Lifestyle Spending Accounts — Why They Benefit Your Employees and Your Workplace

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Employers now have a relatively new and increasingly popular option for empowering their workforce to make positive lifestyle choices and take control of their better physical, emotional, and mental health. Lifestyle savings accounts, or LSAs, provide flexible and personalized support to employees. By offering meaningful and competitive benefits, employers have a tool to attract and retain workers — and LSAs could be a desirable piece of the benefits puzzle. These accounts are employer-funded and allow employees to pay for expenses relating to health and wellness such as physical fitness, financial relief, mental health, or personal development. 

According to a 2022 Mercer survey, less than 10 percent of employers reported offering LSAs as part of their benefits packages. As employees demand customized benefits packages and more employers offer LSAs, it’s important for employers to understand the specifics of this spending account and consider if they are a good fit for their organization and employees.

An LSA is a taxable, employer-funded benefit to support employees’ physical, mental, emotional, and financial health and wellness. Employers determine their annual contribution amount and how employees can spend their LSA funds and place parameters on acceptable products, services, and expenses — sometimes covering other costs not typically included in a group plan. In many cases, an LSA can be stacked with an HSA  and accessed through the same benefits card. 

Examples of Eligible LSA Expenses:

Many employers value LSA options because promoting healthy habits and overall well-being can lead to better lifestyle choices for employees. In turn, employees are healthier, happier, and likely more engaged and productive at work. Since LSAs do not have pre-tax implications, employers can offer this benefit to various workers, including full-time, part-time, and contractors.

The few drawbacks for employers — they are not tax-advantaged and are exclusively employer-funded, adding to an employer's annual budget.

Employers interested in creating a lifestyle savings account option for their benefits plan have a great deal of flexibility in how the LSA can be set up. Employers can determine the categories they wish to cover, merchant networks, flexible reimbursement options, to whether or not to require substantiation — allowing each employer to create a custom LSA that makes sense for their business and their employees.

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