Sheriffs' Retirement Fund of Georgia Financial Statements Fiscal Year Ended June 30, 2019 (With Independent Auditor's Report Thereon) The cover photograph was taken by Lisa Petty at St. George Island, Florida, on May 12, 2020. TABLE OF CONTENTS Page SECTION I FINANCIAL Independent Auditor's Report 1 Basic Financial Statements Statement of Fiduciary Net Position 6 Statement of Changes in Fiduciary Net Position 7 Notes to Financial Statements 8 Required Supplementary Information (Unaudited) Schedule of Employers' and Nonemployers' Net Pension Liability 20 Schedule of Changes in Employers' and Nonemployers' Net Pension Liability 21 Schedule of Employer and Nonemployer Contributions 22 Schedule of Investment Returns 23 Notes to Required Supplementary Information 24 SECTION II REPORT ON INTERNAL CONTROL OVER FINANCIAL 27 REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS (This page intentionally left blank) GREG S. GRIFFIN STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 Independent Auditor's Report The Honorable Brian P. Kemp, Governor of Georgia Members of the General Assembly of the State of Georgia Board of Commissioners of the Sheriffs' Retirement Fund of Georgia Mr. J. Terry Norris, Secretary-Treasurer Report on the Financial Statements We have audited the accompanying financial statements of the Sheriffs' Retirement Fund of Georgia (the Fund), a component unit of the State of Georgia, as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the Fund's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 1 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net position of the Fund as of June 30, 2019, and the changes in fiduciary net position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Management has omitted the management's discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Accounting principles generally accepted in the United States of America require that the required supplementary information listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 2 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 27, 2020 on our consideration of the Fund's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Fund's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Fund's internal control over financial reporting and compliance. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, May 27, 2020 Greg S. Griffin State Auditor 3 (This page intentionally left blank) BASIC FINANCIAL STATEMENTS 5 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Statement of Fiduciary Net Position June 30, 2019 Assets Cash and Cash Equivalents Receivables: Due from Brokers for Securities Sold Investments at Fair Value: Obligations: U.S. Treasury Obligations U.S. Agency Obligations Foreign Government Obligations Corporate: Domestic International Asset Backed Securities Mortgage Investments Equities: Mutual Funds Domestic International Exchange Traded Funds Stocks: Domestic International Real Estate Investment Trusts Total Investments at Fair Value Total Assets $ 5,189,877 4,210,763 93,870 4,486,205 1,136,707 4,287,391 3,084,948 14,960,085 8,985,253 2,853,442 42,495,798 1,949,149 404,260 Liabilities Accounts Payable and Other: Pending Investment Purchases Deferred Dues Payments Total Liabilities 227,871 6,975 Net Position Restricted for Pensions See accompanying notes to financial statements. $ 22,489,761 71,647,987 $ 2,759,776 124,696 94,137,748 97,022,221 234,846 $ 96,787,375 6 Additions: Contributions: Nonemployer Member SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Statement of Changes in Fiduciary Net Position June 30, 2019 $ 2,053,299 89,895 Investment Income Net Increase in Fair Value of Investments Interest, Dividends, and Other Less Investment Expense Total Additions Deductions: Benefit Payments Administrative Expenses, net Total Deductions Net Increase in Net Position Net Position Restricted for Pensions: Beginning of Year $ 4,555,272 2,495,263 (631,257) 6,419,278 8,562,471 6,511,598 267,101 6,778,699 1,783,772 95,003,603 End of Year $ 96,787,375 See accompanying notes to financial statements. 7 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 Note 1: Plan Description The Sheriffs' Retirement Fund of Georgia (the Retirement Fund) was created in 1963 by the Georgia General Assembly to provide retirement benefits for the sheriffs of the State of Georgia. The Retirement Fund administers a cost-sharing, multiple-employer defined benefit pension plan as defined in Governmental Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension Plans an amendment of GASB Statement No. 25. The Retirement Fund is governed by its Board of Commissioners. The Board is comprised of six members and consists of the state treasurer, one former sheriff who is a retired beneficiary of the Retirement Fund, and four persons holding office as sheriffs within the State of Georgia, each of whom are active members of the Retirement Fund and have held office as a sheriff for at least four years. Eligibility and Membership Any qualified and commissioned sheriff of the superior court of any county within the State of Georgia who makes payment of the required contributions is eligible for membership. As of June 30, 2019, participation in the Retirement Fund is as follows: Inactive members and beneficiaries currently receiving benefits 203 Inactive members not yet receiving benefits, vested 6 Active plan members 156 Total 365 Participating Employers and Other Contributing Entities At June 30, 2019, the active members of the Retirement Fund were employed by 156 employers. The Retirement Fund also had one nonemployer contributing entity, which is the State of Georgia. Retirement Benefits The Retirement Fund provides retirement as well as death benefits. Benefit provisions and vesting requirements are established by statute and may be amended only by the General Assembly of Georgia. A description of plan benefits and vesting requirements is as follows: Retirement Conditions: Normal retirement is at age 55 provided the member has at least four years of credited service as a sheriff after and including January 1, 1961. The credited service requirement is eight years for a sheriff who first or again becomes an active member on or after July 1, 1988. A member must have terminated his or her service as sheriff to receive benefits. 8 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 Retirement Benefits: The monthly benefit is a single life annuity payable in monthly payments for the life of the member. The maximum monthly payment at June 30, 2019 is equal to $162.53 per month (plus 1/12 of this amount for each month of any partial year) for each full year of creditable service up to a maximum of $4,875.90 per month. The Board of Commissioners is authorized to provide for increases effective as of January 1 and July 1 of each year up to 1% of the maximum monthly retirement benefit then in effect. Optional Benefits: Members may elect, as an alternate to the benefit described above, to receive a 100% joint life annuity payable during the life of the member or the member's spouse or a contingency life annuity with a 50% monthly payment to the surviving spouse. The amount of the benefit for these options is an actuarially reduced portion of the single life annuity benefit described above. Death Benefits: Upon the death of a member, the Retirement Fund provides death benefit payments to the member's surviving spouse, named beneficiary, or the member's estate as described in O.C.G.A. 47-16-102. Termination: At any time before a member begins drawing retirement benefits, the member may request a refund of the total sum he or she has paid into the Retirement Fund as membership dues. No interest shall be paid upon amounts so withdrawn. Contributions The Retirement Fund is funded by member and nonemployer contributing entity (Nonemployer) contributions. Contribution provisions are established by statute and may be amended only by the General Assembly. Member Contributions: Members must contribute $45.00 per month, with a maximum payment period of 30 years. Nonemployer Contributions: The State of Georgia provides nonemployer contributions to the Retirement Fund through the collection of court fines and forfeitures. For each criminal and quasicriminal case involving the violation of State of Georgia laws, including traffic laws, a sum based upon the scale set forth below is collected by the presiding judge and remitted to the Retirement Fund: For fines or bond forfeitures in excess of $5, in any court where a sheriff of a superior court acts as a sheriff $2 9 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 In addition, the following amounts are required to be collected by the applicable courts and remitted to the Retirement Fund: For civil actions, cases or proceedings filed in superior courts $1 For civil actions, cases or proceedings filed in state courts and magistrate courts where a sheriff of the superior courts acts as a sheriff in those courts $1 The fines and forfeitures are considered employer contributions for the purpose of determining whether the Retirement Fund has met minimum funding requirements specified in O.C.G.A. 4720-10. This statute also prohibits any action to grant a benefit increase until such time as the minimum annual contribution requirements meet or exceed legislative requirements. The actuarial valuation as of June 30, 2019, calculated the minimum employer contribution for the fiscal year ended June 30, 2019, as $2,058,960. The fines and forfeitures revenue of $2,053,299 for the fiscal year ended June 30, 2019, does not meet the minimum required fund contribution. Administrative Expenses Administrative expenses are generally funded from current member and nonemployer contributions. Investment earnings may be utilized to fund any expenses in excess of contributions. Note 2 - Summary of Significant Accounting Policies and Plan Asset Matters Basis of Accounting The Retirement Fund's financial statements are prepared on the accrual basis of accounting, except for the collection of contributions, which are recognized when collected from the members and the courts. Any accrual of these contributions would be immaterial to the Retirement Fund's financial statements. Retirement and refund payments are recognized as deductions when due and payable. Reporting Entity The Retirement Fund is a component unit of the State of Georgia; however, it is accountable for its own fiscal matters and presentation of its separate financial statements. The Retirement Fund has considered potential component units under GASB Statements No. 61, The Financial Reporting Entity's Omnibus an amendment of GASB Statement No. 14 and No. 34, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, and determined there were no component units of the Retirement Fund. Cash and Cash Equivalents Cash and cash equivalents, reported at cost, include cash on deposit at banks, cash on deposit with the investment custodians earning a credit to offset fees, and short-term highly liquid financial securities with maturities of three months or less from the date of acquisition. Cash and cash equivalents also include a money market fund, reported at fair value. 10 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 Investments Investments are reported at fair value. Equity securities traded on a national or international exchange are valued at the last reported sales price. Fixed income securities are valued based primarily on quoted market prices provided by independent pricing sources. Global foreign exchange holdings are translated using a third-party vendor. Investment income is recognized as earned by the Retirement Fund. There are no investments, in, or loans to, parties related to the Retirement Fund The Retirement Fund utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, foreign currency, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the financial statements. The Retirement Fund maintains an investment policy that may be amended by its Board of Commissioners both upon its own initiative and upon consideration of the advice and recommendations of its investment consultant. There were no significant changes in the investment policy for the Retirement Fund during the fiscal year. The Retirement Fund's policy in regard to the allocation of invested assets is established on a cost basis in compliance with State law. Plan assets are managed on a total return basis with a longterm objective of achieving and maintaining a fully funded status for the benefits provided through the pension plan. The following was the Retirement Fund's adopted asset allocation policy as of June 30, 2019: Asset Class Fixed income Domestic equities International equities Real estate investment trusts Cash and cash equivalents Total Target Allocation 25% - 40% 50% - 75% 10%-20% 0% - 5% 0% - 10% 100% Approximately 9.71% of the investments held in trust for pension benefits are invested in debt securities of the U.S. government and its instrumentalities, of which 5.36% are U.S. government debt securities and 4.35% are debt securities of the U.S. government instrumentalities. The Retirement Fund has no investments in any one organization, other than those issued by the U.S. government and its instrumentalities that represent 5% or more of the Retirement Fund's net position restricted for pensions. For the year ended June 30, 2019, the annual money weighted rate of return on pension plan investments, net of plan investment expense, was 7.37%. The money-weighted rate of return 11 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of fiduciary net position and changes therein. Actual results could differ from those estimates. Related Party Transactions The Retirement Fund has a joint Administrative Services contract with Georgia Sheriffs' Association and Georgia Sheriffs' Youth Homes to perform accounting and administrative duties for the Retirement Fund. Additionally, these organizations provide computer equipment, software and computer support for the Retirement Fund and lease office space in their building to the Retirement Fund. New Accounting Pronouncements No new accounting pronouncements were adopted by the Retirement Fund. Note 3: Investment Program The Retirement Fund maintains sufficient cash to meet its immediate liquidity needs. Cash not immediately needed is invested as directed by the investment policy of the Retirement Fund. All investments are held by agent custodial banks in the name of the Retirement Fund. State law and the Retirement Fund's investment policy authorize the Retirement Fund to invest in a variety of short-term and long-term securities Cash and Cash Equivalents The carrying amount of the Retirement Fund's operating account totaled $74,178 at June 30, 2019, with an actual bank balance of $75,146. The Retirement Fund's cash balance is fully insured through the Federal Deposit Insurance Corporation, an independent agency of the U.S. Government. The Retirement Fund's investment policy authorizes investment in short-term highly liquid financial securities. At June 30, 2019, the Retirement Fund held $2,685,599 in money market mutual funds. Investments Fixed income investments are maintained in U. S. Treasury obligations, obligations unconditionally guaranteed by agencies of the U.S. Government, obligations of foreign governments, investmentgrade corporate bonds, asset-backed securities, and mortgage-related securities. Equity investments are maintained in mutual funds, domestic equities, international equities, and real estate investment trusts. Domestic equities are those securities considered by the O.C.G.A. to 12 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 be domiciled in the United States. International equities are not considered by the O.C.G.A. to be domiciled in the United States. The equity portfolio is managed by the Retirement Fund in conjunction with independent advisors. Buy/sell decisions are based on securities meeting rating criteria established by the investment policy of the Retirement Fund. Equity trades are approved and executed by the independent advisors. Common stocks eligible for investment must meet the Investment Objectives and Guidelines of the Retirement Fund's investment policy. State law limits the total investment in equity securities to 75% of the total invested assets calculated on a historical cost basis. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Retirement Fund does not have a formal policy for managing interest rate risk. The following table provides information about the Retirement Fund's interest rate risk: Investment type Cash and cash equivalents subject to interest rate risk: Money market mutual funds Debt securities subject to interest rate risk: U.S. Treasury obligations U.S. Agency obligations Foreign government obligations Corporate debt Do mes tic International Asset-backed securities Mortgage investments Total debt securities Total Fair Value Less than 3 Months 4 - 12 Months Maturity Period 1 - 5 Years 6 - 10 Years $ 2,685,599 2,685,599 $ 5,189,877 4,210,763 93,870 4,486,205 1,136,707 4,287,391 3,084,948 $ 22,489,761 189,198 194,789 60,028 444,015 1,135,583 1,498 93,870 1,229,521 620,382 1,349,222 92,707 4,522,782 1,679,391 155,274 1,910,765 205,276 1,773,369 61,042 5,785,117 More than 10 Years 2,185,705 4,053,991 1,151,130 251,022 1,164,800 2,931,199 11,737,847 Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the Retirement Fund. State law limits investments to investment grade securities. The Retirement Fund's investment policy requires that purchases of bonds be restricted to bonds rated as investment grade as defined by a nationally recognized rating agency. Obligations of the U.S. Government or obligations explicitly guaranteed by the U.S. Government are not considered to have credit risk and do not require disclosure of credit quality. 13 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 The quality ratings of investments in fixed income securities at June 30, 2019, as described by Moody's Investor Services, which is a nationally recognized statistical rating organization, are shown in the following table: Quality Ratings of Fixed Income Investments Held at June 30, 2019 Investment Type Total Fair Value AAA AA Cash and cash equivalents subject to credit risk: Money market mutual funds $ 2,685,599 A BAA BA Unrated 2,685,599 Debt securities subject to credit risk: U.S. Agency obligations Foreign government obligations Corporate debt Domestic International Asset-backed securities Mortgage investments Total debt securities subject to credit risk Debt securities not subject to credit risk: U.S. Treasury obligations U.S. Agency obligations explicitly guaranteed Total debt securities $ 3,368,451 93,870 4,486,205 1,136,707 4,287,391 3,084,948 $ 16,457,572 5,189,877 842,312 $ 22,489,761 452,058 804,229 1,256,287 618,453 618,453 93,870 982,327 541,100 820,443 2,437,740 3,190,894 419,747 681,562 398,452 4,690,655 95,607 135,986 231,593 3,368,451 312,984 80,253 1,714,875 1,746,281 7,222,844 Fair Value Measurement The Retirement Fund categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the inputs used in valuation and gives the highest priority to unadjusted quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest level, Level 1, is given to unadjusted quoted prices in active markets and the lowest level, Level 3, to unobservable inputs. Level 1 Valuations based on unadjusted quoted prices for identical instruments in active markets that the Retirement Fund has the ability to access. Level 2 Valuations based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instrument in markets that are not active; and model-derived valuations in which all significant inputs are observable. Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement. 14 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 In instances where inputs used to measure fair value fall into different levels in the fair value hierarchy, fair value measurements in the entirety are categorized based on the lowest level input that is significant to the valuation. The Retirement Fund's assessment of the significance of particular inputs to these fair value measurements requires judgement and considers factors specific to each investment. The following table shows the fair value leveling of the Retirement Fund's investments: Investments by fair value level Cash and cash equivalents: Money market mutual funds Total Quoted prices in active markets for identical assets (Level 1) Fair value measures using Significant other o b s erv ab le inputs (Level 2) Significant u n o b s erv ab le inputs (Level 3) $ 2,685,599 2,685,599 Debt securities: U.S. Treasury obligations U.S. Agency obligations Foreign government obligations Corporate debt Do mes tic International Asset-backed securities Mortgage investments Total Debt Securities Eq u ities : Mutual funds Exchange traded funds Stocks Do mes tic International Real estate investment trusts Total Equity Securities T Total investments by fair value level $ 5,189,877 4,210,763 93,870 4,486,205 1,136,707 4,287,391 3,084,948 22,489,761 14,960,085 2,853,442 44,444,947 8,985,253 404,260 71,647,987 $ 94,137,748 14,960,085 2,853,442 44,444,947 8,985,253 404,260 71,647,987 71,647,987 5,189,877 4,210,763 93,870 4,486,205 1,136,707 4,287,391 3,084,948 22,489,761 22,489,761 The Retirement Fund did not have any Net Asset Value (NAV) investments at June 30, 2019. Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely impact the fair value of an investment. The Retirement Fund does not have a formal policy for managing foreign currency risk. The Retirement Fund's currency risk exposures, or exchange rate risks, primarily reside within the Retirement Fund's international equity investment holdings. As of June 30, 2019, the Retirement Fund's exposure to foreign currency risk derives from its investments traded on the London Stock Exchange and denominated in British Pounds. The market value of these holdings as of June 30, 2019 totaled $8,985,253 valued in U. S. dollars. 15 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 Concentration of Credit Risk Concentration of credit risk is the risk of loss that may be attributed to the magnitude of the Retirement Fund's investment in a single issue. On June 30, 2019, the Retirement Fund did not have any debt investments in any one organization, other than those issued or guaranteed by the U.S. Government or its agencies, which represented greater than 5% of the plan's total investments. Note 4: Net Pension Liability of Employers and Nonemployers The components of the collective net pension liability of the participating employers and nonemployers at June 30, 2019, were as follows: Total pension liability Plan fiduciary net position $ 154,040,038 96,787,375 Net pension liability $ 57,252,663 Plan fiduciary net position as a percentage of total pension liability 62.83% Actuarial assumptions The total pension liability was determined by an actuarial valuation as of June 30, 2019, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.75% Salary Increases N/A Investment rate of return 6.50%, net of pension plan investment expense, including inflation Municipal Bond Index Rate 3.50% Fiscal Year Fiduciary Net Position is expected to be depleted 2041 Single Equivalent Interest Rate 4.95% Mortality rates were based on the RP-2000 Combined Mortality Table projected to 2025 with projection scale BB and set forward 2 years for both males and females for the period after retirement and for dependent beneficiaries. The RP-2000 Combined Mortality Table projected to 2025 with projection scale BB was used for deaths in active service. Retirement benefit at the normal retirement date has increased by 1.5% every six months in the monthly benefit per year of credited service since July 1, 2000 and are assumed to continue into the future. The actuarial assumptions used in the June 30, 2019 valuation were based on the results of an actuarial experience study for the seven-year period ending June 30, 2015. 16 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 The long-term expected rate of return on pension plan investments was calculated using a lognormal distribution analysis in which best-estimate ranges of expected future real rates of return (expected nominal returns, net of pension plan investment expense and rate of inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target asset allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-Term Expected Rate of Return* Domestic Fixed Income Domestic Large Cap Equities Domestic Mid Cap Equities Domestic Small Cap Equities Global Equities International Equities Core 25% 40% 3.5% 3.5% 10% 15% 1.00% 4.40% 4.70% 4.90% 5.00% 5.10% Real Estate Investment Trusts Total 3% 100% 6.00% * Rates shown are net of the 2.75% assumed rate of inflation. Discount rate The discount rate used to measure the total pension liability was 4.95% as compared with last year's rate of 5.16%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate ($45 per month) and that nonemployer contributions (from fines and fee revenues) will continue to be made at rates currently established by statute. Employer contributions for the fiscal year ending June 30, 2019 were approximately $2.0 million and we assumed this contribution amount will continue over the projected period. Projected future benefit payments for all current plan members were projected through the year 2106. Based on those assumptions, the Retirement Fund's fiduciary net position was projected to be depleted during the fiscal year ending June 30, 2041. Therefore, based on the GASB 67 provisions, the long-term expected rate of return on pension plan investments of 6.50% was applied to all periods of projected benefit payments through 2040 and a municipal bond index rate of 3.50% was applied to all periods of projected benefit payments on or after 2041. The Single Equivalent Interest Rate (SEIR) that discounts the entire projected benefit stream to the same amount as the sum of the present values of the two separate benefit payment streams was determined to be 4.95%. Therefore, the discount rate used to measure the total pension liability was 4.95%. 17 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to the Financial Statements June 30, 2019 Sensitivity of the net pension liability to changes in the discount rate The following table presents the net pension liability of the Retirement Fund, calculated using the discount rate of 4.95%, as well as what the Retirement Fund's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (3.95%) or 1-percentagepoint higher (5.95%) than the current rate: Employers' and nonemployers' net pension liability 1% Decrease (3.95%) $ 76,026,407 Current discount rate (4.95%) 57,252,663 1% Increase (5.95%) 41,521,291 Note 5: Subsequent Events During the fiscal year under review, the Board of Commissioners approved a 1.5% cost-of-living adjustment to the benefit terms effective January 1, 2020. In December 2019, a strain of coronavirus (COVID-19) began to spread worldwide, resulting in a severe impact to the United States economy in March 2020. The spread of COVID-19 has had a negative impact on virtually all businesses and individuals which comprise the tax base of all levels of government. The full extent of this impact is uncertain but is expected to have negative results on financial operations. The complete impact cannot be reasonably estimated at this time, however, below are some of the known impacts of the COVID-19 event. At June 30, 2019, investments held in agent, custodial banks in the name of the Fund were valued at $94,137,748. Based on most recent available information as of April 30, 2020, these investments have experienced a significant decline in value to an amount estimated at $87,855,934, a decrease of 6.49%. 18 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 19 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Required Supplementary Information Schedule of Employers' and Nonemployers' Net Pension Liability For the year ended June 30 (Unaudited) Total pension liability $ Plan fiduciary net position Employers' and nonemployers' net pension liability $ Plan fiduciary net position as a percentage of the total pension liability Covered payroll Employers' and nonemployers' net pension liability as a percentage of covered payroll 2019 154,040,038 $ 96,787,375 57,252,663 $ 62.83% N/A N/A 2018 147,959,066 $ 95,003,603 52,955,463 $ 64.21% N/A N/A Note: Schedule is intended to show information for 10 years. Additional years will be displayed as they become available. See accompanying notes to required supplementary information. 2017 141,595,208 $ 92,515,568 49,079,640 $ 65.34% N/A N/A 2016 147,769,336 $ 83,740,659 64,028,677 $ 56.67% N/A N/A 2015 111,637,917 $ 89,589,162 22,048,755 $ 80.25% N/A N/A 2014 109,279,727 89,477,968 19,801,759 81.88% N/A N/A 20 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Required Supplementary Information Schedule of Changes in Employers' and Nonemployers' Net Pension Liability For the year ended June 30 (Unaudited) Total pension liability: Service cost $ In teres t Changes of benefit terms Differences between expected and actual experience Changes of assumptions Benefit payments Refund of contributions Net change in total pension liability Total pension liability - beginning Total pension liability - ending (a) Plan fiduciary net position: Contributions - nonemployer Contributions - member Net investment income Benefit payments Refund of contributions Administrative expense Other Net change in plan fiduciary net position Plan fiduciary net position - beginning Plan fiduciary net position - ending (b) Net pension liability - ending (a) - (b) $ 2019 2,927,620 $ 7,466,689 (1,335,494) 3,533,755 (6,511,598) 6,080,972 147,959,066 154,040,038 2,053,299 89,895 6,419,277 (6,511,598) (267,101) 1,783,772 95,003,603 96,787,375 57,252,663 $ 2018 2,893,408 $ 7,084,915 3,487,614 (666,144) (6,433,550) (2,385) 6,363,858 141,595,208 147,959,066 2,030,767 107,460 7,043,868 (6,433,550) (2,385) (258,125) 2,488,035 92,515,568 95,003,603 52,955,463 $ 2017 2,598,880 $ 6,603,717 2,779,681 (12,254,463) (5,888,323) (13,620) (6,174,128) 147,769,336 141,595,208 1,916,433 109,823 12,907,301 (5,888,323) (13,620) (256,705) 8,774,909 83,740,659 92,515,568 49,079,640 $ 2016 1,622,966 $ 7,076,985 (3,080,707) 36,034,613 (5,522,438) 36,131,419 111,637,917 147,769,336 1,970,041 81,445 (2,158,357) (5,522,438) (219,194) (5,848,503) 89,589,162 83,740,659 64,028,677 $ Note: Schedule is intended to show information for 10 years. Additional years will be displayed as they become available. See accompanying notes to required supplementary information. 2015 1,740,512 $ 6,923,391 (773,672) (5,532,041) 2,358,190 109,279,727 111,637,917 2,030,097 79,645 3,708,050 (5,532,041) (214,844) 40,287 111,194 89,477,968 89,589,162 22,048,755 $ 2014 1,850,878 6,719,420 (5,332,521) 3,237,777 106,041,950 109,279,727 2,086,369 116,912 12,531,353 (5,332,521) (216,635) 3,994 9,189,472 80,288,496 89,477,968 19,801,759 21 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Required Supplementary Information Schedule of Employer and Nonemployer Contributions For the year ended June 30 (Unaudited) 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Actuarially determined employer and nonemployer contribution $ Contributions in relation to the actuarially determined contribution Contribution deficiency (excess) $ 2,058,960 2,053,299 5,661 1,713,467 2,030,767 (317,300) 1,600,128 1,916,433 (316,305) 1,369,695 1,970,041 (600,346) 1,608,502 2,030,097 (421,595) 1,357,827 2,086,369 (728,542) 1,357,827 2,336,786 (978,959) 1,101,385 2,678,871 (1,577,486) 1,101,385 2,498,355 (1,396,970) 401,174 2,651,756 (2,250,582) Covered payroll N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Contributions as a percentage of covered payroll N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A See accompanying notes to required supplementary information. 22 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Required Supplementary Information Schedule of Investment Returns For the year ended June 30 (Unaudited) 2019 Annual money-weighted rate of return, net of investment expense 7.37% 2018 7.86% 2017 15.87% 2016 -1.81% 2015 4.60% 2014 16.56% Note: Schedule is intended to show information for 10 years. Additional years will be displayed as they become available. See accompanying notes to required supplementary information. 23 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to Required Supplementary Information For the year ended June 30, 2019 (Unaudited) Note 1: Schedule of Employers' and Nonemployers' Net Pension Liability The components of the net pension liability as of the fiscal year end and the plan fiduciary net position as a percentage of the total pension liability as of that date are presented in this schedule. This trend information will be accumulated to display a ten-year presentation. Note 2: Schedule of Changes in Employers' and Nonemployers' Net Pension Liability Net pension liability which is measured as the total pension liability less the amount of the plan fiduciary net position is presented in this schedule. This trend information will be accumulated to display a ten-year presentation. Note 3: Schedule of Employer and Nonemployer Contributions The schedule presents the required contributions and the percentage of required contributions actually contributed. Note 4: Schedule of Investment Returns The schedule presents historical trend information about the annual money-weighted rate of return on plan investments, net of plan investment expense. This trend information will be accumulated to display a ten-year presentation. Note 5: Actuarial Methods and Assumptions Changes of assumptions: In 2019, the SEIR was decreased from 5.16 % to 4.95% to reflect the changes to the fiduciary net position's projected year of depletion. In 2018, the SEIR was increased from 5.12% to 5.16% to reflect the changes to the fiduciary net position's projected year of depletion. In 2017, the SEIR was increase from 4.56% to 5.12% to reflect changes to the fiduciary net position's projected year of depletion. In 2016, rates of withdrawal, retirement, and mortality were adjusted to more closely reflect actual and anticipated experience. In addition, the assumption for price inflation was lowered from 3.00% to 2.75%. These assumptions were recommended as part of the experience investigation for the seven year period ending June 30, 2015. In 2016, the SEIR was lowered from 6.50% to 4.56% to reflect the changes to the fiduciary net position's projected year of depletion. 24 SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia) Notes to Required Supplementary Information For the year ended June 30, 2019 (Unaudited) Changes of benefit terms: Retirement benefit at Normal Retirement Date has increased based on the following table since July 1, 2016. These increases every six months in the monthly benefit per year of credited service have occurred since July 1, 2000 and are assumed to continue into the future. July 1, 2016 January 1, 2017 July 1, 2017 January 1, 2018 July 1, 2018 January 1, 2019 $ 2.20 $ 150.93 $ 2.27 $ 153.20 $ 2.27 $ 155.47 $ 2.33 $ 157.80 $ 2.33 $ 160.13 $ 2.40 $ 162.53 Method and assumptions used in calculations of actuarially determined contributions: The actuarially determined contribution rates in the schedule of employer contributions are calculated as of June 30, one year prior to the end of the fiscal year in which contributions are reported (June 30, 2018 valuation for the June 30, 2019 fiscal year end). The following actuarial methods and assumptions were used to determine the most recent contribution rate reported in that schedule: Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Inflation rate Salary increases Investment rate of return June 30, 2018 Entry age normal Level dollar, closed 21.7 years 5-year smoothed market value 2.75% N/A 6.50%, net of pension plan investment expense, including inflation 25 (This page intentionally left blank) DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 GREG S. GRIFFIN STATE AUDITOR (404) 656-2174 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report The Honorable Brian P. Kemp, Governor of Georgia Members of the General Assembly of the State of Georgia Board of Commissioners of the Sheriffs' Retirement Fund of Georgia Mr. J. Terry Norris, Secretary-Treasurer We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Sheriffs' Retirement Fund of Georgia (the Pension Fund), a component unit of the State of Georgia, which include the statement of fiduciary net position as of June 30, 2019, the related statement of changes in fiduciary net position for the year then ended, and the related notes to the financial statements, which collectively comprise the Pension Fund's basic financial statements, and have issued our report thereon dated May 27, 2020. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Pension Fund's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Pension Fund's internal control. Accordingly, we do not express an opinion on the effectiveness of the Pension Fund's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements 27 will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Pension Fund's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Respectfully submitted, May 27, 2020 Greg S. Griffin State Auditor 28