May 13, 2024

3 takeaways from our latest report on the state of Lifestyle Spending Accounts (LSAs)

We recently published our latest report on the re-emergence of Lifestyle Spending Accounts (LSAs). In it, we cited a recent survey conducted by Mercer highlighting that “…a startling 70% of [employers] said that they are considering adding an LSA to their benefits package.” Here are our three main takeaways from the report:

#1: Make a compelling business case

Many CFOs are hesitant to add new spend on any initiatives in this economic climate. HR teams can offset investments in LSA by carefully reviewing other expenditures which may not be producing results, such as office perks, endless swag, and employee assistance programs (EAPs). Despite the lofty name, EAPs in particular average an abysmally low utilization rate of between 3-5%, despite employers usually having to pay on a per-person basis.

Further, HR teams should be informed about the benefits of effective LSAs and how to measure them. For example, an engaged and motivated workforce is easier to retain, measured by turnover per quarter, and more productive, measured by revenue per employee.

#2: Design an effective program

Since LSAs aren’t regulated like HSAs and FSAs, they don’t have any innate restrictions. Employers can survey their workforces and adapt LSA programs to specific needs. Here are template surveys HR teams can easily deploy:

While every organization is unique, it’s helpful to understand the most common Lifestyle Spending Account categories and allowances. On JOON, the top 5 most popular categories, measured by % of programs that include them, are:

  1. Health & Wellness: 72%
  2. Family Care: 46%
  3. Pet Care: 40%
  4. Learning & Development: 36%
  5. Work From Home: 34%

Other factors to consider include whether a program is monthly, quarterly, or annual, and if participants can carryover unspent funds to the subsequent period. Similarly, some employers allow participants to make big expenditures and have them reimbursed on an ongoing basis using subsequent allowances in order to incentivize capital investments in wellness, such as Peloton bikes.

Overall, LSAs are incredibly flexible and employers can leverage them to drive an array of behaviors and outcomes that can’t easily be achieved with pre-tax benefits.

#3: Leverage technology that scales

Too frequently, paradigm shifts are limited by preconceived notions and outdated form factors. When it comes to LSAs, many employers default to the same tools they used for FSAs and HSAs, despite the significant opportunities to leverage newer technologies.

Due to their pre-tax restrictions, it makes sense for FSAs and HSAs to be administered via single-purpose cards or marketplaces. However, such approaches have significant drawbacks:

  • Inflexible: Both marketplaces and prepaid cards limit employees to a restrictive list of eligible merchants that may or may not match their preferences. 
  • Added friction: Both marketplaces and prepaid cards require employees to adopt new behaviors. Marketplaces require employees to remember to login while prepaid cards require employees to remember to use the right card and remember their balance.
  • Rejected at point of sale: Prepaid cards have built-in spending limits which mean that employees will often have their purchases embarrassingly rejected if the amount is a penny more than their leftover allowance.

About a decade ago, engineers began building APIs that connected financial institutions together to make consumer banking easier. The leading technology company in the industry, Plaid, is used in virtually every popular financial app today from Venmo to SoFi to Acorns.

The idea applied to LSAs is simple: let users securely connect their existing bank account or credit card to make eligible benefits purchases, rather than issuing them a single-purpose card exclusively for benefits. 

Forward-thinking employers will immediately recognize the value of this approach, and the added flexibility and automation it delivers. Not only that, but a card-connected LSA scales globally, enabling employers to provide international workforces with personalized benefits and wellness.

For more insights, download the full report here.