diff --git a/agent/service_manager.go b/agent/service_manager.go
index 915cf9dfd8..16d15255be 100644
--- a/agent/service_manager.go
+++ b/agent/service_manager.go
@@ -27,10 +27,11 @@ type ServiceManager struct {
 	// services tracks all active watches for registered services
 	services map[structs.ServiceID]*serviceConfigWatch
 
-	// registerCh is a channel for processing service registrations in the
-	// background when watches are notified of changes. All sends and receives
-	// must also obey the ctx.Done() channel to avoid a deadlock during
-	// shutdown.
+	// registerCh is a channel for receiving service registration requests from
+	// from serviceConfigWatchers.
+	// The registrations are handled in the background when watches are notified of
+	// changes. All sends and receives must also obey the ctx.Done() channel to
+	// avoid a deadlock during shutdown.
 	registerCh chan *asyncRegisterRequest
 
 	// ctx is the shared context for all goroutines launched
@@ -220,7 +221,6 @@ type serviceRegistration struct {
 // service/proxy defaults.
 type serviceConfigWatch struct {
 	registration *serviceRegistration
-	defaults     *structs.ServiceConfigResponse
 
 	agent      *Agent
 	registerCh chan<- *asyncRegisterRequest
@@ -239,7 +239,7 @@ type serviceConfigWatch struct {
 // NOTE: this is called while holding the Agent.stateLock
 func (w *serviceConfigWatch) RegisterAndStart(
 	ctx context.Context,
-	previousDefaults *structs.ServiceConfigResponse,
+	serviceDefaults *structs.ServiceConfigResponse,
 	waitForCentralConfig bool,
 	persistServiceConfig bool,
 	wg *sync.WaitGroup,
@@ -251,16 +251,16 @@ func (w *serviceConfigWatch) RegisterAndStart(
 	// operation. Either way the watcher will end up with something flagged
 	// as defaults even if they don't actually reflect actual defaults.
 	if waitForCentralConfig {
-		if err := w.fetchDefaults(ctx); err != nil {
+		var err error
+		serviceDefaults, err = w.fetchDefaults(ctx)
+		if err != nil {
 			return fmt.Errorf("could not retrieve initial service_defaults config for service %q: %v", service.ID, err)
 		}
-	} else {
-		w.defaults = previousDefaults
 	}
 
 	// Merge the local registration with the central defaults and update this service
 	// in the local state.
-	merged, err := w.mergeServiceConfig()
+	merged, err := mergeServiceConfig(serviceDefaults, w.registration.service)
 	if err != nil {
 		return err
 	}
@@ -272,7 +272,7 @@ func (w *serviceConfigWatch) RegisterAndStart(
 		service:               merged,
 		chkTypes:              w.registration.chkTypes,
 		persistService:        w.registration.service,
-		persistDefaults:       w.defaults,
+		persistDefaults:       serviceDefaults,
 		persist:               w.registration.persist,
 		persistServiceConfig:  persistServiceConfig,
 		token:                 w.registration.token,
@@ -289,22 +289,20 @@ func (w *serviceConfigWatch) RegisterAndStart(
 }
 
 // NOTE: this is called while holding the Agent.stateLock
-func (w *serviceConfigWatch) fetchDefaults(ctx context.Context) error {
+func (w *serviceConfigWatch) fetchDefaults(ctx context.Context) (*structs.ServiceConfigResponse, error) {
 	req := makeConfigRequest(w.agent, w.registration)
 
 	raw, _, err := w.agent.cache.Get(ctx, cachetype.ResolvedServiceConfigName, req)
 	if err != nil {
-		return err
+		return nil, err
 	}
 
-	reply, ok := raw.(*structs.ServiceConfigResponse)
+	serviceConfig, ok := raw.(*structs.ServiceConfigResponse)
 	if !ok {
 		// This should never happen, but we want to protect against panics
-		return fmt.Errorf("internal error: response type not correct")
+		return nil, fmt.Errorf("internal error: response type not correct")
 	}
-
-	w.defaults = reply
-	return nil
+	return serviceConfig, nil
 }
 
 // Start starts the config watch and a goroutine to handle updates over the
@@ -381,7 +379,7 @@ func (w *serviceConfigWatch) handleUpdate(ctx context.Context, event cache.Updat
 		return fmt.Errorf("error watching service config: %v", event.Err)
 	}
 
-	res, ok := event.Result.(*structs.ServiceConfigResponse)
+	serviceDefaults, ok := event.Result.(*structs.ServiceConfigResponse)
 	if !ok {
 		return fmt.Errorf("unknown update event type: %T", event)
 	}
@@ -393,11 +391,10 @@ func (w *serviceConfigWatch) handleUpdate(ctx context.Context, event cache.Updat
 		// delivered) the correct config so just ignore this old message.
 		return nil
 	}
-	w.defaults = res
 
 	// Merge the local registration with the central defaults and update this service
 	// in the local state.
-	merged, err := w.mergeServiceConfig()
+	merged, err := mergeServiceConfig(serviceDefaults, w.registration.service)
 	if err != nil {
 		return err
 	}
@@ -415,7 +412,7 @@ func (w *serviceConfigWatch) handleUpdate(ctx context.Context, event cache.Updat
 			service:               merged,
 			chkTypes:              w.registration.chkTypes,
 			persistService:        w.registration.service,
-			persistDefaults:       w.defaults,
+			persistDefaults:       serviceDefaults,
 			persist:               w.registration.persist,
 			persistServiceConfig:  true,
 			token:                 w.registration.token,
@@ -484,19 +481,17 @@ func makeConfigRequest(agent *Agent, registration *serviceRegistration) *structs
 	return req
 }
 
-// mergeServiceConfig returns the final effective config for the watched service,
-// including the latest known global defaults from the servers.
-//
-// NOTE: this is called while holding the Agent.stateLock
-func (w *serviceConfigWatch) mergeServiceConfig() (*structs.NodeService, error) {
-	if w.defaults == nil {
-		return w.registration.service, nil
+// mergeServiceConfig from service into defaults to produce the final effective
+// config for the watched service.
+func mergeServiceConfig(defaults *structs.ServiceConfigResponse, service *structs.NodeService) (*structs.NodeService, error) {
+	if defaults == nil {
+		return service, nil
 	}
 
 	// We don't want to change s.registration in place since it is our source of
 	// truth about what was actually registered before defaults applied. So copy
 	// it first.
-	nsRaw, err := copystructure.Copy(w.registration.service)
+	nsRaw, err := copystructure.Copy(service)
 	if err != nil {
 		return nil, err
 	}
@@ -504,16 +499,16 @@ func (w *serviceConfigWatch) mergeServiceConfig() (*structs.NodeService, error)
 	// Merge proxy defaults
 	ns := nsRaw.(*structs.NodeService)
 
-	if err := mergo.Merge(&ns.Proxy.Config, w.defaults.ProxyConfig); err != nil {
+	if err := mergo.Merge(&ns.Proxy.Config, defaults.ProxyConfig); err != nil {
 		return nil, err
 	}
 
-	if err := mergo.Merge(&ns.Proxy.Expose, w.defaults.Expose); err != nil {
+	if err := mergo.Merge(&ns.Proxy.Expose, defaults.Expose); err != nil {
 		return nil, err
 	}
 
 	if ns.Proxy.MeshGateway.Mode == structs.MeshGatewayModeDefault {
-		ns.Proxy.MeshGateway.Mode = w.defaults.MeshGateway.Mode
+		ns.Proxy.MeshGateway.Mode = defaults.MeshGateway.Mode
 	}
 
 	// Merge upstream defaults if there were any returned
@@ -529,7 +524,7 @@ func (w *serviceConfigWatch) mergeServiceConfig() (*structs.NodeService, error)
 			us.MeshGateway.Mode = ns.Proxy.MeshGateway.Mode
 		}
 
-		usCfg, ok := w.defaults.UpstreamIDConfigs.GetUpstreamConfig(us.DestinationID())
+		usCfg, ok := defaults.UpstreamIDConfigs.GetUpstreamConfig(us.DestinationID())
 		if !ok {
 			// No config defaults to merge
 			continue