Article contributed by Meredith Wise, EANE
I’m sure many of you have in your employee benefit package HRA’s, HSA’s or flex savings accounts. These all have tremendous advantages for our employees and for the organization, however they all have at least two significant disadvantages – employees are limited in what they can contribute to the account, and there are restrictions on what and when the funds can be used. I’d like to take a moment to introduce you to a new benefit – Lifestyle Spending Accounts (LSA).
LSA’s have been around for 5 – 6 years, however they have caught our attention now because they allow employers to basically design the program and accounts that work for them; one that will allow you to attract and retain the talent you need! The benefits or payments from an LSA are taxable to the employee so you’ll want to keep that in mind. And, an LSA is totally employer funded. Beyond those considerations, you as the employer can design the program. You can:
- Determine what expenses can be paid from the account – Some employers limit what employees can spend the funds on, while other employers include a broad array of services, products or experiences which would fit employees’ different lifestyles.
- Determine different levels of eligibility and contribution – one company mentioned in a recent Mercer article discovered that turnover rose at the 6 and 12-month seniority points, so they implemented an LSA just for employees who have 6-months of service or a year of service.
- Have several types of accounts – for example one which can be used to pay for wellness types of expenses such as gym memberships, workout apps or equipment, personal trainer, meditation apps, massage therapy, nutrition counseling, etc. and a different one which can be used to pay for more personal expenses such as babysitting so the employee can go out to dinner, movie nights, student loan repayments, grocery delivery, financial planning, entry fees for a marathon, golf lessons, an unexpected car repair bill or medical expense, etc.
- Determine if funds will roll over to subsequent years or can only be used in a certain period of time.
- Administer these accounts in-house or use an outside TPA to make the payments.
These accounts provide you with a great deal of flexibility however they can get expensive. According to Mercer, employers contribute on average between $500 and $2000 a year toward each employee’s LSA. While you can limit that exposure by limiting eligibility, you may unintentionally create employee relation challenges by singling out certain groups of employees. As mentioned above, payments from these accounts are taxable to the employee when they receive the LSA dollars. LSA’s generally are not considered ERISA benefits, however to ensure your plan stays away from any potential exposure you’ll want to exclude reimbursements for expenses covered under your group health plan, HSA and HRA.
Our team is happy to talk through the pros and challenges with Lifestyle Accounts. These accounts may be the boost your total rewards package needs to attract and retain a great workforce! Give our HR Hotline a call!