Crafting a benefits package that is as impactful for your employees and as it is economical for the business is a bit of an art. You have to have the right tools, enough information, a clear objective, and the right benefits partner to make it happen. In this post, we’ll walk you through the basics of the most popular fringe benefits, as well as how to bundle them together to create a powerful talent recruitment and retention tool.

The basics: What are HSAs, FSAs, HRAs, LSAs, and commuter benefits?

In addition to health insurance and retirement savings plans, fringe benefits like Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), Lifestyle Spending Accounts (LSAs), and commuter benefits are becoming a normal part of employer-sponsored benefits packages.

What is a Health Savings Account (HSA)?

An HSA is a savings account into which employees and employers can deposit tax-free money that the employee can use to pay for qualified medical expenses. All contributions to HSAs are tax-free to the employee in the year they are made, distributions for qualified medical expenses are also tax-free to the employee, and any growth the contributions experience from interest or being invested in the market is tax-free as well. 

Anyone can contribute to an employee’s HSA and all contributions belong to the account holder. That means unused balances roll over from year-to-year, if the employee leaves the company, they retain access to their HSA, and the employee can even use the money in retirement. Once the account holder turns 65, their HSA functions like any other retirement account. They can use their savings for any life expense, but distributions for qualified medical expenses remain tax-free. Distributions for other expenses are subject to the appropriate income tax rate.

In order to be eligible to open and contribute to an HSA, the account holder must also be enrolled in a High Deductible Health Plan (HDHP), and that must be their only health insurance. If they enroll in a different health insurance plan later, they can still use their previously contributed money for qualified medical expenses, they just won’t be able to contribute more money to their account until they are covered by a qualifying health plan. 

Other qualifying requirements for HSAs are:

• Must be at least 18 years old.

• Must not be claimed as a dependent on someone else’s tax returns.

• Must not be enrolled in Medicare or Medicaid.

HSAs have IRS-set annual contribution limits for both individuals and family plans and account holders 55 and older can make a $1,000 annual catch-up contribution. It’s important to note that even if family members are covered under a different health plan, employees can still use their contributions to pay for those family members’ qualified medical expenses. 

What is a Flexible Spending Account (FSA)?

Flexible Spending Accounts are employer-sponsored, and employer-owned, accounts into which employees and employers can deposit pre-tax money to pay for eligible health expenses. They sound like an HSA, except that they can be paired with any kind of health plan and their contributions expire at the end of their plan year. Employers can choose to allow employees to rollover up to $640 to the following plan year or they can give employees an additional 2 ½ months in which they can try to use up their remaining balance. Employers can also choose to allow employees to retain access to their FSA through COBRA should the employees leave the company for any reason. But they don’t have to. 

There are three types of FSAs: Health Care FSA, Limited Purpose FSA (LPFSA), and Dependent Care FSA (DCFSA). The Health Care FSA can be used to pay for eligible general health and medical expenses like band aids, copays, and other out-of-pocket medical expenses. Limited Purpose FSAs can be used to pay for qualified dental and vision expenses, and Dependent Care FSA contributions can be used to pay for child and adult day care expenses that allow the employee to work.

Both Limited Purpose and Dependent Care FSAs can be paired with an HSA, but an employee can’t contribute to a Health Care FSA and an HSA at the same time. If employees would like to participate in the company’s FSA plan, and have an active HSA, they will have to cease contributions to their HSA while their FSA is active. But they can still use previously made contributions to the HSA in addition to the money saved in their FSA. 

The IRS also set annual contribution limits for all types of FSAs. 

What is a Health Reimbursement Arrangement (HRA)?

An HRA is an employer-funded account that employees can use to pay for out-of-pocket medical expenses like copays, coinsurance, prescriptions, dental and vision care, and health insurance premiums, depending on the type of HRA offered. The following are the types of HRAs available:

• Integrated HRAs. These are offered to complement an employer’s group health insurance plan. These cover eligible out-of-pocket health expenses.

• Excepted Benefit HRA (EBHRA). These help employees pay for additional medical care, such as out-of-pocket dental and vision costs, coinsurance, or co-payments that are not covered by a group plan.

• Individual Coverage HRA (ICHRA). These can be offered in lieu of a health insurance plan to help employees buy their own health plan in the private market. 

• Qualified Small Employer HRA (QSEHRA). These HRAs are like ICHRAs, but for employers with fewer than 50 employees. 

• Retiree HRA. This type of HRA is offered to employees who have retired from the company.

HRAs can be attractive to employers because they have a lot of control over how the plan is administered including what’s an eligible expense, how much they will allocate to each employee’s account, and how to treat unused balances at the end of the plan year. Employers receive a tax deduction for every reimbursement they provide employees. 

If the company offers both an FSA and an HRA, employees can participate in both. But the employer will determine which account must be used and depleted first when submitting expenses for reimbursement. 

What is a Lifestyle Spending Account (LSA)?

An LSA is a flexible account that enables employers to support their teams’ everyday expenses. They are employer-funded, post-tax accounts and enable employers to choose how much they will allocate to each employee’s account, the types of expenses they will cover, what happens to unused allocations at the end of the plan year, and how employees access the money. 

Employers can use LSAs to support employees’ physical, mental, emotional, and financial health by reimbursing for expenses such as gym memberships, yoga retreats, personal development classes, expenses associated with hobbies, financial counseling, and expenses associated with commuting to the office or working remotely. Employers can offer one, all-encompassing LSA or they can offer multiple targeted LSAs, and can use them to support workplace culture, Diversity, Equity and Inclusion (DEI), improve employee productivity and more. 

LSAs can be paired with any type of fringe benefit, health insurance plan or retirement plan.

What is a commuter benefit?

Commuter benefits can be either post-tax, employer-funded reimbursement accounts, or pre-tax, employee-funded accounts. The pre-tax, employee-funded commuter benefit accounts can be used to pay for mass transit, carpooling and parking expenses that are related to their commute. Eligible expenses include: train tickets, bus and metro passes, ferries, parking for a personal vehicle near the office or a mass transit center, and carpooling expenses. Post-tax, employer funded commuter reimbursements can include expenses related to coming to the office, such as bike repair expenses, gas stipends, and even lunch or dry cleaning. 

The IRS limits monthly employee contributions to pre-tax accounts and updates those limits annually. There are no IRS-imposed limits on employer-funded commuter benefits, but employees will have to pay income taxes on whatever reimbursements they receive.

Commuter benefits can be paired with any other fringe benefit, type of health insurance plan or retirement plan. 

Why should companies offer these benefits?

There are many reasons employers should consider adding these benefits to their compensation packages including: improvement in recruitment and retention efforts, reducing employees’ financial stress (and improving their productivity), cost-savings, and jurisdictional requirements.

Improved recruitment and retention efforts

The number one reason to offer these fringe benefits is improving employee retention and recruitment efforts. According to a recent Lively survey of HR and benefits decision makers, 81% of organizations are adding or improving benefits in the next year. And 80% said that offering competitive financial benefits is as important or more important than last year. For your company to remain competitive, you will have to offer employees an attractive package. You can use these fringe benefits to do that. 

Reduced financial stress and improved team productivity

In addition to recruiting and retaining employees, these benefits help employees solve real problems in their everyday lives. HSAs, FSA, and HRAs help employees pay for necessary health and dependent care expenses. LSAs help employees pay for expenses that improve their quality of life, and commuter benefits help employees pay for the cost of getting to work.

According to a recent report by Morgan Stanley, 52% of employees that make an annual household income of $100,000 or more report feeling financial stress. And 49% of those employees report spending three or more working hours each week dealing with their financial stress. By helping employees to pay for needed expenses, employers can improve their employees’ productivity, while helping them to feel more supported. 

Cost savings

Any pretax contributions made to HSA, FSA and commuter benefit accounts by employees lower employers’ FICA and FUTA tax liabilities. In addition, employer contributions to HSA, FSA and HRA accounts are tax-deductible for employers. See how much you can save with an HSA with our payroll tax savings calculator.

Jurisdictional requirement

Many cities and other geographic areas are now requiring employers to offer employees a commuter benefit. The jurisdictions that currently require employers to offer commuter benefits (as of 2024) are:

• New Jersey

• Bay Area, CA

• San Francisco, CA

• Richmond, CA

• Berkeley, CA

• District of Columbia.

• New York City

• Seattle

• Philadelphia

• Los Angeles

• Greater Chicago area

How to create effective and impactful benefit bundles

Bundling benefits means offering multiple benefit plans through the same benefits administrator. There are many reasons to do this. First, it’s easier for employees to access, understand and use benefits that are offered under the same umbrella. There is one place to go for information, often one access or debit card, and one dashboard and mobile app. 

It’s also easier for HR administrators to facilitate the benefits if they aren’t managing multiple vendors and dashboards. Some benefit providers could also give companies discounts when they bundle multiple plans. 

Here are a few examples of benefit bundles that work together and how they can support company culture and budget goals. 

1. Take advantage of tax savings for your company and your people

Bundle: HSA + HDHP + LPFSA /DCFSA + LSA + Commuter Benefit

This package takes full advantage of potential tax savings. In this scenario, the High Deductible Health Plan (HDHP) and HSA help employees save money on medical expenses. HDHPs typically have the lowest cost annual premiums of any traditional health plan, and in addition, employees can save tax-free money to pay for their out-of-pocket medical costs. 

Companies can help their teas’ HSA money go further by offering Limited Purpose and Dependent Care FSAs and enhance their culture and values with Lifestyle Spending Accounts. The addition of the Limited Purpose FSA (LPFSA) gives employees a way to save tax-free for their dental and vision expenses while they save their HSA money for long-term, big ticket costs or invest it to build up their retirement savings. The Dependent Care FSA (DCFSA) allows them to save on dependent care, such as child or elder care. 

Employers can support their teams’ quality of life with one or several Lifestyle Spending Accounts (LSA) and help them save on their commute with a commuter benefit. 

2. Support employees’ everyday expenses with spending accounts compatible with any health plan

Bundle: FSA + LSA + Commuter Benefit

This package supports many of employees’ everyday expenses and is compatible with all types of health plans. The Healthcare FSA gives employees a tax-free way to pay for everyday health expenses. Companies could offer additional savings opportunities by adding a LPFSA for vision and dental expenses and a DCFSA for dependent care expenses. To support employees’ individual needs and company culture goals, companies can offer one or several post-tax LSAs for specific types of expenses, as well as a commuter benefit to ease the financial pain of commuting for in-office or hybrid teams.  

3. Cost savings and flexibility 

Bundle: HRA + LPFSA + DCFSA + LSA + Commuter Benefits

Health Reimbursement Arrangements (HRAs) can help employees save on out-of-pocket medical expenses, while the LPFSA enables them to save on dental and vision care. The DCFSA would allow employees to save money on dependent care. By including LSAs to support employees’ personal growth and quality of life and a commuter benefit to ease the pain of coming into the office, employers can show they provide a 360 degree support of the employee.  

How to choose the right benefits partner

By bundling benefits under one administrator, you can increase benefit adoption, save employees’ and administrators’ time, and even save the company money. To do this successfully, companies should look for an administrator that offers an easy-to-use technological platform. The best platform will provide a comprehensive and easy to understand benefits dashboard, it will allow employees to access all of the benefits they are participating in from one place, and it will allow administrators to facilitate plan management of all plans from a single dashboard. 

Companies will also want to look for a benefits provider that takes an active role in employee onboarding, education, communication and provides responsive, knowledgeable, in-house customer service. 

Get started with Lively today!

Lively is your partner in crafting the most impactful benefits package for your company. We offer complete integration into your existing systems, award-winning customer service and employee support, and more. If you’re ready to uplevel your benefits offerings, reach out today.