Pension and Other Postretirement Benefits

Defined Benefit Pension Plan Effective January 1, 2005, our previously separate qualified defined benefit pension plan was combined with that of HSBC Bank USA’s into a single HSBC North America qualified defined benefit pension plan (either the “HSBC North America Pension Plan” or the “Plan”) which facilitates the development of a unified employee benefit policy and unified employee benefit plan administration for HSBC companies operating in the U.S.

The table below reflects the portion of pension expense and its related components of the HSBC North America Pension Plan which has been allocated to us and is recorded in our consolidated statement of income (loss).



Year Ended December 31,	2013			2012			2011
	(in millions)
Service cost – benefits earned during the period	$	5		$	4		$	5
Interest cost on projected benefit obligation	50			47			33
Expected return on assets	(61		)	(65		)	(39		)
Recognized losses	35			33			18
Curtailment gain	—			(4		)	(1		)
Amortization of prior service costs	—			(1		)	—
Pension expense	$	29		$	14		$	16

Pension expense was higher during 2013 due to higher interest costs, higher recognized losses and lower expected returns on Plan assets. Contributions to the Plan by HSBC North America totaled $131 million, $181 million and $357 million during 2013, 2012 and 2011, respectively. The prior year period benefited from a curtailment gain that is more fully described below.

During 2012, a decision was made to cease all future contributions under the Cash Balance formula and freeze the Plan effective January 1, 2013. While participants with existing balances continue to receive interest credits until the account is distributed, they will no longer accrue benefits beginning in 2013. This resulted in the recognition of a $4 million curtailment gain during 2012.

During December 2011, an amendment was made to the Plan effective January 1, 2011 to amend the benefit formula, thus increasing the benefits associated with services provided by certain employees in past periods. The financial impact was being amortized to pension expense over the remaining life expectancy of the participants. As a result of the decision to cease all future contributions under the Cash Balance formula and freeze the Plan effective January 1, 2013, the remaining unamortized prior service credit was recognized during 2012.

The assumptions used in determining pension expense of the HSBC North America Pension Plan are as follows:



	2013		2012		2011
Discount rate	3.95	%	4.60	%	5.30	%
Salary increase assumption	*		2.75		2.75
Expected long-term rate of return on Plan assets	6.00		7.00		7.25


^*	As a result of the decision to cease all future contributions under the Cash Balance formula and to freeze the Plan effective January 1, 2013, a salary increase assumption no longer applies to the Plan.

The accumulated benefit obligation for the HSBC North America Pension Plan was $3,892 million and $4,374 million at December 31, 2013 and December 31, 2012, respectively. As the projected benefit obligation and the accumulated benefit obligation relate to the HSBC North America Pension Plan, only a portion of this deficit could be considered our responsibility.

Supplemental Retirement Plan Our employees also participate in a non-qualified supplemental retirement plan which has been frozen. This plan, which is currently unfunded, provides eligible employees defined pension benefits outside the qualified retirement plan. Benefits are based on average earnings, years of service and age at retirement. The projected benefit obligation was $54 million and $66 million at December 31, 2013 and December 31, 2012, respectively. Pension expense related to the supplemental retirement plan was $7 million, $17 million and $4 million in 2013, 2012 and 2011, respectively.

Defined Contribution Plans We participate in the HSBC North America 401(k) savings plan and profit sharing plan which exist for employees meeting certain eligibility requirements. Under these plans, each participant’s contribution is matched up to a maximum of 6 percent of the participant’s compensation. Contributions are in the form of cash. Total expense for these plans for HSBC Finance Corporation was $6 million, $4 million and $4 million in 2013, 2012 and 2011, respectively.

Postretirement Plans Other Than Pensions Our employees also participate in plans which provide medical and life insurance benefits to retirees and eligible dependents. These plans cover substantially all employees who meet certain age and vested service requirements. We have instituted dollar limits on our payments under the plans to control the cost of future medical benefits.

The net postretirement benefit cost for continuing operations included the following:



Year Ended December 31,	2013		2012		2011
	(in millions)
Service cost – benefits earned during the period	$	—	$	—	$	—
Interest cost	7		6		5
Net periodic postretirement benefit cost	$	7	$	6	$	5

The assumptions used in determining the net periodic postretirement benefit cost for our postretirement benefit plans are as follows:



	2013		2012		2011
Discount rate	3.35	%	4.25	%	4.95	%
Salary increase assumption	2.75		2.75		2.75

A reconciliation of the beginning and ending balances of the accumulated postretirement benefit obligation for both continuing and discontinued operations is as follows:



	2013			2012
	(in millions)
Accumulated benefit obligation at beginning of year	$	197		$	195
Service cost	1			1
Interest cost	6			7
Actuarial (gains) losses	(16		)	26
Benefits paid, net	(14		)	(21		)
Plan curtailment	—			(11		)
Accumulated benefit obligation at end of year	$	174		$	197

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $15 million relating to our postretirement benefit plans in 2014. The funded status of our postretirement benefit plans was a liability of $174 million and $197 million at December 31, 2013 and December 31, 2012, respectively.

Estimated future benefit payments for our postretirement benefit plans for both continuing and discontinued operations are as follows:



	(in millions)
2014	$	15
2015	14
2016	14
2017	14
2018	13
2019-2023	65

The assumptions used in determining the benefit obligation of our postretirement benefit plans are as follows:



	2013		2012		2011
Discount rate	4.35	%	3.35	%	4.25	%
Salary increase assumption	2.75		2.75		2.75

A 7.2 percent annual rate of increase in the gross cost of covered health care benefits for participants under the age of 65 and a 6.8 percent annual rate for participants over the age of 65 was assumed for 2013. This rate of increase is assumed to decline gradually to 4.5 percent in 2027.

Assumed health care cost trend rates have an effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would increase (decrease) service and interest costs and the postretirement benefit obligation as follows:



	One Percent Point Increase		One Percent Point Decrease
	(in millions)
Effect on total of service and interest cost components	$	—	$	—
Effect on postretirement benefit obligation	5.0		(4.0		)