HSBC 2009 Annual Report Download - page 394

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 8
392
The HSBC North America (US) Retirement Income Plan covers all employees of HSBC Bank USA, HSBC Finance
and HSBC USA who have reached the age of 21 and met the one year of service participation requirement. The
Retirement Income Plan 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. The most recent actuarial
valuation of the plan was made at 1 January 2009 by Jennifer Jakubowski, Fellow of the Society of Actuaries,
Enrolled Actuary and member of the American Academy of Actuaries, and Emily Carlson, Associate of the Society
of Actuaries, and member of the American Academy of Actuaries. At that date, the actuarial value of the plan’s assets
was US$2,429 million. The assets represented 113 per cent 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 surplus amounted to US$280 million. The method employed for this valuation was the traditional unit credit
method and the discount rate was determined using a full yield curve method, which resulted in an effective interest
rate of 8.01 per cent per annum.
In February 2010, HSBC North America announced a plan to cease all future benefit accruals for legacy participants
under the final average pay formula components of the HSBC North America (US) Retirement Income Plan with
effect from 1 January 2011. HSBC currently estimates that as a result of these changes, HSBC North America will
record a reduction to total pension expense in 2010 of approximately US$13 million and a one-time curtailment gain
of approximately US$144 million.
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 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 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. Total healthcare cost was US$35 million (2008: US$23 million; 2007:
US$34 million).
Post-employment defined benefit plans’ principal actuarial financial assumptions
The principal actuarial financial assumptions used to calculate the Group’s obligations under its defined benefit
pension and post-employment healthcare plans at 31 December 2009, were as follows. These assumptions will also
form the basis for measuring periodic costs under the plans in 2010:
Healthcare cost trend
Discount
rate
Inflation
rate
Rate of
increase for
pensions1
Rate
of pay
increase
Initial
rate
Ultimate
rate
Year of
ultimate
rate
% % % % % %
UK2 .................................... 5.70 3.70 3.50 4.20 7.70 7.70 n/a
Hong Kong ........................ 2.58 n/a n/a 5.00 n/a n/a n/a
US ...................................... 5.92 2.50 n/a 3.50 7.40 4.50 2027
Jersey ................................. 5.70 3.70 3.70 5.45 n/a n/a n/a
Mexico ............................... 8.50 3.50 3.50 4.50 6.75 6.75 n/a
Brazil .................................. 11.25 4.50 4.50 5.50 10.00 5.50 2019
France ................................ 5.50 2.00 2.00 3.00 n/a n/a n/a
Canada ............................... 6.25 2.50 n/a 3.72 8.00 5.00 2015
Switzerland ........................ 3.25 1.50 n/a 2.50 n/a n/a n/a
Germany ............................. 5.50 2.00 2.00 3.00 n/a n/a n/a
1 Rate of increase for pensions in payment and deferred pension (except for the UK).
2 Rate of increase for pensions in the UK is for pensions in payment only.