11.PENSION AND POST-RETIREMENT PLANS

Non-bargaining Plans:

The Company has two funded qualified single-employer defined benefit pension plans that cover certain non‑bargaining unit employees and bargaining unit employees. In addition, the Company has plans that provide certain retiree health care and life insurance benefits to substantially all salaried, non-bargaining employees hired before 2008 and to certain bargaining unit employees. Employees are generally eligible for such benefits upon retirement and completion of a specified number of years of service. The Company does not pre-fund these health care and life insurance benefits, and has the right to modify or terminate certain of these plans in the future. Most non-bargaining retirees pay a portion of the benefit costs.

Plan Administration, Investments and Asset Allocations: The Company has a Benefits Investment Committee that meets regularly with investment advisors to establish investment policies, direct investments and select investment options for the qualified plans. The Benefits Investment Committee is also responsible for appointing investment managers and monitoring their performance. The Company’s investment policy permits investments in marketable equity securities, such as domestic and foreign stocks, domestic and foreign bonds, venture capital, real estate investments, and cash equivalents. The Company’s investment policy does not permit direct investment in certain types of assets, such as options or commodities, or the use of certain strategies, such as short selling or the purchase of securities on margin.

The Company’s investment strategy for its qualified pension plan assets is to achieve a diversified mix of investments that provides for long-term growth at an acceptable level of risk, and to provide sufficient liquidity to fund ongoing benefit payments. The Company has engaged a number of investment managers to implement various investment strategies to achieve the desired asset class mix, liquidity and risk diversification objectives.

The Company’s target and actual asset allocations at December 31, 2017 and 2016 were as follows:


Asset Categories	Target		2017		2016
Domestic equity securities	53	%	59	%	62	%
International equity securities	15	%	17	%	13	%
Debt securities	22	%	17	%	17	%
Real estate	5	%	6	%	6	%
Other and cash	5	%	1	%	2	%
Total	100	%	100	%	100	%

The Company’s investments in equity securities primarily include domestic large-cap and mid-cap companies, but also includes an allocation to small-cap and international equity securities. Equity investments do not include any direct holdings of the Company’s stock but may include such holdings to the extent that the stock is included as part of certain mutual fund holdings. Debt securities include investment-grade and high-yield corporate bonds from diversified industries, mortgage-backed securities, and U.S. Treasuries. Other types of investments include funds that invest in commercial real estate assets, and to a lesser extent, private equity investments in technology companies. All assets within specific funds are allocated to the target asset allocation of the fund.

The expected return on plan assets is principally based on the Company’s historical returns combined with the Company’s long-term future expectations regarding asset class returns, the mix of plan assets, and inflation assumptions. Actual return on plan assets for the periods presented are as follows:


Actual Return on Plan Assets	Returns
One-year return	14.6	%
Three-year return	6.7	%
Five-year return	9.3	%
Long-term average return (since plan inception in 1989)	8.5	%

The Company’s pension plan assets are held in a master trust and are stated at estimated fair values of the underlying investments. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Equity Securities: Domestic and international common stocks are valued by obtaining quoted prices on recognized and highly liquid exchanges.

Fixed Income Securities: Corporate bonds and U.S. government treasury and agency securities are valued based upon the closing price reported in the market in which the security is traded. U.S. government agency and corporate asset-backed securities may utilize models, such as a matrix pricing model, that incorporate other observable inputs when broker/dealer quotes are not available, such as cash flow, security structure, or market information.

Real Estate, Private Equity and Insurance Contract Interests: The fair value of real estate, private equity and insurance contract interests are determined by the issuer based on the unit values of the funds. Unit values are determined by dividing the fund’s net assets by the number of units outstanding at the valuation date. Fair value for underlying investments in real estate is determined through independent property appraisals. Fair value of underlying investments in private equity is determined based on information provided by the general partner taking into consideration the purchase price of the underlying securities, developments concerning the investee company subsequent to the acquisition of the investment, financial data and projections of the investee company provided by the general partner, and such other factors as the general partner deems relevant. Insurance contracts are principally invested in real estate assets, which are valued based upon independent appraisals.

The fair values of the Company’s pension plan assets at December 31, 2017 and 2016 by asset category, were as follows:


	Fair Value Measurements at December 31, 2017
			Quoted Prices in		Significant		Significant
			Active Markets		Observable		Unobservable
Asset Category (in millions)	Total		(Level 1)		Inputs (Level 2)		Inputs (Level 3)
Cash	$	6.6	$	6.6	$	—	$	—
Equity securities:
U.S. large-cap		66.0		28.1		37.9		—
U.S. mid- and small-cap		42.6		28.3		14.3		—
International large-cap		21.6		—		21.6		—
International small-cap		9.5		—		9.5		—
Fixed income securities:
U.S. Treasuries		8.0		—		8.0		—
Municipal bonds		0.1		—		0.1		—
Investment grade U.S. corporate bonds		17.5		—		17.5		—
High-yield U.S. corporate bonds		3.6		—		3.6		—
Emerging markets fixed income		—		—		—		—
Other types of investments:
Real estate partnership interests		11.1		—		—		11.1
Private equity partnership interests		0.1		—		—		0.1
Total	$	186.7	$	63.0	$	112.5	$	11.2


	Fair Value Measurements at December 31, 2016
			Quoted Prices in		Significant		Significant
			Active Markets		Observable		Unobservable
Asset Category (in millions)	Total		(Level 1)		Inputs (Level 2)		Inputs (Level 3)
Cash	$	7.8	$	7.8	$	—	$	—
Equity securities:
U.S. large-cap		67.1		31.6		35.5		—
U.S. mid- and small-cap		38.9		31.7		7.2		—
International large-cap		16.9		—		16.9		—
International small-cap		6.9		—		6.9		—
Fixed income securities:
U.S. Treasuries		8.9		—		8.9		—
Municipal bonds		9.3		—		9.3		—
Investment grade U.S. corporate bonds		5.3		—		5.3		—
High-yield U.S. corporate bonds		6.3		—		6.3		—
Emerging markets fixed income		0.5		0.5		—		—
Other types of investments:
Real estate partnership interests		10.8		—		—		10.8
Private equity partnership interests		0.1		—		—		0.1
Total	$	178.8	$	71.6	$	96.3	$	10.9

The table below presents a reconciliation of all pension plan investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2017 and 2016:


	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
(In millions)	Real Estate		Private Equity		Total
Balance at December 31, 2015	$	10.3	$	0.2	$	10.5
Actual return (loss) on plan assets:
Assets held at the reporting date		0.6		(0.1)		0.5
Assets sold during the period		0.5		0.1		0.6
Purchases, sales and settlements, net		(0.6)		(0.1)		(0.7)
Balance at December 31, 2016		10.8		0.1		10.9
Actual return (loss) on plan assets:
Assets held at the reporting date		0.3		0.1		0.4
Assets sold during the period		0.5		(0.1)		0.4
Purchases, sales and settlements, net		(0.5)		—		(0.5)
Balance at December 31, 2017	$	11.1	$	0.1	$	11.2

Contributions to each of the qualified single-employer defined benefit pension plans are determined annually by the Company’s pension administrative committee, based upon the actuarially determined minimum required contribution under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, the Pension Protection Act of 2006, and the maximum deductible contribution allowed for tax purposes. In 2017, 2016 and 2015, the Company contributed $3.0 million, $7.5 million and $4.7 million, respectively, in pension contributions in these plans. The Company’s funding policy is to contribute cash to its pension plans so that it meets at least the minimum contribution requirements.

The benefit formulas for employees who are members of collective bargaining units are determined according to the collective bargaining agreements, either using final average pay as the base or a flat dollar amount per year of service.

Effective December 31, 2011, the Company froze benefit accruals under the final average pay formula for salaried, non-bargaining unit employees hired before January 1, 2008 and transitioned them to the same cash balance formula for employees hired on or after January 1, 2008. Retirement benefits under the cash balance formula are based on a fixed percentage of employee eligible compensation, plus interest. The plan interest credit rate will vary from year to year based on the ten-year U.S. Treasury rate.

Benefit Plan Assets and Obligations: The measurement date for the Company’s benefit plan disclosures is December 31 of each year.

The status of the funded qualified defined benefit pension plans and the unfunded post-retirement benefit plans at December 31, 2017 and 2016 are shown below:


					Post-retirement
	Pension Benefits				Benefits
	December 31,				December 31,
(In millions)	2017		2016		2017		2016
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	225.4	$	220.2	$	25.2	$	60.5
Service cost		4.0		3.9		0.5		1.5
Interest cost		9.7		9.7		1.1		2.7
Plan amendments		—		—		—		(38.4)
Plan participants’ contributions		—		—		1.1		1.0
Plan settlements		(0.3)		—		—		—
Actuarial losses		13.9		4.2		1.9		1.9
Benefits paid, net of subsidies received		(18.9)		(11.1)		(2.1)		(4.0)
Expenses paid		(1.7)		(1.5)		—		—
Benefit obligation at end of year		232.1		225.4		27.7		25.2

Change in Plan Assets:
Fair value of plan assets at beginning of year		178.8		168.9		—		—
Actual return on plan assets		25.8		15.0		—		—
Plan participants’ contributions		—		—		1.1		1.0
Plan settlements		(0.3)		—		—		—
Employer contributions		3.0		7.5		1.0		3.0
Benefits paid, net of subsidies received		(18.9)		(11.1)		(2.1)		(4.0)
Expenses paid		(1.7)		(1.5)		—		—
Fair value of plan assets at end of year		186.7		178.8		—		—
Funded Status and Recognized Liability	$	(45.4)	$	(46.6)	$	(27.7)	$	(25.2)

Qualified pension and post-retirement benefits plans liabilities recognized in the Consolidated Balance Sheets and expenses recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 were as follows:


					Post-retirement
	Pension Benefits				Benefits
	December 31,				December 31,
(In millions)	2017		2016		2017		2016
Non-current assets	$	0.5	$	1.0	$	—	$	—
Current liabilities		—		—		(1.2)		(1.1)
Non-current liabilities, net		(45.9)		(47.6)		(26.5)		(24.1)
Total	$	(45.4)	$	(46.6)	$	(27.7)	$	(25.2)

Net loss, net of taxes	$	(46.9)	$	(49.1)	$	(4.6)	$	(4.4)
Prior service credit, net of taxes		6.3		7.7		20.2		22.5
Total	$	(40.6)	$	(41.4)	$	15.6	$	18.1

The information for qualified defined benefit pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2017 and 2016 is shown below:


(In millions)	2017		2016
Projected benefit obligation	$	229.9	$	223.2
Accumulated benefit obligation	$	229.6	$	222.9
Fair value of plan assets	$	184.7	$	175.9

The estimated net loss and prior service credit for the qualified pension plans that will be amortized from accumulated other comprehensive income (loss) is a net periodic cost of $1.4 million, net of tax, in 2018. The estimated net loss and prior service credit for the post-retirement benefit plans that will be amortized from accumulated other comprehensive income (loss) is a net periodic benefit of $1.3 million, net of tax, in 2018.

Unrecognized gains and losses of the post-retirement benefit plans are amortized over five years. Although current health care costs are expected to increase, the Company attempts to mitigate these increases by maintaining caps on certain of its benefit plans, using lower cost health care plan options where possible, requiring that certain groups of employees pay a portion of their benefit costs, self‑insuring for certain insurance plans, encouraging wellness programs for employees, and implementing measures to mitigate future benefit cost increases.

Components of the net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for the qualified pension plans and the post-retirement benefit plans during 2017, 2016, and 2015 were as follows:


	Pension Benefits						Post-retirement Benefits
	December 31,						December 31,
(In millions)	2017		2016		2015		2017		2016		2015
Components of Net Periodic Benefit Cost (Benefit):
Service cost	$	4.0	$	3.9	$	3.3	$	0.5	$	1.5	$	1.5
Interest cost		9.7		9.7		9.5		1.1		2.7		2.5
Expected return on plan assets		(13.5)		(13.4)		(14.0)		—		—		—
Amortization of net loss		5.1		5.5		6.4		1.2		1.2		2.2
Amortization of prior service credit		(2.3)		(2.3)		(2.3)		(3.8)		(1.4)		—
Net periodic benefit cost	$	3.0	$	3.4	$	2.9	$	(1.0)	$	4.0	$	6.2

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income, net of tax:
Net loss (gain)	$	0.8	$	1.6	$	(1.0)	$	1.1	$	1.2	$	(1.9)
New prior service cost (credit)		—		—		0.1		—		(23.4)		—
Amortization of net loss		(3.1)		(3.3)		(3.9)		(0.7)		(0.8)		(1.3)
Amortization of prior service credit		1.4		1.4		1.4		2.3		0.9		—
Total recognized in other comprehensive (income) loss	$	(0.9)	$	(0.3)	$	(3.4)	$	2.7	$	(22.1)	$	(3.2)
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	2.1	$	3.1	$	(0.5)	$	1.7	$	(18.1)	$	3.0

The weighted average assumptions used to determine benefit information during 2017, 2016, and 2015, were as follows:


	Pension Benefits						Post-retirement Benefits
	December 31,						December 31,
	2017		2016		2015		2017		2016		2015
Discount rate (1)	3.80	%	4.40	%	4.50	%	3.90	%	4.60	%	4.60	%
Expected return on plan assets	7.75	%	8.00	%	8.00	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%	3.00	%	3.00	%	3.00	%
Initial health care cost trend rate:
Pre-65 group							6.30	%	6.60	%	6.80	%
Post-65 group							6.80	%	7.20	%	7.60	%
Ultimate health care cost trend rate							4.40	%	4.40	%	4.40	%
Year ultimate health care cost trend rate is reached:
Pre-65 group							2037		2037		2037
Post-65 group							2036		2036		2036

(1)

The Company derives a single equivalent rate utilizing a yield curve constructed from a portfolio of high-quality corporate bonds with various maturities.

If the assumed health care cost trend rate were increased or decreased one percentage point, the accumulated post-retirement benefit obligation, as of December 31, 2017, 2016, and 2015 and the net periodic post-retirement benefit cost for 2017, 2016 and 2015, would have increased or decreased as follows:


	Post-retirement Benefits
	One Percentage Point
	Increase						Decrease
(In millions)	2017		2016		2015		2017		2016		2015
Effect on total of service cost and interest cost components	$	0.3	$	0.9	$	0.9	$	(0.2)	$	(0.7)	$	(0.7)
Effect on post-retirement benefit obligation	$	4.0	$	11.5	$	9.4	$	(3.0)	$	(8.3)	$	(7.4)

Non-qualified Pension Plans: The Company has non-qualified supplemental pension plans covering certain employees and retirees, which provide for incremental pension payments from the Company’s general funds so that total pension benefits would be substantially equal to amounts that would have been payable from the Company’s qualified pension plans if it were not for limitations imposed by income tax law. A few employees and retirees receive additional supplemental pension benefits. Non-qualified pension plan liabilities recognized in the Consolidated Balance Sheets and expenses recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 are as follows (in millions):


	Non-qualified
	Pension Benefits
	December 31,
(In millions)	2017		2016
Current liabilities	$	(1.8)	$	(1.0)
Non-current liabilities, net		(2.7)		(3.3)
Total	$	(4.5)	$	(4.3)

Net loss, net of taxes	$	(0.6)	$	(0.8)
Prior service credit, net of taxes		0.3		0.4
Total	$	(0.3)	$	(0.4)

Discount rates of 3.2 percent and 3.4 percent were used in determining the 2017 and 2016 non-qualified pension plan obligations, respectively. The estimated net loss and prior service credit for the non-qualified pension plans that will be amortized from accumulated other comprehensive income (loss) is a net periodic cost of $0.1 million, net of tax, in 2018.

Estimated Benefit Payments: The estimated future benefit payments for the next ten years were as follows:



			Non-qualified
	Pension		Pension		Post-retirement
Year (in millions)	Benefits		Benefits		Benefits (1)
2018	$	12.7	$	1.8	$	1.2
2019		13.0		0.2		1.2
2020		13.4		0.5		1.2
2021		13.7		—		1.2
2022		14.0		0.3		1.2
2023-2027		73.3		2.5		7.0
Total	$	140.1	$	5.3	$	13.0

(1)

Net of plan participants’ contributions and Medicare Part D subsidies.

Defined Contribution Plans: The Company sponsors defined contribution plans that qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. The Company may make discretionary matching contributions equal to a specified percentage of each participant’s 401(k) contributions. For the year ended December 31, 2017, the Company provided matching contributions of up to 3 percent of eligible employee compensation. The Company’s matching contributions expensed in 2017, 2016 and 2015 was $2.4 million, $2.1 million and $2.0 million, respectively.

The Company may also provide a discretionary profit sharing contribution under the qualified defined contribution plans, to salaried, non-bargaining unit employees, if both a minimum threshold of Company performance is achieved and the Board has approved the profit sharing contribution. For certain eligible employees, supplemental profit sharing contributions are credited under a non-qualified plan to be paid after separation from service from the Company’s general funds so that total profit sharing contributions would be substantially equal to amounts that would have been contributed to the Company’s qualified defined contribution plans if it were not for limitations imposed by income tax law. Discretionary profit sharing contributions expensed in 2017 and 2015 were $2.3 million and $1.9 million, respectively. There were no discretionary profit sharing contributions made in 2016.

Multi-employer Bargaining Plans:

The Company contributes to multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover its bargaining unit employees. Contributions are generally based on amounts paid for union labor or cargo volume. The risks of participating in multi-employer plans are different from single-employer plans because assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. Additionally, if one employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

The multi-employer pension plans are subject to the plan termination insurance provisions of ERISA and are paying premiums to the Pension Benefit Guaranty Corporation (“PBGC”). The statutes provide that an employer who withdraws from, or significantly reduces its contribution obligation to, a multi-employer plan generally will be required to continue funding its proportional share of the plan’s unfunded vested benefits. As of December 31, 2017, the Company’s estimated benefit plan withdrawal obligations were $261.5 million. Except as described in Note 12, no withdrawal obligations have been recorded by the Company in the Consolidated Balance Sheets at December 31, 2017 and 2016, as the Company has no present intention of withdrawing from and does not anticipate termination of any of these plans.

Information regarding the Company’s participation in multi-employer pension plans is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2017 and 2016 is for the plan’s year-end at December 31, 2017 and 2016, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The funding improvement plan (“FIP”) or rehabilitation plan (“RP”) column indicates the status which is either pending or has been implemented. The last column lists the expiration dates of the collective-bargaining agreements to which the plans are subject.

Pension

Protection Act

Zone as of

FIP/RP Status

Contributions of Matson

EIN/Pension

December 31,

Pending/

(In millions)

Surcharge

Expiration

Pension Funds

Plan Number

Notes

2017

2016

Implemented

Contributor

2017

2016

2015

Imposed

Date (5)

American Radio Association Pension Fund

13-6161999-001

Green

Yellow

Implemented

Yes

1.0

—

8/15/2021

Hawaii Terminals Multiemployer Pension Plan

20-0389370-001

Yellow

Implemented

Yes

5.7

5.3

4.9

6/30/2019

Hawaii Stevedoring Multiemployer Retirement Plan

99-0314293-001

Yellow

Implemented

Yes

3.8

3.5

2.8

6/30/2019

Master, Mates and Pilots Pension Plan

13-6372630-001

Green

Yes

3.0

3.1

2.2

6/15/2023,

6/15/2027

Masters, Mates and Pilots Adjustable Pension Plan

37-1719247-001

(1)

Yes

1.7

1.8

1.7

6/15/2023,

6/15/2027

MEBA Pension Trust - Defined Benefit Plan

51-6029896-001

(2)

Green

Yes

4.4

4.1

3.2

8/15/2018,

6/15/2022

OCU Trust Pension Plan

26-1574440-001

Green

0.2

0.1

6/30/2023

MFOW Supplementary Pension Plan

94-6201677-001

Green

Yes

—

6/30/2021

SIU Pacific District Pension Plan

94-6061923-001

Green

Yes

0.7

0.6

—

6/30/2021

Alaska Teamster - Employer Pension Plan

92-6003463-024

(3)

Red

Implemented

Yes

2.4

2.6

1.5

Yes

6/30/2018,

6/30/2019,

6/30/2020

All Alaska Longshore Pension Plan

91-6085352-001

(3)

Green

Yes

0.1

0.5

6/30/2020

Western Conference of Teamsters Pension Plan

91-6145047-001

(3)

Green

1.3

0.8

3/31/2018

Western Conference of Teamsters Supplemental Benefit Trust

95-3746907-001

(3)

Green

—

3/31/2018

OPEIU Local 153 Pension Plan

13-2864289-001

(3)

Red

Implemented

0.1

11/09/2020

Seafarers Pension Trust

13-6100329-001

(3) (4)

Green

—

6/30/2022

Total

24.4

22.7

17.8

(1)

The Plan is not subject to the PPA funding requirements under IRS Section 432 as the Plan was not in effect on July 16, 2006.

(2)

In 2012, the Company agreed to contribute at least 11.7 percent of total wages paid to employees in covered Marine Engineer Benefits Association (“MEBA”) employment to the MEBA Pension Trust by a reallocation of the total labor cost under the collective bargaining agreement. The pension contribution rate was determined by the plan’s actuary to be necessary to maintain full funding of the pension plan and is fully offset by a reallocation of wages and other benefits.

(3)

Matson's contributions to these plans commenced after the Horizon Acquisition on May 29, 2015.

(4)

The Company does not make contributions directly to the Seafarers Pension Plan. Instead, contributions are made to the Seafarers Health and Benefits Plan, and are subsequently re-allocated to the Seafarers Pension Plan at the discretion of the plan Trustee.

(5)

Represents the expiration date of the collective bargaining agreement.

The Company also contributes to multi-employer plans that provide post-retirement health and other benefits other than pensions under the terms of collective-bargaining agreements. Benefits provided to active and retired employees and their eligible dependents under these plans include medical, dental, vision and prescription drug. These plans are not subject to the PBGC plan termination and withdrawal liability provisions of ERISA applicable to multi-employer defined benefit pension plans. Contributions to these multi-employer postretirement health and other benefits were $27.0 million, $22.5 million and $18.1 million in 2017, 2016 and 2015, respectively.

Multi-employer Defined Contribution Plans: The Company contributes to six multi-employer defined contribution pension plans. These plans are not subject to the withdrawal liability provisions of ERISA or the PBGC applicable to multi-employer defined benefit pension plans. Contributions made to these plans by the Company were $5.0 million, $5.3 million and $3.8 million in 2017, 2016 and 2015, respectively.