The Federal Open Market Committee raised the target range for the federal funds rate by a quarter point to 3-3/4 to 4 percent on September 16, on a 12–0 vote. The statement was blunt: "Inflation remains elevated," and "Today's policy action will support a timelier return to the Committee's 2 percent goal."
If you are weighing a lump sum against a monthly pension, none of that changed your number. Not this week, and probably not this quarter.
Your Lump Sum Runs on a Different Rate
Defined benefit plans do not discount lump sums using the federal funds rate. Under § 417(e)(3)(D), they use minimum present value segment rates — three spot rates pulled from the IRS corporate bond monthly yield curve, each applied to a different slice of your future payments. The first segment covers the first five years, the second covers years six through twenty, the third covers everything past year twenty.
The IRS publishes them monthly, in arrears. The most recent release as of today is Notice 2026-51, published in the Internal Revenue Bulletin on September 14 — and it reports July 2026 data. Those rates are 4.62, 5.62, and 6.51. June's, from Notice 2026-44, were 4.49, 5.43, and 6.18.
August has not been published yet. September, the month the Fed actually moved, is two notices away.
So the rates were already climbing well before Wednesday's hike — the June-to-July jump in the third segment alone was 33 basis points. But the transmission runs through corporate bond yields, not through the Fed's target, and it arrives on a lag measured in months.
The Window That Actually Decides It
Here is the part most participants never look up. Under 26 CFR § 1.417(e)-1(d)(4), your plan document names two things in advance:
- A stability period — one calendar month, one plan quarter, one calendar quarter, one plan year, or one calendar year — during which your applicable interest rate is frozen.
- A lookback month — which may be the first, second, third, fourth, or fifth full calendar month preceding the start of that stability period.
For a plan using a calendar-year stability period, every lump sum paid in all of 2027 is priced off one month chosen from August through December 2026. That window is open right now. The month that fixes your 2027 payout may already be in the books, unpublished, or still weeks away — depending entirely on a paragraph in your plan document.
Higher segment rates mean a smaller lump sum. Take a simplified illustration: a $3,000 monthly benefit paid for 22 years, discounted at a single rate. At June's second-segment rate of 5.43%, that stream is worth roughly $455,800. At July's 5.62%, about $448,200 — $7,600 less from a 19-basis-point move. Widen that to a full percentage point and the same benefit loses about 8.4%. Real calculations blend all three segments and apply mortality tables, so treat this as direction and magnitude, not a quote.
Don't Confuse It With the Funding Rate
Plan sponsors also publish funding segment rates under § 430(h)(2), and those are 24-month averages — smoothed, and constrained within 95% to 105% of a 25-year average. For August 2026, the adjusted figures for 2026 plan years are 4.75, 5.25, and 5.96. Different numbers, different purpose. They govern what your employer must contribute, not what you are offered. Only the § 417(e) spot rates price your distribution.
Practical Takeaways
- Find your plan's lookback month and stability period. Ask HR or the plan administrator for the summary plan description language on the applicable interest rate. Without those two facts, you cannot know which month prices your benefit.
- If your stability period is a calendar year, a December election and a January election are different transactions. They are priced off different months, potentially months apart in rate environment.
- Rising rates shrink lump sums, and vice versa. With the Fed hiking into elevated inflation and long yields firm — the 30-year Treasury averaged 5.10% in July — the pressure on 2027 lump sums is downward.
- A smaller lump sum is not automatically a worse deal. The same rates that shrink the payout also raise what you can earn on it, and the monthly annuity keeps longevity risk with the plan. Run both.
- Verify the rate before you sign. Plans must apply the method uniformly, but the published notice for your lookback month is public. Check that the offer matches it.
Sources: Federal Reserve, FOMC statement, September 16, 2026; IRS Notice 2026-51, Internal Revenue Bulletin 2026-38 (September 14, 2026); IRS Notice 2026-44; 26 CFR § 1.417(e)-1(d)(4).