This topic confused me a bit and someone please comment on if I have the logic correct. Since: Pension Expense = Service Cost + Interest + … and: Service Cost = PV of projected Interest = Prior Year PBO * Discount Rate If: Discount Rate assumption increases Then: PV of Service Cost will decrease Interest will increase However the decrease of Service Cost is greater than the increase of Interest, therefore reducing Pension Cost as a whole. Is this correct?
Schweser confirms what you just said but with an asterisk. The expception is that in very mature plans with a high discount rate. The net effect can come out opposite. If the employee has a short remaining service life the discount rate is not going to make that big of an impact on PV of post-retirement payments (PBO), but will increase the interest component with relative significance.