HSBC 2006 Annual Report Download - page 324

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 7
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The benefits payable from the defined benefit plan are expected to be as shown in the chart below:
Benefit payments (US$m)
In Hong Kong, the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme covers employees of The
Hongkong and Shanghai Banking Corporation and certain other employees of HSBC. The plan comprises a funded
defined benefit plan (which provides a lump sum on retirement but which is now closed to new members) and a
defined contribution plan. The latter was established on 1 January 1999 for new employees. The latest valuation of
the defined benefit plan was made at 31 December 2004 and was performed by E Chiu, Fellow of the Society of
Actuaries of the United States of America, of HSBC Life (International) Limited, a subsidiary of HSBC Holdings.
At that date, the market value of the defined benefit plan’s assets was US$942 million. On an ongoing basis, the
actuarial value of the plan’s assets represented 115 per cent of the benefits accrued to members, after allowing for
expected future increases in salaries, and the resulting surplus amounted to US$121 million. On a wind-up basis, the
actuarial value of the plan’s assets represented 128 per cent of the members’ vested benefits, based on current
salaries, and the resulting surplus amounted to US$206 million. The actuarial method used was the projected unit
credit method and the main assumptions used in this valuation were a discount rate of 4 per cent per annum and
long-term salary increases of 3 per cent per annum (with short-term deviation from 2005 to 2008).
The HSBC North America (U.S.) Retirement Income Plan was formed with effect from the close of business on
31 December 2004 by the merger of the HSBC Bank USA Pension Plan and the Household International Retirement
Income Plan. This plan covers employees of HSBC Bank USA, HSBC Finance, and certain other employees of
HSBC. It comprises a final average pay plan (now closed to new participants) and a cash balance plan. All new
employees participate in the cash balance plan. The first full actuarial valuation of the merged plan was made at
1 January 2005 by Pedro Nebres, Fellow of the Society of Actuaries and Dan Kutliroff, Enrolled Actuary, of Mercer
Human Resource Consulting. Both are members of the American Academy of Actuaries. At that date, the market
value of the merged plan’s assets was US$2,305 million. The actuarial value of the assets represented 137 per cent of
the benefits accrued to members, after allowing for expected future increases in earnings. The resulting surplus
amounted to US$622 million. The method employed for this valuation was the projected unit credit method and the
main assumptions used were a discount rate of 8 per cent per annum and average salary increases of 3.75 per cent per
annum. The Internal Revenue Service granted formal approval for changes in funding method due to the merger of
pension plans on 23 August 2006.
The HSBC Bank (UK) Pension Scheme, The HSBC Group Hong Kong Local Staff Retirement Benefit Scheme, and
the HSBC North America (U.S.) Retirement Income Plan cover 37 per cent of HSBC’s employees.
HSBC healthcare benefits plans
HSBC also provides post-employment healthcare benefits under plans in the UK, the US, Canada, Mexico, France
and Brazil, the majority of which are unfunded. Post-employment healthcare benefits plans are accounted for in the
same manner as defined benefit pension plans. The plans are reviewed at least annually or in accordance with local
practice and regulations by qualified actuaries. The actuarial assumptions used to calculate the defined benefit
obligation and related current service cost vary according to the economic conditions of the countries in which they
are situated. Total healthcare cost was US$62 million (2005: US$58 million; 2004: US$65 million).