The Market Rate the IRS Published for Long-Dated Pension Liabilities Is 6.51%. The Rate Plans Fund To Is 5.96%.

Once a month the IRS publishes a short notice of interest rates that almost nobody reads and that quietly determines how much employers must put into defined benefit pension plans, and how large a lump sum a retiring worker can be offered instead of a monthly cheque. Notice 2026-51 is this month's, and it contains two answers to what looks like one question.

Two sets of rates, two jobs

A pension promise is a stream of future payments. To put a number on it today you discount it, and the discount rate decides the answer. A higher rate produces a smaller present value; a lower rate produces a larger one. The tax code does not use a single rate for this.

• Section 430 governs minimum funding - how much a sponsor must contribute. It uses 24-month average segment rates, adjusted to sit inside a corridor around a 25-year average.
• Section 417(e)(3) governs minimum present value - the floor under a lump sum offered in place of an annuity. It uses the unsmoothed monthly spot rates.

Three segments split the liability by when the payment falls due: the first segment covers the nearest years, the second the middle, the third the long tail.

The spot rates

For July 2026 the spot first, second and third segment rates are 4.62, 5.62 and 6.51. The notice states that the minimum present value segment rates for July 2026 are the same three figures. That is the rate structure a lump sum is measured against.

The smoothed rates

For funding, the unadjusted 24-month average segment rates for August 2026 are 4.35, 5.28 and 5.96. The corridor then moves them.

• Plan years beginning in 2025: 4.75, 5.28 and 5.96.
• Plan years beginning in 2026: 4.75, 5.25 and 5.96.

The first segment is where the corridor does visible work: 4.35 unadjusted becomes 4.75 adjusted, because the floor set by a percentage of the 25-year average sits above the recent two-year average. The 25-year average is built partly from a much higher-rate era, so in a lower-rate present the corridor pushes funding rates up - which lowers measured liabilities and lowers required contributions.

The gap

Set the two side by side at the long end. The third segment is 6.51 as a spot rate and 5.96 after smoothing. The same future payments discounted at 6.51 are worth less today than the same payments discounted at 5.96. Funding rules and lump sum rules are therefore measuring the same promise with different instruments, by design and by statute.

The Treasury line

For plan years beginning in August 2026 the weighted average of rates on 30-year Treasury securities is 4.59, with a permissible range of 90% to 105% running from 4.13 to 4.82. That figure feeds current liability calculations carried over from an older version of the funding rules.

This article explains published interest rate guidance and is not investment, tax or retirement advice.