This video shows how to account for prior service cost in pension accounting. When a pension plan is amended to more (or less) benefit to employees, this increases (or decreases) the Projected Benefit Obligation, thereby decreasing (or increasing) the funded status of the pension on the balance sheet. The amount by which the Projected Benefit Obligation changes is initially booked to Other Comprehensive Income, but over time is amortized to pension expense over the average remaining service period of the employees.