As the workforce becomes more diverse and employees seek flexibility and choice throughout their work experience, employers are increasingly turning to personalized benefits. In particular, employers are increasingly leveraging lifestyle spending accounts to meet employees' diverse benefit needs and empowerment aspirations.
The Lifestyle Spending Account (LSA) program is an employer-funded account that allows employees to pay for gas to drive to the office, sports shoes to work out in, and meal deliveries to facilitate work-life balance. It can be used for all sorts of purposes, including payments. According to a blog post from Mercer Insights, a whopping 70% of employers are considering adding lifestyle spending accounts to their benefits in the future, and 70% of employers currently offer them or plan to add them by next year. This is an increase from 13%.
The growing popularity of LSAs fits into the larger trend toward personalized benefits, especially in the wake of the pandemic. According to a 2021 survey by WTW, nearly 70% of employers are considering individual benefits programs, which experts say can be a powerful recruiting and retention tool.
“The more diverse your workforce becomes, the less one-size-fits-all benefits will work,” said Chris Byrd, senior vice president of government relations and benefits at WEX. “That’s why personalized rewards are proliferating.”
What is a Lifestyle Spending Account?
The scope of an LSA program depends on what the employer is trying to accomplish. For example, an employer's lifestyle spending account program may cover his RTO expenses, such as bridge tolls, or donations to nonprofits of the employee's choosing based on the charitable category; , another employer may focus solely on wellness.
Wellness is the most commonly offered LSA category, particularly related to mental and physical health, according to Jaclyn Chen, co-founder and CEO of Benepath, a personal benefits management platform. . Chen added that work-related expenses for remote and hybrid employees, such as internet and cell phone costs, are the second most common area that employers are willing to cover. I did.
Employers fund the LSA with a set amount that is updated monthly, quarterly, or annually and is taxed to the employee. Employers typically fund each employee's LSA between $500 and $2,000 annually, said Sander Domasevich, national practice leader for consumerism at Mercer.
Experts say lifestyle spending accounts offer important benefits for employers.
For example, LSA benefits are attractive to prospective employees, and employers may offer to double the size of the LSA fund at the end of an employee's first year as an employee retention incentive. Masiewicz says.
Craig Copeland, director of Wealth Benefits Research at the Employee Benefits Research Institute, added that LSA programs help all employees feel like they are being treated fairly.
For example, an employee with student loans can choose to use some or all of their LSA funds to pay down that debt. Copeland notes that unlike student loan repayment benefits, which typically apply only to employees with student loans, even those without such debt can use their LSA funds for other services in the financial wellness field. It says it is available.
Lifestyle spending accounts also help HR leaders solve administrative problems such as budgeting and benefits management. For example, the LSA program has fixed costs, so employers are well aware of the financial responsibility they have in offering this benefit, which makes budgeting easier, Copeland said.
Copeland also says adjusting LSA programs accordingly as economic and labor market conditions change does not require employers to change their existing long-term compensation structures.
Consolidating different benefit programs, such as tuition and newborn benefits, into a single lifestyle spending account program makes it easier to manage these benefits, Domashevich says.
“One of the pain points we hear from CHROs and CPOs is that benefits teams are overwhelmed with managing so many different vendor point solutions,” says Chen. HRE. “Companies can integrate these point solutions. [with LSA programs], tightly control budgets, increase employee flexibility, and help employees understand the value of benefits. ”
How to set up a lifestyle spending account
When creating an LSA program, Chen notes that developing an overall budget should be a top priority. Closing or consolidating underutilized points in her solution, such as meditation apps and gym memberships, could create an opportunity to redirect those funds to her LSA program, she says. added.
Experts say employers may want to start with a cautious approach when budgeting for LSA programs.
“If you can afford to put $1,000 per employee, you might want to be a little patient and put $750 and see what happens. Give it your all when you start and go as far as you can. You don’t have to go,” says Domasevic. “You could target everything under the sun, but start with physical, mental, and emotional health and expand to financial health and other company-specific things the next year. You can do it too.”
Experts advise that employers can have employees prepay eligible LSA expenses and then seek reimbursement or arrange for employees to be issued with LSA debit cards to use in the program. Experts say most LSA programs are “spend it or lose it” arrangements, with funds expiring at the end of the month, quarter or year, depending on the program.
After setting a budget, employers must determine which expenses are eligible for the LSA program.
“Employers need to ask what their purpose is in having their employees spend money. Is it so that you can use it to achieve a specific goal that you want?'' said Julie Stich, vice president of content at the International Foundation for Employee Benefit Plans (IFEBP).
Communication is one of the final and most important steps in creating a lifestyle spending account program, Chen says. Employers must understand the eligible expenses in their LSA account, the applicable program rules, and whether LSA funds are part of an employee's taxable income or whether the program mixes taxable LSA income with pre-tax LSA income. Informational guidance should be provided. Rather than creating her LSA account based solely on taxable funds, the professional should combine pre-tax and after-tax funds to avoid confusion for the employee and to help HR manage the program. We recommend creating them in combination.
Challenges in providing LSA
Creating a lifestyle spending account program is time-consuming and expensive, so employers should consider the benefits of taking such a step, Copeland says.
“If you're struggling to attract and retain talent, this expense could be very worthwhile,” Copeland says.
However, he notes that employers should be prepared to reevaluate their LSA programs annually. For example, some benefits in an LSA program have higher costs or lower employee adoption rates than others, all of which need to be monitored.
Assessing the return on investment of the LSA program is another challenge, Domashevich says.
“When employers put money into diabetes prevention programs, they can say, 'We're making people healthier and we're saving money.' There's a direct line of sight,” Domashevich says. HRE. “But even if you pay for something like a painting class for an employee's child, that doesn't necessarily mean there's a big ROI.”
Measuring LSA program success
The success of a Lifestyle Spending Account program is determined by the rate at which employees adopt the program's benefits.
“Seriously, achieving a 70% or 80% adoption rate is almost unheard of, but a 50% adoption rate is considered pretty good,” Copeland said. “The fact that the interest rate is 25% means that if you pick it up later, you're going to accrue a significant amount of interest. To show that something is actually going on here, the introduction He needs to increase the rate to 25%.
For BenePass, employer customers typically see 85% of their employees engage with lifestyle spending accounts within the first year of the program, Chen said.
“It's very flexible, so it's been well-received by our employees and word of mouth has spread,” Chen says. “And in our year-end survey, we rank among the top benefits available to employees.”
