RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS

12 Months Ended

Dec. 31, 2023

RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS

RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS

NOTE 11 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS

The Company maintains a number of defined benefit and defined contribution plans to provide retirement benefits for employees. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA"), local statutory law or as determined by the Board of Directors. The plans generally provide benefits based upon years of service and compensation. Pension plans are funded except for a domestic non-qualified pension plan for certain key employees and certain foreign plans. The Company uses a December 31 measurement date for its plans.

The Company does not have, and does not provide for, any postretirement or postemployment benefits other than pensions and certain non-U.S. statutory termination benefits.

Defined Benefit Plans

Contributions are made in amounts sufficient to fund current service costs on a current basis and to fund past service costs, if any, over various amortization periods.

Obligations and Funded Status

	December 31,
	2023				2022
	U.S. pension		Non-U.S.		U.S. pension		Non-U.S.
	plans		pension plans		plans		pension plans
Change in benefit obligations
Benefit obligations at beginning of year	$	9,374	$	118,489	$	10,930	$	164,005
Service cost		166		955		199		1,077
Interest cost		466		4,867		262		2,644
Plan participants' contributions		—		48		—		54
Acquisitions & other adjustments		(821)		84		2,689		(341)
Actuarial (gain) loss (1)		990		5,633		(4,706)		(30,229)
Benefits paid		—		(7,265)		—		(7,066)
Settlements/curtailments		(1,805)		(1,700)		—		(398)
Currency translation		—		4,919		—		(11,257)
Benefit obligations at end of year		8,370		126,030		9,374		118,489
Change in plan assets
Fair value of plan assets at beginning of year		—		86,543		68,458		114,557
Actual return on plan assets		—		4,087		59		(16,319)
Employer contributions		—		2,080		—		1,634
Plan participants' contributions		—		48		—		54
Acquisitions & other adjustments		—		—		(68,517)		(195)
Benefits paid		—		(5,120)		—		(4,757)
Settlements		—		(599)		—		—
Currency translation		—		4,183		—		(8,431)
Fair value of plan assets at end of year		—		91,222		—		86,543
Funded status at end of year		(8,370)		(34,808)		(9,374)		(31,946)
Unrecognized actuarial net loss		2,387		3,070		1,734		2,073
Unrecognized prior service cost		—		(56)		—		(73)
Unrecognized transition assets, net		—		24		—		25
Net amount recognized	$	(5,983)	$	(31,770)	$	(7,640)	$	(29,921)

(1) Actuarial gains in 2022 were primarily the result of an increase in the Company’s pension plan discount rates.

The after-tax amounts of unrecognized actuarial net loss, prior service costs and transition assets included in Accumulated other comprehensive loss at December 31, 2023 were $1,974, $(39) and $17, respectively. The actuarial loss represents changes in the estimated obligation not yet recognized in the Consolidated Income Statement.

In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program (“RAP”) plan effective as of December 31, 2020. The Company provided notice to participants of the intent to terminate the plan and applied and received a determination letter. During 2021, pension obligations were distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract in October 2021. The lump sum payments and annuity purchase resulted in pre-tax settlement charges of $126,056 in the twelve months ended December 31, 2021. The remaining surplus assets of $68,458 at December 31, 2021 were transferred to a suspense account in January 2022 and are being used to fund employer matching contributions in the Company’s Savings Plan. The surplus assets as of December 31, 2023 were $41,849 and are recorded in Other current assets and Other assets in the Company’s Consolidated Balance Sheets.

Amounts Recognized in Consolidated Balance Sheets

	December 31,
	2023				2022
	U.S. pension		Non-U.S.		U.S. pension		Non-U.S.
	plans		Pension plans		plans		pension plans
Prepaid pensions (1)	$	—	$	2,891	$	—	$	1,603
Accrued pension liability, current (2)		(732)		(95)		(2,403)		(523)
Accrued pension liability, long-term (3)		(7,638)		(37,605)		(6,971)		(33,026)
Accumulated other comprehensive loss, excluding tax effects		2,387		3,039		1,734		2,025
Net amount recognized in the balance sheets	$	(5,983)	$	(31,770)	$	(7,640)	$	(29,921)

(1) Included in Other assets.

(2) Included in Other current liabilities.

(3) Included in Other liabilities.

Components of Pension Cost for Defined Benefit Plans

	Year Ended December 31,
	2023				2022				2021
	U.S. pension		Non-U.S.		U.S. pension		Non-U.S.		U.S. pension		Non-U.S.
	plans		pension plans		plans		pension plans		plans		pension plans
Service cost	$	166	$	955	$	199	$	1,077	$	194	$	1,413
Interest cost		466		4,867		262		2,644		8,926		2,567
Expected return on plan assets		—		(3,839)		—		(3,525)		(13,050)		(3,990)
Other adjustments		—		117		—		—		—		—
Amortization of prior service cost		—		(8)		—		—		—		8
Amortization of net loss		80		(374)		132		299		1,966		882
Settlement and curtailment charges (gains) (1)		256		949		(3,735)		367		126,055		(42)
Defined benefit plans	$	968	$	2,667	$	(3,142)	$	862	$	124,091	$	838

(1) Pension settlement net charges resulting from lump sum pension payments and the purchase of a group annuity contract in 2021.

The components of Pension cost for defined benefit plans, other than service cost, are included in Other income (expense) in the Company’s Consolidated Statements of Income.

Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets

	December 31,
	2023				2022
	U.S. pension		Non-U.S.		U.S. pension		Non-U.S.
	plans		pension plans		plans		pension plans
Projected benefit obligation	$	8,326	$	88,290	$	9,331	$	82,378
Accumulated benefit obligation		8,002		86,317		8,937		80,444
Fair value of plan assets		—		50,758		—		48,974

The total accumulated benefit obligation for all plans was $131,550 as of December 31, 2023 and $125,031 as of December 31, 2022.

Benefit Payments for Plans

Benefits expected to be paid for the plans are as follows:

	U.S. pension		Non-U.S.
	Plans		pension plans
Estimated Payments
2024	$	754	$	39,045
2025		1,077		7,421
2026		1,099		6,576
2027		1,114		5,888
2028		1,053		6,446
2029 through 2033		5,426		30,724

Assumptions

Weighted average assumptions used to measure the benefit obligation for the Company’s significant defined benefit plans as of December 31, 2023 and 2022 were as follows:

	December 31,
	2023				2022
	U.S. pension		Non-U.S.		U.S. pension		Non-U.S.
	plans		pension plans		plans		pension plans
Discount Rate	6.0	%	3.9	%	5.8	%	4.2	%
Rate of increase in compensation	3.0	%	4.8	%	3.0	%	3.7	%

Weighted average assumptions used to measure the net periodic benefit cost for the Company’s significant defined benefit plans for each of the three years ended December 31 were as follows:

	December 31,
	2023				2022				2021
	U.S. pension		Non-U.S.		U.S. pension		Non-U.S.		U.S. pension		Non-U.S.
	plans		pension plans		plans		pension plans		plans		pension plans
Discount rate	5.8	%	4.2	%	2.5	%	1.8	%	2.2	%	1.3	%
Rate of increase in compensation	3.0	%	3.7	%	3.0	%	3.1	%	2.5	%	2.7	%
Expected return on plan assets	—		4.4	%	—	%	3.4	%	3.0	%	3.3	%

To develop the discount rate assumptions, the Company refers to the yield derived from matching projected pension payments with maturities of bonds rated AA or an equivalent quality. The expected long-term rate of return assumption is based on the weighted average expected return of the various asset classes in the plans’ portfolio and the targeted allocation of plan assets. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance. The rate of compensation increase is determined by the Company based upon annual reviews.

Pension Plans’ Assets

The primary objective of the pension plans’ investment policy is to ensure sufficient assets are available to provide benefit obligations when such obligations mature. Investment management practices must comply with ERISA or any other applicable regulations and rulings. The overall investment strategy for the defined benefit pension plans’ assets is to achieve a rate of return over a normal business cycle relative to an acceptable level of risk that is consistent with the long-term objectives of the portfolio. Excluding the RAP plan assets, the target allocation for plan assets is 5% to 10% equity securities and 90% to 95% debt and other securities.

The following table sets forth, by level within the fair value hierarchy, the pension plans’ assets as of December 31, 2023:

	Pension Plans' Assets at Fair Value as of December 31, 2023
	Quoted Prices in
	Active Markets				Significant
	for Identical		Significant Other		Unobservable
	Assets		Observable Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Cash and cash equivalents	$	22,347	$	—	$	—	$	22,347
Fixed income securities (1)
Corporate debt and other obligations		—		5,894		—		5,894
Investments measured at NAV (2)
Common trusts and 103-12 investments (3)		—		—		—		62,981
Total investments at fair value	$	22,347	$	5,894	$	—	$	91,222

The following table sets forth, by level within the fair value hierarchy, the pension plans’ assets as of December 31, 2022:

	Pension Plans' Assets at Fair Value as of December 31, 2022
	Quoted Prices in
	Active Markets				Significant
	for Identical		Significant Other		Unobservable
	Assets		Observable Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Cash and cash equivalents	$	16,694	$	—	$	—	$	16,694
Fixed income securities (1)
Corporate debt and other obligations		—		4,912		—		4,912
Investments measured at NAV (2)
Common trusts and 103-12 investments (3)		—		—		—		64,937
Total investments at fair value	$	16,694	$	4,912	$	—	$	86,543

(1) Fixed income securities are primarily comprised of governmental and corporate bonds directly held by the plans. Governmental and corporate bonds are valued using both market observable inputs for similar assets that are traded on an active market and the closing price on the active market on which the individual securities are traded.

(2) Certain assets that are measured at fair value using the net asset value ("NAV") practical expedient have not been classified in the fair value hierarchy.

(3) Common trusts and 103-12 investments (collectively "Trusts") are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, equity and credit indexes and money markets. Trusts are valued at the NAV as determined by their custodian. NAV represents the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates.

Supplemental Executive Retirement Plan

The Company maintained a domestic unfunded Supplemental Executive Retirement Plan ("SERP") under which non-qualified supplemental pension benefits are paid to certain employees in addition to amounts received under the Company’s terminated qualified retirement plan which was subject to IRS limitations on covered compensation. The annual cost of this program has been included in the determination of total net pension costs shown above and was $650, $253 and $213 in 2023, 2022 and 2021, respectively. The projected benefit obligation associated with this plan is also included in the pension disclosure shown above and was $5,461, $7,339 and $7,947 at December 31, 2023, 2022 and 2021, respectively.

Defined Contribution Plans

Substantially all U.S. employees are covered under defined contribution plans. In October 2016, the Company announced a plan redesign of The Lincoln Electric Company Employee Savings Plan (“Savings Plan”) that was effective January 1, 2017. The Savings Plan provides that eligible employees receive up to 6% of employees’ annual compensation through Company matching contributions of 100% of the first 3% of employee compensation contributed to the plan, and automatic Company contributions equal to 3% of annual compensation. In addition, certain employees affected by the RAP freeze in 2016 are also eligible to receive employer contributions equal to 6% of annual compensation for a minimum period of five years or to the end of the year in which they complete thirty years of service.

Effective January 1, 2017, the Company created The Lincoln Electric Company Restoration Plan (“Restoration Plan”). The Restoration Plan is a domestic unfunded plan maintained for the purpose of providing certain employees the ability to fully participate in standard employee retirement offerings, which are limited by IRS regulations on covered compensation.

The annual costs recognized for defined contribution plans were $29,443, $29,569 and $26,282 in 2023, 2022 and 2021, respectively.

Other Benefits

The Cleveland, Ohio, area operations have a Guaranteed Continuous Employment Plan covering substantially all local employees which, in general, provides that the Company will provide work for at least 75% of every standard work week (presently 40 hours). This plan does not guarantee employment when the Company’s ability to continue normal operations is seriously restricted by events beyond the control of the Company. The Company has reserved the right to terminate this plan effective at the end of a calendar year by giving notice of such termination not less than six months prior to the end of such year.