Over the last few years, society experienced several changes–especially in the workplace. Lockdowns made us realize how little time we spent with our loved ones or how hard it was to find the time to test new hobbies. But, if one thing is for sure, employers are taking notice.
A life planning account (LPA) is a spending account that an employer subsidizes. While other spending accounts focus on family or medical or sick leave, the purpose of an LPA is to provide employees with benefits and services that support their health and wellness. Usually, when designing their LPA programs, employers address the four pillars of well-being: physical, social, emotional, and financial well-being. After all, a happy employee is a productive employee.
What’s with all the LPA hype?
There are several employee spending accounts out there. We all know about health spending accounts (HSAs), flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs), but how do they differ from an LPA? The distinguishing factor of life planning accounts is that they are lifestyle-focused. As opposed to HSAs, FSAs, and HRAs, the money that funds LPAs is taxable to employees when they spend it.
Employers have complete control over what employees can spend their LPA funds on but usually keep their employees and their unique needs in mind when deciding the services to offer as a part of their program. Examples of the services provided as a part of an LPA are gym memberships, meal delivery services, or even commuting expenses.
While LPAs are primarily geared towards health and wellness, how do they compare to other standard employee spending accounts? We dive into the differences below.
LPAs v. HSAs
With an HSA, funds are available to employees for various medical needs and expenses. These expenses include medical, dental, and vision fees and physical/occupational therapy expenses. These expenses are often geared toward active or preventative treatments, procedures, and other adjacent costs and usually exclude cosmetic procedures. For example, you can use an HSA to cover a co-pay for a dentist visit but can’t use it to pay for teeth whitening.
Contrastly, LPAs cover more individualistic lifestyle expenses, whereas HSAs cover the necessities. For example, while participation in a yoga class constitutes a healthy activity, it is relatively participatory. You don’t necessarily need the yoga class, but it is vital for your overall well-being, making it an LPA expense. Other possible LPA expenses include athletic wear, nutrition counseling, food supplements, and life coaching.
When it comes to taxes, HSAs have a leg up on LPAs. This is because HSAs are non-taxable, whereas LPAs are taxable; however, the taxable nature of LPAs makes them free of legal and regulatory constraints. In addition, HSA funds are only applicable to employees with a High Deductible Health Plan.
LPAs v. FSAs
Like HSAs, FSAs are explicitly used for medical expenses. Not very flexible, right? To differentiate themselves from HSAs, FSAs also dabble in dependent care. Along with HSAs, Employees can use FSA expenses for more specialized medical care, such as hearing aids or physical therapy.
While FSAs are not taxable, the IRS limits the amount of money employees can deposit into their FSA accounts. Flexible spending accounts are also not eligible for rollovers when money is leftover from the previous months or years.
While LPA’s are taxable, they are certainly more flexible, ensuring that employees are taken care of in every dimension of wellness. And like HSAs, the same distinctions apply.
LPAs v. HRAs
HRAs are similar to HSAs and FSAs because they are only for medical/dental expenses. However, instead of an account, an HRA plan reimburses employees for medical costs or insurance premiums after the expenses occur. Like other spending accounts, HRAs are employer-funded, and employers get a say regarding what qualifies as a medical expense.
Whether for prescriptions, insulin, birth control, or even crutches, HRAs cover various qualified medical expenses. The catch? Unlike HSAs, health reimbursement arrangements don’t transfer if you leave your company; however, unused HRA funds can roll over to the following year.
When distinguishing between LPAs and HRAs, it comes down to healthcare vs. lifestyle. If the medical expense incurred was to alleviate or prevent physical/mental ailment, it most likely is an HRA. However, if it’s outside of what insurance considers “a medical expense,” it could fall under an LPA.
Bottom line? LPAs offer more when it comes to lifestyle
Employee spending accounts have changed how we work and provided assistance in all critical areas. As LPAs continue to gain popularity across the US, it is a great time for employees and employers to determine what is most important for our wellness. For answers to more questions about LPAs, check out our latest white paper.