How to Differentiate Your Benefits Package with Lifestyle Spending Accounts

Open Enrollment is just around the corner and many HR professionals and their broker advisors are beginning to evaluate benefit options for 2025. One newer benefit option employers and their advisors should be aware of for the 2025 season is lifestyle spending accounts (LSA). And the great news is that you don’t need to wait for Open Enrollment to add an LSA offering! Unlike standard benefits tied to a specific plan year, LSAs can be easily added any time of year based on an employer’s unique needs.

Rising Interest in LSAs

Flores has seen a rise in interest and adoption of these accounts. Several recent surveys across the industry over the last year also indicate the rising prevalence of this benefit. In a survey conducted by Business Group on Health, 43% of surveyed employers indicated they are looking at adding a lifestyle account.

What is a Lifestyle Spending Account (LSA)?

A lifestyle spending account is a flexible and cost-effective benefit that can help your employees cover various expenses related to their personal and family life, giving them more freedom to choose how their benefit dollars are spent. Because the plan does not reimburse medical expenses, Section 213(d), Section 125, ACA, COBRA and ERISA restrictions that apply to other employer sponsored reimbursement plans do not apply.

Benefits of LSAs

One of the greatest benefits of the lifestyle account is the increase to employee perception of their pay and benefit package, without committing to an increase to the base salary. Companies with limited benefit budgets or budgets for bonuses or salary increases can provide even a modest benefit that would be impactful for employees. Employers can use these benefits to respond to inflation or immediate employee needs like rising gas and grocery prices and can budget a static amount each year.

Common LSA Designs

The only restriction employers have in the design of their LSA is that they cannot include any medical expenses, including weight loss medications or injectables. Below you will find some of the most popular categories of reimbursement. Since these plans are customized for each one of our clients, we can include other types of expenses as well.

• Physical Wellness: gym memberships, app-based subscriptions, weight loss programs (excluding medications or injectables), or equipment.
• Trade-Related Expenses: tools, work boots, or clothing necessary to perform the job function.
• Financial Wellbeing: student loan repayments, financial counseling, first time homebuyers, or estate planning.

How Expensive is an LSA to Offer?

With a fixed annual spend, low cost of administration, and plan design flexibility, lifestyle spending accounts can fit within various budgets. One significant advantage of a lifestyle spending account is that the employer decides which expenses are eligible for reimbursement and the total benefit amount, or contribution limit. Flores typically sees an average funding amount of $800 per employee for this benefit, but these accounts can vary widely from employer to employer. On average, we see a utilization rate of around 70% for this benefit. You should be prepared to spend 100% of the benefit – engaged employees are 2.5x likelier to do good work and take fewer sick days – but on average employees do not use the entire allowance.

As you are budgeting, consider the other ancillary programs offered to employees. Are these programs costing the organization money? If so, how well are they utilized? Could you shift budget dollars from stagnant, under-utilized programs to a more flexible lifestyle account? Knowing that a lifestyle account sees around 70% utilization, are there other benefits at a lower utilization rate that you could consider downsizing or removing altogether?

How Do I Get Started Designing an LSA?

We recommend the following steps if you’re considering an LSA to make the most impact:

1. Find a partner you can trust. Getting started on your own with an LSA can be daunting. Reach out to your broker advisor for advice and help in selecting a TPA partner.
2. Read the room. Take an employee survey to identify what types of reimbursements your employees value most.
3. Start small. Start by budgeting for a smaller benefit. It is hard to backtrack and take existing benefits away, so don’t overextend in year one.
4. Continued check-ins. Don’t let your LSA grow stale. After you launch the program, continue to survey employees to make sure they are happy with the plan and benefit amount. Adjust the plan design with your population’s changing needs.

As always, Flores is here to help – if you want to talk about setting up a Lifestyle Spending Account, the best way to get more information is to reach out to your business development partner, or if you are already a client of Flores, feel free to reach out to your account manager.

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