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,
	2016			2015
Change in benefit obligations
Benefit obligations at beginning of year	$	558,169		$	1,045,471
Service cost	17,689			19,933
Interest cost	23,578			36,002
Plan participants' contributions	148			185
Acquisitions	—			6,170
Actuarial loss (gain)	28,004			(42,640		)
Benefits paid	(31,308		)	(32,217		)
Settlements/curtailments	(24,068		)	(463,943		)
Currency translation	(7,482		)	(10,792		)
Benefit obligations at end of year	564,730			558,169

Change in plan assets
Fair value of plan assets at beginning of year	576,101			1,010,937
Actual return on plan assets	38,264			9,298
Employer contributions	21,373			50,468
Plan participants' contributions	148			185
Acquisitions	—			5,995
Benefits paid	(30,146		)	(30,358		)
Settlement	—			(462,601		)
Currency translation	(6,655		)	(7,823		)
Fair value of plan assets at end of year	599,085			576,101

Funded status at end of year	34,355			17,932
Unrecognized actuarial net loss	146,585			156,019
Unrecognized prior service cost	(18		)	(1,304		)
Unrecognized transition assets, net	37			41
Net amount recognized	$	180,959		$	172,688

In August 2015, The Lincoln Electric Company, plan sponsor of the Lincoln Electric Retirement Annuity Program ("RAP") and subsidiary of the Company, entered into an agreement to purchase a group annuity contract from The Principal Financial Group ("Principal"). Under the agreement, Principal assumed the obligation to pay future pension benefits for specified U.S. retirees and surviving beneficiaries who retired on or before June 1, 2015 and are currently receiving payments from the RAP. The transaction will not change the amount of the monthly pension benefit received by affected retirees and surviving beneficiaries. The purchase was funded by existing plan assets and required no additional cash contribution. The Company recorded pension settlement charges of $142,738 for the year ended December 31, 2015, primarily related to the purchase of the group annuity contract.

In October 2016, The Lincoln Electric Company amended the plan to freeze all benefit accruals for participants under the RAP effective as of December 31, 2016. The RAP includes approximately 1,500 domestic employees who will fully transition to The Lincoln Electric Company Employee Savings Plan (“Savings Plan”), a defined contribution retirement savings plan. The Company recorded pension curtailment gains of $2,206 for the year ended December 31, 2016 related to the amendment. The Company does not expect to contribute to the defined benefit plans in the United States in 2017.

The after-tax amounts of unrecognized actuarial net loss, prior service costs and transition assets included in Accumulated other comprehensive loss at December 31, 2016 were $95,927, $(21) and $33, respectively. The actuarial loss represents changes in the estimated obligation not yet recognized in the Consolidated Income Statement. The pre-tax amounts of unrecognized actuarial net loss, prior service credits and transition obligations expected to be recognized as components of net periodic benefit cost during 2017 are $3,928, $12 and $2, respectively.

Amounts Recognized in Consolidated Balance Sheets



	December 31,
	2016			2015
Prepaid pensions ⁽¹⁾	$	64,397		$	38,201
Accrued pension liability, current ⁽²⁾	(5,347		)	(5,026		)
Accrued pension liability, long-term ⁽³⁾	(24,695		)	(15,243		)
Accumulated other comprehensive loss, excluding tax effects	146,604			154,756
Net amount recognized in the balance sheets	$	180,959		$	172,688

(1) Included in Other current assets.

(2) Included in Other current liabilities.

(3) Included in Other liabilities.

Components of Pension Cost for Defined Benefit Plans



	Year Ended December 31,
	2016			2015			2014
Service cost	$	17,689		$	19,933		$	19,062
Interest cost	23,578			36,002			42,485
Expected return on plan assets	(35,716		)	(54,638		)	(67,953		)
Amortization of prior service cost	(394		)	(626		)	(616		)
Amortization of net loss ⁽¹⁾	9,893			19,406			17,644
Settlement/curtailment (gain) loss	(1,062		)	142,738			1,773
Pension cost for defined benefit plans	$	13,988		$	162,815		$	12,395

(1) The amortization of net loss includes a $959 charge resulting from the deconsolidation of the Venezuelan subsidiary during the year ended December 31, 2016.

The decrease in the components of total pension cost for the defined benefit plans in 2016 was primarily due to the purchase of a group annuity contract in August 2015, which triggered a settlement loss in the period.

Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets



	December 31,
	2016		2015
U.S. pension plans
Projected benefit obligation	$	25,731	$	16,822
Accumulated benefit obligation	25,460		15,223
Fair value of plan assets	5,548		—
Non-U.S. pension plans
Projected benefit obligation	$	47,776	$	3,393
Accumulated benefit obligation	45,128		2,831
Fair value of plan assets	38,200		—

The total accumulated benefit obligation for all plans was $560,230 as of December 31, 2016 and $523,728 as of December 31, 2015.

Benefit Payments for Plans

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



Estimated Payments
2017	$	39,820
2018	29,803
2019	29,375
2020	27,869
2021	28,236
2022 through 2026	150,813

Assumptions

Weighted average assumptions used to measure the benefit obligation for the Company's significant defined benefit plans as of December 31, 2016 and 2015 were as follows:



	December 31,
	2016		2015
Discount Rate	4.1	%	4.5	%
Rate of increase in compensation	2.6	%	2.7	%

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, 2016 were as follows:



	December 31,
	2016		2015		2014
Discount rate	4.5	%	4.0	%	4.7	%
Rate of increase in compensation	2.7	%	2.7	%	4.1	%
Expected return on plan assets	6.1	%	6.3	%	7.3	%

To develop the discount rate assumption to be used for U.S. plans, 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. The target allocation for plan assets is 35% to 45% equity securities and 55% to 65% debt securities.

The following table sets forth, by level within the fair value hierarchy, the pension plans' assets as of December 31, 2016:



	Pension Plans' Assets at Fair Value as of December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	3,652	$	—	$	—	$	3,652
Equity securities ⁽¹⁾	4,071		—		—		4,071
Fixed income securities ⁽²⁾
U.S. government bonds	20,036		—		—		20,036
Corporate debt and other obligations	—		134,051		—		134,051
Investments measured at NAV ⁽³⁾
Common trusts and 103-12 investments ⁽⁴⁾							397,924
Private equity funds ⁽⁵⁾							39,351
Total investments at fair value	$	27,759	$	134,051	$	—	$	599,085

The following table sets forth, by level within the fair value hierarchy, the pension plans' assets as of December 31, 2015:



	Pension Plans' Assets at Fair Value as of December 31, 2015
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	5,740	$	—	$	—	$	5,740
Equity securities ⁽¹⁾	3,569		—		—		3,569
Fixed income securities ⁽²⁾
U.S. government bonds	11,603		—		—		11,603
Corporate debt and other obligations	—		120,470		—		120,470
Investments measured at NAV ⁽³⁾
Common trusts and 103-12 investments ⁽⁴⁾							394,318
Private equity funds ⁽⁵⁾							40,401
Total investments at fair value	$	20,912	$	120,470	$	—	$	576,101


(1)	Equity securities are primarily comprised of corporate stock and mutual funds directly held by the plans. Equity securities are valued using the closing price reported on the active market on which the individual securities are traded.


(2)	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.


(3)	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.

(4)

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.

(5)

Private equity funds consist of four funds seeking capital appreciation by investing in private equity investment partnerships and venture capital companies. Private equity fund valuations are based on the NAV of the underlying assets. Funds are comprised of unrestricted and restricted publicly traded securities and privately held securities. Unrestricted securities are valued at the closing market price on the reporting date. Restricted securities may be valued at a discount from such closing public market price, depending on facts and circumstances. Privately held securities are valued at fair value as determined by the fund directors and general partners.

Supplemental Executive Retirement Plan

The Company maintains 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 qualified retirement plan which is subject to Internal Revenue Service ("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 $2,113, $1,703 and $3,012 in 2016, 2015 and 2014, respectively. The projected benefit obligation associated with this plan is also included in the pension disclosure shown above and was $16,738, $14,643 and $17,953 at December 31, 2016, 2015 and 2014, respectively.

In October 2016, the Company announced an amendment to freeze and vest all benefit accruals under the SERP, effective November 30, 2016. The Company recorded a curtailment loss of $1,144 for the year ended December 31, 2016 related to the amendment. The value of the frozen vested benefit was converted into an account balance and deferred. In addition, the Company created The Lincoln Electric Company Restoration Plan (“Restoration Plan”) that will be effective January 1, 2017. 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, effective January 1, 2017, which are limited by IRS regulations on covered compensation.

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 Savings Plan that will be effective January 1, 2017. The Savings Plan will provide that eligible employees receive up to 6% of employees' annual compensation in Company contributions 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 will also be 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.

The annual costs recognized for defined contribution plans were $8,361, $10,082 and $11,088 in 2016, 2015 and 2014, respectively.

Other Benefits

The Cleveland, Ohio, area operations have a Guaranteed Continuous Employment Plan covering substantially all 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.