HSBC 2010 Annual Report Download - page 279

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Overview Operating & Financial Review Governance Financial Statements Shareholder Information
investment returns relative to this expected level, subject to a maximum of 50 basis points per annum, will be
eliminated by payment of equal cash instalments over the remaining years to the end of this recovery plan period.
HSBC Bank plc also agreed to make ongoing contributions to the principal plan in respect of the accrual of benefits
of defined benefit section members at the rate of 34% of pensionable salaries (less member contributions) payable
from 1 April 2010 until the completion of the next actuarial valuation, due as at 31 December 2011. During 2009,
HSBC paid contributions at the rate of 38% of pensionable salaries (less member contributions) and continued
contributions at this rate until 31 March 2010.
On 1 July 2009, changes to the design of the defined benefit section of the principal plan were made. This included
the introduction of employee contributions, optionality concerning future benefit accrual and, with effect from
1 April 2010, an increased normal retirement age of 65 years. In addition, enhancements to the defined contribution
section were also introduced.
Pension plans in Hong Kong
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 scheme comprises a
funded defined benefit scheme (which provides a lump sum on retirement but is now closed to new members) and a
defined contribution scheme. The latter was established on 1 January 1999 for new employees. The latest actuarial
valuation of the defined benefit scheme was made at 31 December 2009, and was performed by Estella Chiu, fellow
of the Society of Actuaries of the United States of America, of HSBC Insurance (Asia) Limited, a subsidiary of
HSBC Holdings. At that valuation date, the market value of the defined benefit scheme’s assets was US$1,088m. On
an ongoing basis, the actuarial value of the scheme’s assets represented 105% of the actuarial present value of the
benefits accrued to members, after allowing for expected future increases in salaries, and the resulting surplus
amounted to US$71m. On a wind-up basis, the scheme’s assets represented 107% of the members’ vested benefits,
based on current salaries, and the resulting surplus amounted to US$89m. The attained age method has been adopted
for the valuation and the major assumptions used in this valuation were a discount rate of 6% per annum and long-
term salary increases of 5% per annum.
Pension plans in North America
The HSBC North America (US) Retirement Income Plan covers all employees of HSBC Bank USA, HSBC Finance
and other HSBC entities in the US who have reached the age of 21 and met the one year of service participation
requirement. The Retirement Income Plan is a funded defined benefit plan which provides final average pay benefits
to legacy participants and cash balance benefits to all other participants. All new employees participate in the cash
balance section of the plan. In November 2009, the Board of Directors of HSBC North America Holdings, Inc.
(‘HNAH’) approved actions to cease all future benefit accruals for legacy participants under the final average pay
formula components of the HSBC North America Retirement Income Plan with effect from 1 January 2011. Affected
employees were informed of this decision in February 2010. As a result of these changes, HNAH recorded a one-time
curtailment gain of US$144m.
The most recent actuarial valuation of the plan to determine compliance with US statutory funding requirements was
made at 1 January 2010 by Jennifer Jakubowski, Fellow of the Society of Actuaries, Enrolled Actuary, member of the
American Academy of Actuaries, of Mercer. At that date, the market value of the plan’s assets was US$2,321m. The
assets represented 85% of the benefits accrued to members as valued under the provisions of the Pension Protection
Act of 2006 that was effective for the plan year beginning 1 January 2008. The resulting deficit amounted to
US$400m. The method employed for this valuation was the traditional unit credit method and the discount rate was
determined using a segment rate method as selected by HSBC under the relevant regulations, which resulted in an
effective interest rate of 6.64% per annum.
These determinations described above for actuarial funding valuation purposes are based on different methods and
assumptions than those used for financial reporting purposes, and as a result should neither be compared nor related
to other determinations included in these financial statements.
The HSBC Bank (UK) Pension Scheme, The HSBC Group Hong Kong Local Staff Retirement Benefit Scheme, and
the HSBC North America (US) Retirement Income Plan cover 34% of HSBC’s employees and represent 82% of the
Group’s present value of defined benefit obligations.