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 $27 million and $31 million at December 31, 2013 and 2012, respectively, and is included in other long-term assets in the accompanying 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 U.S. employees. 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 $1.1 billion and $1.2 billion at December 31, 2013 and 2012, respectively. Devon’s benefit obligations and plan assets are measured each year as of December 31. Devon’s 2012 plan settlements relate to a plan amendment which removed a dollar cap on lump sum payments and revised optional forms of payment to include a lump sum distribution feature. The projected benefit obligation for Devon’s qualified plans was fully funded as of December 31, 2013 and 2012.


	Pension Benefits				Postretirement Benefits
	2013		2012		2013		2012

	(In millions)
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,360	$	1,303	$	34	$	37
Service cost		36		43		1		1
Interest cost		51		60		1		1
Actuarial loss (gain)		(158)		95		(3)		(4)
Plan amendments		2		14		(8)		-
Plan curtailments		-		(20)		-		1
Plan settlements		-		(93)		-		-
Foreign exchange rate changes		(2)		1		-		-
Participant contributions		-		-		3		3
Benefits paid		(112)		(43)		(4)		(5)
Benefit obligation at end of year		1,177		1,360		24		34
Change in plan assets:
Fair value of plan assets at beginning of year		1,165		1,187		-		-
Actual return on plan assets		(57)		102		-		-
Employer contributions		11		11		1		2
Participant contributions		-		-		3		3
Plan settlements		-		(93)		-		-
Benefits paid		(112)		(43)		(4)		(5)
Foreign exchange rate changes		(1)		1		-		-
Fair value of plan assets at end of year		1,006		1,165		-		-
Funded status at end of year	$	(171)	$	(195)	$	(24)	$	(34)

Amounts recognized in balance sheet:
Noncurrent assets	$	47	$	62	$	-	$	-
Current liabilities		(12)		(12)		(3)		(3)
Noncurrent liabilities		(206)		(245)		(21)		(31)
Net amount	$	(171)	$	(195)	$	(24)	$	(34)

Amounts recognized in accumulated other comprehensive earnings:
Net actuarial loss (gain)	$	279	$	340	$	(13)	$	(11)
Prior service cost (credit)		23		25		(11)		(4)
Total	$	302	$	365	$	(24)	$	(15)

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 $11 million and $10 million for 2013 and 2012, respectively, which were transferred from the trusts established for the nonqualified plans.

Certain of Devon's pension plans have a projected benefit obligation and accumulated benefit obligation in excess of plan assets at December 31, 2013 and 2012 as presented in the table below.


	December 31,
	2013		2012

	(In millions)
Projected benefit obligation	$	218	$	257
Accumulated benefit obligation	$	179	$	216
Fair value of plan assets	$	-	$	-

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
	2013		2012		2011		2013		2012		2011

	(In millions)
Net periodic benefit cost:
Service cost	$	36	$	43	$	37	$	1	$	1	$	1
Interest cost		51		60		60		1		1		2
Expected return on plan assets		(62)		(64)		(42)		-		-		-
Curtailment and settlement expense		-		26		-		-		1		(3)
Recognition of net actuarial loss (gain) (1)		22		24		32		(1)		(1)		-
Recognition of prior service cost (1)		4		3		3		(1)		(1)		(2)
Total net periodic benefit cost (2)		51		92		90		-		1		(2)
Other comprehensive loss (earnings):
Actuarial loss (gain) arising in current year		(39)		37		23		(3)		(4)		(7)
Prior service cost (credit) arising in current year		2		14		-		(8)		-		5
Recognition of net actuarial loss, including settlement
expense, in net periodic benefit cost		(22)		(45)		(32)		1		1		3
Recognition of prior service cost, including curtailment,
in net periodic benefit cost		(4)		(8)		(3)		1		1		2
Total other comprehensive loss (earnings)		(63)		(2)		(12)		(9)		(2)		3
Total recognized	$	(12)	$	90	$	78	$	(9)	$	(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 general and administrative expenses on the accompanying comprehensive statements of earnings.

The following table presents the estimated net actuarial loss and prior service cost that will be amortized from accumulated other comprehensive earnings into net periodic benefit cost during 2014.


	Pension Benefits		Postretirement Benefits

	(In millions)
Net actuarial loss (gain)	$	18	$	(1)
Prior service cost (credit)		4		(1)
Total	$	22	$	(2)

Assumptions

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


	Pension Benefits						Postretirement Benefits
	2013		2012		2011		2013		2012		2011
Assumptions to determine benefit obligations:
Discount rate		4.80%		3.85%		4.65%		3.65%		3.30%		4.25%
Rate of compensation increase		4.48%		4.48%		4.97%		N/A		N/A		N/A
Assumptions to determine net periodic benefit cost:
Discount rate		3.85%		4.65%		5.50%		3.30%		4.25%		4.90%
Expected return on plan assets		5.48%		5.48%		6.48%		N/A		N/A		N/A
Rate of compensation increase		4.48%		4.97%		6.94%		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.

Rate of compensation increase – For measurement of the 2013 benefit obligation for the pension plans, a 4.48 percent 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.

Other assumptions – For measurement of the 2013 benefit obligation for the other postretirement medical plans, a 7.9 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2014. The rate was assumed to decrease annually to an ultimate rate of 5 percent in the year 2029 and remain at that level thereafter. Assumed health care cost-trend rates affect the amounts reported for retiree health care costs. A one-percentage-point change in the assumed health care cost-trend rates would have changed the postretirement benefits obligation as of December 31, 2013, by less than $1 million and would change the 2014 service and interest cost components of net periodic benefit cost by less than $1 million.

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. The following table presents Devon’s target allocation for its pension plan assets.

The fair values of Devon's pension assets are presented by asset class in the following tables.


	As of December 31, 2013
					Fair Value Measurements Using:
	Actual Allocation		Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs

	(In millions)
Fixed-income securities:
U.S. Treasury obligations		24.0%	$	241	$	69	$	172	$	-
Corporate bonds		39.5%		398		286		112		-
Other bonds		3.1%		31		31		-		-
Total fixed-income securities		66.6%		670		386		284		-
Equity securities:
Global (large, mid, small cap)		19.0%		190		-		190		-
Other securities:
Hedge fund & alternative investments		12.5%		127		15		-		112
Short-term investment funds		1.9%		19		-		19		-
Total other securities		14.4%		146		15		19		112
Total investments		100.0%	$	1,006	$	401	$	493	$	112


	As of December 31, 2012
					Fair Value Measurements Using:
	Actual Allocation		Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs

	(In millions)
Fixed-income securities:
U.S. Treasury obligations		39.4%	$	459	$	65	$	394	$	-
Corporate bonds		26.5%		308		256		52		-
Other bonds		2.4%		28		28		-		-
Total fixed-income securities		68.3%		795		349		446		-
Equity securities:
Global (large, mid, small cap)		20.5%		239		-		239		-
Other securities:
Hedge fund & alternative investments		10.3%		120		17		-		103
Short-term investment funds		0.9%		11		-		11		-
Total other securities		11.2%		131		17		11		103
Total investments		100.0%	$	1,165	$	366	$	696	$	103

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 United States 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 United States 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 commingled, short-term investment funds. These 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.

Included below is a summary of the changes in Devon's Level 3 plan assets (in millions).


December 31, 2011	$	90
Purchases		6
Investment returns		7
December 31, 2012		103
Purchases		-
Investment returns		9
December 31, 2013	$	112

Expected Cash Flows

The following table presents expected cash flow information for Devon's pension and postretirement benefit plans.


	Pension Benefits		Postretirement Benefits

	(In millions)
Devon's 2014 contributions	$	12	$	3
Benefit payments:
2014	$	71	$	3
2015	$	74	$	3
2016	$	75	$	3
2017	$	78	$	3
2018	$	81	$	3
2019 to 2023	$	450	$	9

Expected contributions included in the table above include amounts related to Devon's qualified plans, nonqualified plans and postretirement plans. Of the benefits expected to be paid in 2014, the $12 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.

Defined Contribution Plans

Devon maintains several 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. The following table presents Devon's expense related to these defined contribution plans.


	Year Ended December 31,
	2013		2012		2011

	(In millions)
401(k) and enhanced contribution plans	$	41	$	36	$	33
Canadian pension and savings plans		26		23		21
Total	$	67	$	59	$	54

December 31,

Fixed income