Health savings accounts

Because of their tax advantages, Health savings accounts (HSAs) are the most powerful instrument for saving and spending on health care expenses. Employee contributions to HSAs are not subject to federal income taxes, the money within them grows tax free and the money withdrawn to pay for qualified medical expenses is tax-free.

The average American will need hundreds of thousands of dollars in their retirement for health care expenses, and HSAs are also the most powerful tool to save for those future health care expense needs. Unused funds roll over year-to-year with the potential to build savings through self-directed investment options. In fact, the Plan Sponsor Council of America 2022 Health Savings Account Survey sponsored by HSA Bank found that half of large employers position the HSA as part of a retirement savings strategy.

After an employee turns 65, invested funds that had been growing tax free over the years can be withdrawn without penalty, although they may be subject to income tax if not used for IRS-qualified medical expenses.

Lifestyle spending accounts

Flexibility and versatility are key to creating benefits designed around your employees' unique needs. In establishing a lifestyle spending account (LSA), you can empower employees to manage physical and mental wellness expenses not covered by health insurance or health savings accounts. These employer-funded accounts can provide money for expenses that promote employees' physical and mental wellness, such as gym memberships, nutrition counseling, fitness classes, home fitness equipment, mental health counseling and life planning.

They also can be set up to help employees pay for office supplies and equipment to facilitate hybrid work arrangements, help with financial planning and student loans, aid in adoptions or support child and elder care.

LSAs are highly customizable, giving you the option to decide who can participate, how much you put in the accounts, what expenses are eligible, what documentation employees must provide and how employees will be reimbursed. In short, they can be designed as narrowly or broadly as you choose. LSA's are also available year-round and not tied to a benefit year.

Dependent care flexible spending accounts

Dependent care flexible spending accounts (DC-FSAs) can cover qualified child and elder care expenses. Employees set aside pretax dollars each pay period, helping to reduce their taxable income. The employee constructs a budget for these expenses and at open enrollment decides how much to contribute.

As an employer, you can add funds to the accounts and send a strong message about how you value work-life balance.

Health reimbursement arrangements

Unlike an HSA, which employees own and to which they contribute pretax dollars, the employer controls health reimbursement arrangements (HRAs). You determine funding levels, what expenses are eligible and whether funds to carry over to the next year. Employer contributions to HRAs are tax deductible as a business expense and withdrawals are tax-free to the employee.

You can choose whether funds can be used for all IRS-qualified medical expenses or for a more restricted list of expenses. For example, you could offer and HRA specifically for dental or vision expenses, which would be of great value to employees with children needing glasses or orthodontia.

Retirement reimbursement arrangement

If you want to help retirees offset their health care costs in retirement, even if you do not offer a group retiree health plan, a retirement reimbursement arrangement (RRA) could be the answer.

Compared to defined benefit retiree health care plans that can cost more from year-to-year, RRAs offer a more predictable and cost-effective option that can be deducted as a business expense. You provide your retired employees with tax-free money that they can then use to help them pay for Medicare premiums and other qualified medical expenses incurred during retirement.

Commuter benefits

Commuter benefits packages help employees set aside pretax money to pay for eligible workplace mass transit expenses or to pay for certain parking expenses. Commuter benefits are not tied to a benefit year, so the funds remain in the employee's account until exhausted.

Employees decide how and where to spend their commuting dollars. Money deducted from an employee's paycheck before taxes will be used to pay for their transit or parking order. If an employee's order exceeds the monthly limits, the additional amount can be deducted from their paycheck after taxes.

Read more: How self-funded insurance plan options can help attract and retain talent

With a labor market that continues to be competitive, it is more important than ever that employers carefully consider the importance of benefits as part of an employee's overall compensation package. Differentiators such as HSAs, LSAs, DC-FSAs, HRAs, RRAs and commuter benefits can contribute to a well-designed benefits package that sends a clear message to current and prospective employees that you value their wellbeing while helping to ensure they remain productive, whether in the office or in a hybrid arrangement. As your benefits team begins to prepare for your company's next open enrollment period, consider designing an overall package that keeps your company competitive and interesting to new and current talent.

Kevin Robertson, HSA Bank CRO