- Growing interest. Lifestyle savings accounts (LSAs), which offer perks that typically fall outside benefits plans, have started to have more of an impact on the employee benefits scene.
- Financial differences. Unlike health savings accounts or flexible spending accounts, LSAs are not tax-advantaged, and employees only receive the reimbursement if they make an eligible purchase.
- Advantages for employers. While LSA adoption is still early, they are growing as another tool for employers in the war for talent, with the added advantage of appealing to a very wide range of employees.
In the ongoing war for talent, lifestyle savings accounts (LSAs) are emerging as a useful tool and benefit for employers. In WTW’s “2023 Best Practices in Healthcare Survey,” when asked why they offer or are considering offering LSAs, 68% of employers said it was to “personalize benefits and perquisites,” while 59% said to “differentiate benefits” to attract and retain employee.
In addition, Mercer’s survey of more than 700 organizations conducted in March 2023 found 13% of employers said they had an LSA in place or would offer one in 2024. That’s up from 9% of respondents offering an LSA in a survey conducted in 2022.
“As working arrangements continue to evolve, employers are reevaluating how to meet employee well-being needs, and attract and retain talent with competitive benefits,” said Sara Taylor, senior director of employee spending accounts at WTW.
What is an LSA?
LSAs enable employers to offer reimbursements to employees for activities that appeal to today’s workforce involving physical, financial and emotional well-being — without the rules and restrictions typically associated with other more common account-based benefits.
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 typically do not go into a benefit account for employees to use by the end of the year like an FSA, nor do they go into a portable account that employees can take with them if they leave the company like an HSA.
The uniqueness of LSAs derives from the wide freedom of choice offerings, Taylor said. Employers are free to determine the benefits they 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 select from a menu of options.
Employer of Choice Remains the Goal
Despite the cooling labor market, employers are still focused on attraction, retention and ways to differentiate themselves as an employer of choice — and LSAs are one of the hottest trends in these discussions, said Sander Domaszewicz, national practice leader for consumerism at Mercer.
LSAs also are a way to address what Domaszewicz called “point solution overload.” Rather than invest in another well-being initiative employees may or may not use, employers can help subsidize a variety of services, products or experiences to fit a very wide range of employee lifestyles and needs through LSAs, he explained.
Employers pursuing diversity, equity and inclusion objectives may use LSAs as a straightforward way to address benefit gaps for female employees, specific racial/ethnic groups, LBGTQ+ individuals or populations with special life needs, such as family building or emergency relief, Domaszewicz said.
Employers implementing LSAs can have different goals, so it’s difficult to say what a typical budget amount is, said Stephen Durso, director, benefits accounts at WTW.
“We haven’t seen many below $250 because amounts less than that don’t add value when you consider the time and expense to administer the accounts,” he said. “On the high end, we've seen broad-based LSAs with $3,500 or more, but typically high-dollar LSAs would be restricted to big-ticket but less utilized expenses, such as surrogacy.”
When launching an LSA, good communication is also a top priority for employers, Durso said, mainly to help employees understand how the plan fits best for their individual needs. He noted it’s also standard for employers to collaborate with a trusted administrator to consult on plan design, IRS guidelines and compliance to determine what expenses will be allowed, funding amounts, how reimbursement will work and how it will be communicated to employees.
The current LSA landscape is like the “Wild West,” said Domaszewicz since more employers are exploring this relatively new benefit.
“One company’s LSA can greatly differ from another company’s in that each can have very different objectives, goals and employee populations,” he said. “An upside to LSAs is they can evolve over time. LSAs do not have to stay the same from year to year.”
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