How does service cost appear on the income statement?

Under ASC 715-2, service cost is classified in operating income (same line as compensation). Other pension components (interest cost, expected return, amortization of actuarial gains/losses) are classified below operating income in other non-operating income. This split was introduced in the 2017 FASB update.

Does service cost decrease as employees approach retirement?

Service cost may decrease in the final years before retirement if benefits are capped or if the plan uses a unit credit method where benefit accrual flattens at high service years. However, the higher discount rate applied to shorter-duration future payments reduces PV, partly offsetting the nominal benefit accrual.

Pension Service Cost Current Year

Calculate pension service cost as the present value of benefits earned by employees during the current year, representing the increase in PBO attributable to one additional year of service.

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Frequently Asked Questions

How does service cost appear on the income statement?

Does service cost decrease as employees approach retirement?