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 Finance into a single HSBC North America qualified defined benefit pension plan (either the "HSBC North America Pension Plan" or the "Plan") which facilitated the development of 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 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 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,	2015			2014			2013
	(in millions)
Service cost – benefits earned during the period	$	5		$	7		$	4
Interest cost on projected benefit obligation	70			70			71
Expected return on plan assets	(90		)	(87		)	(83		)
Amortization of net actuarial loss	38			34			49
Pension expense	$	23		$	24		$	41

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

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 $33 million, $31 million and $30 million in 2015, 2014 and 2013, 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 $3 million in each of 2015, 2014 and 2013.

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,	2015		2014			2013
	(in millions)
Service cost – benefits earned during the period	$	—	$	—		$	1
Interest cost on accumulated benefit obligation	2		3			2
Amortization of net actuarial gain	—		(1		)	—
Net periodic postretirement benefit cost	$	2	$	2		$	3

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 is as follows:



	2015			2014
	(in millions)
Accumulated benefit obligation at beginning of year	$	62		$	59
Interest cost	2			3
Actuarial losses	4			5
Benefits paid	(4		)	(5		)
Plan amendments⁽¹⁾	(4		)	—
Accumulated benefit obligation at end of year	$	60		$	62

⁽¹⁾

During 2015, the substantial majority of our postretirement benefit plans were amended relating to post-65 retirees which resulted in a reduction of our postretirement benefit liability as the amendments eliminated future health cost increases which were previously included in the liability. This reduction is being amortized to postretirement benefit expense over the remaining estimated covered period for affected employees which is approximately 8 years.

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $6 million relating to our postretirement benefit plans in 2016. The funded status of our postretirement benefit plans was a liability of $60 million at December 31, 2015.

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



	(in millions)
2016	$	6
2017	6
2018	6
2019	6
2020	6
2021-2025	25

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



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

For measurement purposes, 6.8 percent (pre-65) and, as it related to the postretirement benefit plans which were not amended, 8.2 percent (post-65) annual rates of increase in the per capita costs of covered health care benefits were assumed for 2015. These rates are assumed to decrease gradually reaching the ultimate rate of 4.5 percent in 2037, and remain at that level thereafter.

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 Increase		One Percent Decrease
	(in millions)
Effect on total of service and interest cost components	$	—	$	—
Effect on accumulated postretirement benefit obligation	1		(1		)