Retirement benefits - HECO

9 Months Ended

Sep. 30, 2011

Retirement benefits

5 · Retirement benefits

Retirement benefit plan changes.  On March 11, 2011, the utilities’ bargaining unit employees 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 modified defined benefit plan (the Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and Participating Subsidiaries) (with a lower payment formula than the formula in the plan for employees hired before May 1, 2011) 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 pension and other postretirement plans information. For the nine months of 2011, HEI contributed $1.2 million (unconsolidated) to its retirement benefit plans, compared to $0.6 million in the first nine 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 September 30												Nine months ended September 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2011			2010			2011			2010			2011			2010			2011			2010
Service cost	$	8,525		$	7,376		$	868		$	1,248		$	26,266		$	21,424		$	3,308		$	3,539
Interest cost	16,137			16,197			2,273			2,565			48,717			48,330			7,151			7,901
Expected return on plan assets	(17,400		)	(17,272		)	(2,687		)	(2,792		)	(51,673		)	(51,687		)	(7,992		)	(8,310		)
Amortization of unrecognized transition obligation	1			1			—			—			2			2			—			—
Amortization of prior service gain	(98		)	(97		)	(587		)	(83		)	(292		)	(291		)	(1,120		)	(187		)
Recognized actuarial loss (gain)	4,005			1,942			115			(5		)	12,724			5,449			170			(8		)
Net periodic benefit cost	11,170			8,147			(18		)	933			35,744			23,227			1,517			2,935
Impact of PUC D&Os	(713		)	2,574			327			1,512			(2,813		)	7,602			3,079			4,133
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	10,457		$	10,721		$	309		$	2,445		$	32,931		$	30,829		$	4,596		$	7,068

Consolidated HEI recorded retirement benefits expense of $28 million and $29 million in the first nine months of 2011 and 2010, respectively, and charged the remaining amounts primarily to electric utility plant.

Defined contribution plans information.  For the first nine months of 2011 and 2010, the Company’s expense for the defined contribution pension plan under the HEIRSP and the ASB 401(k) Plan was $2.6 million and $2.9 million, respectively, and cash contributions were $3.2 million.

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 pension and other postretirement plans information.For the first nine months of 2011, HECO and its subsidiaries contributed $55 million to their retirement benefit plans, compared to $24 million in the first nine 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 depleted in 2010 leaving less credit balance to be applied to 2011, (2) under the Pension Protection Act of 2006, the requirement was to fund 96% of the 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 September 30												Nine months ended September 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2011			2010			2011			2010			2011			2010			2011			2010
Service cost	$	8,182		$	7,097		$	827		$	1,206		$	25,221		$	20,479		$	3,179		$	3,425
Interest cost	14,656			14,816			2,197			2,500			44,308			44,053			6,921			7,667
Expected return on plan assets	(15,574		)	(15,408		)	(2,655		)	(2,759		)	(46,210		)	(46,085		)	(7,881		)	(8,202		)
Amortization of unrecognized transition obligation	—			—			(2		)	(2		)	—			—			(6		)	(6		)
Amortization of prior service gain	(187		)	(186		)	(590		)	(86		)	(561		)	(560		)	(1,129		)	(197		)
Recognized actuarial loss (gain)	3,679			1,925			104			(2		)	11,815			5,377			159			2
Net periodic benefit cost	10,756			8,244			(119		)	857			34,573			23,264			1,243			2,689
Impact of PUC D&Os	(713		)	2,574			327			1,512			(2,813		)	7,602			3,079			4,133
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	10,043		$	10,818		$	208		$	2,369		$	31,760		$	30,866		$	4,322		$	6,822

HECO and its subsidiaries recorded retirement benefits expense of $27 million and $29 million for the first nine months of 2011 and 2010, respectively. The electric utilities charged a portion of the net periodic benefit cost to electric utility plant.