Benefit Plans

12 Months Ended

Dec. 31, 2022

Benefit Plans

Benefit Plans

14. 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 2023 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 2023.

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 2023. These contributions reflect the estimated benefit payments for the unfunded plans and may vary depending on retirements during 2023.

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 2022, 2021 and 2020. 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, 2022, 2021 and 2020 were $9.2 million, $9.1 million and $8.6 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 $15.5 million, $13.5 million and $15.2 million for the years ended December 31, 2022, 2021 and 2020, 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 (loss) 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)	2022		2021		2020		2022		2021		2020
Amounts arising during the year:
Net loss (gain) on pension assets	$	24,047	$	3,581	$	(4,839)	$	—	$	—	$	—
Net (gain) loss on pension obligations		(38,949)		(4,614)		14,935		(5,808)		(2,074)		303
Reclassification adjustments recognized as components of net periodic benefit cost during the year:
Net (gain) loss		(5,643)		(6,961)		(5,806)		497		48		211
Prior service credit		—		—		—		—		—		51
Amount recognized in other comprehensive (loss) income	$	(20,545)	$	(7,994)	$	4,290	$	(5,311)	$	(2,026)	$	565

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, 2022 and 2021:

	Pension Benefits				Other Benefits
(dollars in thousands)	2022		2021		2022		2021
Net actuarial loss (gain)	$	15,812	$	36,357	$	(8,405)	$	(3,094)
Prior service credit		—		—		—		—
Total, pretax effect		15,812		36,357		(8,405)		(3,094)
Tax impact		(4,218)		(9,698)		2,242		825
Ending balance in accumulated other comprehensive loss	$	11,594	$	26,659	$	(6,163)	$	(2,269)

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

	Pension Benefits				Other Benefits
(dollars in thousands)	2022		2021		2022		2021
Benefit obligation at beginning of year	$	204,432	$	219,392	$	21,362	$	22,538
Service cost		—		—		789		874
Interest cost		5,518		5,065		565		515
Actuarial gain		(38,949)		(4,614)		(5,808)		(2,074)
Benefit payments		(15,413)		(15,411)		(483)		(491)
Benefit obligation at end of year	$	155,588	$	204,432	$	16,425	$	21,362

The actuarial gains related to changes in the Company’s PBO for pension benefits and APBO for other benefits are primarily due to changes in discount rates for both years ended December 31, 2022 and 2021.

	Pension Benefits				Other Benefits
(dollars in thousands)	2022		2021		2022		2021
Fair value of plan assets at beginning of year	$	106,648	$	114,795	$	—	$	—
Actual return on plan assets		(20,924)		(536)		—		—
Benefit payments from trust		(7,575)		(7,611)		—		—
Fair value of plan assets at end of year	$	78,149	$	106,648	$	—	$	—

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, 2022 and 2021:

	Pension Benefits				Other Benefits
(dollars in thousands)	2022		2021		2022		2021
Pension assets for overfunded plans	$	8,713	$	15,345	$	—	$	—
Pension liabilities for underfunded plans		(86,152)		(113,129)		(16,425)		(21,362)
Funded status	$	(77,439)	$	(97,784)	$	(16,425)	$	(21,362)

The following table provides information regarding the PBO, accumulated benefit obligation (“ABO”), and fair value of plan assets as of December 31, 2022 and 2021:

	Funded Pension Plan				Unfunded Pension Plans				Total Pension Plans
(dollars in thousands)	2022		2021		2022		2021		2022		2021
Projected benefit obligation	$	69,436	$	91,303	$	86,152	$	113,129	$	155,588	$	204,432
Accumulated benefit obligation		69,436		91,303		86,152		113,129		155,588		204,432
Fair value of plan assets		78,149		106,648		—		—		78,149		106,648
Overfunded (underfunded) portion of PBO/ABO		8,713		15,345		(86,152)		(113,129)		(77,439)		(97,784)

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 (gain) and amortization for the years ended December 31, 2022 and 2021:

	Pension Benefits				Other Benefits
(dollars in thousands)	2022		2021		2022		2021
Net actuarial loss (gain) at beginning of year	$	36,357	$	44,351	$	(3,094)	$	(1,068)
Amortization cost		(5,643)		(6,961)		497		48
Liability gain		(38,949)		(4,614)		(5,808)		(2,074)
Asset loss		24,047		3,581		—		—
Net actuarial loss (gain) at end of year	$	15,812	$	36,357	$	(8,405)	$	(3,094)

The following table sets forth the components of net periodic benefit cost for the years ended December 31, 2022, 2021 and 2020:

	Income line item where recognized in	Pension Benefits						Other Benefits
(dollars in thousands)	the consolidated statements of income	2022		2021		2020		2022		2021		2020
Service cost	Salaries and employee benefits	$	—	$	—	$	—	$	789	$	874	$	768
Interest cost	Other noninterest expense		5,518		5,065		6,519		565		515		640
Expected return on plan assets	Other noninterest expense		(3,124)		(3,044)		(4,800)		—		—		—
Prior service credit	Other noninterest expense		—		—		—		—		—		(51)
Recognized net actuarial loss (gain)	Other noninterest expense		5,643		6,961		5,806		(497)		(48)		(211)
Total net periodic benefit cost		$	8,037	$	8,982	$	7,525	$	857	$	1,341	$	1,146

The funded pension benefit amounts included in pension benefits for the years ended December 31, 2022, 2021 and 2020 were as follows:

	Funded Pension Benefits
(dollars in thousands)	2022		2021		2020
Interest cost	$	2,466	$	2,261	$	2,946
Expected return on plan assets		(3,124)		(3,044)		(4,800)
Recognized net actuarial loss		1,906		1,609		1,421
Total net periodic benefit cost	$	1,248	$	826	$	(433)

Assumptions

The following weighted-average assumptions were used to determine benefit obligations at December 31, 2022 and 2021:

	FHI ERP Pension Benefits				SERP Pension Benefits				Other Benefits
	2022		2021		2022		2021		2022		2021
Discount rate	5.57	%	2.77	%	5.57	%	2.77	%	5.57	%	2.77	%
Rate of compensation increase	NA		NA		NA		NA		NA		NA

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2022, 2021 and 2020 were as follows:

	FHI ERP Pension Benefits						SERP Pension Benefits						Other Benefits
	2022		2021		2020		2022		2021		2020		2022		2021		2020
Discount rate	2.77	%	2.37	%	3.16	%	2.77	%	2.37	%	3.16	%	2.77	%	2.37	%	3.16	%
Expected long-term return on plan assets	3.05	%	2.75	%	4.40	%	NA		NA		NA		NA		NA		NA
Rate of compensation increase	NA		NA		NA		NA		NA		NA		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, 2022, 2021 and 2020:

	2022		2021		2020
Healthcare cost trend rate assumed for next year	6.00	%	6.00	%	6.25	%
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	2028		2026		2026

Plan Assets

The Company’s pension plan assets were allocated as follows as of December 31, 2022 and 2021:

	Asset Allocation
	2022		2021
Equity securities	11	%	11	%
Debt securities	87	%	85	%
Other securities	2	%	4	%
Total	100	%	100	%

There were no holdings of FHI or BNPP stock included in equity securities at December 31, 2022 and 2021.

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 2022 net periodic pension cost to be 3.05%. 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, 2022, was as follows:

	Target
	Allocation
Equity securities	10	%
Debt securities	88	%
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
2023	$	15,453	$	1,217
2024		15,115		1,345
2025		15,263		1,413
2026		15,350		1,468
2027		14,397		1,530
2028 to 2032		63,403		7,810

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 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 plan assets at December 31, 2022 and 2021, by asset class, were as follows:

	December 31, 2022
	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	$	1,712	$	—	$	—	$	1,712
Fixed income - U.S. Treasury securities		—		6,593		—		6,593
Fixed income - U.S. government agency securities		—		6,656		—		6,656
Fixed income - U.S. corporate securities		—		53,051		—		53,051
Fixed income - municipal securities		—		382		—		382
Fixed income - international securities		1,199		—		—		1,199
Equity - large-cap exchange-traded funds		5,544		—		—		5,544
Equity - mid-cap exchange-traded funds		1,001		—		—		1,001
Equity - small-cap exchange-traded funds		461		—		—		461
Equity - international funds		1,550		—		—		1,550
Total	$	11,467	$	66,682	$	—	$	78,149

	December 31, 2021
	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	$	4,451	$	—	$	—	$	4,451
Fixed income - U.S. Treasury securities		—		8,343		—		8,343
Fixed income - U.S. government agency securities		—		9,674		—		9,674
Fixed income - U.S. corporate securities		—		69,926		—		69,926
Fixed income - municipal securities		—		495		—		495
Fixed income - international securities		1,779		—		—		1,779
Equity - large-cap exchange-traded funds		7,840		—		—		7,840
Equity - mid-cap exchange-traded funds		1,360		—		—		1,360
Equity - small-cap exchange-traded funds		654		—		—		654
Equity - international funds		2,126		—		—		2,126
Total	$	18,210	$	88,438	$	—	$	106,648

No fair value measurements used Level 3 inputs as of December 31, 2022 and 2021.

The plan’s investments in fixed income securities represent approximately 86.9% and 84.6% of total plan assets as of December 31, 2022 and 2021, respectively, which is the most significant concentration of risk in the plan.

Valuation Methodologies

Cash and cash equivalents — includes institutional money market funds, whose carrying value represents fair value because of their short-term maturities of the instruments held by these funds.

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.

International securities — includes investment-grade debt securities issued by international corporations. 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.