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Retirement Plans
 12 Months Ended
Dec. 31, 2021
Compensation And Retirement Disclosure [Abstract]  
Retirement Plans

17.

Retirement Plans

Defined Contribution Plans

Devon sponsors defined contribution plans covering its employees. Such plans include its 401(k) plan and enhanced contribution plan. Devon makes matching contributions and additional retirement contributions, with the matching contributions being 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, $33 million and $34 million to these plans in 2021, 2020 and 2019, 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 and effective, as of December 31, 2020, Devon’s benefits committee approved a freeze of all future benefit accruals under the Plans.

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 90% fixed income and 10% 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 $590 million and $617 million at December 31, 2021 and 2020, respectively.

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 $67 million and $110 million at December 31, 2021 and 2020, respectively.

Other – Devon’s other securities include short-term investment funds 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 $14 million and $18 million at December 31, 2021 and 2020, 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, 2021 and 2020.

 

 

 

Pension Benefits

 

 

Postretirement Benefits

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Change in benefit obligation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation at beginning of year

 

$

981

 

 

$

924

 

 

$

13

 

 

$

14

 

Service cost

 

 

—

 

 

 

5

 

 

 

—

 

 

 

—

 

Interest cost

 

 

18

 

 

 

25

 

 

 

—

 

 

 

—

 

Actuarial loss (gain)

 

 

(18

)

 

 

116

 

 

 

(1

)

 

 

(1

)

Plan amendments

 

 

—

 

 

 

2

 

 

 

1

 

 

 

—

 

Plan curtailments

 

 

22

 

 

 

(14

)

 

 

—

 

 

 

1

 

Plan settlements

 

 

(73

)

 

 

(28

)

 

 

—

 

 

 

—

 

Participant contributions

 

 

—

 

 

 

—

 

 

 

2

 

 

 

2

 

Benefits paid

 

 

(50

)

 

 

(49

)

 

 

(3

)

 

 

(3

)

Benefit obligation at end of year

 

 

880

 

 

 

981

 

 

 

12

 

 

 

13

 

Change in plan assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year

 

 

745

 

 

 

694

 

 

 

—

 

 

 

—

 

Actual return on plan assets

 

 

(11

)

 

 

114

 

 

 

—

 

 

 

—

 

Employer contributions

 

 

60

 

 

 

14

 

 

 

1

 

 

 

1

 

Participant contributions

 

 

—

 

 

 

—

 

 

 

2

 

 

 

2

 

Plan settlements

 

 

(73

)

 

 

(28

)

 

 

—

 

 

 

—

 

Benefits paid

 

 

(50

)

 

 

(49

)

 

 

(3

)

 

 

(3

)

Fair value of plan assets at end of year

 

 

671

 

 

 

745

 

 

 

—

 

 

 

—

 

Funded status at end of year

 

$

(209

)

 

$

(236

)

 

$

(12

)

 

$

(13

)

Amounts recognized in balance sheet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other long-term assets

 

$

6

 

 

$

10

 

 

$

—

 

 

$

—

 

Other current liabilities

 

 

(14

)

 

 

(14

)

 

 

(2

)

 

 

(2

)

Other long-term liabilities

 

 

(201

)

 

 

(232

)

 

 

(9

)

 

 

(11

)

Net amount

 

$

(209

)

 

$

(236

)

 

$

(11

)

 

$

(13

)

Amounts recognized in accumulated other

   comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial loss (gain)

 

$

206

 

 

$

201

 

 

$

(12

)

 

$

(12

)

Prior service cost

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

Total

 

$

206

 

 

$

201

 

 

$

(11

)

 

$

(12

)

 

During 2021, non-qualified plans experienced curtailments due to the Merger and both qualified and non-qualified plans experienced a partial plan settlement due to continued lump sum payments. 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 in 2020.

Certain of Devon’s pension plans have a combined projected benefit obligation or accumulated benefit obligation in excess of plan assets at December 31, 2021 and December 31, 2020, as presented in the table below.

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Projected benefit obligation

 

$

215

 

 

$

246

 

Accumulated benefit obligation

 

$

215

 

 

$

246

 

Fair value of plan assets

 

$

—

 

 

$

—

 

 

 

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

 

 

 

Pension Benefits

 

 

Postretirement Benefits

 

 

 

2021

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2019

 

Net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

—

 

 

$

5

 

 

$

7

 

 

$

—

 

 

$

—

 

 

$

—

 

Interest cost

 

 

18

 

 

 

25

 

 

 

32

 

 

 

—

 

 

 

—

 

 

 

—

 

Expected return on plan assets

 

 

(34

)

 

 

(41

)

 

 

(38

)

 

 

—

 

 

 

—

 

 

 

—

 

Recognition of net actuarial loss (gain) (1)

 

 

4

 

 

 

5

 

 

 

7

 

 

 

(1

)

 

 

—

 

 

 

(1

)

Recognition of prior service cost (1)

 

 

—

 

 

 

3

 

 

 

1

 

 

 

—

 

 

 

(1

)

 

 

(1

)

Total net periodic benefit cost (2)

 

 

(12

)

 

 

(3

)

 

 

9

 

 

 

(1

)

 

 

(1

)

 

 

(2

)

Other comprehensive loss (earnings):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss (gain) arising in current year

 

 

28

 

 

 

27

 

 

 

7

 

 

 

(1

)

 

 

(1

)

 

 

(2

)

Prior service cost arising in current year

 

 

—

 

 

 

2

 

 

 

3

 

 

 

1

 

 

 

—

 

 

 

—

 

Recognition of net actuarial gain (loss), including

   settlement expense, in net periodic benefit cost (3)

 

 

(23

)

 

 

(9

)

 

 

(22

)

 

 

1

 

 

 

1

 

 

 

1

 

Recognition of prior service cost, including

   curtailment, in net periodic benefit cost (3)

 

 

—

 

 

 

(7

)

 

 

(2

)

 

 

—

 

 

 

1

 

 

 

1

 

Total other comprehensive loss (earnings)

 

 

5

 

 

 

13

 

 

 

(14

)

 

 

1

 

 

 

1

 

 

 

—

 

Total

 

$

(7

)

 

$

10

 

 

$

(5

)

 

$

—

 

 

$

—

 

 

$

(2

)

 

(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, net in the accompanying consolidated statements of comprehensive earnings.

(3)

These amounts include restructuring costs that were reclassified out of other comprehensive earnings in 2021, 2020 and 2019. See Note 6 for further discussion.

 

 

 

Assumptions

 

 

 

Pension Benefits

 

 

Postretirement Benefits

 

 

 

2021

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2019

 

Assumptions to determine benefit obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

2.71%

 

 

2.38%

 

 

3.14%

 

 

2.34%

 

 

1.82%

 

 

2.81%

 

Rate of compensation increase

 

N/A

 

 

2.50%

 

 

2.50%

 

 

N/A

 

 

N/A

 

 

N/A

 

Assumptions to determine net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate - service cost

 

N/A

 

 

3.47%

 

 

3.74%

 

 

2.51%

 

 

3.25%

 

 

3.99%

 

Discount rate - interest cost

 

2.11%

 

 

2.75%

 

 

3.36%

 

 

1.01%

 

 

2.31%

 

 

3.21%

 

Rate of compensation increase

 

N/A

 

 

2.50%

 

 

2.50%

 

 

N/A

 

 

N/A

 

 

N/A

 

Expected return on plan assets

 

5.00%

 

 

6.00%

 

 

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 2021 benefit obligation for the other postretirement medical plans, a 6.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2022. 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 $54 million a year for the next five years and $254 million total for the five years thereafter. Of these payments to be paid in 2022, $16 million is expected to be funded from Devon’s available cash, cash equivalents and other assets.