Excerpt from SHRM HR News: Behind the Growing Interest in Lifestyle Spending Accounts

As employers consider how to meet the needs of a diverse workforce—while also attracting and retaining talent in a strong job market—it’s no surprise that offering competitive benefits is a top strategy.

But with so many potential offerings—and the costs that go along with them—employers are also trying to identify benefits that offer flexibility and appeal to a wide range of workers. One newer type of benefit, lifestyle spending accounts (LSAs), are becoming more popular because they do just that, said Sara Taylor, senior director of employee spending accounts at consulting firm WTW.

“I've been talking to a lot of employers about these accounts, and the interest is really amazing,” she said. “They are talking about it; they are thinking about it. It’s really about trying to personalize benefits for employees.”

LSAs are employer-sponsored accounts that enable employers to offer reimbursements to employees for merchandise and activities that promote physical, financial and emotional well-being. The accounts aren’t tax-advantaged, and they do not have the rules and restrictions typically associated with other traditional benefits accounts, like health savings accounts and flexible spending accounts.

“It runs a broad spectrum, but what is unique about these is they are not covering medical expenses,” Taylor said. Employers may choose the benefits they wish to offer, including gym memberships, nutrition services, sports and dance lessons, home office and technology needs, and environmental activities. Other expenses like family support or pets can be included, as well.

Interest in LSAs is growing: Recent survey data from consulting firm WTW found that while just 7 percent of employers currently offer LSAs, another 38 percent are either planning to offer LSAs (7 percent) or are considering adding them by 2025 (31 percent). 

On average, Taylor said, employers contribute about $850 per employee on an annual basis to these accounts, but figures vary. Employers typically work with a spending account administrator to create an account the employee can use, but the money is retained by the employer, and they don’t actually provide the funds until the person uses them.

SHRM Online spoke with Taylor about the reasons for the growing interest in LSAs, the biggest hurdle behind their growth, what employees think, and tips for employers considering adding an LSA.

SHRM Online: Tell me about the growing interest you’re seeing right now. What’s behind it?

Taylor: The No. 1 reason for the growing interest is allowing employees to really personalize their benefits. And the second reason—a close second—is attracting and retaining talent. That’s why employers offer benefits. They want to get good quality talent to work for them, then they want to keep them. And as you think about the day and age we live in—where everything is very personalized, like the classic Amazon or Netflix experience—with benefits, we're not quite there. But with [something like LSAs], this is a more flexible option for people to pick and choose the types of benefits and things that you value, versus someone else.

SHRM Online: Adoption, right now at least, isn’t very high. What’s the biggest reason why, and how do you overcome that?

Taylor: The biggest hurdle that employers have is, ‘How do you pay for this?’ Forty-three percent of employers indicate that lack of budget is the reason they haven't done this yet. I don't know any employer who wants to add cost to their benefits program.

So, we’re assessing what employers are doing today—what’s working, what’s not, have things been stagnant? Do you need to change it a little bit to shake it up?

SHRM Online: To make LSAs a priority going forward, will some of these organizations scale back on benefits that maybe weren’t getting a lot of utilization so they can make room for the funds for this?

Taylor: I think so. That’s what we have seen from many of the employers who are doing this—they have repurposed their benefits dollars into something else.

Outside of typical benefits—medical, dental, life insurance and so on—employers might have 20 to 30 or more other types of benefit programs they offer. There’s adoption assistance, education reimbursement, well-being plans, weight loss programs, different incentives. That’s a lot. They’ve invested in their employees, which is fantastic. But if you ask employers what the utilization is of many of those programs, it’s incredibly low. It’s valuable to the people who use them, but they’re low. So again, it becomes, ‘Where do you want to spend your dollars? Is it on something that’s hitting 2 percent of your population, versus maybe 10 to 15 percent versus 75 or 80 percent?

It doesn’t mean that employers are going to cut half of those programs or more, but they can be selective about what is really providing the most value. I’ve worked with employers who maybe have experimented with a number of point solutions that are on the market now, and not every one has been a success. So, they are looking for something else to try that might appeal to a broader range of employees.  

SHRM Online: What do employees think?

Taylor: Employees love personalization. If you think about if your employer is going to give you $500 or $1,000 to spend on a gym membership or running shoes or yoga classes or whatever fits for you or your family, this isn’t a bad thing.

We also see that the usage of these accounts tends to be high. Generally, it’s about 80 percent or better, depending on what [the accounts] do and how the employer is communicating about them. Sometimes, employees use the entirety of the funds; sometimes, a portion.

SHRM Online: What is the opportunity for employers?

Taylor: I think it symbolizes an opportunity to reach a broader employee audience and provide those employees with more flexibility, more choice than maybe other programs offered to them. Unlike other benefits, this is the one area that I can truly choose to personalize in the way that I want to, for whatever reason I want—my lifestyle, my family situation, my preferences. That’s a win.

SHRM Online: For employers thinking about implementing a lifestyle savings account, what do you think they should know? What’s your biggest tip for them?

Taylor: Step back and look at what you have. Is it meeting your needs as an employer and your employees’ needs? And are you getting the value from what you offer today? That answer is probably different by benefit program. Then, figure out if you can create the opportunity to use a lifestyle account instead of something else that you have today.