What are Lifestyle Spending Accounts (LSAs) and How Can They Help Employers Support Employees’ Health and Well-Being?

Many employers are familiar with flexible spending accounts (FSAs), health reimbursement arrangements (HRAs) and health savings accounts (HSAs). There is another account-based benefit that is drawing more interest from employers, and that is a lifestyle spending account (LSA).

LSAs give employers the opportunity to support employees’ health and well-being by giving them money to invest in ways that are relevant to their lifestyle. Employers can decide how employees can spend their LSA funds. Some examples include fitness classes or memberships, fitness or nutrition subscription boxes, healthy meal deliveries, life coaching, nutrition counseling, personal training or coaching, recreation or sports gear and weight loss apps.

How can LSAs help employers support employees’ health and wellbeing? According to the U.S. Bureau of Labor Statistics, high quit rates are often due to employee happiness and workplace policies. High turnover can be very costly for a business or organization. LSAs give employees customized benefits which can increase their loyalty to their employer, and these nontraditional benefits can help reduce employees’ overall stress. With the help of NFP, we answer a few questions about LSAs that employers might have.

Are LSA benefits taxable to the employee?

Likely, yes – these accounts are funded by employers with money that is taxable as income to employees when they spend it. This means that any benefit provided to employees would be included in their taxable income unless the tax code provides an exclusion.

Are LSAs subject to ERISA?

Generally, no – these benefits do not offer medical care or any of ERISA’s enumerated benefits, so this would not subject LSAs to ERISA as a health and welfare benefit.

How do LSAs impact employees’ HSA eligibility?

If you make the decision to offer an LSA and health savings account (HSA), make sure that your LSA plan does not offer first-dollar reimbursement for medical care. This would ensure that employees could not use their LSA to pay for their medical care, therefore preserving their HSA-eligibility.

Are LSAs easy to implement?

Yes – LSAs are fairly easy to implement since they are taxable. This helps employers avoid many of the legal or regulatory constraints associated with tax-advantaged accounts.

Should an employer work with an LSA vendor to establish an LSA for employees?

Yes – it is recommended that employers work with an LSA vendor and/or legal counsel in establishing the LSA for your employees. According to NFP, LSA vendors help streamline the reimbursements process to cut down on administration time. This means that, on average, administration time only costs HR departments about 30 minutes per week. LSA vendors can also offer a marketplace for employees to use their funds for a variety of spending options directly at a discounted rate.

If you are an employer looking for more information on LSAs, the team at Rose & Kiernan, Inc. is happy to help. Contact the Rose & Kiernan, Inc. Employee Benefits Management Group (EBMG) here or by calling (800) 242-4433.

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