The fact that Lifestyle Spending Accounts (LSAs) are fully customizable can be a double-edged sword. On the one hand, this flexibility allows companies to design a plan that best reflects its ethos and meets its employees’ needs. But it can also make it difficult for employers to know where to start. This post will help you develop a framework for designing the best plan for your company so that it delivers maximum impact and receives optimal engagement from your employees.

A quick overview

LSAs are a relatively new type of benefit so many employers and employees alike aren’t as familiar with them as they would be with an HSA, for example. LSAs are essentially an allowance an employer gives its employees to spend on predetermined everyday expenses. The account is fully funded by the employer and employees pay income taxes on the amount they use. The employer decides which expenses it wants the LSA to support, how those expenses are paid for, the cadence at which the money is replenished, and what happens to the money after the plan period expires.

Since LSAs are an after-tax benefit, there are very few restrictions on how employers can design these plans. The only two requirements the IRS has are that LSAs are not used to pay for medical expenses covered by health insurance (since this would qualify the LSA as a health plan) and they can’t be used to pay for expenses that could otherwise be covered by a pre-tax benefit. To narrow in on how your company would like to design its LSA, follow the steps below.

Types of LSA designs

There are many ways you could design your LSA. Here are the major decisions you will need to make:

• What is your intention in offering the LSA? What are you hoping to gain or what problem are you hoping to solve? Answering this will help guide the answer to the following question.

• Do you want to have a single, general-use LSA or one or more targeted LSAs? Your general-use LSA can reimburse for as many types of expenses as you would like. This might be a good option if you have workers from a wide demographic range that have a variety of needs. If your goal is to send a specific message about company values or address a specific issue like equipping remote workers with the set up they need or encouraging financial wellness, then you can choose to have an LSA that pays for costs under a single category.

• How do you want employees to access their allowance? Do you want them to submit for reimbursements or to have access to a preloaded card? The expenses you are reimbursing for should influence this decision as large expenses that may be cost-prohibitive for an employee to cover upfront. Also, keep in mind that the more freedom and flexibility employees have will increase their overall satisfaction with the program.

• What technological capabilities are important? Having an app could greatly increase the employees’ engagement with the LSA and their overall satisfaction.

Now that you’ve answered the general questions, narrow in on the details.

1. Determine your budget

The total per employee allowance for LSAs typically ranges from $500-$2,000 and anything less than $250 would likely not be very impactful. Companies covering large expenses might give a larger allowance of up to $3,500.

So knowing this, determine how much you can allocate to this benefit. One way to increase the benefit’s impact is to audit your employees’ benefit utilization data to see if there are any plans or programs that are being underutilized and consider diverting money from them to the LSA.

Remember that the money you are committing is only spent if the employee uses it. Any part of the allowance that isn’t spent during the plan term is reabsorbed by the company.

2. Figure out the types of expenses to cover

In order for your LSA to deliver impactful support to your employees, you want to make sure you’re covering the right expenses. To find out what the right expenses are, you have to gather some information from and about your employees.

1. Survey your employees. Ask them about their wellness goals for the coming year, what they’re struggling with, what their fears are, etc. Also ask them about any holes they see in your current benefits offerings.

2. Audit your benefit utilization data to see what employees are using and what they aren’t.

So use your employee data to determine the list of issues your employees are facing and prioritize them from most acute to least. For your LSA to be impactful and help define your company’s culture around wellness, the issues you address with your LSA should both match employees' biggest needs and align with company values.

Once you’ve decided on the issues you want to address, list the possible expenses that could help with those issues, prioritizing them from most impactful to least. Then compare this list with your budget. Your per employee budget will largely dictate the types of expenses you’re going to cover with your LSA(s). That’s because you want to be able to offer enough money so that it’s a meaningful contribution toward the expense the employee is taking on. Otherwise they might not engage with the LSA and offering it will have little benefit to the company.

3. Decide on the plan cadence

The cadence at which you replenish your employees’ LSA allowance will depend on the types of expenses you’re covering and your budget. The LSA should renew at a cadence that makes sense for how often employees pay for that expense.

So for example, if you’re offering a fitness-focused LSA, it might make sense to reset LSA on a monthly or quarterly basis. If you’re offering an LSA focused on big-ticket items, your LSA might have a single, lifetime value (e.g. employees are given a $3,000 allowance to use towards buying furniture for their home office, but once they use it, it doesn’t renew). If you have a large, multi-use LSA, it might make sense to renew it on an annual basis.

As with choosing the expenses you’ll cover, you’ll want to make sure your budget supports the cadence at which you choose to renew the accounts.

4. Keep your employees informed

Offering employees an LSA that is thoughtfully designed and sufficiently funded can be a great way to support them both at and outside of work. But it can only benefit them if they participate in the plan. Did you know that 45% of employees feel apprehensive about open enrollment? In fact, many of them said they dread it as much as renewing their driver’s license.

It doesn’t have to be this way. Employees should be excited to sign up for benefits like an LSA and the way to get them onboard is to communicate the plan effectively. This means using multiple channels to explain how the plans work and how they can positively impact employees’ lives in simple language that’s easy to understand.

Partnering with a vendor that helps with employee communication and onboarding, as well as offers responsive customer support can help your HR team increase employee engagement. It’s also important to keep your employees updated on their LSA balance, any upcoming plan deadlines and account renewals.

Get started with Lively today!

Lively is your partner in offering a best-in-class benefits package that will increase employee wellness and engagement. We offer HSAs, FSAs, HRAs, LSAs, Medical Travel Accounts, and COBRA. We can help you design the most impactful plan for your organization and budget so that you can deliver the support your employees need to be their most productive selves at work. To get started, reach out today.