I think the best way to explain the situation is that an Extended Warranty adds X number of years to your current warranty. Once your current warranty expires, the Extended Warranty begins to be used. When doing a Step-Up, you really can't use up your original warranty (or, at least, let's hope you don't wait for 3+ years in queue), so the extended warranty will transfer to your new Step-Up card in full.
Of course, that might just be the programming handling it that way, but this is what would be reflected on your account.