Retirement benefits - HECO

6 Months Ended

Jun. 30, 2011

Retirement benefits

5 · Retirement benefits

Retirement benefit plan changes.  On March 11, 2011, the utilities’ union members ratified a new benefit agreement, which included changes to retirement benefits. Changes to retirement benefits for HEI and utility employees commencing employment after April 30, 2011 include a reduction of benefits provided through the defined benefit plan (the Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and Participating Subsidiaries) and the addition of a 50% match by the applicable employer on the first 6% of employee deferrals through the defined contribution plan (under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP)). In addition, new eligibility rules and contribution levels applicable to existing and new HEI and utility employees were adopted for postretirement welfare benefits.In general, defined pension benefits are based on the employees’ years of service and compensation.

Defined benefit plans. For the six months of 2011, HEI contributed $0.5 million (unconsolidated) to its retirement benefit plans, compared to $0.4 million in the first six months of 2010. HEI’s current estimate of contributions to its retirement benefit plans in 2011 is $2 million (unconsolidated), compared to $1 million in 2010. In addition, HEI expects to pay directly $1 million (unconsolidated) of benefits in 2011, comparable to 2010. For a discussion of HECO’s 2011 estimated contributions to the retirement benefit plans, see Note 4, “Retirement benefits,” of HECO’s Notes to Consolidated Financial Statements.

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

	Three months ended June 30												Six months ended June 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2011			2010			2011			2010			2011			2010			2011			2010
Service cost	$	8,824		$	7,095		$	1,173		$	1,168		$	17,741		$	14,048		$	2,440		$	2,291
Interest cost	16,271			16,093			2,417			2,652			32,580			32,133			4,878			5,336
Expected return on plan assets	(17,172		)	(17,221		)	(2,657		)	(2,766		)	(34,273		)	(34,415		)	(5,305		)	(5,518		)
Amortization of unrecognized transition obligation	—			—			—			—			1			1			—			—
Amortization of prior service gain	(97		)	(97		)	(309		)	(52		)	(194		)	(194		)	(533		)	(104		)
Recognized actuarial loss (gain)	4,314			1,791			40			(2		)	8,719			3,507			55			(3		)
Net periodic benefit cost	12,140			7,661			664			1,000			24,574			15,080			1,535			2,002
Impact of PUC D&Os	(556		)	2,020			1,734			1,333			(2,100		)	5,028			2,752			2,621
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	11,584		$	9,681		$	2,398		$	2,333		$	22,474		$	20,108		$	4,287		$	4,623

Consolidated HEI recorded retirement benefits expense of $20 million and $19 million in the first six months of 2011 and 2010, respectively, and charged the remaining amounts primarily to electric utility plant.

Defined contribution plans.For the first six months of 2011 and 2010, ASB’s expense for its employees participating in the ASB 401(k) Plan was $1.7 million and $1.9 million, respectively. For the first six months of both 2011 and 2010, ASB’s cash contributions to the plan were $2.8 million.

For the first six months of 2011, the Company’s expense for matching contributions under the HEIRSP was immaterial.

Hawaiian Electric Company, Inc. and Subsidiaries

Retirement benefits

4 · Retirement benefits

Retirement benefit plan changes.  See “Retirement benefit plan changes” in Note 5 of HEI’s Notes to Consolidated Financial Statements.

Defined benefit plans. For the first six months of 2011, HECO and its subsidiaries contributed $37 million to their retirement benefit plans, compared to $16 million in the first six months of 2010. HECO and its subsidiaries’ current estimate of contributions to their retirement benefit plans in 2011 is $73 million, compared to contributions of $31 million in 2010. The increase in expected 2011 contributions over 2010 contributions is driven by the minimum funding requirements under the Pension Protection Act of 2006, which were impacted by the following three factors: (1) the credit balance available to apply toward satisfaction of the minimum funding requirements was fully depleted in 2010 leaving no credit balance to be applied to 2011, (2) under the Pension Protection Act of 2006, the requirement was to fund 96% of target liability in 2010, which increased to 100% for 2011 and future years, and (3) lower interest rates. HECO and its subsidiaries expect to pay directly $1 million of benefits in 2011, comparable to 2010.

The components of net periodic benefit cost were as follows:

	Three months ended June 30												Six months ended June 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2011			2010			2011			2010			2011			2010			2011			2010
Service cost	$	8,474		$	6,772		$	1,129		$	1,131		$	17,039		$	13,382		$	2,352		$	2,219
Interest cost	14,803			14,658			2,340			2,571			29,652			29,237			4,724			5,167
Expected return on plan assets	(15,352		)	(15,353		)	(2,618		)	(2,728		)	(30,636		)	(30,677		)	(5,226		)	(5,443		)
Amortization of unrecognized transition obligation	—			—			(2		)	(2		)	—			—			(4		)	(4		)
Amortization of prior service gain	(187		)	(187		)	(312		)	(56		)	(374		)	(374		)	(539		)	(111		)
Recognized actuarial loss	4,016			1,767			37			1			8,136			3,452			55			4
Net periodic benefit cost	11,754			7,657			574			917			23,817			15,020			1,362			1,832
Impact of PUC D&Os	(556		)	2,020			1,734			1,333			(2,100		)	5,028			2,752			2,621
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	11,198		$	9,677		$	2,308		$	2,250		$	21,717		$	20,048		$	4,114		$	4,453

HECO and its subsidiaries recorded retirement benefits expense of $19 million for each of the first six months of 2011 and 2010. The electric utilities charged a portion of the net periodic benefit cost to plant.

Defined contribution plan.  For the first six months of 2011, the utilities’ expense for matching contributions under the HEIRSP was immaterial.