NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
(Dollars in thousands)
Note 1 – Description of Plan
The description of the MSA Retirement Savings Plan (“Plan”) provided below is for general information purposes only. More complete information is included in the applicable Plan document.
The Plan is a defined contribution plan maintained by MSA Safety Incorporated (“MSA” or the “Company”) for eligible U.S. employees (“Participants”). The Plan provides for automatic enrollment of new Participants at a Participant contribution rate of 5% of the Participant’s pre-tax earnings. Participants may elect to not contribute or change their contribution rate during a 45-day election period. Participants may elect to contribute from 1% to 50% of their pre-tax earnings up to the maximum limits of the Internal Revenue Code ("IRC"). The Plan allows for matching contributions equal to 100% of the first 5% of a Participant’s eligible pay. Participants who have attained age 50 before the end of the plan year are eligible to make catch-up contributions. Participants may also contribute amounts representing distributions from other qualified defined contribution plans (rollovers). The Plan permits deferral of federal income taxes on Participants' contributions, as provided for under Section 401(k) of the Internal Revenue Code (“IRC”), and the Plan permits after-tax contributions for the remainder of the Plan year after the employee has reached the deferral limit.
On December 31, 2019, the Globe Manufacturing Company, LLC Employees' Profit Sharing 401(k) Plan was merged into the Plan. As a result, net assets available for benefits of approximately $26,349 were transferred to the Plan.
The Plan provides a number of investment options in registered investment companies, a common collective trust, and Company common stock. Participants may direct the investment of their account into any combination of the available investment options.
Participants are vested immediately in their contributions plus actual earnings thereon. Company matching contributions vest after two years of continuous service with the Company. Each Participant’s account is credited with the Participant’s contributions and allocations of (a) the Company’s matching contributions and (b) Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on Participant earnings, account balances, or specific participant transactions, as defined. The benefit to which a Participant is entitled is the benefit that can be provided from the Participant’s vested account. Participants or their beneficiaries are entitled to the current value of their accounts in the Plan upon death or their vested balance upon termination of their employment with the Company.
On termination of service due to death, disability, retirement, or other reasons, Participants may elect to receive a distribution of their vested account balance as a single sum, request a direct rollover of their vested account balance into an eligible retirement plan, or maintain their account balance in the Plan, subject to certain restrictions. The Plan generally does not permit hardship withdrawals.
Participant loans are not permitted by the Plan. As a result of Plan mergers, the Plan will occasionally hold existing participant loans through the settlement period. No such residual Participant loans were held as of December 2020 and 2019.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
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 and to terminate the Plan at any time according to the provisions of ERISA. In the event of Plan termination, Participants will become fully vested in their accounts and will receive a lump sum cash payment, or some other method of payment in accordance with the Plan provisions, equal to their vested account balance.
The Plan is administered by a committee appointed by the Board of Directors of the Company. The committee establishes rules of procedure, interprets the provisions of the Plan, and decides all questions of administration.
Fidelity Management Trust Company is the trustee of the Plan. Fidelity Workplace Services LLC provides recordkeeping services for the Plan.
On March 27, 2020, the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) was signed into law. This aid package was designed to help the economy from the effects of the coronavirus pandemic, several of the provisions of CARES Act affected employee benefit plans. The provisions of the CARES Act were optional. During 2020, the Plan has opted into the following provisions of the CARES Act:
a.Hardship distributions - Qualified plan participants were permitted to take a coronavirus-related distribution of up to $100 from the Plan without a 10 percent early withdrawal penalty. Eligible distributions were permitted to be taken until December 31, 2020. Distributions may be repaid within three years or a participant may elect these distributions to be included in taxable income on a pro rata basis over three years.
b.Required minimum distributions (RMDs) - A temporary waiver of required minimum distributions rules permitted participants to suspend their RMDs for 2020 for participants that turned 70 ½ in 2019 and 72 in 2020.
Note 2 – Summary of Significant Accounting Policies
Accounting method – The financial statements of the Plan are prepared using the accrual basis of accounting.
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Investments – The Plan's investments are reported at fair value and consist of various registered investment companies, a common collective trust (Fidelity Managed Income Portfolio II) and the MSA common stock fund. See Note 4 for discussion of fair value measurements.
The average yield to maturity and crediting interest rate for the insurance contracts held within the common collective trust was 1.5% and 2.2% at December 31, 2020 and 2019, respectively.
Purchases and sales of investments are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation in fair value of investments includes the Plan’s gains and losses on investments bought and sold, as well as held, during the year.
Distributions to Participants – Distributions to Participants are recorded when paid. At December 31, 2020 and 2019, there were no significant unpaid benefits allocated to accounts of Participants who had elected to withdraw from the Plan.
Funding – The Plan is funded by contributions from Participants and the Company. The cost of administering the Plan is borne by the Plan. Investment management fees paid by each fund are deducted directly from investment income.
Subsequent events – The Plan has evaluated subsequent events and has concluded that all events that would require recognition or disclosure are appropriately reflected in these financial statements.
Note 3 – Related Party and Party-In-Interest Transactions
Certain Plan investments are shares of registered investment companies and a common collective trust managed by Fidelity Management Trust Company. Fidelity Management Trust Company is the trustee of the Plan and, therefore, these transactions are considered to be party-in-interest transactions. Fees, net of revenue sharing credits, paid by the Plan to Fidelity Management Trust Company for administrative services were $15 and $95 for the years ended December 31, 2020 and 2019, respectively.
Certain Plan investments are publicly traded common stock of the Company. The Plan held 40,869 and 43,693 shares of Company stock at December 31, 2020 and 2019, respectively. During 2020, the Plan purchased 5,890 shares of Company stock at an aggregate cost of $689 and sold 8,714 shares of Company stock for total proceeds of $1,047. During 2019, the Plan purchased 2,990 shares of Company stock at an aggregate cost of $314 and sold 3,070 shares of Company stock for total proceeds of $374. The Plan received $72 and $73 in dividends on Company stock during 2020 and 2019, respectively.
The Company performs administrative functions on behalf of the Plan, for which no fees are charged.
Note 4 – 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. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are:
Level 1—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or indirectly.
Level 3—Unobservable inputs for the asset or liability.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following is a description of the valuation methodologies used for Plan assets measured at fair value. There have been no changes in the methodologies used at December 31, 2020 and 2019.
Registered investment companies – These investments are public investment vehicles valued using the Net Asset Value (“NAV”) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in an active market and is classified within Level 1 of the valuation hierarchy.
Common collective trust – This investment is a public investment vehicle valued using the NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV, as provided by the trustee, is used as a practical expedient to estimate fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. The fund’s investment objective is to seek the preservation of capital and to provide a competitive level of income over time that is consistent with the preservation of capital. To achieve its investment objective, the fund invests in assets (typically fixed-income securities or bond funds) and enters into “wrapper” contracts issued by third-parties and invests in cash equivalents represented by shares in a money market fund. The Plan’s investment in the fund is not subject to any withdrawal restrictions and distributions may be taken at any time. The Plan has no unfunded commitments relating to the fund at December, 2020 or 2019.
MSA common stock fund – This investment is valued at the closing price of MSA common stock reported on the New York Stock Exchange, plus cash and accrued interest, and is classified within Level 1 of the valuation hierarchy.
The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although 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.
The Plan’s investments measured at fair value on a recurring basis by fair value hierarchy level were as follows:
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December 31, 2020
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Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
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Significant Observable
Inputs
(Level 2)
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Significant
Unobservable
Inputs
(Level 3)
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Total
Fair Value
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Registered investment Companies
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$
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324,291
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$
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—
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$
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—
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$
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324,291
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MSA common stock fund
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6,354
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—
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—
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6,354
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Total assets in the fair value hierarchy
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330,645
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—
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—
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330,645
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Investments measured at net asset value (a)
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—
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—
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—
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32,991
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Investments at fair value
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330,645
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—
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—
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363,636
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December 31, 2019
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Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
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Total
Fair Value
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Registered investment Companies
|
$
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287,583
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$
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—
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$
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—
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$
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287,583
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MSA common stock fund
|
5,751
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—
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—
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5,751
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Total assets in the fair value hierarchy
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293,334
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—
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—
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293,334
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Investments measured at net asset value (a)
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—
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—
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—
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30,330
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Investments at fair value
|
293,334
|
|
|
—
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—
|
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323,664
|
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(a)Certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the Statement of Net Assets Available for Benefits.
The Plan did not hold any Level 3 investments as of or during the years ended December 31, 2020 or 2019.
Note 5 – Tax Status of the Plan
The Internal Revenue Service informed the Company by letter dated December 28, 2017, that the Plan, and the 2015 cumulative list of changes in Plan qualification requirements, was in compliance with the applicable requirements of the IRC. The following amendment dates apply to the favorable determination letter: January 25, 2017, December 21, 2016, January 26, 2016, December 22, 2015, December 3, 2015, December 10, 2013 and March 7, 2012. Although the Plan has been amended since receiving the determination letter, the plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC and therefore believes that the Plan is qualified, and the related custodial accounts are tax exempt.
Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the organization has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan is subject to routine audits by taxing jurisdictions, however, there are currently no audits for any tax periods in progress.
Note 6 – Forfeited Accounts
At December 31, 2020 and 2019, forfeited non-vested accounts were not significant. These balances are included in the common collective trust. Forfeited account balances are used first to reinstate previously forfeited amounts for Participants who are re-employed by the Company within five years, then to pay Plan expenses and then to reduce future Company matching contributions. During the years ended December 31, 2020 and 2019, forfeited non-vested accounts were used to pay Plan administrative expenses totaling $90 and $2, and to reduce Company matching contributions by $61 and $1, respectively.
Note 7 – Risks and Uncertainties
The Plan provides investment options in registered investment companies, a common collective trust, and a Company common stock fund. Investments are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that changes in the values of investments 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.
As of December 31, 2020 and 2019, the Plan had investments of $45,815 and $63,984, respectively, that were concentrated in one and two funds, respectively.