Segment rates are corporate bond yields grouped by time horizon. The first applies to payments due within 5 years, the second to payments due in 5 to 20 years, and the third to payments due 20 or more years out. The IRS publishes them each month, and IRC 430(h) requires them for valuing a defined benefit plan.
- Stabilized rates are 24-month averages held within a corridor around a 25-year average (95% to 105% of it for plan years through 2030, with a 5% floor on the average). They set the funding target, normal cost and minimum required contribution.
- Unstabilized rates are the same 24-month averages without the corridor. IRC 404(o)(6) requires them for the maximum deductible contribution.
| Segment | Payments due | Stabilized | Unstabilized |
|---|---|---|---|
| First | Within 5 years | 4.75% | 4.36% |
| Second | In 5 to 20 years | 5.25% | 5.32% |
| Third | 20 or more years out | 5.99% | 6.02% |
A cash balance benefit is usually paid as a single lump sum, so the whole balance is discounted at the one rate for its horizon. Higher rates mean lower contributions, and lower rates mean higher ones. That also creates a step: with retirement at 62, an owner aged 42 is 20 years out and valued at the third rate, and one aged 43 at the second, so the illustrative first-year maximum goes from $116,000 to $141,000. See how much you can contribute.