The 2018 Tax Cuts and Jobs Act will have a direct impact on mobility programs, requiring that mobility leaders and organizational stakeholders engage to make decisions regarding program adjustments.

Watch now to:

• Get an overview of the relocation-specific tax changes
• Discuss operational program implications and required decisions 
• Learn about the potential impact on mobility strategy

Presenter(s):
Taryn Kramer
Vice President, Global Consulting
SIRVA Worlwide Relocation & Moving

Kathy Burrows
Director, Client Policy Consulting
SIRVA Worldwide Relocation & Moving

VIDEO TRANSCRIPTION (Starting at 00:07)

Taryn: Good evening everyone. Thank you for joining us today. My name is Taryn Kramer and I am the Vice President of Global Consulting at SIRVA. I'm joined by my colleague Kathy Burrows who's a Director in SIRVA's Global Consulting Practice. SIRVA's Consulting Practice has over 50 years of experience working with global organizations to design and implement customized mobility and relocation programs that reflect best in class market practices to support the growth and talent priorities of an organization. We also have the pleasure of sharing thought leadership pieces with the market through white papers, industry events, and webinars such as this one.

Today's webinar, we'll focus on operational and strategic impacts and opportunities created by the 2018 Tax Cuts and Jobs Act that was signed by the president on December 22nd of 2017. We'll spend a bit of time providing an overview of the reform and discussing the relocation specific impacts of how programs operate and provide support for employees. We'll then shift gears a bit to discuss SIRVA's point of view on how the reform may not be all negative; specifically, the opportunities that the reform presents for mobility and relocation programs to elevate their role within the organization. With that I'll go ahead and turn it over to Kathy to get us started.

Operational Impacts of 2018 Tax Reform

Removal of IRS criteria to qualify certain moving expenses as excludable (from income)

Kathy: Thanks Taryn. So first we'd like to talk about the operational impacts to the tax reform. So when we look at the impacts on relocation let's take a look at two components. The first piece is the IRS criteria. So with the tax reform the IRS criteria is removed. We no longer have to worry about the time test, the distance test, or qualifying certain expenses. So while the criteria is removed there are some components of the time test and the distance test which are still really great best practices to keep part of your eligibility requirements for relocation. So we are finding that many companies are choosing to keep the time test and the distance test as part of the relocation eligibility requirement. So rather than having it as part of an IRS criteria part of their program, it's part of their eligibility requirements for relocation. 

Some tax-excludable expenses are now taxable

We then look at excludable expenses that are now taxable. We're all familiar with the household goods shipment, the first 30 days of storage, the pet shipment, the auto shipment, and the final trip expenses like the lodging, airfare, and excludable mileage. So now those items are all taxable components for relocation and companies will need to make the decision now whether or not they will now gross-up those expenses or not gross-up those expenses. So they're really looking to their partners with their tax departments, their RMCs, their payroll departments to determine what their philosophy will be on how they handle these expenses and then taking a look at operationally where is that documented. Are those items documented in their policies and where there need to be updates to those policies? Are there supporting documents like administration guide, relocation letters, repayment agreements that also have language that refers to these items that will need to be updated?

So as part of the operational activities, not only do we have to make decisions on how we're going to handle these items, we have to look at where they are housed and make those updates to those appropriate documents. And then provide communications out to the stakeholders that use this information, like your tax providers, your RMCs, and your payrolls to make sure that everyone is on the same page with the changes and then provide communications out to the stakeholders within the company like your HR managers and your talent management as far as the changes and the impacts that they may have. 

Relocation Impact of 2018 Tax Reform 

Increased Program Cost

So with that let's take a look at the relocation impact. So when we look at the things that are now considered taxable there may be an increase in overall company cost. But keep in mind they may be partially offset by lower tax rates for the corporation or they may be partially offset by lower individual tax rate. But should a company choose not to gross-up these expenses, this may [inaudible 00:04:38] to impact the ability of a company to relocate people. So we really need to keep that in mind when making decisions on what will be grossed up or not grossed up because it may impact the ability to attract talent and keep talent if those items are a big impact on the person considering taking the job or looking elsewhere where they may be covered. 

POLL: What gross-up approach has your organization decided on?

Now, we have our first polling question today. All right, you'll take a look at what gross-up approach has your organization decided upon, whether you're going to gross-up these expenses, there will be no gross-up, gross up the expenses now and then reevaluate the program or the policy within the next year, or last choice is unsure still. Take a minute and complete the poll for us.

Taryn: So this is really one of the big operational questions that, you know, mobility leaders and relocation leaders should address immediately. I think as soon as the notification of the tax reform came out it was a big scramble for people to first and foremost understand what the changes are which Kathy has just taken us through. But really to make some immediate decisions around how they would manage those elements of their program going forward. A lot of organizations as you can imagine had moved in pipeline. They potentially had budgets already approved based on the old tax…or the tax application. So organizations really were scrambling in the beginning of the year to really understand what was best for their program.

We'll just give it a couple seconds and then we'll close the poll to just show some results. So let me go ahead and just publish this for everyone. You know, I think we…out the gate we were anticipating to see a lot of organizations choosing to gross-up, and we have some statistics just from our own kind of tallying that we can share with you following the output of this question. But we really do expect that a lot of organizations may then kind of reevaluate their approach once they've had a bit of time to digest. So Kathy do you wanna take us through I think the agency, the poll results now.

Kathy: Great. So we have…of the group so far that has replied, 50% have not answered but we have 29 have chosen to gross-up, only one has chosen not to gross-up, 12 have decided to gross-up and then take a look at it over the next 12 months, and then we have 13 have decided that they're not sure right now what they are gonna be doing with their program. Any thoughts on that Taryn as far as... Oh, here we go, so what are other companies doing?

Market Trends

So Taryn and I have been looking really closely at what companies have been doing and sharing with us as far as what their approach, and 100% of clients are choosing to gross-up these expenses at this time. We only have exposure to one customer so far that has not chosen to gross-up these expenses but they also choose not to gross-up any of their expenses as part of their relocation program. So the no gross-up just is in alignment with their overall philosophy of their program. So when you look at that we are seeing that 100% of clients that we have access to have chosen to gross-up these expenses. But keep in mind this is from an operational standpoint what we've chosen to do with the expenses, but it doesn't give us insight yet into how these impacts mobility trends. Will this additional cost of grossing up these expenses change move patterns? Will it change how we look at people that are going to relocate? Will it change how businesses are determining who will move or not move?

So only time will give us some insight into whether or not these changes will impact mobility trends as far as how many people are moving, what people are moving, and what benefit people are being offered. Taryn, I think only time will give us insight into that.

U.S. Tax Reform - At A Glance

State and Local Income, Sales and Property Tax Deduction

So we thought we'd give you just kind of a little bit of a glance at some of the tax provisions that have changed and not changed that really impact our business of relocation. So the state and local income sales and property tax deduction did change. It went from being unlimited to having a deduction cap of $10,000 and then the Foreign real estate tax was eliminated for personal tax returns. So the relocation impact that we could see is that employees that are in high cost states like California and New York could be faced with paying higher taxes and that could affect the gross-up, which could then lead to impacts in talent recruitment and retainment for employees that are either going to those states or are in those states. It could also result in some higher costs to relocate to those states and require some COLA adjustments.

Mortgage Interest Deduction

From a mortgage interest deduction there was a change, the mortgage interest deduction cap was a million dollars and then with the tax law change it has been reduced down to $750,000. But keep in mind that any debt that was incurred prior to December 15th 2017 will be grandfathered in, which is great. Eligibility properties as far as your primary and secondary residence have remained the same. However, the home equity loan deduction has been eliminated with the tax reform. So the impacts on relocation is that we'll probably find that more of our employees are hitting the interest cap since the cap was reduced.

Household Goods

With household goods there was a change, with the tax law change the shipment of the household goods now becomes a taxable event and the elimination of the final trip expenses being excludable has also become a taxable event. Please keep in mind though that for military moves there is no change, it's just for normal relocation that these changes are impactful for. They do result in taxable income to employees for any household goods reimbursements on shipment and then previous excludable expenses are now taxable if they are choosing to be grossed-up.

Supplemental Withholding Rate

The supplemental withholding rate has changed, it was 25% and it has been reduced down to 22% and then for 37% over a million dollars. And so the impacts for relocation could be that we could have an increase in over-withholding and gross-up for transferees whose tax rates are below 37%.

Relocation Home Sale Program

From a home sale program perspective there is no change, which is a real plus for us when we saw the tax reform come out. So the home sale programs are not based on a tax code, so there's no change to the tax benefits. So the benefits that are incurred through using a BV or an AV program for home sale all remain the same, so there's no impact by the tax reform.

Capital Gain on Sale of Residence

The capital gain on sales also did not change. We were all watching this one really closely because we thought that there might be a change but the employee can exclude up to $500,000 if they're married and $250,000 if they're single, and the residency condition that they live in the property throughout the five years is not changed, so they're able to use this benefit every two years.So from an operational perspective…oh, sorry, go ahead Taryn.

Taryn: I was just gonna highlight that last part of the two of five years. For those of you that were kind of closely monitoring this in the fall and sort of up to when the actual bill was signed, there was talk that that would shift to a requirement to have it as your primary residence for five of seven years. So just to highlight that for everyone, absolutely nothing changed when it came to the capital gain on the sale of the residence including that residency test that was talked about in terms of the potential change.

Kathy: Great. So that is our overview from an operational standpoint as far as the impacts, and Taryn is gonna take us now through some of the opportunities that are available for us now.

Mobility Strategy

Taryn: So this is really where we get into some of the kind of the positive from our perspective. You know, I think within our industry we hear a lot of discussion around how mobility plays a critical role in the ability of an organization to achieve organizational growth and talent development needs, and to meet some of those priorities. Obviously, the 2018 tax reform will likely have an impact on the ability of an organization to fund relocation volumes that have occurred or that have happened in prior years. So our expectation is that organizations will be taking a closer look at the value of mobility, the role that mobility plays in terms of furthering some of those organizational priorities and the contribution that mobility makes to the bottom line of any business.

Talent Mobility and Cost Rationalization

So this may result in a need to review and refresh the way in which a program support relocation both from a policy perspective as well as a delivery model perspective. We've all heard, I think, and potentially taken part in discussions around how to better rationalize relocation or mobility program cost. This is a bit of a shift in the conversation, in years prior the big focus had been on how do we minimize cost. And now, the discussion is more on how do we better rationalize cost, or in other ways, you know, how do you maximize the spend that an organization has in terms of value back to the business. Program segmentation is not a new concept. The focus of program segmentation is moving the right people to the right place with the right support.

This approach supports the perspective that different moves have different value for both the organization and the employee, and a one-size fits all relocation package is not always the appropriate answer. Historically, the ability to differentiate the level of support provided to one employee versus another was focused on employee level and home owner versus renter for domestic relocations. A lot of organizations are now looking to add additional criteria such as relocation or mobility driver to the mix. So why is the business or the organization looking to relocate the employee? Is it to fill an immediate resource gap in that host or destination location? Are they looking to provide that employee with some career development opportunities, whether it's moving from a large market to a smaller market where potentially they have the ability to kind of manage a team or develop capabilities within that smaller market? Is it the reverse of that where they're moving from a smaller market to a larger market or potentially to a headquarters location where maybe the driver there is really to ensure that the employee understands the culture of the organization and it's really ingrained in terms of how, you know, what processes are so that they can then take that back to their home or origin location and really, you know, ingrain that within those local resources.

You know, what's really driving the spend? Why do you need to allocate spend towards relocation for this employee, is there really a strong need or business case for that? Or is there potentially a local resource that might be able to accomplish the objectives of that relocation that wouldn't incur some of these costs? Organizations that focus on this type of segmentation approach potentially see some incremental shift in total program spend. Because rather than just looking at a single element within a policy or, you know, a few elements within a policy and trying to identify ways that you can better align cost for that specific provision within that policy. What you're doing through this approach is really realigning your spend and saying that not everyone is going to fall into that category where they need the full robust package. You may be able to offer them a scaled back version of that package and still meet the needs of that employee as well as any accompanying family that they have.

So you're kind of consolidating your spend towards the middle of your program demographic. So, you know, potentially your kind of mid-career, early career folks versus spending the same amount on your employees regardless of their, you know, their level or what's driving that relocation within the organization. A lot of the sort of argument or the discussion around this approach is about encouraging the employee to invest in their career, so where the mobility driver is for career development of that employee, the opportunity for them to relocate whether it's domestically or globally really becomes an opportunity for them to invest in their career.

The organization is investing in that employee as demonstrated by some of the relocation support that they're provided but then there are also elements where the employee invest in their own career as well. And that's the big argument for how you can scale back some of the more robust packages and still not, you know, end up with barriers to relocation. You're still providing that employee with what they need to relocate to the host or the new destination location.

Policies that adopt a core-flex approach, so I think a lot of us have heard about core-flex, some of you may even have some of those policies built into your programs. That's essentially segmentation to kind of taking it a little bit further by offering either the business or the employee the ability to, you know, flex that support based on actual need or priorities of the organization, or business, or the employee. You know, discussions around better segmenting population or being able to offer some alternate policies that provide some of that flexibility may help to drive some of the discussions or kind of balance some of the discussions around the impact of this tax reform on mobility volumes. Our expectation or assumption is that a lot of leaders within organizations are saying how can we continue to support mobility as a way to drive growth and talent through our organization even though we have this additional cost now associated with our program. And segmentation or looking at alternate policy types is really one way to kind of drive that and it's a chance for mobility to put that out there as a solution or as a potential offset to some of the incremental cost that we expect to see as a result of the tax reform.

Candidate Selection

One of the other areas where mobility, I think we'd love to play more of a role and where this, you know, the tax reform sort of opens up a door for us to…and hopefully we can all storm through that door is really around candidate selection. I think we probably all have or have heard some stories around how, you know, mobility or the relocation team is only brought in at the tail end of this process, after conversations have already been had with the employee around the relocation support that they will be receiving. Some of that may or may not be accurate, so sometimes we're in a position where we have to backtrack a little bit and sort of peel back some of what's already been communicated to the employee. Never a good situation, I think as those of us that have experienced that are aware.

Candidate selection obviously plays a critical role in the success of any relocation. You have to look at not only the employee but also the accompanying family that they have. Are they a good fit for the role, for the location, for the relo in general? You know, I think most organizations do a really good job at making sure that the candidate has the appropriate skill set or experience to fill the role. But my…you know, I think a lot of organizations stop there and they don't necessarily look beyond the employee. Mobility has a ton of information and experience and data that really speaks to the locations where maybe the, you know, the family situation whether it's a very large family size for example where that really doesn't work in a particular location and where right out the gate there are some indicators that maybe that relocation is not gonna be successful.

Candidate selection, I think, you know, regardless of the tax reform is key to making sure that we're making some really smart decisions around who you relocate and why. The cost to find, you know, kind of do a little bit due diligence to find another appropriate candidate within your organization is much less in most cases than it would be to replace that individual who you send out on a relo and then they end up having an awful experience and they end up leaving the company. It's a lot cheaper to I think find an alternate resource internally than it is to bring someone new on board in most cases.

So, you know, we've been talking forever now, right, about the value of really doing the due diligence upfront to make sure that you have the right candidate looking at, again, their family situation, any personal concerns that they may have as well as their host or destination location just to make sure that all around it's a good fit for the organization and the employee and then accompanying family. I think this is an opportunity for mobility to really drive the conversation to say we should be involved very early on in that process. We should be, you know, educating our business leaders or the mobility customers on what they could, should offer to the candidate prior to any of those conversations even taking place. It's much easier to set expectations when you have all information rather than backpedaling after some things have already been communicated.

You know, I think when it comes to the tax reform and kind of using that as a door-opener for some of these discussions. It's really about saying, you know, the cost is what it is when it comes to a relocation in some instances. Yes, there are some pieces that we can peel away to make it…you know, to kind of minimize the cost a little bit of any particular move. There are things that we can add into the package that would better support the employee, but ultimately if the end goal is the employee experience and making sure that the employee is retained as a resource and as an asset for the organization post-move, it really is worthwhile to do the due diligence and to leverage the experience and the knowledge that mobility has in the candidate selection process.

Relocation Planning

In terms of relocation planning, again, this is probably one where everyone hopefully is shaking their head, yes, to say yes, this is always, you know, kind of a core piece of any relocation. This should be happening. Again, here I think mobility is often pulled in very late in the game and the tax reform provides us another door to kick down a little bit to say, "Hey, we need to be involved as early on in the process as we can." You know, in addition to some of the candidate selection piece that we can get involved in, we also are able to educate the mobility customer around the package options that they have. You know, well, they may be saying, "I want to do it as cheaply or as less expensively as possible." You know, there may be some options that can be built in to that employee's package that still support the employee that don't take anything away from their experience but that wouldn't necessarily be reflected if the mobility customer was just developing that package on their own in a silo without the expertise and the knowledge of the mobility team.

I think communications are key. You know, I've talked a bit about just getting in front of it and not having any conversations with the employee prior to the relocation getting kicked off, being able to communicate within the organization the value that mobility brings and why that's a really key piece of the process to engage mobility to do some of these planning upfront. So again, that you're making a really good well-informed smart decision about any relocation that gets the green light. You know, being able to participate in those conversations, there's a lot of value that mobility brings to those. You know, and again, using this tax reform as a way to say, "Hey, we know that you want to keep an eye on spend, you don't want to overspend anywhere, you know, and I can really, as a mobility professional, I can really help to guide some of those conversations and some of those decisions that you made or that you make to make sure that you don't spend anymore than you have to or that you should."

You know, all of this really plays a role in the ultimate success of a relocation but it's also, it's a value add to the business, it's knowledge and expertise that we as mobility professionals bring back to the business to help make better informed decisions.

Cost Projections

So cost projections is obviously an element of process that happens or may happen I guess very early on in the process. We have a couple...we have three polling questions back to back here around cost projections. So we'll just open up the first one.

POLL: Does your organization include cost projection preparation as part of the relocation process?

So does your organization include cost projection preparation as part of the relocation process? So let's give everyone a bit of time. You know, the expectation here is that probably the majority of you actually do have cost projections built into your process. You know, there's organizations that leverage their RMC or their tax provider, or sometimes they do it internally to go ahead and generate the cost projections. For a lot of organizations I think, you know, it's known that it's the best practice to have a cost projection as part of that process. It's a way to go ahead and tick the box to say that you've done it. But we'll get into our follow-up questions that we'll really be able to kind of show what actually happens after the cost projection.

So right now, I'll share the results with you. We are seeing...all right, the poll is just closing up. So we are seeing that the majority, so 28% do include cost projections as part of the relocation process, 13% do not include that, and the rest were either unsure or no answer. So kind of what we would expect, I actually thought we would see a bit of a higher percentage there in terms of the organizations that do include it as part of their relocation process. Something to think about if you're one of those that were in the no or unsure category or even I guess the no answer, maybe a question that you can go back and ask, you know, within your organization if you're not privy to that information. It really is important to have a cost projection, particularly in light of some of these changes that have come out. You know, the costs that are now taxable, so the moving costs do comprise a significant piece of any relocation.

So being able to create some awareness and some transparencies for your mobility customer on what exactly this relocation is going to cost I think is really important. It's also important just as a mobility function and just for the larger organization to really understand overall what mobility or relocation is costing for the organization or at least what it's projected to cost. Sometimes people will make different decisions around whether or not they want to send a candidate based on that cost projection, so not that that's the primary intent of a cost projection but it really can serve as a bit of a deterrent where, you know, someone just feels the need to tap someone else on the shoulder and send them off on a relocation. You know, being able to see what those costs are might make them realize that that might not be the best decision.

POLL: Does your organization require cost projection approval to green light the relocation?

So question two, which I will open up, is again tied to the cost projections, but does your organization require cost projection approval to green light the relocation? So obviously, for those of you that said no or you're unsure about the cost projections, you know, this wouldn't necessary be a question that you'll have an answer to but for those of you that did have cost projections as part of your relocation process. It'll be interesting to see how many of those are required or kind of approval of that cost projection in order to have the relocation move forward.

Here, my expectation is probably that there are not many organizations that do that. We have conversations all the time around process and, you know, best practice to include a projection. And the reality is even for organizations that have them as part of your process, it really doesn't go anywhere, you know, or it's a number that people say, "Great, thank you for sharing that with me but it really has no impact on whether or not the relocation is given the green light." Often those decisions have already been made and kind of going back to the fact that if mobility can get in earlier in the process, you know, and kind of build that cost projection even earlier into the process, it may change some of the decisions that the mobility customers make in terms of who they relocate and where.

So let me go ahead, I'll close that, we'll get the results tabulated here out the gate. Yeah, you know there's a lot of us obviously or a lot of you that are falling into that unsure or no answer category. And I think that ties back to the original question about how many organizations include cost projection as part of their process. So, yeah, we see 14% do require cost projection approval to give the relocation a green light, and 16% do not. So again, what we expected, participation…well, I guess the response rate there is a bit low just given the original question that we asked but still aligning with what we would expect.

So, real opportunity, you know, I think first, if you take anything away, you know, build a cost projection into your process. The second piece of that would be to really use that cost projection to in part drive approval for that relocation. Your mobility customers or your relo customers should be aware of what they're spending and they should be signing off and saying, "Yes, I know what you're projecting for this relocation in terms of cost, and yes, I think the candidate that I have paired with this relocation wants that type of spend." Okay.

POLL: Does your organization reconcile budget to actual projections?

So the third and final polling question that we have is, does your organization reconcile budget to actual projections? Again, here I'm assuming that we'll get a lot of unsure or no responses just because you probably don't have cost projections as we established as part of your process. But here's a real chance for mobility to get involved in this process, you know, with your finance group or whoever manages your accruals. You know, best practice is to accrue for relocation cost, so in order to do that, that cost projection is critical, right, in order to be able to pass it onto finance to say, "Here are the cost that we're anticipating for this relo and you can accrue for them." But being able to do that true-up to get to, you know, to really understand what you budgeted versus the actual spend, that is really critical as well.

It helps you to really understand I think where some of your normative data potentially is off. It helps to potentially highlight where you may have some exceptions to your program that are really driving up your overall program cost. And again, if we're looking at rationalizing cost, if you're seeing exceptions when it comes to…you know, you're not budgeting them as part of the cost projection but you're seeing actual spend is high and in certain categories or even in certain locations, that may warrant a change to policy and it may warrant, you know, a refresher or a review of maybe…you know, maybe you're sending again the wrong people to that location. You know, so really highlights your candidate selection process. It highlights some potential changes that you can be making to your policy, or just to how you manage your program and the types of exceptions potentially that you're approving. Again, we're kind of talking about this in the context of tax reform because we do anticipate that relo program cost are going to go up, so organizations are going to look for different ways to kind of cut back a little bit or better rationalize some of the spend in other areas of their program where there is a little bit more control there.

Okay. So 12% of you are reconciling budget to actual, which is great, 19% are no, and then obviously the chunk or the balance of participants are saying that you're unsure, no answer. So we can definitely see those numbers go up, you know, and I would hope if we kind of did this poll in 6 months or 12 months from now, we hopefully would see those results a little bit higher in terms of including cost projections as part of your process, making them a key element to approve relocations and then looking at the budget to actual.

Rebranding

Shifting from Operational to Strategic

So the final section of our discussion really talks about how you as mobility professionals can really better engage with your organization or with your business partners, your customers of mobility to really move the needle a little bit and get more involved or get involved earlier on in the process. You know, shifting from being purely operational to more strategic. You know, I think we recognize that there are some very operational elements of mobility at the very core of what we do. We're responsible for moving someone from point A to point B and that will never go away. That will always be a core competency of any mobility team whether it sits in-house or whether that's through an external vendor, but ultimately the responsibility does fall with mobility. But this tax reform, these changes are really I think an operational or an opportunity to shift the discussion a little bit to demonstrate and make the business case for how mobility can play more of a strategic role in candidate selection package development.

You know, better education of the organization and mobility customers on, you know, why certain support elements should be poor even though, you know, you may not think that they should but they really play into the overall success of the relocation. You know, the value of using mobility and the knowledge and expertise that mobility has to engage in those discussions very early on to really minimize, you know, the incidence of a failed relocation and potentially an employee that leaves the organization altogether. So this is a real…you know, again, I keep saying it's a door that's been opened. I think it's one that it's a great opportunity for us to be able to start to have and shift some of those conversations.

Aligning Mobility with Organization and Talent Teams

You know, it's an opportunity for…we hear a lot about aligning mobility with organization and talent teams and objectives, and this is really, you know, an opportunity for mobility to say, "Hey, we know that you likely are going to have to reevaluate, you know, the types of moves that you have or the types of employees that you have." You may be asked in a certain business to cut your relo volumes, you know, by a certain percentage because of the increased cost, and being able to have mobility engage with those teams to maybe offer some alternative solutions that aren't necessarily tied to reducing volumes but rather maybe realigning how support is provided. You know, kind of reviewing policies to say we don't necessarily need to provide our tier one or our highest level policy to everyone that moves, we do have an opportunity maybe to build in some additional tiers or different program types into our framework that will still allow us to move the same volumes but potentially just at different levels within the organization.

Developing Organizational Awareness

It's a way I think for...we were all, you know, always looking for ways to really develop some awareness within the organization for the value that mobility brings to the table. You know, it's really interesting because it's viewed as…mobility is viewed as such a critical lever to achieve some, you know, organizational priorities and really as a way to attract, develop and retain talent but when it comes to using mobility, you know, and kind of valuing what mobility brings to the table, I think there's a bit of misalignment there. You know, this tax reform is a great way for us to bring some new ideas, you know, to senior levels within the organization or, you know, key stakeholders within the organization to say, this is how mobility can really help you to make some smarter, you know, or better decisions that really will better allocate the spend that we have for the mobility program, for the relocation program.

Harness the Power of Data

And then, obviously, harnessing the power of data, you know, that's always something that we as mobility professionals have in our back pocket. We have a line of sight to data, you know, lots of historical data. We know what works in certain locations, what doesn't work. We know certain support elements that should be provided to individuals, you know, who have a certain family situation or who prioritize, you know, education over anything else. You know, or who are moving into a specific area where we know that there have been some historical challenges. There's a lot of data that we can bring to really make the business case to get mobility more involved earlier on in the process, to take…to move mobility from just a, you know, purely how do I get a person, you know, someone from point A to point B?

Just being able to answer those operational or tactical questions to really getting involved in conversations that say, you know, "I have three candidates, help me decide who the most appropriate candidate is." You know, "What can I do? I really would like to support this individual in terms of, you know, this priority that they have? How can I do that without, you know, without increase, without going overboard in terms of spend?" We have a lot of information, a lot of experience, a lot of data that we bring to the table and, you know, we're really looking at tax reform as a way to just push that conversation even more than we have been trying to in the past.

Q&A

So that brings us to Q&A section. For anyone...well, I guess everyone should have a Q&A kind of dropdown on the right side of their screen. So if anyone has a question feel free to, you know, unmute and chime in or you can go ahead and type if you'd prefer just to do it that way, and we can answer any questions that you all may have. Kath, I guess just flip it over to you while we're waiting for some questions to come in, you know, I know we've been getting a lot of request from our clients to go ahead and update policies just to immediately reflect the fact that they will now be grossing up versus not grossing up. What types of conversations are you having around sort of that more longer term view in terms of what companies are...what they're sort of wrestling with, some of the questions they're trying to answer in terms of whether or not a grossing up is the approach going forward. Are you having any good discussions around that piece?

Kathy: Sure. So what we're seeing is a lot of...it kind of goes into two camps. Some folks are very much set on the fact that they're gonna gross it up right away. It's the right thing to do. They're going back in within the company and champing with the stakeholders to help them understand why the change is necessary. But I think even the ones that come out of the gate saying that they're gonna gross up right away, or where that it could have impacts on how many people move and the cost.

So they're really kind of keeping an eye on how much the cost are increasing, how much visibility the managers are really looking at it and coming back and questioning. There are some clients where the managers are looking at every penny. So the gross up has a huge impact on their budgets. And so there's been a lot of questions as far as, you know, "Okay, we agree it's the right thing to do now but maybe over the next 12 to 18 months we may take a look at like overall how high the cost really go, you know, is it going to be a hindrance to us as we go to expand our talent?" So we have a lot of folks that are kind of waiting and seeing a little bit where there's a handful of them that have already planned out their next 12 months to 18 months where they're gonna keep an eye on the volume to make sure that the volume is not changing and if they see changes in volume they're taking a hard look at the people that are moving and any exceptions to changing their program that they might see that they want to explore.

Taryn: So we had a question come in around volunteer programs, which is a really interesting piece. I think there are some organizations that do support those employees that self-select for relocation. Absolutely expect that for organizations that do provide some level of support there that they'll be revisiting that and that they will either eliminate those programs altogether, you know, or they will just kind of reconfigure the support that's provided. Usually, for those volunteer self-select programs, you know, support is already pretty minimal. It's, you know, physical relocation support system with that household goods so directly impacted by the tax reform as well as where, you know, where it's needed some compliance support, obviously not a huge concern for domestic relocation.

You know, I think a lot of whether or not an organization continues that program will very much depend on the culture of the organization. Those that are very kind of paternalistic who already probably have pretty rich policies in place to begin with, those organizations that really want to encourage employee movement within the organization, within different locations, you know, again, they may not make any changes to their program. They may make the change to say for that type of move, you know, yes, we will provide you with that support in terms of, you know, the physical relo but any tax implications of that support will be the responsibility of the employee, so it's a bit of an offset, right? So they're paying for that move but then, you know, any kind of tax liabilities associated with that support would shift to the employee.

So, you know, more to come I think on whether or not we just see everyone do away with those on tier programs, which I don't think will happen or just a shift in the support that's provided and that then may shift, you know, some of the volumes that we see in that self-select space. You know, employees may say, you know what? Before where there was company support and I could, you know, exclude or deduct some of those moving expenses, you know, it seems like a really good idea. But now, you know, I think I can get what I need for my career if I just stay put. So it'll be interesting to see a little bit about what changes there.

Yes, so question about can companies choose to have different plans for relocations where they can gross-up on one package and also have more flexible package where they don't gross-up and leave it to the associate or the employer or the colleague responsibility. Yes, absolutely. So some of the steps that we flashed up earlier during our session, were saying, you know, that 100%...or I'm sorry, what was it, 98.7% or 98.3% of the companies that we've seen are choosing to gross-up. So far, for that 98.3%, 100% of those are saying that we're going to do it across all policies. But a little bit what I just talked about when you talk about the self-select it may be that when companies or when organizations do a little bit of a regroup, you know, once the dust has settled on this, that they may say, you know, for certain tiers or levels of employee we will continue to…or we will gross-up for those elements, but for other move types like a self-select we'll still provide that support but the employee will be responsible for the tax liabilities on that support.

A good comment, in order to provide a flex or segmented policy, decision criteria should be clearly articulated. Absolutely, you know, I completely agree with that. Where we do have organizations that have that segmented program, so kind of that for box or some variation of that, the exercise that we always take them through is to say, you know, once you've defined the different drivers of relocation or of mobility, which really is the first step in kind of segmenting your population. You then have to have that eligibility criteria, so is it just certain employee level, do they need to be involved in, you know, kind of a talent development program outside of the mobility program? Is there a certain level of performance history that they need to demonstrate? You know, most people say you need to be, you know, at performing, or whatever the kind of the nomenclature is for your performance management system. You don't want to be moving your poor performing individuals. So there is kind of a multifaceted criteria that go into that that does become very transparent within the organization that says, you know, in order to fall into this category you need to meet this criteria.

So absolutely, think that that's best practice. We encourage, you know, the clients that we work with as they're going through program redesign who go with that segmented approach, we absolutely encourage that to be transparent. It also makes it very easy for the business or the mobility customer to kind of say, "Well, you know, in order to...you are entitled to this package or this level of support because this is the criteria that you meet." You know, it's very easy to…if you eliminate as much of the gray in that eligibility criteria as possible it makes it very easy for the users of mobility as well as for the employee, the relocating employee to understand why they get a certain level of support versus another.

Question about industry feedback about how to gross-up property tax and mortgage interest under the duplicate housing benefit? So, yeah, I mean this...so for the mortgage interest, so that is going to come into play for any newly...sorry, the adjust in the cap there. So it's shifting from it used to be a million dollars of debt that you're able to deduct the mortgage against, it's now shifted down to $750,000 total. That new cap only applies to any debt acquired after December 15th 2017, so we wouldn't necessarily expect unless someone is falling into that category. We wouldn't necessarily expect anyone to really be impacted that, hopefully we'll likely in 2018. But I think some of how a company handles that will also be driven by what the sort of the average property values are in the specific locations in which they operate. It may be that it's done on a case by case basis because you may find that, you know, 90% of your population falls into that category where they're not hitting that caps in which case nothing needs to be done with the mortgage interest. You know, you may find if it's, you know, 10% in that example that are impacted. You may just handle that on a case by case basis and gross-up or provide some tax support for that differential between the $750,000 and the million to reflect that change. You may say that, you know, for anyone that purchased a house, you know, after December 15th but before maybe January 1 of 2019, we'll provide some additional support because this was kind of sprung on you and you didn't really see it coming.

You know, but from 2019 on, nothing, you know, nothing will change. It really is gonna depend on the housing values that you anticipate for your relocating employees, kind of the locations that you operate in. The same potentially for property tax, so for locations where the property tax is not going to push you above that threshold, you know, obviously, we would recommend no action required or no additional support provided. But depending again on your locations, if you're in locations where the property taxes are very high and will push most people, I think that's where you're gonna see more people impacted maybe and that property tax category there may be some support for tax, some additional tax support provided for those individuals.

Jim, hone back in, I know you asked a question about full gross-up on the new taxable spend using circular logic or lower type of gross-up. Kath I'm not sure if you are clear on what Jim is asking. I was gonna ask Jim for clarification. But if you're clear on his question maybe you can take that one.

Kathy: No, I need more clarification. Sorry.

Taryn: So Jim, maybe if you can type in and give us more clarification on that one if you'd like that answered. Oh, statutory versus marginal. Thanks Amy. I'm assuming you're clarifying for Jim there. So I think we're a little bit still early stages of kind of having any good stats or any kind of valuable stats around whether people or organizations are going on the statutory versus marginal. You know, I think that you have seen shifts in those tax rates so I think a lot of organizations are just going through an evaluation process right now to understand what approach they should take. Some will just lift and shift the approach that they have taken prior to some of the tax reform and make no changes there. So jury is still out a bit on that one Jim but happy to provide, you know, some additional follow-up information, you know, as we start to see some of these trends really solidify.

You know, particularly, I think we would anticipate in the next couple months being able to really say, you know, out the gate people grossed-up but now organizations are taking a bit of a different view and really reevaluating, and whether that's by policy or tier and then obviously like kind of the gross-up methodology, so more information to come on that as again some of those trends or that data solidifies.

Okay. So it looks like we've gone through all the questions. For those of you that would like to continue the conversation, get some more information, please feel free to connect with us at sirva.com. We hope that this has been a valuable time spent this morning or this afternoon or this evening, whichever time zone you're in, appreciate you all joining us. We will be issuing a copy of the recording. If you'd like to pass it along to anyone that wasn't able to join, but again, appreciate your participation and hope everyone enjoys the rest of their day.

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