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Section 1: 11-K (11-K)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 11-K

 

x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

 

or

 

o TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 1-8503

 

HAWAIIAN ELECTRIC INDUSTRIES RETIREMENT SAVINGS PLAN

 

Hawaiian Electric Industries, Inc.

 

1001 Bishop Street, Suite 2900, Honolulu, Hawaii 96813

 

 

 



Table of Contents

 

REQUIRED INFORMATION

 

Financial Statements.  The statements of net assets available for benefits at December 31, 2017 and 2016, and the statement of changes in net assets available for benefits for the year ended December 31, 2017, Schedule H, Line 4i — Schedule of Assets (Held at End of Year) at December 31, 2017, together with notes to financial statements, and Accuity LLP’s Report of Independent Registered Public Accounting Firms thereon, are filed as a part of this annual report, as listed in the accompanying index.

 

Exhibit.  The written consent of Accuity LLP with respect to the incorporation by reference of the Plan’s financial statements and supplemental schedule in registration statement No. 333-02103 on Form S-8 of Hawaiian Electric Industries, Inc. is filed as a part of this annual report and attached hereto as Exhibit 23.1.

 



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SIGNATURES

 

The Plan.  Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

HAWAIIAN ELECTRIC INDUSTRIES

 

RETIREMENT SAVINGS PLAN

 

 

 

 

 

 

Date: June 28, 2018

By:

HAWAIIAN ELECTRIC INDUSTRIES, INC.

 

 

PENSION INVESTMENT COMMITTEE

 

 

Its Named Fiduciary

 

 

 

 

 

 

 

By:

/s/ Gregory C. Hazelton

 

 

Gregory C. Hazelton

 

 

Its Chairman

 

 

 

 

 

 

 

By:

/s/ Kurt K. Murao

 

 

Kurt K. Murao

 

 

Its Secretary

 



Table of Contents

 

Hawaiian Electric Industries

Retirement Savings Plan

Financial Statements and Supplemental Schedule

December 31, 2017 and 2016

 



Table of Contents

 

Hawaiian Electric Industries

Retirement Savings Plan

Index

 

 

Page(s)

 

 

Report of Independent Registered Public Accounting Firm

1

 

 

Financial Statements

 

 

 

Statements of Net Assets Available for Benefits
December 31, 2017 and 2016

2

 

 

Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2017

3

 

 

Notes to Financial Statements
December 31, 2017 and 2016

4–14

 

 

Supplemental Schedule

 

 

 

Schedule H, Line 4i — Schedule of Assets (Held at End of Year) at December 31, 2017

15

 

 

Exhibit

 

 

 

Exhibit 23.1 — Consent of Independent Registered Public Accounting Firm

 

 



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Administrator

Hawaiian Electric Industries Retirement Savings Plan and

Audit Committee and Pension Investment Committee of

Hawaiian Electric Industries, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying statements of net assets available for benefits of the Hawaiian Electric Industries Retirement Savings Plan (the Plan) as of December 31, 2017 and 2016, and the related statement of changes in net assets available for benefits for the year ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2017 and 2016, and the changes in net assets available for benefits for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Supplemental Information

 

The supplemental information contained in the Schedule of Assets (Held at End of Year) has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.

 

/s/ Accuity LLP

We have served as the Plan’s auditors since 2017.

 

Honolulu, Hawaii

June 28, 2018

 



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Hawaiian Electric Industries

Retirement Savings Plan

Statements of Net Assets Available for Benefits

 

December 31

 

2017

 

2016

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Plan interest in Master Trust

 

 

 

 

 

Investments, at fair value

 

$

541,584,857

 

$

460,919,615

 

Notes receivable from participants

 

7,888,382

 

7,135,749

 

Participant contributions receivable

 

483,073

 

446,755

 

Employer contributions receivable

 

123,811

 

51,188

 

Due from Fidelity

 

5,174

 

11,245

 

Total assets

 

550,085,297

 

468,564,552

 

Liabilities

 

 

 

 

 

Accounts payable

 

6,687

 

5,515

 

Net assets available for benefits

 

$

550,078,610

 

$

468,559,037

 

 

The accompanying notes are an integral part of these financial statements.

 

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Hawaiian Electric Industries

Retirement Savings Plan

Statement of Changes in Net Assets Available for Benefits

 

Year Ended December 31

 

2017

 

 

 

 

 

Additions

 

 

 

Investment income

 

 

 

Plan interest in Master Trust

 

 

 

Net appreciation in fair value of investments

 

$

56,945,330

 

Dividends and interest

 

25,912,248

 

Total investment income

 

82,857,578

 

Master Trust interest from notes receivable from participants

 

385,443

 

Revenue credit

 

20,696

 

Contributions

 

 

 

Participants

 

25,153,590

 

Employer

 

2,044,122

 

Rollover

 

1,639,008

 

Total contributions

 

28,836,720

 

Total additions

 

112,100,437

 

Deductions

 

 

 

Distributions to participants

 

(30,522,958

)

Administrative expenses and other

 

(57,906

)

Total deductions

 

(30,580,864

)

Net increase

 

81,519,573

 

Net assets available for benefits

 

 

 

Beginning of year

 

468,559,037

 

End of year

 

$

550,078,610

 

 

The accompanying notes are an integral part of these financial statements.

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

1.                            Plan Description

 

The Hawaiian Electric Industries Retirement Savings Plan (the “Plan” or “HEIRS Plan”) was established by Hawaiian Electric Industries, Inc. (the “Company” or “HEI”) effective April 1, 1984.  The Plan is a defined contribution 401(k) plan that provides certain tax-favored retirement benefits to participating employees.  As of December 31, 2017, the participating employers in the Plan were HEI, Hawaiian Electric Company, Inc. (“Hawaiian Electric”), Maui Electric Company, Limited (“Maui Electric”), and Hawaii Electric Light Company, Inc. (“Hawaii Electric Light”) (collectively, “Participating Employers”).

 

The following description of the Plan provides only general information.  Participants should refer to the Plan document for its detailed provisions, which are also summarized in the most recent prospectus for the Plan and in the summary plan description:

 

a.                   Plan Administration

 

HEI is the Administrator of the Plan.  The board of directors of HEI has established the Pension Investment Committee (“PIC”) to oversee the administration of the Plan and the investment options offered under the Plan.  The PIC has appointed an Administrative Committee to oversee the day-to-day administration of the Plan, which includes the discretionary authority to interpret the Plan’s provisions.  The PIC has also appointed an Investment Committee to oversee the day-to-day financial affairs of the Plan.  The members of the Administrative and Investment Committees are employees of HEI and its subsidiaries and are chaired by a member of the PIC.

 

The Participating Employers and the Plan currently pay the Plan’s administrative fees.  The Plan’s trustee and certain of the mutual funds offered under the Plan also provide revenue credits to the Plan, which are used to pay for Plan administration, including recordkeeping.  Fees charged directly to the Plan that are not paid by revenue credits may be allocated to participant accounts.  Participants may also be assessed interest and fees related to participants’ notes receivable and withdrawals.

 

b.                   Eligibility

 

All nonbargaining unit employees of the Participating Employers (other than leased employees or contract employees hired for specific tasks or assignments) are eligible to participate in the Plan upon one hour of service.  Bargaining unit employees are eligible to participate in the Plan upon becoming “regular” employees under the terms of the applicable collective bargaining agreement (and subject to any future changes therein).  Participation in the Plan is voluntary for eligible employees.

 

Eligible employees are given a 60-day election period to opt-out of automatic enrollment or to make an affirmative salary reduction election (upon enrollment, the eligible employee is deemed to have elected a 3% salary reduction contribution).

 

c.                    Salary Deferral Contributions

 

Employees participate in the Plan by making salary deferral contributions of up to 30% of compensation, subject to a federal tax limit of $18,000 in 2017.

 

Participants who are age 50 or older, or who attain age 50 during the year, may elect to make catch-up contributions, as defined in the Plan, subject to a federal tax limit of $6,000 in 2017.

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

For purposes of calculating contributions to the Plan, compensation is defined as Box 1, W-2 earnings, modified to (a) exclude discretionary bonuses, fringe benefits, employer nonelective contributions to a cafeteria plan, reimbursements, moving and other expense allowances and special executive compensation; and (b) include nontaxable elective contributions made by a Participating Employer to the Plan, a cafeteria plan or a pretax transportation spending plan.  Special executive compensation is noncash compensation and/or nonqualified deferred compensation, available only to a select group of management employees.

 

Federal tax law limits the amount of annual compensation that may be taken into account in determining contributions to the Plan.  The maximum limit was $270,000 in 2017.

 

A participant may designate all or a portion of a participant’s contribution as a Roth after-tax contribution.  To the extent a participant does not affirmatively designate a contribution as a Roth contribution, such contribution will constitute a pre-tax contribution.

 

d.                   Rollover Contributions

 

A participant or an eligible employee (whether or not a participant) may make a direct rollover to the Plan of an eligible rollover distribution from other qualified defined benefit or defined contribution plans (rollover).  The Plan may accept direct rollovers of after-tax amounts from qualified retirement plans. The Administrative Committee may consider traditional rollovers by eligible employees.  To protect the tax-qualified status of the Plan, the Administrative Committee may ask the eligible employee to provide an opinion of counsel or other evidence to establish that the requirement for a traditional rollover have been satisfied.

 

e.                    Matching Contributions for New Employees

 

Effective May 1, 2011, the Participating Employers began matching the 401(k) contributions of their respective participants who were first employed (or deemed to be new employees under Section 1.2 of the Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and Participating Subsidiaries) after April 30, 2011.  The amount of the match is 50% of the first 6% of annual compensation deferred by the participant (i.e., maximum matching contribution of 3% of the participant’s annual compensation).

 

f.                     Participant Accounts

 

Each participant has an individual account in the Plan, which may include one or more subaccounts.  Each participant is 100% vested in all of the participant’s subaccounts other than a matching contribution subaccount (if any).  A participant’s benefits equal the vested balance in the participant’s account at the time of distribution.  Each participant’s account is credited with the participant’s elective contributions, matching contributions, if applicable, and allocations of Plan earnings and gains or losses (whether realized or unrealized), and charged with an allocation of any administrative expenses paid directly by the Plan or charged directly to the participant’s account.  Administrative expenses, such as recordkeeping expenses, are paid through investment level expenses that are borne by participants in proportion to their investments in the designated investment alternatives that generate revenue credits for the Plan.  Individual expenses, such as fees associated with loans and distributions, are charged directly to a participant’s individual account.  Participant accounts are valued at the end of each day that the New York Stock Exchange is open.

 

The Plan is intended to be an Employee Retirement Income Security Act (“ERISA”) Section 404(c) plan, under which the fiduciaries of the Plan are relieved of liability for any

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

losses that are the direct and necessary result of a participant’s or beneficiary’s exercise of control over the investments in his or her individual account.  Participants are responsible for directing the investment of all amounts in their accounts using investment options offered under the Plan and for the performance of such investments.  The Plan currently offers various mutual funds and target-date funds, and a unitized common stock fund that consists of shares of HEI common stock and short-term liquid investments.  Participants may change their investment elections at any time.  If a participant does not choose an investment option for any portion of the participant’s account, such amounts are automatically invested in the age-appropriate Fidelity Freedom Index Fund or such other investment as the PIC may direct, pending other direction by the participant.

 

The portion of the Plan comprising the HEI Common Stock Fund is designated as an employee stock ownership plan (“ESOP”).  Amounts contributed to the Plan for investment in the HEI Common Stock Fund or transferred to the HEI Common Stock Fund from other investment alternatives become part of the ESOP component of the Plan.

 

Participants are not required to make any investment in the HEI Common Stock Fund, and there are two limitations on the amount a participant may invest in the HEI Common Stock Fund.  First, a participant may not direct more than 20% of any contribution to the HEI Common Stock Fund.  Second, participants and beneficiaries are prohibited from making transfers or exchanges from other investment alternatives into the HEI Common Stock Fund if the transfer or exchange would cause the participant’s or beneficiary’s investment in the HEI Common Stock Fund to exceed 20% of the participant’s or beneficiary’s total account balance.

 

g.                   Distributions

 

Distributions from participants’ accounts are generally made upon retirement, death, permanent disability or other termination of employment.  Distributions may be made in a single lump sum, or a retired or terminated participant may elect to receive partial distributions (once per year) until the participant’s account has been distributed in full or the participant elects to receive a single-sum distribution of the remaining account balance.  Retired participants may also elect to receive required minimum distributions from the Plan.

 

Account balances of $5,000 or less are automatically distributed upon termination of employment.  Any automatic distribution of more than $1,000 (but not more than $5,000) is made in the form of an automatic direct rollover to an Individual Retirement Account (“IRA”) designated by the Administrative Committee, unless the participant requests a cash distribution or a direct rollover to an IRA or tax-qualified retirement plan of the participant’s choosing.

 

Distributions from the HEI Common Stock Fund are in the form of HEI common stock or, if the participant so elects, cash (with any fractional shares paid in cash).  Distributions of HEI Stock Ownership Plan subaccounts invested in the HEI Common Stock Fund may be made in installments, generally over a period of no more than five years, or may be made in a single lump sum (in stock or in cash).

 

The participant’s account will be reduced by any unpaid note balance at the time of distribution.  However, unless rolled over, the balance of the unpaid note will be taxable to the participant.

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

h.                   Death Benefits

 

Upon the death of a participant, the full value of the participant’s vested account balance is payable as a death benefit to the participant’s designated beneficiary.

 

i.                      Withdrawals While Employed

 

Prior to termination of employment, salary deferral and catch-up contributions (and income earned on such contributions prior to 1989) and certain other contributions may be withdrawn in the event of hardship.  A participant who receives a hardship withdrawal is prohibited from making additional salary deferral contributions to the Plan for six months following the hardship withdrawal.

 

Upon request, a participant may withdraw certain contributions (and the associated investment earnings), including tax-deductible voluntary contributions and after-tax contributions no longer permitted under the Plan and after-tax and Roth rollover contributions.

 

Participants who elect to invest portions of their account balances in the HEI Common Stock Fund (the ESOP component of the Plan) may elect to receive cash distributions of periodic dividends attributable to such investments or may elect to have such dividends reinvested.  If the dividends are reinvested, they are fully vested.

 

A participant who is age 59½ or older may elect to receive an in-service distribution from his or her vested account balance once per year, except that in-service distributions are not permitted from a participant’s matching contribution subaccount.

 

j.                      Notes Receivable from Participants

 

Participants may borrow from their accounts.  All loans must be on commercially reasonable terms and be evidenced by a note.  The minimum note amount is $1,000, and the maximum amount of all notes under the Plan is limited to the lesser of $50,000, reduced by the highest outstanding note balance during the prior 12 months minus the outstanding note balance from the Plan on the date the note is made, or 50% of the participant’s vested account balance.  The term of a note generally may not exceed 5 years, except that a note used to purchase a principal residence may have a term of up to 15 years.  The interest rate on a note is set at the time a participant applies for the note.  The interest rate for 2017 was 2 percentage points above the Federal Reserve prime rate of interest as of the last working day of the month preceding the month the note was made.  All outstanding notes are collateralized by 50% of the participant’s vested account balance, determined when a note is approved.  No allowance for credit losses has been recorded as of December 31, 2017 or 2016.  If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be in default, the default will be a deemed distribution.  However, the participant’s account will not be reduced until a distributable event occurs under the terms of the Plan.  Notes outstanding at December 31, 2017 bear interest at various rates ranging from 3.5% to 9.25%.  Principal and interest payments are made ratably through payroll deductions.  Participants are allowed up to two notes outstanding at any one time from the Plan.

 

k.                   Vesting

 

Salary deferral contributions, including catch-up contributions, are fully vested when made.  Matching contributions for participants first employed after April 30, 2011 are subject to a six-year graded vesting schedule as noted below, except that such amounts become fully vested when the participant attains age 65 if the participant is still employed by a Participating Employer or another subsidiary of HEI that is not a Participating Employer.

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

 

 

Vested

 

Years of Vesting Service

 

Percentage

 

 

 

 

 

Less than 2 years

 

0

%

2 years

 

20

%

3 years

 

40

%

4 years

 

60

%

5 years

 

80

%

6 or more years

 

100

%

 

l.                      Forfeitures

 

Plan forfeitures are used to pay Plan administrative expenses and to reduce Participating Employers’ matching contributions.  Forfeitures of terminated nonvested account balances used for the year ended December 31, 2017 totaled $45,774.  The ending balances in the forfeiture accounts at December 31, 2017 and 2016 were $124,290 and $49,229, respectively.

 

m.               Collective Bargaining Agreement

 

At both December 31, 2017 and 2016, approximately 49% of the electric utilities’ employees were members of the International Brotherhood of Electrical Workers, AFL-CIO, Local 1260, which is the only union representing employees of the electric utilities.

 

2.                            Summary of Significant Accounting Policies

 

a.                   Basis of Accounting

 

The Plan prepares its financial statements under the accrual method of accounting.

 

b.                   Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Plan Administrator to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.

 

c.                    Investment Valuation and Income Recognition

 

The Plan’s investments are reported at fair value.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The PIC is responsible for the Plan’s valuation principles and utilizes information provided by the Plan’s investment advisors and custodian.  See Note 3 for a discussion of fair value measurements.  Net appreciation or depreciation in the fair value of investments includes realized and unrealized changes in the values of investments bought, sold and held during the year.

 

Purchases and sales of securities are recorded on a trade-date basis.  Interest income is recorded on the accrual basis.  Dividends are recorded on the ex-dividend date.

 

d.                   Notes Receivable from Participants

 

Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest.  Interest income is recorded on the accrual basis.  Related fees are recorded as administrative expenses and are expensed when they are incurred.  If a participant ceases to make loan repayments and the Plan Administrator deems the participant

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

loan to be in default, the participant loan balance is treated as a deemed distribution and is recorded in distributions to participants.

 

e.                    Payment of Benefits

 

The Plan records benefits when they are paid.

 

f.                     Expenses

 

Certain expenses of maintaining the Plan, such as legal, audit, consulting and recordkeeping fees, are paid directly by the Participating Employers and are excluded from these financial statements.  Fees related to the administration of notes receivable from participants and distributions are charged directly to the participant’s account and are included in administrative expenses.  Investment related expenses are included in net appreciation in fair value of investments.

 

g.                   Risks and Uncertainties

 

The Plan may invest in various types of investment securities.  Investment securities are exposed to various risks, such as interest rate, market and credit risks.  Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the Statements of Net Assets Available for Benefits.

 

At December 31, 2017 and 2016, approximately 13% and 15%, respectively, of the Plan’s net assets, consisted of HEI common stock in the HEI Common Stock Fund.

 

h.                   Recent Accounting Pronouncements

 

In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-07: Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent).  This guidance simplifies disclosure requirements relating to investments for which fair value is measured using the net asset value per share, or its equivalent.  The update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.  Investments that calculate net asset value per share (or its equivalent), but for which the practical expedient is not applied, will continue to be included in the fair value hierarchy.  The update removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient.  A reporting entity should continue to disclose information on investments for which fair value is measured at net asset value as a practical expedient to help users understand the nature and risks of the investments and whether the investments, if sold, are probable of being sold at amounts different from net asset value.  The Plan adopted ASU 2015-07 in 2017 and there was no impact on the Plan’s financial statements.

 

In February 2017, the FASB issued ASU No. 2017-06, Employee Benefit Plan Master Trust Reporting, which removes the requirement to disclose the percentage interest in the master trust for plans with divided interests and requires that all plans disclose the dollar amount of their interest in each of those general types of investments. ASU No. 2017-06 also requires all plans to disclose (1) their master trust’s other asset and liability balances and (2) the dollar amount of the plan’s interest in each of those balances. The Plan expects to adopt the amendments in ASU No. 2017-06 in the first quarter of 2019 retrospectively and has not yet determined the impact of adoption.

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

i.                      Subsequent Events

 

The Plan Administrator has evaluated subsequent events through the date the financial statements were issued.

 

3.                            Fair Value Measurements

 

a.                   Fair Value of Financial Instruments

 

The following is a description of the valuation methodologies used for assets measured at fair value:

 

Mutual Funds

 

Valued using a market approach based on the daily closing price as reported on the active market in which the fund is traded.  Mutual funds held by the Plan are open-end mutual funds that are registered with the SEC.  These funds are required to publish their daily Net Asset Value (“NAV”) and to transact at that price.  The mutual funds held by the Plan are deemed to be actively traded.

 

HEI Common Stock Funds

 

Invests primarily in shares of HEI common stock with a fractional amount invested in interest-bearing cash equivalents.  The HEI Common Stock Funds are valued at NAV using the market approach based on: (1) the closing price of the underlying HEI common stock held by the HEI Common Stock Funds reported on the last business day of the Plan year on the New York Stock Exchange and (2) the underlying cash equivalent investments in money market mutual funds valued at NAV.  The HEI Common Stock Funds trade daily without any prior redemption notice period.

 

Notes Receivable from Participants

 

The fair value of notes receivable from participants was estimated using a discounted cash flow analysis utilizing interest rates currently offered for new participant loans, and approximated its carrying value.

 

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values, which may be materially affected by market conditions and other circumstances.  Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

 

b.                   Fair Value Hierarchy

 

Accounting Standards Codification 820, Fair Value Measurements and Disclosures, provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The following are the three levels of the fair value hierarchy under this standard:

 

Level 1             Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Plan has the ability to access at the measurement date.

 

Level 2             Inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.  If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

 

Level 3             Inputs are unobservable inputs for the asset or liability.

 

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level of input that is significant to the fair value measurement in its entirety.

 

4.                            Interest in Master Trust

 

All of the invested assets of the HEIRS Plan are held together with all of the invested assets of the American Savings Bank 401(k) Plan (“ASB 401(k) Plan”) in a master trust (the “Master Trust”) pursuant to a Master Trust Agreement between HEI and American Savings Bank, F.S.B. and Fidelity Management Trust Company (the “Trustee”).  Each participating plan has a divided interest in the HEI Common Stock Funds and notes receivable from participants, and an undivided interest (participants do not hold direct interests) in the mutual funds in the Master Trust.

 

The HEIRS Plan and the ASB 401(k) Plan maintain separate employer stock funds held in the Master Trust.  At December 31, 2017 and 2016, the HEIRS Plan’s specific interest in the HEI Common Stock Funds was 85% and 86%, respectively.  The HEI Common Stock Fund is available only to the participants of the HEIRS Plan and the HEI Common Stock Fund #2 is available only to the participants of the ASB 401(k) Plan.

 

The value of the Plan’s interest in the Master Trust is based on the beginning of the year value of the Plan’s interest in the Master Trust plus actual contributions, transfers and allocated investment income or loss less actual distributions and allocated administrative expenses.  At December 31, 2017 and 2016, the Plan’s interest in the assets of the Master Trust was approximately 80% and 81%, respectively.  Investment income and administrative expenses relating to the Master Trust are allocated to the individual plans based upon the daily valuation of the balances invested by each plan.

 

The assets of the Master Trust and the Plan’s interest in the investments and notes receivable from participants were as follows:

 

December 31

 

2017

 

2016

 

 

 

 

 

 

 

Investments

 

 

 

 

 

Mutual funds

 

$

584,671,341

 

$

486,617,815

 

HEI Common Stock Funds

 

87,168,611

 

83,012,491

 

Total investments

 

$

671,839,952

 

$

569,630,306

 

Notes receivable from participants

 

$

11,316,673

 

$

10,329,773

 

 

 

 

 

 

 

Plan interest in Master Trust

 

 

 

 

 

Investments

 

$

541,584,857

 

$

460,919,615

 

Notes receivable from participants

 

7,888,382

 

7,135,749

 

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

The income and net transfers of the Master Trust and the Plan’s interest in the income of the Master Trust were as follows:

 

Year ended December 31

 

2017

 

 

 

 

 

Net appreciation in fair value of investments

 

 

 

Mutual funds

 

$

63,602,015

 

HEI Common Stock Funds

 

7,449,812

 

Dividends and interest

 

31,627,102

 

Total investment income

 

$

102,678,929

 

Interest from notes receivable from participants

 

$

552,493

 

Net transfers

 

(34,876

)

 

 

 

 

Plan interest in Master Trust

 

 

 

Investment income

 

$

82,857,578

 

Interest from notes receivable from participants

 

385,443

 

 

The Master Trust’s investments at fair value by level within the fair value hierarchy and the Plan’s percentage interest in each investment type were as follows:

 

 

 

Quoted Prices

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

Markets for

 

Other

 

 

 

 

 

Identical

 

Observable

 

 

 

 

 

Assets

 

Inputs

 

 

 

December 31, 2017

 

(Level 1)

 

(Level 2)

 

Total

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

Mutual funds

 

$

584,671,341

 

$

 

$

584,671,341

 

HEI Common Stock Funds

 

 

87,168,611

 

87,168,611

 

 

 

$

584,671,341

 

$

87,168,611

 

$

671,839,952

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

Markets for

 

Other

 

 

 

 

 

Identical

 

Observable

 

 

 

 

 

Assets

 

Inputs

 

 

 

December 31, 2016

 

(Level 1)

 

(Level 2)

 

Total

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

Mutual funds

 

$

486,617,815

 

$

 

$

486,617,815

 

HEI Common Stock Funds

 

 

83,012,491

 

83,012,491

 

 

 

$

486,617,815

 

$

83,012,491

 

$

569,630,306

 

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

Transfers between levels are recognized at the actual date of the event or circumstance that caused the transfer.  There were no transfers between levels of the fair value hierarchy during 2017.

 

There were no Level 3 investments held by the Master Trust as of December 31, 2017 and 2016.

 

The Trustee has the power and authority to borrow funds from a bank not affiliated with the Trustee in order to provide sufficient liquidity to process Plan transactions in each HEI Common Stock Fund in a timely fashion; provided that the cost of such borrowing shall be allocated to each HEI Common Stock Fund.  There were no such transactions for the Plan during 2017.

 

5.                            Plan Termination

 

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time or to terminate the Plan, and each Participating Employer has the right to discontinue its contributions or terminate its participation.  In the event of Plan termination, affected participants become 100% vested in their accounts to the extent then funded.

 

6.                            Federal Income Taxes

 

The Plan and Master Trust are qualified under the Internal Revenue Code (“Code”) and are exempt from federal income taxes under Sections 401(a) and 501(a) of the Code.  On January 16, 2015, the Internal Revenue Service (“IRS”) issued the latest favorable determination letter covering the Plan.  This latest determination letter does not cover amendments made to the Plan since January 1, 2013.  The Company and its outside ERISA/tax counsel believe that the amendments made since January 1, 2013 meet applicable federal tax law requirements.

 

The Company is not aware of any Code or ERISA violations that would jeopardize the Plan’s tax exempt status and, as of December 31, 2017 and 2016, has concluded that there are no uncertain tax positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements.  The Plan is periodically audited by the IRS and the U.S. Department of Labor; however, there are currently no audits in progress.  The Company believes that the Plan is no longer subject to income tax examinations for tax years prior to 2014.

 

7.                            Related-Party Transactions

 

Certain Plan investments represent shares of mutual funds managed by Fidelity Management and Research Company (“FMR”).  Fidelity Management Trust Company (“FMTC”), an affiliate of FMR, is the Trustee of the Plan, and therefore, transactions with FMR qualify as party-in-interest transactions under the prohibited transaction rule of ERISA for which a statutory exemption exists.

 

Effective January 1, 2012, a revenue credit program (“RCP”) for the Plan was implemented by FMTC under which credits are provided for the payment of expenses.  Certain recordkeeping, legal and consulting fees incurred by the Plan are included as administrative expenses in the Statement of Changes in Net Assets Available for Benefits because they are paid through the RCP.  During the year ended December 31, 2017, the RCP credits used to pay expenses amounted to approximately $33,000.  During the year ended December 31, 2017, fees for recordkeeping services provided by Fidelity Investments Institutional Operations Company, Inc., an affiliate of both FMR and FMTC, amounted to approximately $40,000, and were paid through the RCP and any amounts owing in excess of the revenue credits were paid by the Participating Employers.

 

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Hawaiian Electric Industries

Retirement Savings Plan

Notes to Financial Statements

December 31, 2017 and 2016

 

Plan participants may elect to invest in the HEI Common Stock Fund, which consists of shares of HEI common stock and short-term liquid investments.  Since HEI is the Plan sponsor, investments in the HEI Common Stock Fund are party-in-interest transactions under the prohibited transaction rules of ERISA for which a statutory exemption exists.  During the year ended December 31, 2017, the Master Trust made purchases of approximately 255,000 units of the HEI Common Stock Funds for a total purchase price of approximately $7.3 million and sales of approximately 367,000 units of the HEI Common Stock Funds for total sales proceeds of approximately $10.6 million.

 

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Hawaiian Electric Industries Retirement Savings Plan

EIN:  99-0208097, Plan:  003

Schedule H, Line 4i

Schedule of Assets (Held at End of Year)

December 31, 2017

 

 

 

 

 

(c)

 

 

 

 

 

(b)

 

Description of Investment Including

 

(e)

 

 

 

Identity of Issue, Borrower,

 

Maturity Date, Rate of Interest,

 

Current

 

(a)

 

Lessor, or Similar Party

 

Collateral, Par, or Maturity Value

 

Value

 

 

 

 

 

 

 

 

 

*

 

Plan interest in the Master Trust

 

 

 

$

541,584,857

 

 

 

 

 

 

 

 

 

*

 

Participant Loans

 

731 loans with interest rates from 3.5% to 9.25%, maturing 2018 through 2033

 

7,888,382

 

 

 

 

 

 

 

$

549,473,239

 

 


*  Party in interest

 

NOTE:

Participant loans are legally held by the Hawaiian Electric Industries Retirement Savings Plan and American Savings Bank 401(k) Plan Master Trust (“DFE”), however Form 5500 Instructions and the Department of Labor’s electronic filing system require that the participant loans be reported at the individual plan level.  As such, the participant loans and attendant interest are reported in the individual plans’ Form 5500 and not in the DFE’s Form 5500.

 

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Section 2: EX-23.1 (EX-23.1)

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in Registration Statement No. 333-02103 on Form S-8 of our report dated June 28, 2018, appearing in this Annual Report on Form 11-K of the Hawaiian Electric Industries Retirement Savings Plan for the year ended December 31, 2017.

 

/s/ Accuity LLP

Honolulu, Hawaii

June 28, 2018

 


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