Pension and Other Postretirement Benefits

Defined Benefit Pension Plan Effective beginning in 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. 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,	2015			2014			2013
	(in millions)
Service cost – benefits earned during the period	$	4		$	5		$	5
Interest cost on projected benefit obligation	49			51			50
Expected return on assets	(63		)	(62		)	(61		)
Amortization of net actuarial loss	27			24			35
Pension expense	$	17		$	18		$	29

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



	2015		2014		2013
Discount rate	3.95	%	4.80	%	3.95	%
Expected long-term rate of return on Plan assets	6.00		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 $43 million and $48 million at December 31, 2015 and December 31, 2014, respectively. Pension expense related to the supplemental retirement plan was $5 million, $7 million and $7 million in 2015, 2014 and 2013, 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 $5 million, $6 million and $6 million in 2015, 2014 and 2013, 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,	2015			2014		2013
	(in millions)
Interest cost	$	5		$	7	$	7
Amortization of reduction in liability resulting from plan amendment	(3		)	—		—
Net periodic postretirement benefit cost	$	2		$	7	$	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 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 8 years.

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



	2015		2014		2013
Discount rate	3.60	%	4.35	%	3.35	%
Salary increase assumption	3.00		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:



	2015			2014
	(in millions)
Accumulated benefit obligation at beginning of year	$	173		$	174
Interest cost	5			7
Actuarial (gains) losses	(21		)	5
Reduction in liability resulting from plan amendment	(46		)	—
Benefits paid, net	(11		)	(13		)
Accumulated benefit obligation at end of year	$	100		$	173

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $11 million relating to our postretirement benefit plans in 2016. The funded status of our postretirement benefit plans was a liability of $100 million and $173 million at December 31, 2015 and December 31, 2014, respectively.

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



	(in millions)
2016	$	11
2017	10
2018	9
2019	9
2020	8
2021-2025	34

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



	2015		2014		2013
Discount rate	3.95	%	3.60	%	4.35	%
Salary increase assumption	3.00		3.00		2.75

A 6.8 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 8.2 percent annual rate for participants over the age of 65 were assumed for 2015. This rate of increase is assumed to decline gradually to 4.5 percent in 2037.

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.