Current Service Cost

For people using Schweser, in Book 2 on page 164, could anyone tell me why Current Service Cost (calculated under the table shown) is the PV of \$2563.3? It says “benefits earned during 2009”. Isn’t that \$5126.61? Cheers.

2563.3 is 2% of his final year salary. he will get this for each of the assumed 15 yrs of retirement. The PV of 15 yrs of this payment, discounted from 23 years until his retirement is the current service cost. This is the benefit accrued during the year. the interest expense applies to the previous balance, and when they are added together it is this years current service cost- because that same 1 yr benefit stream is being disuonted by 1 tyear less than in the previous year

Thanks, but 2563.3 is 2% of his final salary assuming he’s worked only 1 year, right? So that’s the benefit accrued at the end of the first year (2008). After working for 2 years, his annual payment once he retires is 5126.61. So isn’t 5126.61 the benefit accrued during the second year (2009) ?

5126 is the total payment. In the calculation on page 164 you are referring to current service cost of 3736 refers to the accrual for the second year of service. You already accrued for the first year of service in 2008 PBO so now you have to add PV of pension payments for the second year of service. Hope this helps.

drawing out the problem for another yr helped me: 2009 PBO: \$7,473.62 +Current Serv Cost + 4,035.74 (PV of another accrual of 15 pmts of 2,563.3, beg in 22 yrs) +Int Cost + 597.89 (last yrs PBO X 8%) = 12,107.24 2010 PBO the current yr of work for 2010 earned another accrual for retirement