2027 DB Mortality Tables: Minimum Lump Sum Mechanics Under the SECURE 2.0 Cap

IRS Notice 2026-27, published in Internal Revenue Bulletin 2026-21 on May 18, 2026, sets the static mortality tables qualified defined benefit pension plans must apply for 2027 valuations under IRC section 430(h)(3)(A) and the unisex minimum present value table under section 417(e)(3). The methodology continues the SECURE 2.0 Act framework: Pri-2012 private-plan tables as the base, modified with the RPEC MP-2021 improvement scale, a 0.78% annual cap on improvement factors, and a zero-improvement window for 2020 through 2023 to reflect COVID-era excess mortality. The net change in minimum lump sums from the table alone is 0.15% to 0.20% (Mercer, April 2026). Segment rates move the same calculation by roughly a factor of 10 more.

0.78%

SECURE 2.0 annual cap on mortality improvement factors in the 2027 DB tables, compressing longevity assumptions most for participants under 60.

0.15-0.20%

Increase in minimum lump sum present values from the Notice 2026-27 table change in isolation, per Mercer's April 2026 analysis.

4/5/6%

Approximate April 2026 section 417(e) segment rates across the three duration bands: 4.27%, 5.34%, and 6.22%, the dominant driver of minimum lump sum costs.

Two Parallel Table Sets, Two Regulatory Purposes

Notice 2026-27 maintains two separate table structures that plan sponsors and their actuaries work with simultaneously, and conflating them produces incorrect calculations. The section 430(h)(3)(A) tables are sex-distinct static tables used to compute funding targets and minimum required contributions; they apply to plans with 500 or fewer participants, multiemployer plans, and CSEC plans. Larger plans must use generational mortality tables, which project improvement year-by-year from the valuation date rather than embedding a fixed projection into a static table. For 2027 valuations, the generational approach typically produces present values of liabilities 2% to 5% higher than the static tables for the same benefit stream, depending on the age distribution of the plan population and how far into the future the benefit payments extend (IRS Notice 2026-27, May 2026).

The section 417(e)(3) table is structurally different. It is a unisex table derived from blending male and female mortality at a fixed sex ratio, and it governs minimum present value for distributions that include lump sums, certain installment payments, and annuity forms subject to the minimum present value rules. This is the table that sets the legal floor on what a plan must offer a participant electing a lump sum. An actuary at a mid-size private plan sponsor is generally working with both simultaneously: the 430 static tables for annual funding calculations and the 417(e) unisex table for any lump sum window the plan runs or any annuity starting date calculation performed during stability periods beginning in 2027.

The 0.78% Cap and the COVID Zero-Improvement Window

The SECURE 2.0 Act of 2022 required the IRS to apply a cap of 0.78% per year on the annual mortality improvement factors used to project the Pri-2012 base table forward. Without the cap, the unadjusted MP-2021 scale would project faster improvement in certain age bands, particularly for participants under 60 where the underlying population improvement trend is steeper and the projection horizon extends furthest into the future. The cap most visibly constrains the long end of the benefit stream. For a 55-year-old participant with 30 or more years of projected payments, the difference between uncapped and capped improvement compounds across the full horizon and produces a meaningfully lower projected survival probability under the capped IRS methodology than an insurer or plan actuary using an uncapped, proprietary longevity assumption would generate.

Layered on top is the zero-improvement window for 2020 through 2023. COVID-19 excess mortality was not a mortality improvement, and Notice 2026-27 follows its predecessors in treating those four years as a period of no improvement in the projection scale. The result is a non-linear pattern: improvement factors are zero from 2020 to 2023, then resume at capped rates from 2024 forward. For a plan with a concentration of participants near retirement who were in their early 60s during the pandemic, this means their four-year deferral of projected improvement shifts their survival curve materially relative to what a pre-pandemic MP scale would have produced. The practical consequence is that the IRS table systematically underestimates post-pandemic improvement relative to the current insured-population data that pension risk transfer carriers use in pricing, producing a persistent gap between the regulatory minimum and the market-based longevity price embedded in PRT bids.

The Minimum Lump Sum Formula: Three Rates, One Survival Table

The statutory minimum lump sum for a participant with a monthly benefit of B commencing at age x is the present value of projected future benefit payments, discounted using the three section 417(e) segment rates and weighted by the unisex survival probabilities from Notice 2026-27. Written out, the formula is:

LS = Σ_t=1^N (B × 12) × d(t) × p_x(t)

where d(t) is the combined discount factor applying r₁ for payment years 1 through 5, r₂ for years 6 through 20, and r₃ for years beyond 20, and p_x(t) is the probability of survival from age x to age x+t under the Notice 2026-27 unisex table. For April 2026 stability periods, the published segment rates are 4.27% for the first segment, 5.34% for the second, and 6.22% for the third (IRS Minimum Present Value Segment Rate Table, April 2026). The rate that applies to any given plan year depends on the stability period the plan elects; many use the prior August-through-October average. The three-segment structure means that benefit streams concentrated in the first five years discount at a meaningfully lower rate than streams concentrated beyond year 20, making participant age the primary driver of which segment dominates the present value.

The mortality table enters the formula through p_x(t): it lowers the weight on distant payments for older participants and raises it for younger ones with longer projected lifetimes. The Notice 2026-27 update shifts those weights by a small but non-zero amount relative to the 2026 tables, and the 0.15% to 0.20% lump sum impact is the dollar result of that shift, weighted across the full payment stream.

Three Age Bands: Rate Sensitivity and Table Sensitivity

Three benchmark cases illustrate why segment rate sensitivity dominates the table change for most plan populations. Consider a 55-year-old early retiree with a $3,500 monthly benefit, a 65-year-old normal retiree with a $4,000 monthly benefit, and a 72-year-old late retiree with a $3,500 monthly benefit. At current April 2026 segment rates, the 55-year-old's minimum lump sum is approximately $600,000, with the 20-plus-year segment rate governing roughly 60% to 65% of the discounted value because the benefit stream extends well past year 20 and the long tail of survival probabilities loads heavily on that third segment at 6.22%. The 65-year-old produces approximately $545,000, with mixed-segment weighting as fewer years fall into the long segment and more into the second. The 72-year-old produces approximately $385,000, with the first and second segments together covering most of the discounted value and little remaining exposure to the long rate.

A 25-basis-point parallel shift upward across all three segment rates reduces these present values by approximately $21,000 for the 55-year-old, $14,000 for the 65-year-old, and $7,000 for the 72-year-old, with sensitivity scaling with the effective duration of the benefit stream. Now isolate the Notice 2026-27 table change: the 0.15% to 0.20% impact translates to approximately $1,050 for the 55-year-old, $950 for the 65-year-old, and $675 for the 72-year-old. The ratio of rate sensitivity to table sensitivity is roughly 20-to-1 for the early retiree, 15-to-1 for the normal retiree, and 10-to-1 for the late retiree. For a plan offering lump sums to 1,500 participants averaging $500,000 in minimum present value, the aggregate table-driven cost increase from Notice 2026-27 is approximately $1.1 million to $1.5 million. A 25-basis-point parallel shift in the segment rate environment moves aggregate costs by $15 million to $25 million for the same plan (IRS Notice 2026-27, May 2026; Mercer, April 2026).

This asymmetry carries a practical implication for plan sponsors timing lump sum windows. Sponsors who track the mortality notice closely but do not model segment rate exposure are watching the secondary variable. The table update compounds over time as each successive notice embeds marginally more longevity into the floor. But for a single lump sum window decision, the rate environment on the measurement date drives costs by an order of magnitude more than the annual table revision.

The PRT Pricing Gap and the Adverse Selection Corridor

The divergence between the IRS mortality assumption and the assumption embedded in pension risk transfer bids is the mechanism by which voluntary lump sum windows create adverse selection exposure for sponsors considering a subsequent bulk annuity transaction. PRT insurers price at current insured experience, which reflects the lighter mortality of annuitant populations who have already survived to claim benefits and exhibit the occupational and socioeconomic characteristics of private-sector DB plan participants. Relative to the Pri-2012 base used in Notice 2026-27, current insured experience in the PRT market typically reflects mortality 5% lighter at age 65 and roughly 8% lighter at age 55, meaning expected death rates are lower and expected lifetimes longer than the regulatory table assumes (October Three PRT Pricing Update, February 2026).

A 5% mortality lightening at age 65 translates to an annuity value the insurer places on the benefit stream that is approximately 2% to 3% higher than the minimum lump sum the IRS formula produces for the same participant. For a 65-year-old with a $545,000 IRS minimum lump sum, the PRT insurer values the annuity at approximately $556,000 to $561,000. The gap, roughly $11,000 to $16,000 per participant, is the adverse selection corridor: the range of values in which a participant who expects to live longer than average finds it financially rational to take the lump sum at the IRS-floored price rather than leave the annuity in place. Healthy participants take the lump sum. The residual plan population carries a disproportionate share of shorter-lived participants, raising the effective mortality rate of the remaining cohort and increasing the per-dollar cost of a subsequent PRT transaction.

The corridor widens for younger participants. At age 55, an 8% mortality lightening and a longer projection horizon amplify the insurer-versus-IRS gap to roughly 3% to 5% of present value, translating to approximately $18,000 to $28,000 per participant for a $600,000 reference lump sum. Plan sponsors who run lump sum windows targeting early retirees in their mid-50s expose themselves to more concentrated adverse selection than sponsors targeting participants in their late 60s or early 70s, because the corridor is wider and the IRS floor sits further below the market price for longevity risk at younger ages. The COVID zero-improvement window reinforces this effect: by depressing projected improvement for a four-year cohort of participants who were 55 to 65 in 2020 through 2023, the IRS table understates their post-pandemic improvement relative to current insured data, widening the gap further for that specific age band.

The standard design response is to define lump sum window eligibility by age and service in ways that compress the corridor. Setting a minimum age threshold of 62 or 65, rather than opening windows to all early retirees, removes the population segment where the IRS floor sits furthest below the PRT market price. Some sponsors add benefit amount caps, excluding large-benefit participants whose lump sums carry the highest absolute dollar corridors even when the percentage gap is similar to smaller amounts. These eligibility rules are the actuarial translation of the adverse selection analysis into plan design terms that reduce the premium a sponsor will pay to the PRT carrier on a clean-up transaction after the window closes.

Implications for 2027 Valuation Cycle Planning

Notice 2026-27 is not the kind of release that reshapes aggregate liability estimates the way the original adoption of Pri-2012 did, or a material update to the MP scale would. The 0.15% to 0.20% lump sum impact is modest. What matters for 2027 planning is the three-way interaction: the table sets the regulatory floor, the segment rates determine where plan costs actually land, and the gap between the IRS floor and PRT market pricing determines the adverse selection exposure any lump sum window leaves behind. Actuaries at plan sponsors working through lump sum window design in early 2027 should model all three simultaneously rather than treating the mortality notice as the primary pricing input.

The June 2026 segment rates, if they persist into the 2027 stability period, keep rate exposure as the dominant cost driver it has been for the past several valuation cycles. The mortality update should flow into calculations; it is real and it compounds. But the adverse selection corridor does not wait for the table to accumulate enough compounding to matter in the aggregate. It is open for any plan sponsor running a voluntary window today against a PRT market that prices lighter mortality than the IRS floor requires, and quantifying it in dollar terms by age band is the step that converts the notice from a compliance event into a plan design input.