If the Great Resignation has taught us anything, employees have the power. Now, it's not enough for employers to differentiate themselves by just salary alone; employees are looking for companies that offer benefits that are flexible enough to support a healthy work-life balance. A life planning account (LPA) is an emerging employer-sponsored spending account that gives employees a subsidy to spend on designated services, mainly on wellbeing.
LPAs are relatively easy to set up and use both on the employee and employer sides. But, we have seven best practices for successfully setting up and rolling out your LPA to increase employee engagement and competitive differentiation.
What is an LPA?
Similar to other employer-sponsored spending accounts, an LPA is a customizable means for companies to help employees support the health and wellness activities in their lives. Employers fund LPAs with money that is taxable as income to employees when they spend it.
Under an LPA, employers can offer various product and service categories that employees can choose to spend their LPA funds.
The key to setting up a successful LPA is to consider design, eligibility, funding, covered services, administration, communications, and measurement.
Design: How will the LPA fit into your overall benefits program?
An LPA is a "use it or lose it" account that qualifies as an after-tax benefit. As an after-tax benefit, employees' reimbursements are taxed as ordinary income and included in their W-2. Because of this, employers have total flexibility in determining who of their employees get to use it, what they can use it for, and how they'll fund it.
Eligibility: Who can participate in your LPA?
Typically, an LPA is used to support a broad human resource or business strategy. Most of the time, employers offer the LPA to all benefit-eligible employees. Still, it can also be limited to specific groups or seniority based on the program's intention. For example, eligibility for an LPA might include offering it to:
Employees with three or more years of service.
Employees that have completed a specific activity (i.e., online course, exercise class, etc.).
Funding: How will your LPA be funded?
A key in designing an LPA is the amount of the annual subsidy you will offer to your employees. Finding the budget dollars to provide a reasonable contribution can be challenging since it is an additional expense to the employer. One solution is redirecting budget dollars from other existing, underutilized benefits or folding wellness incentives into the LPA. Additionally, the subsidy has to be high enough to where employees find value from it. We recommend offering a contribution of at least $500 (if not more) per employee to see the most significant impact.
Covered Services: What will your LPA cover?
Employers have total discretion to determine a "covered service" for their LPA. Covered services can range depending on the strategy behind the Employers should design an LPA with the employee in mind. Typically, LPAs are used for a broader wellbeing strategy and include services within the four dimensions of wellbeing – physical, social, emotional, and financial. For example, employees might be using their 401(k) plan as an emergency savings vehicle rather than for retirement savings. In this case, an LPA could cover unexpected short-term emergencies like car repairs, buying a new washing machine, etc.
Other examples include gym memberships, personal coach, fitness equipment or apparel, financial planning services, and yoga classes.
Administration: Who (or what) will oversee your LPA?
LPAs operate on one of two delivery models: The Transaction Model and the Debit Card Model. Under the Transaction Model, participants submit receipts to get reimbursed. At the same time, the Debit Card Model allows participants to receive immediate reimbursement when they use a pre-loaded Visa Debit Card for eligible expenses.
While both models have pros and cons, the Transaction Model is typically preferred since it gives the employer more control over usage. It's also more advantageous from a cash flow standpoint since funds are only required when employees submit requests for reimbursement.
Communications: How will you communicate your LPA to employees?
Once you finalize your LPA, start communicating and educating employees about the new benefit. We recommend using various communication tools, including employee meetings, Zoom calls, email/text, social media, and traditional home mailings. Employers should provide participants with a simplified document outlining the plan provisions, eligibility rules, covered services, and reimbursement requirements. Additionally, we recommend rolling out an LPA outside the normal year-end benefit enrollment cycle to maximize visibility and exposure.
Measurement: How will you measure the success of your LPA program?
While measuring the direct impact of an LPA is difficult, there are several ways employers can determine the ROI impact. One approach is to measure the relative change in employee satisfaction or engagement levels. Other options include using standard HR metrics like turnover rates and "time to fill" for open positions to measure the financial impact of adding an LPA. We recommend establishing baseline metrics with targeted improvements to build an ongoing business case for implementing an LPA.
Design an LPA Program with PTO Exchange
Designing an LPA is relatively simple, but the setup and ongoing administration of an LPA are challenging, so employers should consider outsourcing it to a third party. With PTO Exchange, we offer a modular, extensible platform that can be configured based on your specific situation and needs, making it easier to manage the administration of your LPA.
Published on Jul 15, 2022 by Marketing