Many employers are experiencing first-hand how hard it has become to attract and retain a great workforce. You may have young, healthy employees who don’t see much benefit in traditional health plans. Other workers may be ineligible for the traditional benefits you offer but still expect some type of assistance.
The onus now is on employers to be creative in finding ways to show support for a workforce with diverse needs and wants. Have you looked into Lifestyle Spending Accounts (LSAs) yet?
What is an LSA?
Employer-funded LSA accounts can be used to pay for almost any health or wellness expense. (Although there’s no rule against including Section 223 medical expenses, doing so could classify the LSA as a health plan subject to ERISA, so you should avoid those.)
Employees are taxed on the funds they spend but not on any funds left unused. (Unused funds revert back to the employer.) Unlike many traditional benefits, any employee is eligible, whether part-time or full-time. Traditional benefit accounts have to be opened or renewed during designated enrollment windows. LSAs can be opened any time.
Because LSAs do not provide tax advantages, there are few rules or restrictions. That makes an LSA one of the most versatile and attractive benefit options.
What expenses are eligible?
LSAs have been around for a while in other countries like Canada, and initially covered fitness expenses like gym memberships, personal trainers, and at-home fitness equipment. But employee attitudes have changed and in response, typical expenses for an LSA have changed as well.
Many employers now offer a variety of expense categories. They are looking beyond physical health to overall well-being – physical, mental, emotional, and financial. Examples of expenses now commonly offered include:
- Mental health – The COVID pandemic has highlighted the need for more employee access to mental health resources. Eligible expenses often include marital and family counseling, meditation apps, yoga classes, and similar activities.
- Financial literacy – Rising gas prices, inflation and wartime economic concerns have deepened the financial stresses that many have felt in recent years. LSAs can help provide access to personal financial management classes, budgeting assistance tools, and more.
- Recreational sports – Many employers have expanded LSAs to include expenses associated with participating in recreational sports, like league fees, golf memberships, skiing passes, etc.
- Personal services – Remote working has made keeping a good work-life balance even more important. Employers may include delivery services for meals, groceries and consumer goods to their eligible LSA expenses. “Spa days” and subscriptions to entertainment streaming channels are other good options.
How do I start an LSA?
Once you’ve decided to offer an LSA, initial decisions include:
- Parameters – Set your budget and choose the eligible expenses/categories.
- Funding frequency – Decide whether to fund the accounts on a monthly, quarterly, or annual basis.
- Debit card – Are you going to include a debit card (with receipts required after the purchase), or will you require manual claims with documentation prior to reimbursement?
Are LSAs right for my company?
LSA account flexibility makes them ideal for diverse workforces. Regardless of the amount funded, LSAs offer so much choice to both employers and employees. Employers can build a program that addresses the needs and interests of everyone from young, entry-level workers just starting out, to older employees approaching retirement.
Beneliance has provided Arkansas employers with comprehensive third-party employee benefits administration and compliance services since 1996. Please enter your email (above right) to receive notifications about new blog articles as they are published.
