Benefit Plans

12 Months Ended

Dec. 31, 2019

Benefit Plans

Benefit Plans

15. Benefit Plans

Qualified Pension Plan

The Company’s employees participate in the Employees’ Retirement Plan of First Hawaiian, Inc. (the “FHI ERP”). The FHI ERP is a frozen plan whereby there are no further benefit accruals for the Company’s employees. However, employees retain rights to participant benefits accrued as of the date of the plan freeze.

No contributions to the pension trust are expected to be made during 2020 for the Company’s participants in the FHI ERP. However, should contributions be required in accordance with the funding rules under the Employee Retirement Income Security Act of 1974 (“ERISA”), including the impact of the Pension Protection Act of 2006, the Company would make those required contributions.

Nonqualified Pension and Other Postretirement Benefit Plans

The Company also sponsors an unfunded supplemental executive retirement plan for certain key executives (“SERP”). In addition, the Company sponsors a directors’ retirement plan (“Directors’ Plan”), a non-qualified pension plan for eligible FHI and FHB directors that qualify for retirement benefits based on their years of service as a director. Both the SERP and the Directors’ Plan were frozen as of January 1, 2005 to new participants. In March 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP, which became effective on July 1, 2019. As a result of the amendment, since the effective date, there have not been any, and there will be no, new accruals of benefits, including service accruals. Existing benefits under the SERP, as of the effective date of the amendment described above, will otherwise continue in accordance with the terms of the SERP. No contributions to the SERP are expected to be made in 2020.

A postretirement benefit plan is also offered to eligible employees that provides life insurance and healthcare benefits upon retirement. The Company provides access to medical coverage for eligible retirees under age 65 at active employee premium rates and a monthly stipend to both retiree and retiree’s spouse after age 62.

The Company expects to contribute $0.2 million to its Directors’ Plan and $1.2 million to its postretirement medical and life insurance plans in 2020. These contributions reflect the estimated benefit payments for the unfunded plans and may vary depending on retirements during 2020.

Defined Contribution Plans

401(k) Savings Plan and Money Purchase Pension Plan

The Company matched employee contributions to the First Hawaiian, Inc. 401(k) Savings Plan, a qualified defined contribution plan, up to 5%of the employee’s pay in 2019 and 2018. The Company also contributed 2.5% of employee pay to the First Hawaiian, Inc. Future Plan, a money purchase pension plan. The plans cover all employees who satisfy eligibility requirements. A select group of key executives who participate in an unqualified grandfathered supplemental executive retirement plan may participate in the 401(k) plan but are not eligible to receive the matching contribution.

The employer contributions to the above-mentioned plans for the years ended December 31, 2019, 2018 and 2017 were $7.5 million, $7.8 million and $7.3 million, respectively, and are included in salaries and employee benefits within the consolidated statements of income.

Annual Incentive Awards for Key Executives

The Company makes cash-based annual incentive awards under the First Hawaiian, Inc. Bonus Plan (the “Bonus Plan”). The Bonus Plan limits the aggregate and individual value of the awards that could be issued in any one fiscal year. The Bonus Plan expenses totaled $15.6 million, $14.3 million and $13.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, and are included in salaries and employee benefits within the consolidated statements of income.

The following table details the amounts recognized in other comprehensive income during the years presented. Pension benefits include benefits from the qualified and non-qualified plans. Other benefits include life insurance and healthcare benefits from the postretirement benefit plan.

	Pension Benefits						Other Benefits
(dollars in thousands)	2019		2018		2017		2019		2018		2017
Amounts arising during the year:
Net (gain) loss on pension assets	$	(16,278)	$	12,209	$	(8,619)	$	—	$	—	$	—
Net loss (gain) on pension obligations		21,512		(6,619)		9,757		540		(2,755)		(34)
Reclassification adjustments recognized as components of net periodic benefit cost during the year:
Net (gain) loss		(6,995)		(7,315)		(8,625)		385		—		—
Prior service credit		—		—		—		429		429		429
Amount recognized in other comprehensive income	$	(1,761)	$	(1,725)	$	(7,487)	$	1,354	$	(2,326)	$	395

The following table shows the amounts within accumulated other comprehensive loss that had not yet been recognized as components of net periodic benefit cost as of December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Net actuarial loss (gain)	$	40,061	$	41,822	$	(1,582)	$	(2,507)
Prior service credit		—		—		(51)		(480)
Total, pretax effect		40,061		41,822		(1,633)		(2,987)
Tax impact		(10,786)		(11,260)		440		804
Ending balance in accumulated other comprehensive loss	$	29,275	$	30,562	$	(1,193)	$	(2,183)

The following table provides the amounts within accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2020:

	Pension		Other
(dollars in thousands)	Benefits		Benefits
Amortization of prior service credit	$	—	$	(51)
Amortization of net actuarial loss (gain)		5,753		(103)
Total to be recognized in 2020	$	5,753	$	(154)

The following tables summarize the changes to projected benefit obligation (“PBO”) and fair value of plan assets for pension benefits and accumulated postretirement benefit obligation and fair value of plan assets for other benefits:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Benefit obligation at beginning of year	$	199,072	$	212,981	$	19,716	$	21,449
Service cost		14		696		710		750
Interest cost		8,261		7,362		808		739
Actuarial loss (gain)		22,573		(6,619)		540		(2,755)
Curtailment gain		(1,061)		—		—		—
Benefit payments		(15,574)		(15,348)		(469)		(467)
Benefit obligation at end of year	$	213,285	$	199,072	$	21,305	$	19,716

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Fair value of plan assets at beginning of year	$	99,581	$	114,220	$	—	$	—
Actual return on plan assets		20,863		(6,936)		—		—
Benefit payments from trust		(7,785)		(7,703)		—		—
Fair value of plan assets at end of year	$	112,659	$	99,581	$	—	$	—

The following table summarizes the funded status of the Company’s plans and amounts recognized in the Company’s consolidated balance sheets as of December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Pension assets for overfunded plans	$	16,291	$	8,702	$	—	$	—
Pension liabilities for underfunded plans		(116,917)		(108,193)		(21,305)		(19,716)
Funded status	$	(100,626)	$	(99,491)	$	(21,305)	$	(19,716)

The following table provides information regarding the PBO, accumulated benefit obligation (“ABO”), and fair value of plan assets as of December 31, 2019 and 2018:

	Funded Pension Plan				Unfunded Pension Plans				Total Pension Plans
(dollars in thousands)	2019		2018		2019		2018		2019		2018
Projected benefit obligation	$	96,368	$	90,879	$	116,917	$	108,193	$	213,285	$	199,072
Accumulated benefit obligation		96,368		90,879		116,834		106,357		213,202		197,236
Fair value of plan assets		112,659		99,581		—		—		112,659		99,581
Overfunded (underfunded) portion of PBO/ABO		16,291		8,702		(116,917)		(108,193)		(100,626)		(99,491)

The Company recognizes the overfunded and underfunded status of its pension plans as an asset and liability in the consolidated balance sheets.

Unrecognized net gains or losses that exceed 5% of the greater of the PBO or the fair value of plan assets as of the beginning of the year are amortized on a straight-line basis over five years in accordance with ASC 715. Amortization of the unrecognized net gain or loss is included as a component of net periodic pension cost. If amortization results in an amount less than the minimum amortization required under GAAP, the minimum required amount is recorded.

The following table summarizes the change in net actuarial loss and amortization for the years ended December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Net actuarial loss (gain) at beginning of year	$	41,822	$	43,547	$	(2,507)	$	248
Amortization cost		(6,995)		(7,315)		385		—
Liability loss (gain)		21,512		(6,619)		540		(2,755)
Asset (gain) loss		(16,278)		12,209		—		—
Net actuarial loss (gain) at end of year	$	40,061	$	41,822	$	(1,582)	$	(2,507)

The following table sets forth the components of net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017:

	Income line item where recognized in	Pension Benefits						Other Benefits
(dollars in thousands)	the consolidated statements of income	2019		2018		2017		2019		2018		2017
Service cost	Salaries and employee benefits	$	14	$	696	$	629	$	710	$	750	$	738
Interest cost	Other noninterest expense		8,261		7,362		8,297		808		739		776
Expected return on plan assets	Other noninterest expense		(4,585)		(5,273)		(5,003)		—		—		—
Prior service credit	Other noninterest expense		—		—		—		(429)		(429)		(429)
Recognized net actuarial loss (gain)	Other noninterest expense		6,995		7,315		8,625		(385)		—		—
Total net periodic benefit cost		$	10,685	$	10,100	$	12,548	$	704	$	1,060	$	1,085

The funded pension benefit amounts included in pension benefits for the years ended December 31, 2019, 2018 and 2017 were as follows:

	Funded Pension Benefits
(dollars in thousands)	2019		2018		2017
Interest cost	$	3,808	$	3,420	$	3,922
Expected return on plan assets		(4,585)		(5,273)		(5,003)
Recognized net actuarial loss		3,714		2,600		4,316
Total net periodic benefit cost	$	2,937	$	747	$	3,235

Assumptions

The following weighted-average assumptions were used to determine benefit obligations at December 31, 2019 and 2018:

	FHI ERP Pension Benefits				SERP Pension Benefits				Other Benefits
	2019		2018		2019		2018		2019		2018
Discount rate	3.16	%	4.30	%	3.16	%	4.30	%	3.16	%	4.30	%
Rate of compensation increase	NA		NA		4.00	%	4.00	%	NA		NA

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:

	FHI ERP Pension Benefits						SERP Pension Benefits						Other Benefits
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Discount rate	4.30	%	3.51	%	4.05	%	4.30	%	3.51	%	4.05	%	4.30	%	3.51	%	4.05	%
Expected long-term return on plan assets	4.75	%	4.75	%	4.75	%	NA		NA		NA		NA		NA		NA
Rate of compensation increase	NA		NA		NA		4.00	%	4.00	%	4.00	%	NA		NA		NA

To select the discount rate, the Company reviews the yield on high quality corporate bonds. This rate is adjusted to convert the yield to an annual discount rate basis and may be adjusted for the population of plan participants to reflect the expected duration of the benefit payments of the plan.

Assumed healthcare cost trend rates were as follows at December 31, 2019, 2018 and 2017:

	2019		2018		2017
Healthcare cost trend rate assumed for next year	6.50	%	7.00	%	7.00	%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2026		2026		2026

A one percentage-point change in the assumed healthcare cost trend rates would have had the following pre-tax effect:

	One Percentage-		One Percentage-
(dollars in thousands)	Point Increase		Point Decrease
Effect on 2019 total of service and interest cost components	$	75	$	(67)
Effect on postretirement benefit obligation at December 31, 2019		353		(328)

Plan Assets

The Company’s pension plan assets were allocated as follows as of December 31, 2019 and 2018:

	Asset Allocation
	2019		2018
Equity securities	31	%	29	%
Debt securities	66	%	69	%
Other securities	3	%	2	%
Total	100	%	100	%

There were no holdings of FHI or BNPP stock included in equity securities at December 31, 2019 and 2018.

The assets within the pension plan are managed in accordance with ERISA. The objective of the plan is to achieve, over full market cycles, a compounded annual rate of return equal to or greater than the pension plan’s expected long-term rate of return. The pension plan’s participants recognize that capital markets can be unpredictable and that any investment could result in periods where the market value of the pension plan’s assets will decline in value. Asset allocation is likely to be the primary determinant of the pension plan’s return and the associated volatility of returns for the pension plan. The Company estimated the long-term rate of return for the 2019 net periodic pension cost to be 4.75%. The return was selected based on a model of U.S. capital market assumptions with expected returns reflecting the anticipated asset allocation of the pension plan.

The target asset allocation for the pension plan at December 31, 2019, was as follows:

	Target
	Allocation
Equity securities	30	%
Debt securities	68	%
Other securities	2	%

Estimated Future Benefit Payments

The following table presents benefit payments that are expected to be paid over the next ten years, giving consideration to expected future service as appropriate:

	Pension		Other
(dollars in thousands)	Benefits		Benefits
2020	$	16,120	$	1,205
2021		15,902		1,315
2022		15,580		1,410
2023		15,176		1,487
2024		14,739		1,546
2025 to 2029		69,769		8,085

Fair Value Measurement of Plan Assets

The Company’s overall investment strategy includes a wide diversification of asset types, fund strategies and fund managers. Investments in mutual funds and exchange-traded funds consist primarily of investments in large-cap companies located in the United States. Fixed income securities include U.S. government agencies and corporate bonds of companies from diversified industries.

The fair values of the Company’s pension plans assets at December 31, 2019 and 2018, by asset class, were as follows:

	December 31, 2019
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Asset classes:
Cash and cash equivalents	$	2,824	$	—	$	—	$	2,824
Fixed income - U.S. Treasury securities		—		4,053		—		4,053
Fixed income - U.S. government agency securities		—		3,504		—		3,504
Fixed income - U.S. corporate securities		—		58,808		—		58,808
Fixed income - municipal securities		—		484		—		484
Fixed income - mutual funds		6,204		—		—		6,204
Fixed income - international securities		1,544		—		—		1,544
Equity - large-cap exchange-traded funds		23,278		—		—		23,278
Equity - mid-cap exchange-traded funds		3,379		—		—		3,379
Equity - small-cap exchange-traded funds		1,645		—		—		1,645
Equity - international funds		6,936		—		—		6,936
Total	$	45,810	$	66,849	$	—	$	112,659

	December 31, 2018
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Asset classes:
Cash and cash equivalents	$	2,428	$	—	$	—	$	2,428
Fixed income - U.S. Treasury securities		—		4,450		—		4,450
Fixed income - U.S. government agency securities		—		3,565		—		3,565
Fixed income - U.S. corporate securities		—		53,721		—		53,721
Fixed income - municipal securities		—		451		—		451
Fixed income - mutual funds		6,272		—		—		6,272
Equity - large-cap mutual funds		8,831		—		—		8,831
Equity - large-cap exchange-traded funds		10,482		—		—		10,482
Equity - mid-cap exchange-traded funds		2,544		—		—		2,544
Equity - small-cap exchange-traded funds		1,176		—		—		1,176
Equity - international funds		5,661		—		—		5,661
Total	$	37,394	$	62,187	$	—	$	99,581

No fair value measurements used Level 3 inputs as of December 31, 2019 and 2018.

The plan’s investments in fixed income securities represent approximately 66.2% and 68.7% of total plan assets as of December 31, 2019 and 2018, respectively, which is the most significant concentration of risk in the plan.

Valuation Methodologies

Cash and cash equivalents — includes investments in money market funds. Carrying value is a reasonable estimate of fair value based on the short-term nature of the instruments.

U.S. Treasury securities — includes securities issued by the U.S. government valued at fair value based on observable market prices for similar securities or other market observable inputs.

U.S. government agency securities — includes investment-grade debt securities issued by U.S. government agencies. These securities are valued at fair value based upon the quoted market values of the underlying net assets.

U.S. corporate securities — includes investment-grade debt securities issued by U.S. corporations. These securities are valued at fair value based on observable market prices for similar securities or other market observable inputs.

Municipal securities — includes bonds issued by a city or other local government, or their agencies. Potential issuers of municipal bonds include cities, counties, redevelopment agencies, special-purpose districts, school districts, public utility districts, publicly owned airports and seaports, and any other governmental entity (or group of governments) below the state level. Municipal bonds may be general obligations of the issuer or secured by specified revenues. These securities are valued at fair value based on observable market prices for similar securities or other market observable inputs.

Mutual funds — includes an open-end fixed-income fund benchmarked to the Barclay’s Capital U.S. Government/Credit Bond Index. At least 80% of its assets are high-grade corporate bonds and U.S. government debt obligations. The fair value is based upon the quoted market values of the underlying net assets.

Large-cap mutual funds — includes open-end equity funds holding a diversified portfolio of large-cap domestic equity securities. The portfolio has a bias towards stocks with growth characteristics and stocks with high cash flow and growing dividends. The fair value is based upon the quoted market values of the underlying net assets.

Large-cap exchange-traded fund — includes an exchange-traded fund which invests mainly in U.S. large-cap stocks such as those in the S&P 500 index. The fair value is based upon the quoted market values of the underlying net assets.

Mid-cap exchange-traded funds — includes broadly-diversified exchange-traded funds which invest in U.S. mid-cap stocks such as those in the S&P 400 Mid Cap index. The fair value is based upon the quoted market values of the underlying net assets.

Small-cap exchange-traded funds — includes broadly-diversified exchange-traded funds which invest in U.S. small-cap stocks such as those in the S&P 600 Small Cap index. The fair value is based upon the quoted market values of the underlying net assets.

International funds — includes well-diversified exchange-traded funds tracking broad-based international equity indexes. The fair value is based upon the quoted market values of the underlying net assets.