16.	Retirement Plans

Devon has various non-contributory defined benefit pension plans, including qualified plans and nonqualified plans. The qualified plans provide retirement benefits for certain U.S. and Canadian employees meeting certain age and service requirements. Benefits for the qualified plans are based on the employees’ years of service and compensation and are funded from assets held in the plans’ trusts.

The nonqualified plans provide retirement benefits for certain employees whose benefits under the qualified plans are limited by income tax regulations. The nonqualified plans’ benefits are based on the employees’ years of service and compensation. For certain nonqualified plans, Devon has established trusts to fund these plans’ benefit obligations. The total value of these trusts was $16 million and $22 million at December 31, 2016 and 2015, respectively and is included in other long-term assets in the accompanying consolidated balance sheets. For the remaining nonqualified plans for which trusts have not been established, benefits are funded from Devon’s available cash and cash equivalents.

Devon also has defined benefit postretirement plans that provide benefits for substantially all qualifying U.S. retirees. The plans provide medical and, in some cases, life insurance benefits and are either contributory or non-contributory, depending on the type of plan. Benefit obligations for such plans are estimated based on Devon’s future cost-sharing intentions. Devon’s funding policy for the plans is to fund the benefits as they become payable with available cash and cash equivalents.

Benefit Obligations and Funded Status

The following table presents the funded status of Devon’s qualified and nonqualified pension and postretirement benefit plans. The benefit obligation for pension plans represents the projected benefit obligation, while the benefit obligation for the postretirement benefit plans represents the accumulated benefit obligation. The accumulated benefit obligation differs from the projected benefit obligation in that the former includes no assumption about future compensation levels. The accumulated benefit obligation for pension plans was $1.2 billion at December 31, 2016 and 2015. Devon’s benefit obligations and plan assets are measured each year as of December 31.

	Pension Benefits						Postretirement Benefits
	2016			2015			2016			2015
	(Millions)
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,308		$	1,377		$	23		$	24
Service cost		15			33			—			1
Interest cost		42			52			1			1
Actuarial loss (gain)		63			(68	)		(1	)		(2	)
Plan amendments		2			—			—			1
Plan curtailments		(31	)		—			—			—
Plan settlements		(94	)		—			—			—
Foreign exchange rate changes		1			(6	)		—			—
Participant contributions		—			—			—			2
Benefits paid		(57	)		(80	)		(2	)		(4	)
Benefit obligation at end of year		1,249			1,308			21			23
Change in plan assets:
Fair value of plan assets at beginning of year		1,059			1,149			—			—
Actual return on plan assets		61			(16	)		—			—
Employer contributions		16			11			2			2
Participant contributions		—			—			—			2
Plan settlements		(94	)		—			—			—
Benefits paid		(57	)		(80	)		(2	)		(4	)
Foreign exchange rate changes		—			(5	)		—			—
Fair value of plan assets at end of year		985			1,059			—			—
Funded status at end of year	$	(264	)	$	(249	)	$	(21	)	$	(23	)
Amounts recognized in balance sheet:
Other long-term assets	$	3		$	2		$	—		$	—
Other current liabilities		(13	)		(12	)		(3	)		(3	)
Other long-term liabilities		(254	)		(239	)		(18	)		(20	)
Net amount	$	(264	)	$	(249	)	$	(21	)	$	(23	)
Amounts recognized in accumulated other comprehensive earnings:
Net actuarial loss (gain)	$	285		$	302		$	(11	)	$	(11	)
Prior service cost (credit)		8			14			(5	)		(6	)
Total	$	293		$	316		$	(16	)	$	(17	)

The plan assets for pension benefits in the table above exclude the assets held in trusts for the nonqualified plans. However, employer contributions for pension benefits in the table above include $13 million and $11 million for 2016 and 2015, respectively, which were funded from the trusts established for the nonqualified plans.

Certain of Devon’s pension plans are unfunded and have a combined projected benefit obligation and accumulated benefit obligation of $234 million and $211 million, respectively, at December 31, 2016 and $244 million and $199 million, respectively, at December 31, 2015.

Net Periodic Benefit Cost and Other Comprehensive Earnings

The following table presents the components of net periodic benefit cost and other comprehensive earnings.

	Pension Benefits									Postretirement Benefits
	2016			2015			2014			2016			2015			2014
	(Millions)
Net periodic benefit cost:
Service cost	$	15		$	33		$	30		$	—		$	1		$	1
Interest cost		42			52			55			1			1			1
Expected return on plan assets		(55	)		(58	)		(54	)		—			—			—
Curtailment and settlement expense		—			—			1			—			—			—
Recognition of net actuarial loss (gain) ⁽¹⁾		25			20			18			(1	)		(1	)		(1	)
Recognition of prior service cost ⁽¹⁾		3			4			4			(1	)		(2	)		(2	)
Total net periodic benefit cost ⁽²⁾		30			51			54			(1	)		(1	)		(1	)
Other comprehensive loss (earnings):
Actuarial loss (gain) arising in current year		26			5			57			—			(1	)		—
Prior service cost (credit) arising in current year		2			—			—			—			1			—
Recognition of net actuarial loss, including settlement expense, in net periodic benefit cost ⁽³⁾		(43	)		(20	)		(19	)		1			1			1
Recognition of prior service cost, including curtailment, in net periodic benefit cost ⁽³⁾		(9	)		(4	)		(4	)		1			1			2
Total other comprehensive loss (earnings)		(24	)		(19	)		34			2			2			3
Total recognized	$	6		$	32		$	88		$	1		$	1		$	2

(1)	These net periodic benefit costs were reclassified out of other comprehensive earnings in the current period.

(2)	Net periodic benefit cost is a component of G&A on the accompanying consolidated comprehensive statements of earnings.

(3)	These amounts include restructuring costs that were reclassified out of other comprehensive earnings in the current period. See Note 6 for further discussion.

The estimated net actuarial loss and prior service cost for our pension and postretirement benefits that will be amortized from accumulated other comprehensive earnings into net periodic benefit cost during 2017 are $18 million and $1 million, respectively.

Assumptions

The following table presents the weighted-average actuarial assumptions used to determine obligations and periodic costs.

	Pension Benefits						Postretirement Benefits
	2016		2015		2014		2016		2015		2014
Assumptions to determine benefit obligations:
Discount rate		4.07%		4.25%		3.90%		3.46%		3.63%		3.25%
Rate of compensation increase		4.49%		4.49%		4.49%	N/A		N/A		N/A
Assumptions to determine net periodic benefit cost:
Discount rate		4.39%		3.90%		4.80%		3.63%		3.25%		3.65%
Rate of compensation increase		4.49%		4.49%		4.49%	N/A		N/A		N/A
Expected return on plan assets		5.20%		5.22%		5.42%	N/A		N/A		N/A

Discount rate – Future pension and postretirement obligations are discounted at the end of each year based on the rate at which obligations could be effectively settled, considering the timing of estimated future cash flows related to the plans. This rate is based on high-quality bond yields, after allowing for call and default risk.

At the end of 2015, Devon changed the approach used to measure service and interest costs for pension and other postretirement benefits. For 2015, Devon measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, Devon elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. Devon believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of the plan obligations nor the funded status of the plans. The change in the service and interest costs going forward is not expected to be significant. This change has been accounted for as a change in accounting estimate.

Rate of compensation increase – For measurement of the 2016 benefit obligation for the pension plans, a 4.49% compensation increase was assumed.

Expected return on plan assets – The expected rate of return on plan assets was determined by evaluating input from external consultants and economists, as well as long-term inflation assumptions. Devon expects the long-term asset allocation to approximate the targeted allocation. Therefore, the expected long-term rate of return on plan assets is based on the target allocation of investment types. See the pension plan assets section below for more information on Devon’s target allocations.

Mortality rate assumptions – In 2014, the Society of Actuaries issued updated versions of its mortality tables and mortality improvement scale, reflecting the increasing life expectancies in the U.S. While not required to strictly adhere to this data, Devon utilized actuary-produced mortality tables and an improvement scale derived from the updated tables and the actuary’s best estimate of mortality for the population of participants in Devon’s plans.

Other assumptions – For measurement of the 2016 benefit obligation for the other postretirement medical plans, a 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2017. The rate was assumed to decrease annually to an ultimate rate of 5% in the year 2029 and remain at that level thereafter. A one percentage point change in assumed health care cost trend rates would not have a material impact on periodic benefit cost or benefit obligations.

Pension Plan Assets

Devon’s overall investment objective for its pension plans’ assets is to achieve stability of the plans’ funded status while providing long-term growth of invested capital and income to ensure benefit payments can be funded when required. To assist in achieving this objective, Devon has established certain investment strategies, including target allocation percentages and permitted and prohibited investments, designed to mitigate risks inherent with investing. Derivatives or other speculative investments considered high risk are generally prohibited. Devon’s target allocations for its pension plan assets are 70% fixed income, 20% equity and 10% other.

The following tables present the fair values of Devon’s pension assets by asset class.

	As of December 31, 2016
						Fair Value Measurements Using:
	Actual Allocation			Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(Millions)
Fixed-income securities:
U.S. Treasury obligations		35	%	$	343	$	68	$	275	$	—
Corporate bonds		30	%		297		205		92		—
Other bonds		4	%		38		38		—		—
Total fixed-income securities		69	%		678		311		367		—
Equity securities:
Global (large, mid, small cap)		17	%		171		—		171		—
Other securities:
Hedge fund and alternative investments		11	%		112		—		—		112
Short-term investments		3	%		24		8		16		—
Total other securities		14	%		136		8		16		112
Total investments		100	%	$	985	$	319	$	554	$	112

	As of December 31, 2015
						Fair Value Measurements Using:
	Actual Allocation			Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(Millions)
Fixed-income securities:
U.S. Treasury obligations		17	%	$	179	$	88	$	91	$	—
Corporate bonds		48	%		507		371		136		—
Other bonds		3	%		35		35		—		—
Total fixed-income securities		68	%		721		494		227		—
Equity securities:
Global (large, mid, small cap)		18	%		186		—		186		—
Other securities:
Hedge fund and alternative investments		11	%		120		—		—		120
Short-term investments		3	%		32		6		26		—
Total other securities		14	%		152		6		26		120
Total investments		100	%	$	1,059	$	500	$	439	$	120

The following methods and assumptions were used to estimate the fair values in the tables above.

Fixed-income securities – Devon’s fixed-income securities consist of U.S. Treasury obligations, bonds issued by investment-grade companies from diverse industries and asset-backed securities. These fixed-income securities are actively traded securities that can be redeemed upon demand. The fair values of these Level 1 securities are based upon quoted market prices.

Devon’s fixed income securities also include commingled funds that primarily invest in long-term bonds and U.S. Treasury securities. These fixed income securities can be redeemed on demand but are not actively traded. The fair values of these Level 2 securities are based upon the net asset values provided by the investment managers.

Equity securities – Devon’s equity securities include a commingled global equity fund that invests in large, mid and small capitalization stocks across the world’s developed and emerging markets. These equity securities can be redeemed on demand but are not actively traded. The fair values of these Level 2 securities are based upon the net asset values provided by the investment managers.

Other securities – Devon’s other securities include cash and commingled, short-term investment funds. The short-term investment funds’ securities can be redeemed on demand but are not actively traded. The fair values of these Level 2 securities are based upon the net asset values provided by investment managers.

Devon’s hedge fund and alternative investments include an investment in an actively traded global mutual fund that focuses on alternative investment strategies and a hedge fund of funds that invests both long and short using a variety of investment strategies. Devon’s hedge fund of funds is not actively traded, and Devon is subject to redemption restrictions with regards to this investment. The fair value of this Level 3 investment represents the fair value as determined by the hedge fund manager.

The following table presents a summary of the changes in Devon’s Level 3 plan assets (millions).

December 31, 2014	$	112
Purchases		5
Investment returns		3
December 31, 2015		120
Investments sold		(12	)
Investment returns		4
December 31, 2016	$	112

Expected Cash Flows

The table below presents contributions expected to be made to Devon’s qualified plans, nonqualified plans and postretirement plans. Of the benefits expected to be paid in 2017, $13 million of pension benefits is expected to be funded from the trusts established for the nonqualified plans, and the $3 million of postretirement benefits is expected to be funded from Devon’s available cash and cash equivalents. Expected employer contributions and benefit payments for other postretirement benefits are presented net of employee contributions.

	Pension Benefits		Postretirement Benefits
	(Millions)
2017	$	60	$	3
2018	$	61	$	3
2019	$	62	$	3
2020	$	64	$	2
2021	$	67	$	2
2022 to 2026	$	374	$	7

Defined Contribution Plans

Independent of EnLink, Devon maintains defined contribution plans covering its employees in the U.S. and Canada. Such plans include Devon’s 401(k) plan, enhanced contribution plan and Canadian pension and savings plan. Contributions are primarily based upon percentages of annual compensation and years of service. In addition, each plan is subject to regulatory limitations by each respective government. EnLink also maintains a 401(k) plan covering eligible employees. The following table presents expense related to these defined contribution plans.

	Year Ended December 31,
	2016		2015		2014
	(Millions)
401(k) and enhanced contribution plans	$	53	$	63	$	49
Canadian pension and savings plans		11		16		20
Total	$	64	$	79	$	69