Estimate the Present Value of a Defined Benefit Annuity using IRS Segment Rates
The lifetime monthly payment offered.
Age when payments are scheduled to begin.
Applicable Segment Rates (%)
Enter the IRS 417(e)(3) segment rates for the applicable look-back month.
Estimated Lump Sum Payout
$0.00
Understanding the Lump Sum Calculation Using Segment Rates
When a Defined Benefit pension plan offers a participant the option to take a "Lump Sum" payout instead of a lifetime monthly annuity, the plan must calculate the Present Value of those future payments. Under the Pension Protection Act of 2006 (PPA) and IRS Code Section 417(e)(3), this calculation requires specific interest rates known as Segment Rates and a prescribed mortality table.
What are Segment Rates?
Unlike a standard loan calculator that uses a single interest rate, the IRS requires pension liabilities to be discounted using a "Yield Curve" approach. This curve is broken down into three specific time segments:
Segment 1 (First 5 Years): Applied to payments expected to be made within 5 years of the calculation date. This rate generally reflects short-term corporate bond yields.
Segment 2 (Years 5 to 20): Applied to payments expected to be made between year 5 and year 20. This rate reflects medium-term corporate bond yields.
Segment 3 (Years 20+): Applied to any payments expected to occur more than 20 years in the future.
How the Math Works
The calculation is an actuarial summation. For every potential future monthly payment (from retirement age until the assumed end of the mortality table, often age 120), the calculator performs two steps:
Discounting for Interest: The future payment is discounted back to today's dollars using the segment rate corresponding to when that payment falls (Year 3 uses Seg 1, Year 10 uses Seg 2, etc.).
Discounting for Mortality: The payment is multiplied by the probability that the participant will still be alive to receive it, based on the applicable mortality table.
Because interest rates and lump sum values have an inverse relationship, higher segment rates result in lower lump sum offers, while lower rates increase the lump sum value.
// Simplified Mortality Table (Based on generic unisex projection for approximation purposes)
// l_x values represent number of survivors at age x out of 100,000 births.
// This provides a survival probability curve (lx / l_current_age).
var l_table = {
15: 99300, 16: 99250, 17: 99200, 18: 99150, 19: 99100,
20: 99000, 21: 98900, 22: 98800, 23: 98700, 24: 98600,
25: 98500, 26: 98400, 27: 98300, 28: 98200, 29: 98100,
30: 98000, 31: 97900, 32: 97800, 33: 97700, 34: 97600,
35: 97500, 36: 97400, 37: 97300, 38: 97200, 39: 97100,
40: 97000, 41: 96800, 42: 96600, 43: 96400, 44: 96200,
45: 96000, 46: 95700, 47: 95400, 48: 95100, 49: 94800,
50: 94500, 51: 94100, 52: 93700, 53: 93300, 54: 92900,
55: 92500, 56: 92000, 57: 91500, 58: 91000, 59: 90500,
60: 90000, 61: 89300, 62: 88600, 63: 87900, 64: 87200,
65: 86500, 66: 85700, 67: 84900, 68: 84100, 69: 83300,
70: 82500, 71: 81500, 72: 80500, 73: 79500, 74: 78500,
75: 77500, 76: 76300, 77: 75100, 78: 73900, 79: 72700,
80: 71500, 81: 70000, 82: 68500, 83: 67000, 84: 65500,
85: 64000, 86: 62000, 87: 60000, 88: 58000, 89: 56000,
90: 54000, 91: 51000, 92: 48000, 93: 45000, 94: 42000,
95: 39000, 96: 35000, 97: 31000, 98: 27000, 99: 23000,
100: 19000, 101: 15000, 102: 12000, 103: 9000, 104: 6500,
105: 4500, 106: 3000, 107: 1800, 108: 1000, 109: 500,
110: 200, 111: 100, 112: 50, 113: 20, 114: 10,
115: 5, 116: 2, 117: 1, 118: 0, 119: 0, 120: 0
};
function getSurvivors(age) {
var floorAge = Math.floor(age);
if (floorAge >= 118) return 0;
if (floorAge 110) {
alert("Current age is too high for calculation.");
return;
}
// If already retired (Current > Retire), calculation starts from now
var startCalcAge = (ageCurrent > ageRetire) ? ageCurrent : ageRetire;
// 3. Logic Configuration
var maxAge = 118; // Table ends
var presentValue = 0;
var l_start = getSurvivors(ageCurrent); // Lives at current age (denominator)
if (l_start <= 0) {
alert("Invalid age range.");
return;
}
// 4. Iterate monthly from Start of Payments to Max Age
// t is time in years from TODAY
// If deferring (Current ageCurrent) {
startMonthIndex = (ageRetire – ageCurrent) * 12;
}
var endMonthIndex = (maxAge – ageCurrent) * 12;
for (var m = startMonthIndex; m < endMonthIndex; m++) {
var t = m / 12; // Time in years from today
// Determine Segment Rate based on 't' (years from today)
var i = 0;
if (t 5 && t ageCurrent) ? (ageRetire – ageCurrent) : 0;
var summaryText = "Based on a monthly benefit of " + formatter.format(benefit) +
" starting at age " + ageRetire + " (deferral of " + deferredYears + " years), " +
"discounted using segment rates " + (rate1*100).toFixed(2) + "% / " +
(rate2*100).toFixed(2) + "% / " + (rate3*100).toFixed(2) + "%.";
document.getElementById('lsBreakdown').innerText = summaryText;
document.getElementById('resultBox').style.display = 'block';
}