Trending in 2024 Benefits: Lifestyle Spending Accounts
As we enter 2024 in an interesting economic and workforce environment, benefits professionals are once again looking to get creative with their offerings and ensure that they align with cultural and corporate objectives as well as budget.
There is one benefit in particular that, while not new, has been gaining traction over the last few years and we expect continued momentum and adoption in 2024: lifestyle spending accounts.
What is a Lifestyle Spending Account?
A lifestyle spending account (LSA) represents a range of flexible benefits accounts that employers can offer to employees as funds toward eligible expenses related to health, wellness, and personal needs and interests. The employer defines what an LSA can be used for, with many companies including pet care or services, travel, leisure activities, and home improvement within their list of qualifying expenses. In this way, they cover a much broader spectrum of needs beyond those that are applicable within a Flexible Spending Account (FSA) or Health Savings Account (HSA).
Pros and Cons
Many employers are considering or implementing LSAs for their employees because they provide the following key advantages:
- Entirely customizable based on what would make a positive impact on your unique employee base
- Allow for enhanced diversity, equity and inclusion (DEI) within your benefits program
- No budgetary surprises: employers decide on what they will contribute and if employees do not take advantage of the LSA, that money will not be spent, and the employer dictates whether or not funds can roll over year over year
- Generally not a big ticket item; contributions typically range from $500 – $2,000 per employee per year1
- Ability to design an LSA based on wellbeing goals that could contribute to a healthier, more productive workforce
- Demonstrates compassion and a commitment to employees that can lead to increased engagement, recruitment, and retention
- Can lessen the need for multiple point solutions which can create significant administrative burdens
- Relatively simple and fast to set up
LSAs aren’t for every company, though. Some factors that might indicate an LSA isn’t the right path are:
- Awareness: as with every facet of a benefits program, the employer will need to be thoughtful in communicating the LSA option
- Possible duplication: depending on your health plan, point solutions, and other wellness programs, you may need to be careful in designing an LSA that is not redundant to other offerings
- Compliance considerations: while typically not the case, legal and tax implications (e.g., ERISA) may exist for LSAs that account for certain health expenses
- LSAs are a taxable benefit, unlike pre-tax options like 401(k) plans, HSAs, and health insurance, so there will be different types of financial ramifications for employees who participate
LSAs are becoming more and more popular; a 2023 Benepass study shows that 51% of companies are offering this benefit, as compared to 37% in 2022. Optum’s 2022 Financial Lifestyle Benefits Research found that 37% of benefits professionals were planning to add to or update an LSA in the coming year. At Spring, it has been a topic of interest for many of our clients as we refine our strategic benefits plans and consider program enhancements. If you are interested in an LSA but need guidance around implementation, processes and best practices, please get in touch and we would be happy to help you explore the option.