Administrative Expenses
All direct costs and expenses incurred in connection with the administration of the Plan and trust were primarily paid from forfeitures in 2020.
Note 3 — Income Tax Status
The Plan received a determination letter from the IRS dated March 10, 2017, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (“IRC”), and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended and restated. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan, as amended and restated, is qualified and the related trust is tax exempt. Accordingly, no provision for income taxes has been made in the accompanying statements. The Plan Administrator believes the Plan is no longer subject to income tax examinations for years prior to 2017.
Note 4 — Transactions with Parties-in-Interest
At December 31, 2020, the Plan held 928,874 common shares of Lincoln Electric Holdings, Inc. with a fair value of $107,989,525. For the year ended December 31, 2020, transactions involving common shares of the Lincoln Electric Holdings, Inc. included purchases and sales of approximately $4,300,000 and $11,700,000, respectively, and the Plan received dividends of $2,077,652. At December 31, 2019, the Plan held 1,133,083 common shares of Lincoln Electric Holdings, Inc. with a fair value of $109,609,810.
Party-in-interest transactions also include the investment in the proprietary funds of the Trustee and the payment of administrative expenses by the Company. Such transactions are exempt from being prohibited transactions under ERISA.
Note 5 — Risks and Uncertainties
The Plan invests in various 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 that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
The Plan’s investments in the Lincoln Electric Holdings, Inc. common shares are exposed to market risk in the event of a decline in the value of Lincoln Electric Holdings, Inc. common shares. Participants assume all risk in connection with any decrease in the market price of any investment.
Note 6 — Fair Value Measurements
Fair value is defined as 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. GAAP establishes a framework for measuring fair value. That framework 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 three levels of the fair value hierarchy are described below:
Level 1Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.