An emerging trend: LSAs as part of Total Rewards

Total Rewards strategy: The importance of LSAs

As Lifestyle Spending Accounts (LSAs) gain traction, organizations are integrating them into compensation and Total Rewards strategically. LSAs offer advantages that prove valuable and make every dollar count when positioned strategically. 

In fact, a study conducted by Aon and Forma found that employees viewed LSAs to have 50% more value when given the option to select the benefit. When translated into dollars, $1 has a perceived value of $1.50. Recognizing the added value LSAs provide, we’re sharing insights into why LSAs should be part of the Total Rewards and how to strategically deliver on the benefits.

Why include LSAs in Total Rewards

The LSA should never be positioned as a standalone offering. Integrate it into a broader message conveying the total value proposition of compensation, benefits, perks, growth opportunities, and culture. When strategically incorporated into compensation and Total Rewards, LSAs become a value-driving and cost-effective component of a holistic offering. 

Here are 6 reasons why LSAs should be a welcome addition to your compensation package and how to make the most impact.

1. Boost perceived value

Employees typically value and use LSAs at higher rates than cash compensation. Their perceived value exceeds the actual cash outlay as noted in the Aon/Forma example above. This allows organizations to realize more motivational power per dollar spent when redirecting portions of merit budgets to LSAs.

2. Offset costs with unused funds

Since LSA balances go unused if unspent, this produces savings for the organization that can be allocated toward administrative fees and other expenses. Unused percentages typically reach 25% or more, generating instant cost offsets.

3. Provide holistic global support

Ensure the LSA aligns with your organizational culture and values. If innovation matters, offer a wide array of LSA spending categories and use cases. For global companies, include offerings like language lessons. When done right, LSAs reinforce culture.

4. Fill benefit gaps

LSAs are prime to provide support beyond traditional medical, dental, and vision benefits. Many use the benefit strategically to fill gaps or areas where employees demand further support. A simple gap analysis spotlights where current offerings fail to address employee needs. By targeting underserved areas, LSAs can be even more meaningful and impactful. 

5. Drive engagement

The flexibility Lifestyle Spending Accounts provide helps to engage employees by meeting individual needs. The flexible model shifts the power dynamic by giving employees the freedom to choose how to use LSA benefits based on their lifestyles. This fuels engagement, as employees feel recognized and valued.

6. Simplify administration

Consolidating spending accounts onto one streamlined platform simplifies oversight and coordination. This reduces administrative hassles across the Total Rewards program. Better yet, it provides employees with a streamlined approach and ease of use when paired with a modern TPA Saas solution.

Strategies for funding LSA with Total Rewards benefits 

Securing a budget for new benefits and or options outside of core medical, dental, and vision coverage continues to be a hurdle for many organizations. However, a new trend many are latching onto is leveraging a small slice from Total Rewards benefits and reallocating them into LSAs - which requires zero new dollars. 

To illustrate, here’s how the model works when applied to leveraging a nominal percentage of merit increase.

Example 1 takes 3% merit and reallocates funds with 2.5% for merit, and .5% for an LSA applied to various workforce sizes. Since an LSA is notional where companies only pay when funds are used, you can forecast savings and total cost. 

• Employees would receive $500 in an LSA annually. 
• A workforce of 500 saves $62,000 vs. 1,000 saving $125,000, and 2,000 saving $250,000.
• The perceived value is even more, adding 50% more where the $500 feels more like $650.
  

This is just one example of many. In Example 2, you can leverage nominal funds from merit, 401K matching, or contributions to various benefits spending accounts, such as an HSA or FSA.

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When viewed as part of Total Rewards, this strategically helps stretch merit dollars further, granting added value through both a salary bump and access to flexible LSA funds. Better yet, the unused LSA balances also produce savings that can be repurposed into more LSA programs or set aside as a cushion for just-in-case needs. 

Making the most of Total Rewards with LSAs 

The key is integrating compensation and benefits funding strategically to maximize value. Allocating a portion of merit dollars to LSAs satisfies employee expectations for increased earnings while also providing the unique advantages of a discretionary benefits account.

Since LSAs have a high perceived value, the motivational power per dollar spent goes further. Employees receive a raise and an engaging new benefit without inflating overall compensation costs.

This innovative approach squeezes more impact from every dollar. The combined effect is greater than what either tactic could deliver independently. Compensation and benefits together boost recruitment, retention, and engagement.

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