I imagine that everyone’s as sick of his this as I am! But I just read this topic in Secret Sauce and it contradicts something I thought I understood. SS states that if you increase the discount rate, the Interest cost decreases. I can’t figure out how the last period’s closing PBO x interest(discount) rate can possibly be decreased if you increase the interest rate - at any point in the life of the plan. I get the fact that overall pension expense can be increased/decreased depending on where you are in life of plan (service cost dominates for majority of plan) but this discount rate thing is not clear. Thanks
the interest rate is taken from the discounted PBO. the effects of the discounting make the interest and service cost smaller
Oh… Thanks!