8. EMPLOYEE BENEFIT PLANS

The Company has two funded qualified single-employer defined benefit pension plans that cover certain non-bargaining unit employees and bargaining unit employees. In addition, the Company has plans that provide certain retiree health care and life insurance benefits to substantially all salaried, non-bargaining employees hired before 2008 and to certain bargaining unit employees. Employees are generally eligible for such benefits upon retirement and completion of a specified number of years of service. The Company does not pre-fund these health care and life insurance benefits and has the right to modify or terminate certain of these plans in the future. Certain groups of retirees pay a portion of the benefit costs.

Plan Administration, Investments and Asset Allocations: The Company has an Investment Committee that meets regularly with investment advisors to establish investment policies, direct investments and select investment options. The Investment Committee is also responsible for appointing investment managers. The Company’s investment policy permits investments in marketable equity securities, such as domestic and foreign stocks, domestic and foreign bonds, venture capital, real estate investments, and cash equivalents. The Company’s investment policy does not permit direct investment in certain types of assets, such as options or commodities, or the use of certain strategies, such as short selling or the purchase of securities on margin.

The Company’s investment strategy for its pension plan assets is to achieve a diversified mix of investments that provides for attractive long-term growth with an acceptable level of risk, but also to provide sufficient liquidity to fund ongoing benefit payments. The Company has engaged a number of investment managers to implement various investment strategies to achieve the desired asset class mix, liquidity and risk diversification objectives.

The Company’s weighted-average asset allocations at December 31, 2012, 2011, and year-end target allocation, by asset category, were as follows:

	Target		2012		2011

Domestic equity securities	53	%	56	%	59	%
International equity securities	15	%	14	%	14	%
Debt securities	22	%	19	%	17	%
Real estate	10	%	5	%	6	%
Other and cash	—		6	%	4	%
Total	100	%	100	%	100	%

The Company’s investments in equity securities primarily include domestic large-cap and mid-cap companies, but also include an allocation to small-cap and international equity securities. Equity investments do not include any direct holdings of the Company’s stock but may include such holdings to the extent that the stock is included as part of certain mutual fund holdings. Debt securities include investment-grade and high-yield corporate bonds from diversified industries, mortgage-backed securities, and U.S. Treasuries. Other types of investments include funds that invest in commercial real estate assets, and to a lesser extent, private equity investments in technology companies.

The expected return on plan assets is principally based on the Company’s historical returns combined with the Company’s long-term future expectations regarding asset class returns, the mix of plan assets, and inflation assumptions. One-, three-, and five-year pension asset returns (losses) were 15.2 percent, 8.4 percent, and (0.1) percent, respectively, and the long-term average return (since plan inception in 1989) has been approximately 8.3 percent. Over the long-term, the actual returns have generally exceeded the benchmark returns used by the Company to evaluate performance of its fund managers. Due to volatile market performance in recent years, the Company has reduced its long-term rate of return assumption from 8.5 percent in 2009 to 8.3 percent in 2010 and believes that the change is appropriate given the Company’s investment portfolio’s historical performance and the Company’s target asset allocation.

The Company’s pension plan assets are held in a master trust and stated at estimated fair values of the underlying investments. 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.

FASB ASC Topic 820, Fair Value Measurements and Disclosures, as amended, establishes a fair value hierarchy, which requires the pension plans to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy places the highest priority on unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurements) and assigns the lowest priority to unobservable inputs (Level 3 measurements). The three levels of inputs within the hierarchy are defined as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect the pension plans’ own assumptions about the assumptions that market participants would use in pricing an asset or liability.

If the technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy, the lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

Equity Securities: Domestic and international common stocks are valued by obtaining quoted prices on recognized and highly liquid exchanges.

Fixed Income Securities: Corporate bonds and U.S. government treasury and agency securities are valued based upon the closing price reported in the market in which the security is traded. U.S. government agency and corporate asset-backed securities may utilize models, such as a matrix pricing model, that incorporates other observable inputs such as cash flow, security structure, or market information, when broker/dealer quotes are not available.

Real Estate, Private Equity and Insurance Contract Interests: The fair value of real estate, private equity and insurance contract interests are determined by the issuer based on the unit values of the funds. Unit values are determined by dividing the fund’s net assets by the number of units outstanding at the valuation date. Fair value for underlying investments in real estate is determined through independent property appraisals. Fair value of underlying investments in private equity is determined based on information provided by the general partner taking into consideration the purchase price of the underlying securities, developments concerning the investee company subsequent to the acquisition of the invest, financial data and projections of the investee company provided by the general partner, and such other factors as the general partner deems relevant. Insurance contracts are principally invested in real estate assets, which are valued based on independent appraisals.

The fair values of the Company’s pension plan assets at December 31, 2012 and 2011, by asset category, are as follows (in millions):

	Fair Value Measurements at
	December 31, 2012
Asset Category	Total		Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	8.3	$	8.3	$	—	$	—
Equity securities:
U.S. large-cap	53.8		53.8		—		—
U.S. mid- and small-cap	29.8		29.8		—		—
International large-cap	16.7		16.7		—		—
International small-cap	4.3		4.3		—		—
Fixed income securities:
U.S. Treasuries	0.8		—		0.8		—
Municipal bonds	0.2		—		0.2		—
Investment grade U.S. corporate bonds	2.0		—		2.0		—
High-yield U.S. corporate bonds	6.4		—		6.4		—
Emerging markets fixed income	4.3		4.3		—		—
Mortgage-backed securities	14.0		—		14.0		—
Other types of investments:
Real estate partnership interests	7.8		—		—		7.8
Private equity partnership interests (a)	0.8		—		—		0.8
Insurance contracts	—		—		—		—
Total	$	149.2	$	117.2	$	23.4	$	8.6

	Fair Value Measurements at
	December 31, 2011
Asset Category	Total		Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	5.1	$	5.1	$	—	$	—
Equity securities:
U.S. large-cap	50.2		50.2		—		—
U.S. mid- and small-cap	15.6		15.6		—		—
International large-cap	13.6		13.6		—		—
International mid-cap	11.2		11.2		—		—
Fixed income securities:
U.S. Treasuries	0.3		—		0.3		—
Municipal bonds	0.1		—		0.1		—
Investment grade U.S. corporate bonds	1.5		—		1.5		—
High-yield U.S. corporate bonds	4.7		—		4.7		—
Mortgage-backed securities	15.1		—		15.1		—
Other types of investments:
Real estate partnership interests	7.1		—		—		7.1
Private equity partnership interests (a)	0.8		—		—		0.8
Insurance contracts	0.7		—		—		0.7
Total	$	126.0	$	95.7	$	21.7	$	8.6

(a) This category represents private equity funds that invest principally in U.S. technology companies.

The table below presents a reconciliation of all pension plan investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2012 and 2011 (in millions):

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Real Estate			Private Equity			Insurance			Total
Beginning balance, December 31, 2010	$	6.3		$	0.9		$	0.5		$	7.7
Actual return (loss) on plan assets:
Assets held at the reporting date	0.9			0.1			—			1.0
Assets sold during the period	0.2			—			—			0.2
Purchases, sales and settlements, net	(0.3		)	(0.2		)	0.2			(0.3		)
Beginning balance, December 31, 2011	7.1			0.8			0.7			8.6
Actual return (loss) on plan assets:
Assets held at the reporting date	1.6			0.1			—			1.7
Assets sold during the period	(0.2		)	0.3			—			0.1
Purchases, sales and settlements, net	(0.7		)	(0.4		)	(0.7		)	(1.8		)
Ending balance, December 31, 2012	$	7.8		$	0.8		$	—		$	8.6

Contributions to each of the qualified single-employer defined benefit pension plans are determined annually by the Company’s pension administrative committee, based upon the actuarially determined minimum required contribution under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, the Pension Protection Act of 2006 (the “Act”), and the maximum deductible contribution allowed for tax purposes. In 2012, 2011, and 2010, the Company contributed approximately $13.3 million, $4.4 million, and $5.9 million, respectively, in each year. The Company’s funding policy is to contribute cash to its pension plans so that it meets at least the minimum contribution requirements.

The benefit formulas for employees who are members of collective bargaining units are determined according to the collective bargaining agreements, either using final average pay as the base or a flat dollar amount per year of service.

Effective December 31, 2011, the Company froze benefit accruals under the final average pay formula for salaried, non-bargaining unit employees hired before January 1, 2008 and transitioned them to the same cash balance formula for employees hired on or after January 1, 2008. Retirement benefits under the cash balance formula are based on a fixed percentage of employee eligible compensation, plus interest. The plan interest credit rate will vary from year to year based on the ten-year U.S. Treasury rate.

Benefit Plan Assets and Obligations: The measurement date for the Company’s benefit plan disclosures is December 31st of each year. The status of the funded qualified defined benefit pension plans and the unfunded post-retirement benefit plans at December 31, 2012 and 2011 are shown below (in millions):

	Pension Benefits						Other Post-retirement Benefits
	2012			2011			2012			2011

Change in Benefit Obligation
Benefit obligation at beginning of year	$	192.6		$	189.8		$	48.5		$	51.8
Service cost	2.7			5.4			1.0			0.9
Interest cost	9.0			10.7			2.3			3.0
Plan participants’ contributions	—			—			1.3			1.2
Actuarial (gain) loss	14.9			20.7			(0.6		)	(4.7		)
Benefits paid	(9.1		)	(9.2		)	(3.3		)	(3.7		)
Amendments/Curtailments	—			(24.8		)	—			—
Benefit obligation at end of year	$	210.1		$	192.6		$	49.2		$	48.5

Change in Plan Assets
Fair value of plan assets at beginning of year	$	126.0		$	137.9		$	—		$	—
Actual return on plan assets	19.0			(7.1		)	—			—
Employer contributions	13.3			4.4			—			—
Benefits paid	(9.1		)	(9.2		)	—			—
Fair value of plan assets at end of year	149.2			126.0			—			—
Funded Status and Recognized Liability	$	(60.9	)	$	(66.6	)	$	(49.2	)	$	(48.5	)

The accumulated benefit obligation for the Company’s qualified pension plans was $209.6 million and $191.9 million as of December 31, 2012 and 2011, respectively. Amounts recognized on the consolidated balance sheets and in accumulated other comprehensive loss at December 31, 2012 and 2011 were as follows (in millions):

	Pension Benefits						Other Post-retirement Benefits
	2012			2011			2012			2011

Current liabilities	$	—		$	—		$	(2.1	)	$	(2.1	)
Non-current liabilities	(60.9		)	(66.6		)	(47.1		)	(46.4		)
Total	$	(60.9	)	$	(66.6	)	$	(49.2	)	$	(48.5	)

Net loss (gain) (net of taxes)	$	55.8		$	56.1		$	0.7		$	0.6
Prior service cost (net of taxes)	(13.4		)	(14.8		)	0.1			0.1
Total	$	42.4		$	41.3		$	0.8		$	0.7

The information for qualified pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2012 and 2011 is shown below (in millions):

	2012		2011
Projected benefit obligation	$	210.1	$	192.6
Accumulated benefit obligation	$	209.6	$	191.9
Fair value of plan assets	$	149.2	$	126.0

The estimated prior service credit for the qualified pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2013 is $2.3 million. The estimated net loss that will be recognized in net periodic pension cost for the qualified pension plans in 2013 is $6.8 million. The estimated net loss and prior service cost for the other post-retirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost in 2013 is $0.3 million.

Unrecognized gains and losses of the post-retirement benefit plans are amortized over five years. Although current health care costs are expected to increase, the Company attempts to mitigate these increases by maintaining caps on certain of its benefit plans, using lower cost health care plan options where possible, requiring that certain groups of employees pay a portion of their benefit costs, self-insuring for certain insurance plans, encouraging wellness programs for employees, and implementing measures to mitigate future benefit cost increases.

Components of the net periodic benefit cost and other amounts recognized in other comprehensive loss for the qualified pension plans and the post-retirement health care and life insurance benefit plans during 2012, 2011, and 2010, are shown below (in millions):

	Pension Benefits									Other Post-retirement Benefits
	2012			2011			2010			2012			2011			2010
Components of Net Periodic Benefit Cost
Service cost	$	2.7		$	5.4		$	4.6		$	1.0		$	0.9		$	0.7
Interest cost	9.0			10.7			10.3			2.3			3.0			2.6
Expected return on plan assets	(10.7		)	(11.1		)	(9.7		)	—			—			—
Amortization of net loss (gain)	7.0			4.0			3.5			0.6			1.9			0.4
Amortization of prior service cost	(2.3		)	0.1			0.1			0.1			0.2			0.2
Recognition of loss due to settlement	—			—			—			—			—			—
Net periodic benefit cost	$	5.7		$	9.1		$	8.8		$	4.0		$	6.0		$	3.9

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (net of tax)
Net loss (gain)	$	4.0		$	23.8		$	3.6		$	(0.4	)	$	(2.5	)	$	3.9
Amortization of unrecognized (loss) gain	(4.2		)	(2.4		)	(2.1		)	(0.3		)	(1.0		)	(0.2		)
Prior service (credit) cost	—			(15.1		)	—			—			—			—
Amortization of prior service cost	1.4			(0.1		)	(0.1		)	—			(0.1		)	(0.1		)
Total recognized in other comprehensive income	1.2			6.2			1.4			(0.7		)	(3.6		)	3.6
Total recognized in net periodic benefit cost and other comprehensive income	$	6.9		$	15.3		$	10.2		$	3.3		$	2.4		$	7.5

The weighted average assumptions used to determine benefit information during 2012, 2011, and 2010, were as follows:

	Pension Benefits						Other Post-retirement Benefits
	2012		2011		2010		2012		2011		2010
Weighted Average Assumptions:
Discount rate	4.2	%	4.8	%	5.8	%	4.3	%	4.9	%	5.8	%
Expected return on plan assets	8.3	%	8.3	%	8.3	%
Rate of compensation increase	3.0	%	4.0	%	4.0	%	3.0	%	4.0	%	4.0	%
Initial health care cost trend rate							8.0	%	9.0	%	10.0	%
Ultimate rate							4.5	%	5.0	%	5.0	%
Year ultimate rate is reached							2020		2016		2016

If the assumed health care cost trend rate were increased or decreased by one percentage point, the accumulated post-retirement benefit obligation, as of December 31, 2012, 2011, and 2010 and the net periodic post-retirement benefit cost for 2012, 2011 and 2010, would have increased or decreased as follows (in millions):

	Other Post-retirement Benefits
	One Percentage Point
	Increase						Decrease
	2012		2011		2010		2012			2011			2010

Effect on total of service and interest cost components	$	0.6	$	0.6	$	0.5	$	(0.4	)	$	(0.5	)	$	(0.4	)
Effect on post-retirement benefit obligation	$	6.5	$	6.6	$	7.1	$	(5.2	)	$	(5.3	)	$	(5.7	)

Non-qualified Pension Plans: The Company has non-qualified supplemental pension plans covering certain employees and retirees, which provide for incremental pension payments from the Company’s general funds so that total pension benefits would be substantially equal to amounts that would have been payable from the Company’s qualified pension plans if it were not for limitations imposed by income tax law. A few employees and retirees receive additional supplemental pension benefits. The Company also has a frozen non-qualified pension plan that covers two outside directors and pays retirement benefits in a lump sum from the Company’s general funds. The obligation relating to these plans, totaled $7.9 million at December 31, 2012. A 2.4 percent discount rate was used to determine the 2012 obligation. The expense associated with the non-qualified plans was $0.3 million in 2012, $0.8 million in 2011, and $1.5 million in 2010. As of December 31, 2012, the amount recognized in accumulated other comprehensive income for net loss, net of tax, was approximately $2.0 million, and the amount recognized as prior service credit, net of tax, was $0.9 million. The estimated net loss and prior service credit, net of tax, that will be recognized in net periodic pension cost in 2013 is $0.2 million.

Estimated Benefit Payments: The estimated future benefit payments for the next ten years are as follows (in millions):

	Qualified
	Pension		Non-qualified		Post-retirement
Year	Benefits		Pension Benefits		Benefits (1)

2013	$	10.5	$	0.8	$	2.2
2014	11.0		3.3		2.3
2015	11.4		0.6		2.4
2016	11.7		0.8		2.4
2017	12.0		0.2		2.5
2018-2022	$	64.2	$	1.6	$	13.0

(1) Net of plan participants’ contributions and Medicare D subsidies.

Current liabilities of approximately $2.9 million, related to non-qualified pension benefits and postretirement benefits, are classified as accrued and other liabilities in the consolidated balance sheet as of December 31, 2012.

Multiemployer Plans: The Company contributes to nine multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its bargaining unit employees. Contributions are generally based on union labor paid or cargo volume.

The risks of participating in multiemployer plans are different from single-employer plans because assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. Additionally, if one employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

The multiemployer pension plans are subject to the plan termination insurance provisions of ERISA and are paying premiums to the Pension Benefit Guaranty Corporation (“PBGC”). The statutes provide that an employer who withdraws from, or significantly reduces its contribution obligation to, a multiemployer plan generally will be required to continue funding its proportional share of the plan’s unfunded vested benefits. As of December 31, 2012, Management has no present intention of withdrawing from and does not anticipate termination of any of these plans.

Information regarding Matson’s participation in multiemployer pension plans is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (EIN) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2012 and 2011 is for the plan’s year-end at December 31, 2012 and 2011, respectively. The zone status is based on information that Matson received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The “Status of funding improvement or rehabilitation plan implementation” column indicates plans for which a funding improvement plan or a rehabilitation plan is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject.

Pension Protection Act
Zone Status as of December

FIP/RP
Status

Contributions of Matson

Expiration
Date of
Collective

EIN/Pension

31,

Pending/

($ in millions)

Surcharge

Bargaining

Pension Fund

Plan Number

2012

2011

Implemented

2012

2011

2010

Imposed

Agreement

Hawaii Stevedoring Multiemployer Retirement Plan

99-0314293/001

Yellow

Implemented

2.4

2.2

2.0

6/30/2014

Master, Mates and Pilots

13-6372630/001

Green

None

3.4

3.0

2.9

8/15/2023, 8/15/2018

Hawaii Terminals Multiemployer Pension Plan

20-0389370/001

Yellow

Implemented

5.1

5.2

6/30/2014

MEBA Pension Trust

51-6029896/001

Green

None

2.1

—

8/15/2018

OCU Trust Pension

26-1574440/001

Green

None

0.1

6/30/2013

Other Plans

Green

—

Total

13.1

10.5

10.2

Masters, Mates and Pilots Pension Plan utilized the special 29-year amortization rules provided by Public Law 111-192, Section 211 to amortize its losses from 2008. As a result, the plan’s zone status changed from red in 2010 to green in 2011. Also, Matson is party to two collective-bargaining agreements based upon vessels that require contributions to this plan: Contract A, covering thirteen vessels, expires on August 15, 2023, and Contract B, covering one managed vessel, expires on August 15, 2018.

In 2012, Matson agreed to contribute at least 11.7% of total wages paid to employees in covered MEBA employment to the MEBA Pension Trust by a reallocation of the total labor cost under the collective bargaining agreement. The pension contribution rate was determined by the plan’s actuary to be necessary to maintain full funding of the pension plan and is fully offset by a reallocation of wages and other benefits.

Matson was listed in its plans’ Forms 5500 as providing more than five percent of the total contributions for the following plans and plan years:

Pension Plan		Exceeded More than 5 Percent of Total Contributions (as of December 31 of the Plan’s Year- End)
Hawaii Stevedoring Multiemployer Pension Plan		2012, 2011 and 2010
Hawaii Terminals Multiemployer Pension Plan		2012, 2011 and 2010
Masters, Mates and Pilots Pension Plan*		2011 and 2010

* As of the date the financial statements were issued, Form 5500s were not available for the plan years ending in 2012 for this and other plans.

Matson contributes to seven multiemployer plans that provide postretirement benefits other than pensions under the terms of collective-bargaining agreements with American Radio Association AFL-CIO; ILWU Local 142; ILWU Local 63, Office Clerical Unit Marine Clerk Association; International Organization of Masters, Mates and Pilots, AFL-CIO; National Marine Engineers’ Beneficial Association, AFL-CIO District No. 1 — PCD, MEBA; Marine Firemen’s Union; and Sailors’ Union of the Pacific. Benefits provided to active and retired employees and their eligible dependents under these plans include medical, dental, vision, hearing, prescription drug, death, accidental death and dismemberment, disability, legal aid, training in maritime electronics, scholarship program, wage insurance and license insurance, although not all of these benefits are provided by each plan. These plans are not subject to the PBGC plan termination and withdrawal liability provisions of ERISA applicable to multiemployer pension plans. Contributions Matson made to these plans were $10.8 million in 2012, $10.7 million in 2011, and $10.5 million in 2010. The contributions increased during the period due to increases in the employer contribution rate.

Defined Contribution Plans: The Company sponsors defined contribution plans that qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. These plans provide matching contributions of up to 4 percent of eligible employee compensation. For all non-bargaining unit employees who were participants in the Company’s defined benefit pension plan, the 401(k) matching contributions were suspended for 2010 but reinstated in 2011. The Company’s matching contributions expensed under these plans totaled $1.6 million, $1.5 million and $0.2 million for the years ended December 31, 2012, 2011, and 2010, respectively. The Company also provides profit sharing contributions under the qualified defined contribution plans; if a minimum threshold of Matson’s performance is achieved, the Company provides contributions to salaried, non-bargaining employees of up to 3 percent based on a formula which may change on an annual basis. For certain eligible employees, supplemental profit sharing contributions are credited under a non-qualified plan to be paid after separation from service from the Company’s general funds so that total profit sharing contributions would be substantially equal to amounts that would have been contributed to the Company’s qualified defined contribution plans if it were not for limitations imposed by income tax law. Profit sharing contributions to certain bargaining unit employees are determined under collective bargaining agreements. Profit sharing expenses recorded in 2012 and 2010 under this plan totaled $1.2 million and $1.7 million, respectively. No expense was recorded in 2011 when the plan was suspended.