HSBC 2006 Annual Report Download - page 423

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Approximately US$17 billion (2005: US$18 billion) of the consideration received has been sold or repledged in
connection with stock borrowing transactions.
(a) Pension and post-retirement costs
On 31 December 2006, HSBC adopted the recognition and disclosure provisions of SFAS 158 ‘Employers’
Accounting for Defined Benefit Pension and Other Post-retirement Plans – an amendment of FASB Statements
No. 87, 88, 106 and 132(R)’ (SFAS 158), SFAS 158 requires HSBC to recognise the funded status of its pension
plans in a manner similar to IAS 19.
The provisions of SFAS 87 ‘Employers’ accounting for pensions’ and SFAS 158 have been applied to HSBC’s
main defined benefit pension plans, which make up approximately 96 per cent of all HSBC’s schemes by plan
assets. For non-US schemes, HSBC has applied SFAS 87 with effect from 30 June 1992 as it was not feasible to
apply as at 1 January 1989, the date specified in the standard.
The transition adjustments for adoption of SFAS 158 for pensions and post-retirement costs were as follows:
Before
application of
Statement 158 Adjustments
After
application of
Statement 158
US$m US$m US$m
Other assets (including prepayments and accrued income) ................... 47,589 56 47,533
Total assets .............................................................................................. 1,712,683 56 1,712,627
Retirement benefit liabilities ................................................................... 7,555 2,000 5,555
Provisions ................................................................................................ 15,951 (650) 16,601
Total liabilities ........................................................................................ 1,596,836 (1,350) 1,598,186
Total shareholders’ equity ...................................................................... 109,946 1,406 108,540
Components of net periodic benefit cost related to HSBC’s defined benefit pension plans and post-retirement
benefits other than pensions under US GAAP were as follows:
2006 2005 2004
US$m US$m US$m
Components of net periodic benefit cost
Service cost ............................................................................................. 779 684 590
Interest cost ............................................................................................. 1,485 1,377 1,305
Expected return on plan assets ................................................................ (1,601) (1,365) (1,317)
Amortisation of transition obligation ..................................................... – 8 12
Amortisation of prior service cost .......................................................... 7 (6) 5
Amortisation of recognised net actuarial loss ........................................ 211 165 142
Curtailment .............................................................................................. (8) (4) 225
Net periodic pension cost under US GAAP ........................................... 873 859 962
Net periodic pension cost under IFRSs .................................................. 664 684 837
In 2007, components of net periodic benefit cost will include US$7 million for the amortisation of prior service
cost and US$164 million for amortisation of recognised net actuarial loss.
Under the provisions of SFAS 87, when a pension plan’s accumulated benefit obligation (the value of the
benefits accrued based on employee service up to the balance sheet date) exceeds the fair value of its assets, an
additional minimum pension liability equal to this excess is recognised by the employer to the extent that the
excess is greater than any accrual which has already been established for unfunded pension costs.
Simultaneously, an intangible asset is established equal to the lower of the liability recognised for the unfunded
benefit obligation and the amount of any unrecognised prior service cost.
At 31 December 2006, HSBC recognised an additional minimum pension liability of US$3,130 million prior to
adoption of FAS158 (2005: US$3,206 million) in respect of its unfunded accumulated benefit obligation.