Definition
Commuted Value is the single lump-sum dollar equivalent that a defined benefit pension plan must pay out to settle all future pension obligations when an employee leaves the plan prior to retirement.
Calculation Methodology
Actuaries calculate commuted value by projecting the member's accrued annual benefit starting at normal retirement age (e.g. age 65), discounting it back to the member's current age using statutory prescribed interest rates, and multiplying by a lifetime annuity factor.