Pension and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2020

Retirement Benefits [Abstract]

Pension and Other Postretirement Benefits

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 following table reflects the portion of pension expense and its related components of the combined 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 asset.

Year Ended December 31,	2020		2019		2018
	(in millions)
Interest cost on projected benefit obligation	$	45	$	56	$	60
Expected return on plan assets	(68)		(78)		(78)
Amortization of net actuarial loss	4		21		31
Administrative costs	4		4		6
Pension (income) expense	$	(15)	$	3	$	19

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

	2020		2019		2018
Discount rate	2.45	%	3.15	%	4.25	%
Expected long-term rate of return on Plan assets(1)	3.50		5.00		5.50

(1)As a result of a significant decrease in yields on fixed income securities driven by the COVID-19 pandemic and subsequent reduction in longer term capital market returns, as well as a shift in investment mix that reduced the Plan's exposure to equity investments, HSBC North America decided to reduce its expected long-term rate of return on Plan assets assumption to 3.50 percent, effective beginning July 1, 2020. The expected long-term rate of return on Plan assets used during the first half of 2020 was 5.00 percent.

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 $28 million, $31 million and $29 million in 2020, 2019 and 2018, 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, $2 million and $3 million in 2020, 2019 and 2018, respectively.

Postretirement Plans Other Than Pensions  Certain employees also participate in plans which provide medical and life insurance benefits to retirees and eligible dependents. These plans cover all eligible 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,	2020		2019		2018
	(in millions)
Interest cost on accumulated benefit obligation	$	1	$	2	2
Amortization of net actuarial gain	—		(2)		(2)
Net periodic postretirement benefit cost	$	1	$	—	$	—

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

	2020		2019		2018
Discount rate	3.00	%	4.15	%	3.45	%
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:

	2020		2019
	(in millions)
Accumulated benefit obligation at beginning of year	$	45	$	42
Interest cost	1		2
Actuarial losses	2		5
Benefits paid, net	(3)		(4)
Accumulated benefit obligation at end of year	$	45	$	45

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 2021. The funded status of our postretirement benefit plans was a liability of $45 million at December 31, 2020.

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

	(in millions)
2021	$	4
2022	4
2023	4
2024	3
2025	3
2026-2030	13

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

	2020		2019		2018
Discount rate	2.25	%	3.00	%	4.15	%
Salary increase assumption	3.00		3.00		3.00

For measurement purposes, 6.5 percent (pre-age 65) and, as it relates to the postretirement benefit plans which were not amended to eliminate future health cost increases, 6.8 percent (post-age 65) annual rates of increase in the per capita costs of covered health care benefits were assumed for 2020. These rates are assumed to decrease gradually reaching the ultimate rate of 4.5 percent in 2029, and remain at that level thereafter.