Pension and Other Postretirement Benefits

Defined Benefit Pension Plan Certain employees are eligible to participate in the 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. Future benefit accruals for legacy participants under the final average pay formula components of the Plan ceased effective January 1, 2011, while future contributions under the cash balance formula were discontinued effective January 1, 2013 and, as a result, the Plan is now frozen. 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). We have not been allocated any portion of the Plan's net pension liability.



Year Ended December 31,	2016			2015			2014
	(in millions)
Interest cost on projected benefit obligation	$	48		$	49		$	51
Expected return on plan assets	(58		)	(63		)	(62		)
Amortization of net actuarial loss	28			27			24
Administrative costs	3			4			5
Pension expense	$	21		$	17		$	18

During the year ended December 31, 2016, pension expense was impacted by an out of period adjustment which increased pension expense by $5 million in connection with pension valuation changes related to prior periods.

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



	2016		2015		2014
Discount rate	4.25	%	3.95	%	4.80	%
Expected long-term rate of return on Plan assets	5.50		6.00		6.00

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 $38 million and $43 million at December 31, 2016 and December 31, 2015, respectively. Pension expense related to the supplemental retirement plan was $7 million, $5 million and $7 million in 2016, 2015 and 2014, respectively.

Defined Contribution Plans We participate in the HSBC North America 401(k) savings plan which exists 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 $4 million, $5 million and $6 million in 2016, 2015 and 2014, 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 components of our net postretirement benefit cost are as follows:



Year Ended December 31,	2016			2015			2014
	(in millions)
Interest cost	$	4		$	5		$	7
Amortization of reduction in liability resulting from plan amendment	(6		)	(3		)	—
Gain from curtailment	(5		)	—			—
Net periodic postretirement benefit cost	$	(7	)	$	2		$	7

During 2015, substantially all of the postretirement plans which provide medical insurance for retirees were amended relating to post-65 retirees to provide a monthly payment which allows the retiree to purchase individual health care coverage instead of offering medical insurance to retirees on a self-insured basis. This resulted in a reduction of our other postretirement benefit liability by $46 million as the amendment eliminated future health cost increases which were previously included in the liability. This reduction is being amortized over the remaining covered period for those affected which is approximately 7 years. During 2016, we accelerated a portion of this reduction in our other postretirement benefit liability by recording a gain on curtailment of $5 million resulting from reduced staffing levels as we make progress in our receivable sales program.

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



	2016		2015		2014
Discount rate	3.95	%	3.60	%	4.35	%
Salary increase assumption	3.00		3.00		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:



	2016			2015
	(in millions)
Accumulated benefit obligation at beginning of year	$	100		$	173
Interest cost	4			5
Actuarial gains	(6		)	(21		)
Reduction in liability resulting from plan amendment	—			(46		)
Benefits paid, net	(7		)	(11		)
Accumulated benefit obligation at end of year	$	91		$	100

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $9 million relating to our postretirement benefit plans in 2017. The funded status of our postretirement benefit plans was a liability of $91 million and $100 million at December 31, 2016 and December 31, 2015, respectively.

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



	(in millions)
2017	$	9
2018	8
2019	8
2020	7
2021	7
2022-2026	28

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



	2016		2015		2014
Discount rate	3.95	%	3.95	%	3.60	%
Salary increase assumption	3.00		3.00		3.00

A 6.9 percent annual rate of increase in the gross cost of covered health care benefits for participants under the age of 65 and, as it relates to the postretirement benefit plans which were not amended, an 8.3 percent annual rate for participants over the age of 65 were assumed for 2016. This rate of increase is assumed to decline gradually to 4.5 percent in 2027.

While assumed health care cost trends have an effect on the amounts reported for health care plans, a one-percentage point change in assumed health care trend rates would not have a material impact on service or interest costs or the postretirement benefit obligation.