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Retirement Plans | 12 Months Ended
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Dec. 31, 2020
Compensation And Retirement Disclosure [Abstract] |
Retirement Plans |
1 7. | Retirement Plans
Defined Contribution Plans Devon sponsors defined contribution plans covering its employees. Such plans include its 401(k) plan and enhanced contribution plan. Contributions are primarily based upon percentages of annual compensation and years of service. In addition, each plan is subject to regulatory limitations by the U.S. government. Devon contributed $33 million, $34 million and $40 million to these plans in 2020, 2019 and 2018, respectively. Defined Benefit Plans Devon has various non-contributory defined benefit pension plans, including qualified plans and nonqualified plans covering eligible employees and former employees meeting certain age and service requirements. Benefits under the defined benefit plans have been closed to new employees; however, eligible employees have continued to accrue benefits based upon years of service and compensation. However, effective December 31, 2020, Devon’s benefits committee approved a freeze of all future benefit accruals under the Plan. 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 85% fixed income and 15% equity. 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 $617 million and $240 million at December 31, 2020 and 2019, respectively. Also included in 2019 were 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 $233 million at December 31, 2019. Equity – Devon’s equity securities include commingled global equity funds that invest in large, mid and small capitalization stocks across the world’s developed and emerging markets and international large cap equity securities. These equity securities can be sold 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 $110 million and $112 million at December 31, 2020 and 2019, respectively. Other – Devon’s other securities include short-term investment funds and a hedge fund that invest both long and short term 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 $18 million and $109 million at December 31, 2020 and 2019, respectively. Defined Postretirement Plans Devon also has defined benefit postretirement plans that provide benefits for substantially all qualifying retirees. 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 Devon’s 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, 2020 and 2019.
|  | Pension Benefits |  |  | Postretirement Benefits |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Change in benefit obligation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Benefit obligation at beginning of year |  | $ | 924 |  |  | $ | 916 |  |  | $ | 14 |  |  | $ | 17 |
Service cost |  |  | 5 |  |  |  | 7 |  |  |  | — |  |  |  | — |
Interest cost |  |  | 25 |  |  |  | 32 |  |  |  | — |  |  |  | — |
Actuarial loss (gain) |  |  | 116 |  |  |  | 91 |  |  |  | (1 | ) |  |  | (3 | )
Plan amendments |  |  | 2 |  |  |  | 3 |  |  |  | — |  |  |  | — |
Plan curtailments |  |  | (14 | ) |  |  | (3 | ) |  |  | 1 |  |  |  | 1 |
Plan settlements |  |  | (28 | ) |  |  | (75 | ) |  |  | — |  |  |  | — |
Participant contributions |  |  | — |  |  |  | — |  |  |  | 2 |  |  |  | 2 |
Benefits paid |  |  | (49 | ) |  |  | (47 | ) |  |  | (3 | ) |  |  | (3 | )
Benefit obligation at end of year |  |  | 981 |  |  |  | 924 |  |  |  | 13 |  |  |  | 14 |
Change in plan assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets at beginning of year |  |  | 694 |  |  |  | 685 |  |  |  | — |  |  |  | — |
Actual return on plan assets |  |  | 114 |  |  |  | 118 |  |  |  | — |  |  |  | — |
Employer contributions |  |  | 14 |  |  |  | 13 |  |  |  | 1 |  |  |  | 1 |
Participant contributions |  |  | — |  |  |  | — |  |  |  | 2 |  |  |  | 2 |
Plan settlements |  |  | (28 | ) |  |  | (75 | ) |  |  | — |  |  |  | — |
Benefits paid |  |  | (49 | ) |  |  | (47 | ) |  |  | (3 | ) |  |  | (3 | )
Fair value of plan assets at end of year |  |  | 745 |  |  |  | 694 |  |  |  | — |  |  |  | — |
Funded status at end of year |  | $ | (236 | ) |  | $ | (230 | ) |  | $ | (13 | ) |  | $ | (14 | )
Amounts recognized in balance sheet: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other long-term assets |  | $ | 10 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Other current liabilities |  |  | (14 | ) |  |  | (13 | ) |  |  | (2 | ) |  |  | (2 | )
Other long-term liabilities |  |  | (232 | ) |  |  | (217 | ) |  |  | (11 | ) |  |  | (12 | )
Net amount |  | $ | (236 | ) |  | $ | (230 | ) |  | $ | (13 | ) |  | $ | (14 | )
Amounts recognized in accumulated other comprehensive earnings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net actuarial loss (gain) |  | $ | 201 |  |  | $ | 183 |  |  | $ | (12 | ) |  | $ | (12 | )
Prior service cost (credit) |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | (1 | )
Total |  | $ | 201 |  |  | $ | 188 |  |  | $ | (12 | ) |  | $ | (13 | )
During 2020, Devon’s qualified plan experienced a partial plan settlement due to ongoing lump sum payments. Devon’s qualified and non-qualified plans experienced curtailments due to plan freezes and reductions in force. Certain of Devon’s pension plans have a combined projected benefit obligation or accumulated benefit obligation in excess of plan assets at December 31, 2020 and December 31, 2019, as presented in the table below.
|  | December 31, |
|  | 2020 |  |  | 2019 |
Projected benefit obligation |  | $ | 246 |  |  | $ | 924 |
Accumulated benefit obligation (1) |  | $ | 246 |  |  | $ | 223 |
Fair value of plan assets |  | $ | — |  |  | $ | 694 |
(1) | The projected and accumulated benefit obligation for the qualified pension plan was not in excess of plan assets as of December 31, 2020. The 2019 qualified pension plan contained $690 million of accumulated benefit obligations which were not in excess of plan assets.
The following table presents the components of net periodic benefit cost and other comprehensive earnings.
|  | Pension Benefits |  |  | Postretirement Benefits |
|  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2020 |  |  | 2019 |  |  | 2018 |
Net periodic benefit cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 5 |  |  | $ | 7 |  |  | $ | 9 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Interest cost |  |  | 25 |  |  |  | 32 |  |  |  | 38 |  |  |  | — |  |  |  | — |  |  |  | — |
Expected return on plan assets |  |  | (41 | ) |  |  | (38 | ) |  |  | (48 | ) |  |  | — |  |  |  | — |  |  |  | — |
Recognition of net actuarial loss (gain) (1) |  |  | 5 |  |  |  | 7 |  |  |  | 13 |  |  |  | — |  |  |  | (1 | ) |  |  | (1 | )
Recognition of prior service cost (1) |  |  | 3 |  |  |  | 1 |  |  |  | 1 |  |  |  | (1 | ) |  |  | (1 | ) |  |  | (1 | )
Total net periodic benefit cost (2) |  |  | (3 | ) |  |  | 9 |  |  |  | 13 |  |  |  | (1 | ) |  |  | (2 | ) |  |  | (2 | )
Other comprehensive loss (earnings): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Actuarial loss (gain) arising in current year |  |  | 27 |  |  |  | 7 |  |  |  | 5 |  |  |  | (1 | ) |  |  | (2 | ) |  |  | (1 | )
Prior service cost arising in current year |  |  | 2 |  |  |  | 3 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Recognition of net actuarial gain (loss), including settlement expense, in net periodic benefit cost (3) |  |  | (9 | ) |  |  | (22 | ) |  |  | (59 | ) |  |  | 1 |  |  |  | 1 |  |  |  | 1 |
Recognition of prior service cost, including curtailment, in net periodic benefit cost (3) |  |  | (7 | ) |  |  | (2 | ) |  |  | (2 | ) |  |  | 1 |  |  |  | 1 |  |  |  | 1 |
Total other comprehensive loss (earnings) |  |  | 13 |  |  |  | (14 | ) |  |  | (56 | ) |  |  | 1 |  |  |  | — |  |  |  | 1 |
Total |  | $ | 10 |  |  | $ | (5 | ) |  | $ | (43 | ) |  | $ | — |  |  | $ | (2 | ) |  | $ | (1 | )
(1) | These net periodic benefit costs were reclassified out of other comprehensive earnings in the current period.
(2) | The service cost component of net periodic benefit cost is included in G&A expense and the remaining components of net periodic benefit costs are included in other expenses in the accompanying consolidated statements of comprehensive earnings.
(3) | These amounts include restructuring costs that were reclassified out of other comprehensive earnings in 2020, 2019 and 2018. See Note 6 for further discussion.
Assumptions
|  | Pension Benefits |  |  | Postretirement Benefits |
|  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2020 |  |  | 2019 |  |  | 2018 |
Assumptions to determine benefit obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  | 2.38% |  |  | 3.14% |  |  | 4.09% |  |  | 1.82% |  |  | 2.81% |  |  | 4.01% |
Rate of compensation increase |  | 2.50% |  |  | 2.50% |  |  | 2.50% |  |  | N/A |  |  | N/A |  |  | N/A |
Assumptions to determine net periodic benefit cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate - service cost |  | 3.47% |  |  | 3.74% |  |  | 3.77% |  |  | 3.25% |  |  | 3.99% |  |  | 4.13% |
Discount rate - interest cost |  | 2.75% |  |  | 3.36% |  |  | 3.14% |  |  | 2.31% |  |  | 3.21% |  |  | 2.67% |
Rate of compensation increase |  | 2.50% |  |  | 2.50% |  |  | 2.50% |  |  | N/A |  |  | N/A |  |  | N/A |
Expected return on plan assets |  | 6.00% |  |  | 5.75% |  |  | 5.75% |  |  | 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. Other assumptions – For measurement of the 2020 benefit obligation for the other postretirement medical plans, a 6.9% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2021. The rate was assumed to decrease annually to an ultimate rate of 5% in the year 2029 and remain at that level thereafter. Expected Cash Flows Devon expects benefit plan payments to average approximately $57 million a year for the next five years and $264 million total for the five years thereafter. Of these payments to be paid in 2021, $17 million is expected to be funded from Devon’s available cash, cash equivalents and other assets.

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