Retirement benefits - HECO

3 Months Ended

Mar. 31, 2012

Retirement benefits

5 · Retirement benefits

Defined benefit pension and other postretirement benefit plans information. For the first quarter of 2012, the Company contributed $27 million ($26 million by the utilities and $1 million by HEI) to its retirement benefit plans, compared to $31 million (primarily by the utilities) in the first quarter of 2011. The Company’s current estimate of contributions to its retirement benefit plans in 2012 is $107 million ($105 million by the utilities and $2 million by HEI), compared to $75 million ($73 million by the utilities and $2 million by HEI) in 2011. In addition, the Company expects to pay directly $2 million ($1 million each by the utilities and HEI) of benefits in 2012, comparable to 2011.

The Pension Protection Act provides that if a pension plan’s funded status falls below certain levels, more conservative assumptions must be used to value obligations under the pension plan and restrictions on participant benefit accruals may be placed on the plan. The HEI Retirement Plan has fallen below these thresholds and the minimum required contribution estimated for 2012 incorporates the more conservative assumptions required. Other factors could cause changes to the required contribution levels.

Effective April 1, 2011, accelerated distribution options (the $50,000 single sum distribution option and a Social Security level income option) under the HEI Retirement Plan became subject to partial restrictions because the funded status of the HEI Retirement Plan was deemed to be less than 80%. Generally, while the partial restrictions are in effect, a retiring participant may only elect an accelerated distribution option for 50% of the participant’s total benefit. The partial restrictions are expected to continue through 2012.

The components of net periodic benefit cost for consolidated HEI were as follows:

Three months ended March 31	Pension benefits						Other benefits
(in thousands)	2012			2011			2012			2011
Service cost	$	10,191		$	8,917		$	1,096		$	1,267
Interest cost	16,771			16,309			2,281			2,461
Expected return on plan assets	(17,856		)	(17,101		)	(2,621		)	(2,648		)
Amortization of net transition obligation	—			1			—			—
Amortization of prior service gain	(81		)	(97		)	(448		)	(224		)
Amortization of net actuarial loss	6,423			4,405			453			15
Net periodic benefit cost	15,448			12,434			761			871
Impact of PUC D&Os	(3,857		)	(1,544		)	(680		)	1,018
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	11,591		$	10,890		$	81		$	1,889

Consolidated HEI recorded retirement benefits expense of $8 million and $10 million in the first quarters of 2012 and 2011, respectively, and charged the remaining amounts primarily to electric utility plant.

The utilities have implemented pension and OPEB tracking mechanisms under which all retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time.

Defined contribution plans information.  For the first quarters of 2012 and 2011, the Company’s expense for its defined contribution pension plans under the HEIRSP and the ASB 401(k) Plan was $0.9 million and $0.9 million, respectively, and cash contributions were $2.2 million and $2.4 million, respectively.

Hawaiian Electric Company and Subsidiaries

Retirement benefits

4 · Retirement benefits

Defined benefit pension and other postretirement benefit plans information. For the first quarter of 2012, HECO and its subsidiaries contributed $26 million to their retirement benefit plans, compared to $31 million in the first quarter of 2011. HECO and its subsidiaries’ current estimate of contributions to their retirement benefit plans in 2012 is $105 million, compared to contributions of $73 million in 2011. In addition, HECO and its subsidiaries expect to pay directly $0.8 million of benefits in 2012, compared to $1.3 million paid in 2011.

The Pension Protection Act provides that if a pension plan’s funded status falls below certain levels, more conservative assumptions must be used to value obligations under the pension plan and restrictions on participant benefit accruals may be placed on the plan. The HEI Retirement Plan has fallen below these thresholds and the minimum required contribution estimated for 2012 incorporates the more conservative assumptions required. Other factors could cause changes to the required contribution levels.

Effective April 1, 2011, accelerated distribution options (the $50,000 single sum distribution option and a Social Security level income option) under the HEI Retirement Plan became subject to partial restrictions because the funded status of the HEI Retirement Plan was deemed to be less than 80%. Generally, while the partial restrictions are in effect, a retiring participant may only elect an accelerated distribution option for 50% of the participant’s total benefit. The partial restrictions are expected to continue through 2012.

The components of net periodic benefit cost were as follows:

Three months ended March 31	Pension benefits						Other benefits
(in thousands)	2012			2011			2012			2011
Service cost	$	9,802		$	8,565		$	1,048		$	1,223
Interest cost	15,261			14,849			2,205			2,384
Expected return on plan assets	(16,060		)	(15,284		)	(2,579		)	(2,608		)
Amortization of net transition obligation	—			—			(2		)	(2		)
Amortization of net prior service gain	(172		)	(187		)	(451		)	(227		)
Amortization of net actuarial loss	5,869			4,120			440			18
Net periodic benefit cost	14,700			12,063			661			788
Impact of PUC D&Os	(3,857		)	(1,544		)	(680		)	1,018
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	10,843		$	10,519		$	(19	)	$	1,806

HECO and its subsidiaries recorded retirement benefits expense of $8 million and $9 million for the first quarters of 2012 and 2011, respectively. The electric utilities charged a portion of the net periodic benefit cost to electric utility plant.

The utilities have implemented pension and OPEB tracking mechanisms under which all retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time.

Defined contribution plan information.  For the first three months of 2012 and 2011, the utilities’ expense for its defined contribution pension plan was de minimis.