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How LSAs can enhance traditional employee benefit offerings and provide something for everyone

By Lisa Myers | September 5, 2023

With LSAs, employers can personalize their benefit offerings to boost employee wellbeing and meet the evolving needs of their workforce.
Benefits Accounts|Benefits Administration and Outsourcing Solutions|Employee Financial Resilience
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As the world of work has shifted over the past three years, so too have the options for benefits employers are using to attract and retain employees. WTW’s most recent Global Benefits Attitudes Survey found that 58% of employees prefer remote or hybrid work. As working arrangements evolve, employers are reevaluating how to meet their employees’ changing wellbeing needs and attract and retain talent with a competitive and robust benefits package.

If you are among the more than 80% of employers that, according to our latest Reimagining Work and Rewards Survey, plan to place more emphasis on employee wellbeing to support a flexible and agile workforce, read on to learn about how lifestyle spending accounts (LSAs) can help.

What is an LSA?

LSAs enable employers to offer reimbursements to employees for activities that appeal to the modern workforce and promote physical, financial and emotional wellbeing – without the rules and restrictions typically associated with other benefit accounts or “perks.” LSAs are unique because they offer freedom of choice – both to the employer as well as the employee.

Employers are free to choose the benefits they wish to offer – from sports and dance lessons to home office and technology needs to environmental activities – as well as who is eligible and the level of reimbursement. Employees are free to choose from an enticing selection of options that speak to the way they live and work today.

LSAs reflect the diversity of today’s workforce by offering something for everyone; from the recent graduate entering the workforce, to the mid-career colleague searching for work/life balance, to the empty nester defining a new chapter in life.

How do LSAs differ from HSAs and FSAs?

Unlike other traditional benefit accounts, such as health savings accounts (HSAs) and flexible spending accounts (FSAs), LSAs are not tax-advantaged, and employees only receive the reimbursement if they make an eligible purchase. LSA funds do not go into a benefit account for employees to use by the end of the year like with an FSA, nor do they go into a portable account that employees can take with them if they leave the company like with an HSA.

This chart outlines the key differences between LSAs, HSAs and FSAs:

The key differences between LSAs, HSAs and FSAs
HSA FSA LSA
Tax-advantaged? Yes Yes No, employees pay taxes on funds received from their employer for eligible perks
Who determines benefits/perks? IRS determines specific benefits IRS determines specific benefits Employer decides which employees and what perks (or categories of perks) are eligible
Eligible expenses Medical, dental and others as mandated by the IRS Medical, dental and others as mandated by the IRS Wellness (excluding medical and dental) as determined by the employer
Employees receive funds… Regardless of whether they spend them (they can save for future healthcare expenses) Only within the benefit year (funds are generally “use it or lose it”) Only if they make an eligible purchase
Minimum/maximum amounts? Yes, for singles or families Yes, for singles or families No, employer decides the amount of the benefit
High-deductible health plan required? Yes Yes No
Who contributes? Employer, employee or both subject to an annual maximum Employee (most common), subject to an annual maximum Employer, where employer decides the amount of the benefit

Why offer LSAs to your employees?

Employers reap many benefits from offering LSAs to employees, including:

  • Differentiate your benefit offerings in the marketplace by offering new, innovative options that promote employee wellbeing.
  • Promote a healthy workplace culture by encouraging employees to invest in wellbeing, fitness, and other personalized perks and activities.
  • Create a flexible plan in terms of eligibility, design and use.
    • Select the eligible expenses covered under your benefit.
    • Structure eligibility to meet the needs of employees.
    • Personalize benefits for some or all employee groups based on the amount provided and expenses covered.
  • Set your own budget and save by only covering the cost of funds used by employees.
  • Promote diversity, equity and inclusion in the workplace and support climate/environment, social and governance goals by including relevant perks in your plan.
  • Address social determinants of health by expanding options across the full range of employees, regardless of income, geography, age, tenure and other factors.
  • Show your employees you are thinking about different ways to meet their needs as shifting work arrangements lead to evolving employee benefit preferences.

What expenses can LSAs cover?

Some of the categories of spending employers can consider for LSA perks include:

Physical wellbeing

  • Exercise equipment, apparel, sneakers
  • Gym, health club, spa, fitness memberships
  • Sports/dance lessons
  • Fitness trackers and apps
  • Weight-loss programs
  • Entry fees (e.g., marathons, leagues)
  • Healthy foods and meals
  • Nutritional supplements, nutritional counseling

Emotional wellbeing

  • Meditation classes
  • Counseling services (non-medical)
  • Retreats (e.g., leadership, spiritual)
  • Travel
  • Massage and spa services
  • Pet care (e.g., walkers, day care, grooming)
  • Personal development classes (e.g., art, cooking)
  • Park passes
  • Fishing and boating licenses
  • Fees for wellness app subscriptions

Financial wellbeing

  • Student loan reimbursement
  • Housing and utilities (e.g., mortgage, rent, closing costs)
  • Financial advisor, planning and estate services
  • Financial seminars and classes
  • Identity theft services

Lifestyle perks

  • Home office, technology needs, cell phones
  • Dependent care, babysitting
  • Adoption, surrogacy
  • Charitable giving
  • Learning and development (e.g., classes, enrichment)
  • Disaster relief (pre-tax qualified)
  • Climate/environmental

Business cultures that celebrate diversity and encourage employees to bring their true selves to work are finding higher levels of employee satisfaction and wellbeing. A diverse benefit that fits the employee’s lifestyle and gives them the flexibility to choose what works for them is the key to attracting and retaining employees in today’s modern workforce.

With the Reimagining Work and Rewards Survey revealing that one-quarter of employers are reviewing the mix of pay and benefits they offer to reflect remote/hybrid work or other flexible work arrangements, and 46 percent are considering doing so, LSAs are a good option to meet your employees where they are and how they live now.

WTW can help you design your LSA in a way that suits your company’s budget as well as your employees’ wellbeing needs in changing times.

Author

Director of Client Services, Benefits Accounts
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