sum to monthly payout: what the lump sum is really priced at

Divide a year of pension by the lump sum to get a payout rate. At the August 2026 rates the minimum lump implies 7.83% at 60, 8.09% at 62 and 8.56% at 65 (our arithmetic). For comparison, the 10-year Treasury par yield on October 22, 2026 was 4.96%, the 5-year 4.78% and the 20-year 5.32%.

A payout rate is not a return, because it includes your own capital coming back. To make the comparison with the lump sum, the next two tables ask what happens if you take the minimum lump sum, roll it over, and pay yourself the pension amount.

Break-even: when the rolled-over lump runs out

Assumptions, all ours: a single-life pension of $1,000 a month with no cost-of-living raise, the minimum lump sum at the August 2026 rates, the lump sum rolled over in a direct rollover with no tax or fees, $1,000 withdrawn at the start of each month, a fixed annual return.

Source: our arithmetic; Treasury par yield curve of October 22, 2026. Cells are the age at which the account is used up.

An early death does not hurt the lump sum taker, since the balance goes to heirs; the risk is living past the age in the table. The question is how likely that is. We use the table the IRS itself prescribes for lump sums, which is a plan-population funding table and not a general life table:

Source: our arithmetic from the Notice 2026-27 unisex mortality rates, applied year by year from the starting age.

And the return the lump sum needs to last as long as a lifetime pension would pay:

Source: our arithmetic, same assumptions. The required returns are a constant annual return before tax, with no cost-of-living raise on either side.

Worked example (our arithmetic). A 65-year-old is offered $2,500 a month for life or the minimum lump sum. The August 2026 factor is $140,232 per $1,000, so the minimum lump is 2.5 times that, $350,580. Rolled over at 4.96% and drawn at $2,500 a month, it lasts to age 82.2, the same age as in the table, because the pension and the lump scale together. To last to 90 it would have to earn 7.41% a year. In the 2027 table 70.4% of 65-year-olds are alive at 82 and 36.3% at 90.

What this does not include: a cost-of-living raise on the pension (the table assumes none, and so does the lump), a spouse’s survivor benefit (a joint-and-survivor pension is worth less per month, and a plan prices it separately), taxes on the pension, investment risk and fees on the rolled-over money, and the possibility that the plan pays more than the minimum.

What the lump sum is giving up: the insurance behind the pension

The monthly pension is a promise of the plan, backed, if the plan fails, by the Pension Benefit Guaranty Corporation up to a limit. PBGC published its 2027 maximum guarantees, last updated October 19, 2026.

Source: PBGC, Maximum monthly guarantee tables, 2027. The joint-and-survivor amounts apply only if both spouses are the same age.

A pension of $2,500 a month at 65 is well below $8,113.64, so for most readers the cap is not the issue; for a high earner with a large pension it is. The page does not say a plan is at risk, and a plan that is fully funded owes the whole pension. What it shows is the size of the insured promise and the question to ask the plan: how funded is it, and what does it pay if it ends.

Taxes: direct rollover or cash

The statute is short. Under 26 U.S.C. 3405(c) an eligible rollover distribution that is not rolled over directly is subject to withholding: “the payor of such distribution shall withhold from such distribution an amount equal to 20 percent of such distribution.” Separately, 26 U.S.C. 72(t)(1) adds a tax “equal to 10 percent of the portion of such amount which is includible in gross income” on early distributions from a qualified retirement plan, subject to exceptions we do not list here (see our rule of 55 guide).

Worked example (our arithmetic). A cash payment of the $350,580 age-65 lump sum would have $70,116 withheld at the 20% rate, which is not the final tax, only a prepayment. A direct rollover has none withheld. For a 55-year-old whose lump sum is $71,573 per $1,000 a month, cashing out would mean $14,315 withheld and, if no exception applies, a further 10% tax of $7,157. The mechanics of a direct rollover and the 60-day rule are in our 401(k) rollover guide. If the pension comes from a plan that also holds employer stock, see the net unrealized appreciation page; that rule applies to the stock, not to a pension formula.

A rolled-over lump sum becomes IRA money: later withdrawals are taxed as ordinary income and required distributions apply. A monthly pension is also ordinary income, so the tax is not what decides between the two. If you are married, giving up a survivor pension for a lump sum needs your spouse’s written consent; 417(e)(2) is the cash-out rule that requires it.

Compare the payout with buying an annuity yourself

The implied payout of 8.56% at 65 is the cost of the pension if you tried to rebuy it. Our annuity payout calculator builds a benchmark for a single premium immediate annuity from the Treasury curve and the CDC life table. It is a model, not a carrier quote, and an insurer’s quote includes expenses and profit. If your plan’s offer is below the minimum shown here for the plan’s lookback month, ask the administrator for the rates, the mortality table and the calculation sheet. The related option of a deferred annuity with a long start date is on our QLAC page, and the effect of the pension on when to claim Social Security is on the claiming age page.

Before you decide

• Ask in writing for the lump sum, the pension in each form (single life, joint and survivor), the plan’s stability period and lookback month, the segment rates and the mortality table it used, and the date by which you must elect.
• Check the month. With a calendar-year stability period the rates are fixed for the year, so you cannot wait for a better month inside it. A plan with a monthly stability period moves with rates every month.
• Compare like with like. Our tables are single life, no raise, immediate or deferred as marked. The offer is yours to read against them.
• Look at everything else you hold. A lump sum rolled into an IRA adds to the assets in the account; rental property and non-traded funds alongside it can be hard to sell.

What a reader can do with this

1. Find your age in the lookback-month table and multiply the factor by your monthly pension divided by $1,000 to see roughly what the minimum lump sum would be at that month’s rates.
2. Ask the plan which month it uses, then see where that month sits in the table: a lower lookback month than August means a bigger lump if the rates stay at that level.
3. Compare the offered lump sum with the break-even table: the age the lump runs out at the return you think you can earn, and the share of people alive at that age.
4. If the lump sum is more than you expected, ask for the calculation; if it is less, check the plan’s stability period and mortality table.

FAQ

Sources, read and saved on October 23, 2026: IRS, Minimum present value segment rates (page last reviewed or updated September 29, 2026); IRS Notice 2026-27, Updated Static Mortality Tables for Defined Benefit Pension Plans for 2027; IRS Notice 2025-40 (2026 tables); IRS Notice 2023-73 (2024 table, used only to test our method); 26 U.S.C. 417, 3405 and 72 and Treas. Reg. 1.417(e)-1 (Cornell Legal Information Institute); PBGC maximum monthly guarantee tables (updated October 19, 2026); U.S. Department of the Treasury, daily par yield curve rates, October 22, 2026. The lump sums, break-even ages, required returns, survival shares and sensitivities are our arithmetic from those documents; the pension amounts in the worked examples are assumptions. This is analysis of public documents, not investment, legal or tax advice.