Employee Benefits

The Company has defined contribution plans, defined benefit plans, and a postretirement benefit plan.

Defined Contribution Plans

The Bank of Hawaii Retirement Savings Plan (the “Savings Plan”) has three Company contribution components in addition to employee contributions: 1) 401(k) matching, as described below; 2) a 3% fixed amount based on eligible compensation; and 3) a discretionary value-sharing contribution.

Under the 401(k) matching component, participating employees may contribute up to 50% of their eligible compensation (within federal limits) to the Savings Plan. The Company makes matching contributions on behalf of participants equal to $1.25 for each $1.00 contributed by participants, up to 2% of the participants’ eligible compensation, and $0.50 for every $1.00 contributed by participants over 2%, up to 5% of the participants’ eligible compensation. A 3% fixed contribution and a discretionary value-sharing contribution, that is linked to the Company’s financial goals, are made regardless of whether the participating employee contributes to the Savings Plan and are invested in accordance with the participant’s selection of investment options available under the Savings Plan. The Company also has a non-qualified savings plan which covers certain employees with compensation exceeding Internal Revenue Service (“IRS”) limits on pay amounts in the allocation of the Savings Plan’s benefits. Total expense for all components of the Company’s defined contribution plans was $13.5 million, $12.8 million, and $12.0 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Defined Benefit Plans

The Company has two defined benefit plans (the “Pension Plans”). In 1995, the Company froze its non-contributory, qualified defined benefit retirement plan (the “Retirement Plan”) and the excess retirement plan (the “Excess Plan”), which covered employees of the Company and participating subsidiaries who met certain eligibility requirements. Beginning January 1, 2001, the Pension Plans no longer provided for compensation increases in the determination of benefits. The projected benefit obligation is equal to the accumulated benefit obligation due to the frozen status of the Pension Plans.

The assets of the Retirement Plan primarily consist of equity and fixed income mutual funds.

The Excess Plan is a non-qualified excess retirement benefit plan which covers certain employees of the Company and participating subsidiaries with compensation exceeding IRS limits on pay amounts applicable to the Pension Plan’s benefit formula. The Excess Plan has no plan assets. The Excess Plan’s projected benefit obligation and accumulated benefit obligation were $3.9 million and $4.0 million as of December 31, 2017 and 2016, respectively.

Postretirement Benefit Plan

The Company’s postretirement benefit plan provides retirees hired before January 1, 2012 with medical and dental insurance coverage. For eligible participants that retired before 2008 and met certain age requirements, the Company and retiree share in the cost of providing postretirement benefits where both the employer and retiree pay a portion of the insurance premiums. Eligible participants who retired before 2008 who did not meet certain age requirements continued on the Company’s benefit plans, but pay for their full insurance premiums. Participants who retired on or after January 1, 2008, who had medical or dental coverage under the Company’s plans immediately before retirement and meet certain age and years of service requirements as of December 31, 2008 are also eligible to participate in the Company’s benefit plans, but must pay for their full insurance premiums. Retirees age 65 and older are provided with a Medicare supplemental plan subsidy. Most employees of the Company who have met certain eligibility requirements are covered by this plan. Participants who retired on or after January 1, 2008 who met certain age and/or years of service requirements are eligible for the Health Reimbursement Account (“HRA”) program. The HRA program provides retirees with an initial credit based on years of service. Thereafter, an annual credit up to a maximum of $1,200 is provided into the HRA. The retiree may use the HRA for medical, vision, prescription drug and dental premiums, co-payments, and medically necessary health care expenses that are not covered by any medical or dental insurance program or flexible health spending account. The plan was amended to provide access-only coverage for employees hired on or after January 1, 2012, and lowered eligibility for access from age 55 to age 50. These retirees continue on the medical and dental plan until age 65 paying the full premium. As of December 31, 2017 and 2016, the Company had no segregated assets to provide for postretirement benefits.

The following table provides a reconciliation of changes in benefit obligation and fair value of plan assets, as well as the funded status recognized in the Company’s consolidated statements of condition for the Pension Plans and postretirement benefit plan for the years ended December 31, 2017 and 2016.



	Pension Benefits						Postretirement Benefits
(dollars in thousands)	2017			2016			2017			2016
Benefit Obligation at Beginning of Year	$	107,593		$	105,993		$	24,308		$	25,307
Service Cost	—			—			453			513
Interest Cost	4,665			4,882			1,093			1,134
Plan Amendment ³	—			—			(2,730		)	—
Actuarial Losses (Gains)	6,828			2,708			2,052			(1,846		)
Employer Benefits Paid ¹	(9,006		)	(5,990		)	(970		)	(800		)
Benefit Obligation at End of Year	$	110,080		$	107,593		$	24,206		$	24,308
Fair Value of Plan Assets at Beginning of Year	$	83,383		$	83,858		$	—		$	—
Actual Return on Plan Assets	12,047			5,031			—			—
Employer Contributions	10,484			484			970			800
Employer Benefits Paid ¹	(9,006		)	(5,990		)	(970		)	(800		)
Fair Value of Plan Assets at End of Year	$	96,908		$	83,383		$	—		$	—
Funded Status at End of Year ²	$	(13,172	)	$	(24,210	)	$	(24,206	)	$	(24,308	)


¹	Participants' contributions relative to the postretirement benefit plan were offset against employer benefits paid in the table above. Participants' contributions for postretirement benefits were $0.5 million and $0.8 million for the years ended December 31, 2017 and 2016, respectively.


²	Amounts are recognized in Retirement Benefits Payable in the consolidated statements of condition.


³	For certain retirees, medical premiums were changed to a full retiree rate instead of a blended rate.

The following presents the amounts recognized in the Company’s accumulated other comprehensive income for the Pension Plans and postretirement benefit plan as of December 31, 2017 and 2016.



	Pension Benefits						Postretirement Benefits
(dollars in thousands)	2017			2016			2017		2016
Amounts Recognized in Accumulated Other Comprehensive Income (Loss), Net of Tax
Net Actuarial Gains (Losses)	$	(32,730	)	$	(33,954	)	$	3,143	$	4,647
Net Prior Service Credit	—			—			1,872		415
Total Amounts Recognized in Accumulated Other Comprehensive Income (Loss), Net of Tax	$	(32,730	)	$	(33,954	)	$	5,015	$	5,062

Components of net periodic benefit cost for the Company’s Pension Plans and the postretirement benefit plan are presented in the following table for the years ended December 31, 2017, 2016, and 2015.



	Pension Benefits									Postretirement Benefits
(dollars in thousands)	2017			2016			2015			2017			2016			2015
Service Cost	$	—		$	—		$	—		$	453		$	513		$	621
Interest Cost	4,665			4,882			4,655			1,093			1,134			1,155
Expected Return on Plan Assets	(5,011		)	(5,121		)	(5,222		)	—			—			—
Amortization of:
Prior Service Credit¹	—			—			—			(322		)	(322		)	(322		)
Net Actuarial Losses (Gains) ¹	1,817			1,617			1,713			(435		)	(393		)	(89		)
Net Periodic Benefit Cost	$	1,471		$	1,378		$	1,146		$	789		$	932		$	1,365


¹	Represents reclassification adjustments from accumulated other comprehensive income during the period.

The estimated net actuarial loss related to the Company’s Pension Plans that is expected to be amortized from accumulated other comprehensive income into net periodic benefit cost for the year ending December 31, 2018 is approximately $2.0 million. The estimated net actuarial gain and prior service credit related to the Company’s postretirement benefit plan that is expected to be amortized from accumulated other comprehensive income into net periodic benefit cost for the year ending December 31, 2018 is approximately $0.8 million.

Assumptions used to determine the benefit obligations as of December 31, 2017 and 2016 for the Company’s Pension Plans and postretirement benefit plan were as follows:



	Pension Benefits				Postretirement Benefits
	2017		2016		2017		2016
Weighted Average Assumptions as of December 31:
Discount Rate	3.90	%	4.45	%	3.96	%	4.57	%
Health Care Cost Trend Rate Assumed For Next Year	—		—		6.30	%	6.50	%

The health care cost trend rate is assumed to decrease annually, until reaching the ultimate trend rate of 4.5% in 2036.

Assumptions used to determine the net periodic benefit cost for the Company’s Pension Plans and postretirement benefit plan for the years ended December 31, 2017, 2016, and 2015 were as follows:



	Pension Benefits						Postretirement Benefits
	2017		2016		2015		2017		2016		2015
Weighted Average Assumptions as of December 31:
Discount Rate	4.45	%	4.70	%	4.25	%	4.57	%	4.74	%	4.28	%
Expected Long-Term Rate of Return on Plan Assets	5.75	%	6.00	%	6.00	%	—		—		—
Health Care Cost Trend Rate	—		—		—		6.50	%	6.70	%	7.00	%

A combination of factors is used by management in determining the expected long-term rate of return on plan assets. Historical return experience for major asset categories are evaluated and current market factors, such as inflation and interest rates, are considered in determining the expected long-term rate of return assumption.

A one percent change in the health care cost trend rate assumption (with all other assumptions remaining constant) would have impacted the service and interest cost components of the net periodic postretirement benefit cost and the postretirement benefit obligation as of and for the year ended December 31, 2017 as follows:



(dollars in thousands)	One Percent Increase			One Percent Decrease
Effect on the Total of Service and Interest Cost Component of Net Periodic Postretirement Benefit Cost		$	99		$	(88	)
Effect on the Postretirement Benefit Obligation		1,020			(1,022		)

The Company expects to contribute $0.5 million to the Pension Plans and $0.9 million to the postretirement benefit plan for the year ending December 31, 2018.

As of December 31, 2017, expected benefits to be paid in each of the next five years and in the aggregate for the five years thereafter were as follows:



(dollars in thousands)	Pension Benefits			Postretirement Benefits
2018		$	6,629		$	886
2019		6,812			926
2020		6,944			995
2021		7,070			1,074
2022		7,095			1,181
Years 2023-2027		35,416			7,619

Retirement Plan Assets

The Company’s overall investment strategy is to maintain the purchasing power of the current assets and all future contributions by producing positive rates of return on plan assets; achieve capital growth towards the attainment of full funding of the Retirement Plan’s termination liability; maximize returns within reasonable and prudent levels of risk; and control costs of administering the plan and managing the investments. The long-term investment objective is to achieve an overall annualized total return, gross of fees, above the blended benchmark index comprised of 36% MSCI USA IMI Index, 24% MSCI ACWI ex-US Index, and 40% Barclays Capital Aggregate Bond Index.

Subject to liquidity requirements, the asset allocation targets are 60% for equity securities, 40% for fixed income securities with a 10% to 20% range permitted from the strategic targets, and zero to 20% for cash. Within the equity securities portfolio, the range for domestic securities is from 50% to 100% and the range for international securities is from 0% to 50%. All assets selected for the Retirement Plan must have a readily ascertainable market value and must be readily marketable.

Due to market fluctuations or cash flows, the allocation for each asset class may be breached by as much as 5% on a temporary basis. However, asset allocations are expected to conform to target ranges within 90 days of such an occurrence.

The fair values of the Retirement Plan assets as of December 31, 2017 and 2016 by asset category were as follows:



	Fair Value Measurements
Asset Category (dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Other Unobservable Inputs (Level 3)			Total as of Dec. 31, 2017		Total as of Dec. 31, 2016
Cash		$	2,156		$	—		$	—	$	2,156	$	1,898
Equity Securities – Mutual Funds:
Large-Cap		1,748			—			—		1,748		—
Mixed-Cap		29,459			—			—		29,459		29,593
International		24,539			—			—		24,539		18,040
Emerging Market		2,305			—			—		2,305		2,043
Fixed Income Securities – Mutual Funds		36,701			—			—		36,701		31,809
Total		$	96,908		$	—		$	—	$	96,908	$	83,383

Quoted prices for these investments were available in active markets, and therefore were classified as Level 1 measurements in the fair value hierarchy.