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You’ve got LSA plan design questions. Here are the answers you need.

Posted June 29, 2022


As the conversation around employee wellness has evolved, so too has the need for new and creative ways to better support employees. That’s one reason why we’re seeing unprecedented interest in lifestyle spending accounts (LSAs), which can be used by employees to pay for mental, physical, and financial needs. 

We received so many questions during our recent “LSA: A Deeper Dive” webinar that I wanted to share our answers with you too. Below are questions from attendees that we answered live during the webinar, or watch our webinar below (which also served as a Benefits Buzz podcast episode).  

Q: What elements of LSA plan design can be customized?

A: The LSA is an extremely customizable plan because it’s post-tax. Employers have the ability to choose the following:

  • What’s eligible under the LSA? We have a boxed solution that includes these expenses. See some gaps? You can add expenses to cover them. 
  • Eligibility (all employees, classes, years of service, etc.)
  • Contribution amount
  • Contribution schedule (day 1 of plan year, monthly, quarterly, when certain goals/requirements are met, etc.)
  • Plan functionality (Is there a benefits card? Do employees who leave lose any leftover money? Can employees carry unused dollars over year after year? Etc.)

Can you pair an LSA with other pre-tax benefits (HSA, Dependent Care FSA) and post-tax benefits?

Yes! The LSA can be paired alongside any pre-tax benefit or post-tax benefit. We encourage you to avoid duplicating any eligible expenses in your LSA that are covered by pre-tax benefits like medical expenses or daycare costs up to the $5,000 IRS maximum. 

You should also consider consolidating any post-tax wellness benefits into one offering. 

Learn how a wellness HRA and LSA compare. 

Can an LSA be added at any point in the benefits plan year?

Yes. Because the LSA is a post-tax benefit, it can be added and contributed to at any point in your plan year. 

Can employees mix and match what they spend their money on?

Yes. You control the eligible expense list and employees can pick and choose, mix and match whatever items they’d like to use their benefit on. 

Can employees spend their funds on family members? Example: gym membership for children, ski passes for the entire family, etc.

We typically see funds only used on employees, but the LSA can be flexible and be used for family members as well. 

Ready to watch a replay of the workshop? Download our interactive Build your LSA guide and click play now. 

What is a common practice for new hires and employee terminations? Do they prorate the contribution? Do they all employees who leave to take the money with them?

We’ve typically seen employers:

  • Prorate the contribution for new employees.
  • Opt for a use-it-or-lose-it plan design, although it is possible to allow funds to roll over year after year.
  • Enforce a forfeiture of funds should an employee terminate.

Do we have to give all employees the same amount or can you offer them more if they reach wellness goals? 

While most plan designs we’ve seen do not require prerequisites for employees to receive their funds, some have inquired about this requirement. LSAs can be set up to require a biometric screening or other wellness/health related activity prior to using funds. 

We’ve also seen employers who provide different contribution levels based on classes or tiers of employees. 

We encourage you to keep the plan design as simple as possible to ensure employees get the most from the benefit. 

See our LSA benchmarking. 

How is this different from a bonus directly provided in an employee/executive paycheck?

There are a few reasons an LSA is a better option than simply providing a bonus to an employee’s paycheck. 

  • The LSA encourages employee wellness or specific behaviors by choosing what they can spend their money on. 
  • By creating a defined benefit with a specific list of expenses, you’re creating the ability to track usage and employee retention.
  • Provides you the ability to market this benefit as a way to attract new talent to your organization. 

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The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel. 

WEX receives compensation from some of the merchants identified in its blog posts. By linking to these products, WEX is not endorsing these products.


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