HSBC 2011 Annual Report Download - page 322

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
7 – Employee compensation and benefits
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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.
The most recent actuarial valuation of the plan to determine compliance with US statutory funding requirements was
made at 1 January 2011 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$2,673m. The
assets represented 90% 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$283m. 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 6.36% 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.
At 31 December 2011, the present values of the defined benefit obligations of The HSBC Bank (UK) Pension
Scheme was US$24,367m (2010: US$22,858m), The HSBC Group Hong Kong Local Staff Retirement Benefit
Scheme was US$1,523m (2010:US$1,371m) and the HSBC North America (US) Retirement Income Plan was
US$3,895m (2010: US$3,384m). These defined benefit pension plans covered 33% of HSBC’s employees and
represented 82% of the Group’s present value of defined benefit obligations.
HSBC healthcare benefits plans
HSBC also provides post-employment healthcare benefits under plans in the UK, the US, Bermuda, Canada, Mexico
and Brazil, the majority of which are unfunded. The majority of post-employment healthcare benefits plans are
defined benefit plans and 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.
At 31 December 2011, the present value of the defined benefit obligation of HSBC’s healthcare benefit plans was
US$1,091m (2010: US$1,087m). In aggregate, healthcare benefit plans comprised 3% of HSBC’s present value of
defined benefit obligations.