18.	Retirement Plans

Defined Contribution Plans

Devon sponsors defined contribution plans covering its employees in the U.S. and Canada. Such plans include its 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. Devon contributed $60 million, $64 million and $79 million to these plans in 2017, 2016 and 2015, respectively.

Defined Benefit Plans

Devon has various non-contributory defined benefit pension plans, including qualified plans and nonqualified plans covering eligible U.S. and Canadian employees and former employees meeting certain age and service requirements. Benefits under the defined benefit plans have been closed to new employees since 2007; however, eligible employees continue to accrue benefits based upon years of service and compensation. Benefits are primarily funded from assets held in the plans’ trusts.

Devon’s investment objective for its plans’ assets is to achieve stability of the funded status while providing long-term growth of invested capital and income to ensure benefit payments can be funded when required. Devon has established certain investment strategies, including target allocation percentages and permitted and prohibited investments, designed to mitigate risks inherent with investing. Devon’s target allocations for its plan assets are 70% fixed income, 20% equity and 10% other. See the following discussion for Devon’s pension assets by asset class.

Fixed-income – 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 and were $342 million and $311 million at December 31, 2017 and 2016, respectively. Also, included are 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 securities are based upon the net asset values provided by the investment managers and were $401 million and $367 million at December 31, 2017 and 2016, respectively.

Equity – 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 securities are based upon the net asset values provided by the investment managers and were $157 million and $171 million at December 31, 2017 and 2016, respectively.

Other – Devon’s other securities include short-term investments funds, an actively traded global mutual fund focusing on alternative investment strategies and a hedge fund that invests both long and short using a variety of investment strategies. The fair value of these securities is based upon the net asset values provided by investment managers and were $135 million and $136 million at December 31, 2017 and 2016, respectively.

Defined Postretirement Plans

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 summarizes the benefit obligations, assets, funded status and balance sheet impacts associated with its defined pension and postretirement plans. Devon’s benefit obligations and plan assets are measured each year as of December 31. The accumulated benefit obligation for pension plans approximated the projected benefit obligation at December 31, 2017 and 2016.

	Pension Benefits						Postretirement Benefits
	2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,249		$	1,308		$	21		$	23
Service cost		15			15			—			—
Interest cost		42			42			—			1
Actuarial loss (gain)		59			63			—			(1	)
Plan amendments		—			2			—			—
Plan curtailments		—			(31	)		—			—
Plan settlements		—			(94	)		—			—
Foreign exchange rate changes		2			1			—			—
Participant contributions		—			—			1			—
Benefits paid		(88	)		(57	)		(3	)		(2	)
Benefit obligation at end of year		1,279			1,249			19			21
Change in plan assets:
Fair value of plan assets at beginning of year		985			1,059			—			—
Actual return on plan assets		122			61			—			—
Employer contributions		14			16			2			2
Participant contributions		—			—			1			—
Plan settlements		—			(94	)		—			—
Benefits paid		(88	)		(57	)		(3	)		(2	)
Foreign exchange rate changes		2			—			—			—
Fair value of plan assets at end of year		1,035			985			—			—
Funded status at end of year	$	(244	)	$	(264	)	$	(19	)	$	(21	)
Amounts recognized in balance sheet:
Other long-term assets	$	4		$	3		$	—		$	—
Other current liabilities		(13	)		(13	)		(3	)		(3	)
Other long-term liabilities		(235	)		(254	)		(16	)		(18	)
Net amount	$	(244	)	$	(264	)	$	(19	)	$	(21	)
Amounts recognized in accumulated other comprehensive earnings:
Net actuarial loss (gain)	$	257		$	285		$	(11	)	$	(11	)
Prior service cost (credit)		6			8			(3	)		(5	)
Total	$	263		$	293		$	(14	)	$	(16	)

Certain of Devon’s pension plans are unfunded and have a combined projected benefit obligation and accumulated benefit obligation of $239 million and $225 million, respectively, at December 31, 2017 and $234 million and $211 million, respectively, at December 31, 2016.

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

	Pension Benefits									Postretirement Benefits
	2017			2016			2015			2017			2016			2015
Net periodic benefit cost:
Service cost	$	15		$	15		$	33		$	—		$	—		$	1
Interest cost		42			42			52			—			1			1
Expected return on plan assets		(54	)		(55	)		(58	)		—			—			—
Recognition of net actuarial loss (gain) ⁽¹⁾		19			25			20			(1	)		(1	)		(1	)
Recognition of prior service cost ⁽¹⁾		2			3			4			(1	)		(1	)		(2	)
Total net periodic benefit cost ⁽²⁾		24			30			51			(2	)		(1	)		(1	)
Other comprehensive loss (earnings):
Actuarial loss (gain) arising in current year		(9	)		26			5			(1	)		—			(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⁾		(19	)		(43	)		(20	)		1			1			1
Recognition of prior service cost, including curtailment, in net periodic benefit cost ⁽³⁾		(2	)		(9	)		(4	)		1			1			1
Total other comprehensive loss (earnings)		(30	)		(24	)		(19	)		1			2			2
Total recognized	$	(6	)	$	6		$	32		$	(1	)	$	1		$	1

(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 2016. See Note 7 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 2018 are $14 million and $1 million, respectively.

Assumptions

	Pension Benefits					Postretirement Benefits
	2017	2016		2015		2017	2016		2015
Assumptions to determine benefit obligations:
Discount rate	3.59%		4.07%		4.25%	3.25%		3.46%		3.63%
Rate of compensation increase	2.50%		4.49%		4.49%	N/A	N/A		N/A
Assumptions to determine net periodic benefit cost:
Discount rate	4.08%		4.39%		3.90%	3.46%		3.63%	3.25%
Rate of compensation increase	4.48%		4.49%		4.49%	N/A	N/A		N/A
Expected return on plan assets	5.69%		5.20%		5.22%	N/A	N/A		N/A

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

Expected return on plan assets – This was determined by evaluating input from external consultants and economists, as well as long-term inflation assumptions and consideration of target allocation of investment types.

Mortality rate – Devon utilized the Society of Actuaries 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 2017 benefit obligation for the other postretirement medical plans, a 7.3% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2018. 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.

Expected Cash Flows

Devon expects benefit plan payments to average approximately $76 million a year for the next five years and $406 million total for the five years thereafter. Of these payments to be paid in 2018, $3 million is expected to be funded from Devon’s available cash and cash equivalents.