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 a unified employee benefit policy and unified employee benefit plan administration for HSBC companies operating in the United States. Future benefit accruals for legacy participants under the final average pay formula and future contributions under the cash balance formula were previously discontinued and, as a result, the Plan is frozen.

The components of pension expense for the defined benefit pension plan recorded in our consolidated statement of income (loss) and shown in the table below reflect the portion of pension expense of the combined HSBC North America Pension Plan which has been allocated to us. We have not been allocated any portion of the Plan's net pension liability.



Year Ended December 31,	2017			2016			2015
	(in millions)
Interest cost on projected benefit obligation	$	71		$	70		$	70
Expected return on plan assets	(88		)	(86		)	(90		)
Amortization of net actuarial loss	33			42			38
Administrative costs	4			4			5
Loss on partial settlement of Plan pension obligation	35			—			—
Pension expense	$	55		$	30		$	23

During the fourth quarter of 2017, HSBC North America completed a limited-time offer to former vested Plan employees who had not yet commenced receiving payment of their annuity benefit to elect a) an immediate lump sum payment; b) an immediate annuity (reduced for early payment under the terms of the Plan); or c) to retain their existing benefit in an annuity to be paid under the original terms of the Plan. Payments to former employees who elected to participate in an early distribution were made by HSBC North America in December. As a result, our allocated pension expense during the fourth quarter of 2017 included a settlement loss of approximately $35 million due primarily to an acceleration of a portion of the Plan's actuarial losses which had been reflected in HSBC North America's AOCI.

During the years ended December 31, 2017 and 2016, pension expense was impacted by immaterial out of period adjustments which increased pension expense by $4 million and $6 million, respectively, 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:



	2017		2016		2015
Discount rate	3.60	%	4.25	%	3.95	%
Expected long-term rate of return on Plan assets	5.50		5.50		6.00

Defined Contribution and Other Supplemental Retirement Plans We maintain a 401(k) plan covering substantially all employees. Employer contributions to the plan are based on employee contributions. Total expense recognized for this plan was approximately $34 million, $33 million and $33 million in 2017, 2016 and 2015, respectively.

Certain employees are participants in various defined contribution and other non-qualified supplemental retirement plans all of which have been frozen. Total expense recognized for these plans was approximately $2 million, $3 million and $3 million in 2017, 2016 and 2015, 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 payments under the plans to control the cost of future medical benefits. The following table reflects the components of the net periodic postretirement benefit cost:



Year Ended December 31,	2017			2016		2015
	(in millions)
Interest cost on accumulated benefit obligation	$	2		$	2	2
Amortization of net actuarial gain	(1		)	—		—
Net periodic postretirement benefit cost	$	1		$	2	$	2

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



	2017		2016		2015
Discount rate	3.95	%	3.95	%	3.60	%
Salary increase assumption	3.00		3.00		3.00

A reconciliation of the beginning and ending balances of the accumulated postretirement benefit obligation is as follows:



	2017			2016
	(in millions)
Accumulated benefit obligation at beginning of year	$	55		$	60
Interest cost	2			2
Actuarial losses (gains)	—			(3		)
Benefits paid, net	(4		)	(4		)
Accumulated benefit obligation at end of year	$	53		$	55

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $4 million relating to our postretirement benefit plans in 2018. The funded status of our postretirement benefit plans was a liability of $53 million at December 31, 2017.

Estimated future benefit payments for our postretirement benefit plans are summarized in the following table:



	(in millions)
2018	$	4
2019	4
2020	4
2021	4
2022	4
2023-2027	18

The assumptions used in determining the benefit obligation of our postretirement benefit plans at December 31 are as follows:



	2017		2016		2015
Discount rate	3.45	%	3.95	%	3.95	%
Salary increase assumption	3.00		3.00		3.00

For measurement purposes, 6.6 percent (pre-65) and, as it related to the postretirement benefit plans which were not amended, 8.1 percent (post-65) annual rates of increase in the per capita costs of covered health care benefits were assumed for 2017. These rates are assumed to decrease gradually reaching the ultimate rate of 4.5 percent in 2027, and remain at that level thereafter.

While 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 not have a material impact on service or interest costs or the postretirement benefit obligation.