What is Past Service Cost?

Past service cost is the change in the present value of defined benefit obligations caused by employee service in prior periods. This cost arises from changes in post-employment benefits or other long-term employee benefits. The change in this cost may either be positive or negative. In short, if an employer elects to either increase or decrease the benefits being paid from its retirement plan that are associated with the past service of employees, then this will trigger a change in its pension obligation.