Lou Ann Hutchison of Grant Thornton details a unique new way firms can offer benefits to staff: the lifestyle spending account.
Transcription:
Dan Hood: (
Welcome to On the Air with Accounting Today; I'm editor-in-chief, Dan Hood. Even before the Great Resignation, retention was an enormous issue for the accounting profession. And the last couple of years have seen firms scrambling to find ways to keep talent on board and among of things. This has led to some fairly serious investment and benefits, but it's also led to some fairly serious innovation in the field, which is pretty exciting. Here to talk about one particularly interesting innovation is Lou Ann Hutchison. She's the managing director of total rewards in HRIS at Top 10 Firm Grant Thornton. Lou Ann, thanks for coming — thanks for joining us again, I should say, as you've been on the, on the podcast before, but thanks for joining us today.
Lou Ann Hutchison: (
Yeah. Thank you, Dan. I really appreciate you having me back and I'm excited to talk about this topic.
Dan Hood: (
It's an exciting thing, I have to say. It's what we're gonna be talking about today is a thing you guys have come up with called the lifestyle spending account. I first heard about it on a webinar you were on with us and the audience was really fascinated by this whole program. So I wanted to have you on to talk about it — what is a lifestyle spending account?
Lou Ann Hutchison: (
Yeah. The lifestyle account, some people may have heard of it as life planning accounts. There are accounts that provide a way to offer benefits to meet individual needs in a really economical manner. Um, that said they allow, uh, our firm to meet our people where they are and support them through different stages in their life. Um, we came up with this through listening to our employees. So we did surveys, um, whether it was through BRGs employee surveys, really getting feedback, listening to what are the types of things that we're not offering today that our employee base would really, really be interested in from a benefit standpoint. Right? And as you might imagine, for every individual, there was a unique, uh, need that they would come up with. So we looked at this robust list of needs and said, wow, you know, wish we could do it all, but how do you do it all without going broke, um, and comes the lifestyle spending account. So by setting up this account, we're able to provide money and funds to individuals so they can use how they need to in the way that meets their needs. Um, but being able to support different people's needs based on where they're in life.
Dan Hood: (
Excellent. And this is, I mean, I, it, it, it, one of the phrases you hear or hear somewhat a lot is the sort of one size fits one, right. This really lets you sort of, uh, uh, personalize the, the, the benefit to, or let's, let's the employee personalize the benefit to themselves. Um, maybe talk a little bit to dive a little bit more about how it, uh, how it works, you know, how much is in the accounts, how to staff access them, all those sorts of juicy details about the, the, the actual day to day of it.
Lou Ann Hutchison: (
Yeah. And, and this is where the rubber really meets the road. And I think what people are most interested in. So at grant Thornton, our lifestyle accounts cover predefined eligible benefits, um, in certain categories. So we've got categories like physical fitness, financial fitness, emotional fitness giving to others. So charitable gifts are types of things that can be reimbursed through the lifestyle account gotcha experiences, or once in a lifetime type of, uh, events, um, other family or life events like weddings or nanny fees can be built in these accounts, um, other dependent type of events. So you really, as the employer get to based on what you're hearing from your population, which one or many of these types of categories you want to provide funding for, and then within each category, are there specific things that you would allow reimbursement or not allow reimbursement for a great example of some of the types of categories we have, I under physical fitness, for example, include health club reimbursements.
Lou Ann Hutchison: (
You wanna hire a personal trainer, you can use the money to pay for your personal trainer purchase, wearable devices, sporting equipment, um, it's, it's up to you. So we've got these categories of eligible expense. I mentioned charitable giving, and as, as another one that's really unique and some people are really into philanthropy and want to, uh, pay it back to others and they can do that through this lifestyle account. Right. So when you are determining as an employer, you, you mentioned like how much money goes in there. Uh, it's up to you. So, so as an employer, um, you look at your total benefits package and any of us that work in this space, we're balancing, um, the funding for benefits as part of your total compensation package edge with the affordability for your organization. Um, so you don't wanna put so much money in that.
Lou Ann Hutchison: (
You are bringing margins down, et cetera. You have to be really thoughtful about what your affordability ratios are. You also need to, uh, determine your eligible population. So you could funding by narrowing the population and giving more money, or in that same dollar pool, you can broaden the eligible population, but then each individual might get a little bit less. So these are different levers from a design standpoint when you're thinking about how you as an employer create and set up your account, that you can think through and really fit what best meets your business strategy. Uh, I think we're all Uber focused on retention right now. So what best fits your business strategy, um, and your total reward strategy in the overall design of these accounts? Um, another thing that I'll mention, and I remember this question coming up, uh, in the, in one of the webcasts, uh, people were understanding or asking about taxability and again, not giving tax advice here consult your, your tax professionals, but these accounts, you do have the option to set them up, um, under your 1 25 cafeteria plan.
Lou Ann Hutchison: (
We did not do that at grant Thornton, just, just to be clear, but you can set up under your 1 25 cafeteria plan. If you do that, then some of the reimbursement options might be tax-free. Um, not all of 'em. So something like charitable, giving's not gonna be tax-free under a 1 25 plan, but there might be other things like, um, health reimbursements, if you're tying it into the lifestyle, uh, initiatives that you might be able to structure the design like that our goal was let's keep it simple. This is our first year doing it. Um, so we did not put it under our 1 25 plan. We have this as a separate offering. So the benefits when people do, uh, reimburse, they are taxed on that benefit, but you're still getting something for pennies on the dollar.
Dan Hood: (
Sure, sure. Well, let me ask you a couple quick questions, cuz uh, I mean it's a, it is a really interesting program, but like you said, a lot of the details are, are, are really fascinating. One thing I wanna ask you about is, um, obviously you mentioned there's the, uh, a set of categories that you guys have established, um, you know, areas where you reimburse things. Um, how do people like, can people come to you and say, Hey, can we do this? Can they add thing or have you added things because employees are like, Hey, can this be part of the benefit? You know, is this scenario you'd reimburse me on? Is that, uh, or is it pretty much the categories are set? That's what it is. Um, or can they, can you add and expand that as you go?
Lou Ann Hutchison: (
Yeah. These, these accounts, I would say are a lot more flexible than what you might think about in a flexible spending account, a medical flexible spending account, you know, on those medical flex accounts, the IRS defines what the eligible expenses are. Um, since this is not tied to the cafeteria plan, right? We've got a lot more flexibility in terms of what we reimburse. Now, what I will say is once the account established for the year, you don't necessarily wanna make changes during the year. So the, the reimbursements are defined for that year. But when we were looking at the, uh, looking at setting up the account, we did have an ask come up during the fall, before we had had finalized the design, where through one of our BGS, there is an interest in whether the firm would be able to provide some level of funding for able accounts.
Lou Ann Hutchison: (
Now, for your listeners who might not be familiar with able accounts, those are accounts that operate very similar to 5 29 accounts. So an individual can set them up for themselves or for somebody else, family member, uh, close friend to fund and provide money for individuals with disabilities. So great option again, those accounts, um, not a lot of familiarity with them. When we heard that ask, we, we immediately said, wow, that is exactly the kind of thing we can do right in our lifestyle spending account. So let's add able account funding in there. We, we already had 5 29 plan funding. Let's add able account funding to the list of things that will be eligible for expenses. So we were immediately able to pivot and, and respond to that ask.
Dan Hood: (
But I, that makes sense that you wouldn't sort of change it on a, on a, on a daily basis. But I mean, for instance say, and I don't know if this is part of it, but let's assume it isn't and someone came up and said, Hey, can we add pet insurance, uh, to this? And you said, yeah, pet insurance is interesting idea. You wouldn't change it. Like I said on, you know, tomorrow, but is, it's a kind of thing, like maybe on an annual basis, you can say, oh, people as asked about these six different things let's consider them for next year. Is that, uh, potential, uh, way of operating?
Lou Ann Hutchison: (
Absolutely. And, and those are the types of things that we're gonna plan on doing. Um, we've already began to look at the metrics now, again, we're only six weeks in seven, seven weeks in because this went live on January one, but we've already been looking at how are people using the accounts now? What are the types of things they're reimbursing for? What might they not be and are, are we hearing, uh, other requests? So we're gonna be monitoring throughout the year and identifying, um, maybe things to add and are there things that we have in there that maybe are not of interest.
Dan Hood: (
Right. Right. Well, and now that, well, that's an interesting question, right? Does it, I mean, is it the kind of thing where if people really aren't picking up on one thing, whatever it might be, I can't think of a good example cuz all the ones I can think of are things that I'd want in there, but say like you said, there's something nobody's picking up. Is there a reason to, to call offerings like that? So people know who's picking up, so we're not gonna offer anymore or would you just leave it there in case someone 10 years down the road says, oh yeah. I'd like that.
Lou Ann Hutchison: (
Yeah. It probably that the answer to that is going to depend on how big the list or the inventory of reimbursement option gets. You know, at some point a list can get so large that right. Its cumbersome and people can't find what they're looking for. Um, but you're right, Dan, if there's something, if we're not seeing somebody use it this year, just maybe nobody's had that need this year. So leave it in there or list is not too overwhelmed yet. Um, not a reason to call. So whether you call something or don't call, it will probably be based on how large PHIS grows over time.
Dan Hood: (
Right. That makes sense. Yeah. If it's it's 5,000 pages long, uh, people aren't gonna be able to find the benefits they want. Um, and yeah, you mentioned, I think reimbursement is that, is it generally done where the employee puts out and then they can get reimbursed for it? Is that how it works?
Lou Ann Hutchison: (
Yeah. So the, the reimbursement process works just like the process for your medical FSA accounts or your dependent care accounts with think. Everybody's very familiar with those. You get your receipt for what you purchased. Um, now we are working with a vendor that has, uh, mobile enabled, um, technology. They snap a picture of their receipt. They submit it into their account and then the receipt gets evaluated. Yep. It's for something on the list. And then the individual gets reimbursed through that channel. So the, the reimbursement, it can either be on their debit card that they already have from that vendor. Right. Um, there might be a check that gets mailed of, you know, some people still like that, that method of getting cash. Right. But the reimbursement process, just like the process you're already familiar with with FSA independent care accounts.
Dan Hood: (
Gotcha. Excellent. Um, and is there, are there, and I know it's just started and I wanna dive a little bit more into the, the reaction so far or the results so far. I know it's fairly, uh, soon, but, uh, we'll do that. We're gonna take a quick break. Um, when we come back, we'll talk a little bit more about that. And we're back with Luann Hutchson of grand Thornton. We're talking about lifestyle spending accounts, this a cool new, uh, uh, benefit or way of distributing benefits. You can look at it in a couple of different ways. Um, uh, you mentioned that it just started at the beginning of the year, so I know it's relatively new, but do you have a sense of the response, how people feel about it?
Lou Ann Hutchison: (
Yeah, we've been monitoring the activity and the so far, um, from January through last week. So I got some data on that. And when you think about the funding mechanism, so let me talk about that briefly before I answer your question, Dan, because the amount of money that's in an individual's account and what they can see in their balance throughout the year will depend on how you, as an employer decide to fund, you can either fund the money all upfront at the beginning of the year, or you can put it put in the money on a per pay period basis. We chose to go the per pay period route because that's the same type of funding mechanism we do with our other flexible spending accounts. Gotcha. Um, but individuals can submit expenses greater than the balance that has a key so far, and then they will get also per pay period, um, payments up until they hit either what they submitted the expense for, or the cap that they're allowed in that given year. Um, so we do have several individuals that have already taken advantage and submitted expense is 58% of our reimbursements in the first seven month. Uh, excuse me, seven weeks has been fitness related. Ah, okay. So we're seeing anything from sports equipment, gym, memberships, trainers, things like that. So that clearly is the hot interest. Um, immediately don't know if that's everybody's January new year's
Dan Hood: (
Resolution. I was just gonna say, this is clearly, this is, uh, this is the first six weeks of the year it's everyone's after, uh, January 1st.
Lou Ann Hutchison: (
Yeah. Um, and then about 17% are related to home office equipment. Now, when you look at what we have available for home office equipment, you, you know, printers or tos, um, desk, you know, rising desks, correct. Things like that. Um, things that we individuals might be investing in themselves to make their work from home environment even better, right. Uh, about 10% are on excursions. So skiing trips, we saw a lot of ski trips in this, um, initial reimbursement. Again makes sense. Based on the time of year, um, 7% are education related. Uh, most of that coming in the form of student loan repayments, but some, we did see a 5 29 funding in there and, and there was one activity, you know, the rest is other miscellaneous stuff, but I did see charitable donations was in there. So somebody was already using the account to, to support charitable giving, which I thought was just awesome. Um, we also saw some things like life coaching, massages, math, financial planning, and even some pet services.
Dan Hood: (
Very cool. So it sounds like people are really, uh, uh, I mean that gives us a sense of the, the broad spectrum of things that are available in it. And it also sounds like people are, are taking advantage of all of those.
Lou Ann Hutchison: (
Yeah, absolutely. It's really exciting. And, and I can't wait to monitor the trends throughout the year too.
Dan Hood: (
Yeah. Yeah. Very cool. Uh, but, but it bring up a question you're talking about, uh, being able to, to, to put in receipts for things before the money has accumulated, uh, is it also a possibility I I'm making this cap up cause I don't know what it is, but say you put, you know, the, for, or the total they're gonna get $3,000 for the year they could in theory, put in an expense that was $4,000, but they'll only get reimbursed the three, you could do a partial reimbursement like that. Is that absolutely.
Lou Ann Hutchison: (
Okay. Yeah, absolutely.
Dan Hood: (
So if I bought a really fancy bicycle, uh, that happened to be more than the total that was gonna go in the account. I still could still get the amount in the account for it. I would just be on the hook for the extra amount of above that.
Lou Ann Hutchison: (
Yeah, that's right. Yeah. So it really gives that personal choice where you can make the decision, um, and you might invest even more in something than you otherwise would because you've got some supplemental, um, funding to support that interest.
Dan Hood: (
Right. Right. It sort of subsidizes if it, if it doesn't fully pay for it, it may, uh, it subsidizes it to a great degree. And, and this brings up the, the sort of point that I talked about earlier. You just brought it up again, is this sort of this trend towards a sort of one size fits one, uh, personalization, uh, idea. We're seem to be seeing this a lot more in, in the benefit space.
Lou Ann Hutchison: (
Yeah. You are. And even at grant Thornton, you know, we fully believe that employers need to meet people where they are in their lives and careers, and that the benefits that employers often need to address areas that individuals need when they need it. So you're absolutely right. This, this one size fits all approach doesn't really work anymore. And when you're focused on retaining individuals through different demographics and different stages in life, you have to be more flexible as an employer. Um, one of the things in shifting through life journey, this type of lifestyle spending account in my opinion, is gonna be the wave of the future. Um, this is a way as, as I said, at the beginning of the, the podcast in an economical way to provide flexibility in your benefits without having to administer or 20,000 different benefit offerings.
Dan Hood: (
Well, speaking, actually that brings a quick question. I should have brought up, uh, in terms of administration, did you, uh, did grant Thornton build, uh, this, this system themselves or, or did, is there, are there providers that can do this for people?
Lou Ann Hutchison: (
Yeah. There, there are actually a lot of providers at, out in the marketplace that can help administer these accounts for employers. Uh, we've leveraged the same vendor that we use who administer our medical, uh, flexible spending accounts or commuter account and our dependent care account. So we had all of that with a single vendor and reached out to them and said, Hey, can you do this lifestyle account option as well? They were actually when we talked to them in the fall, just in the process of implementing it because they were starting to hear about it from a few of their, uh, their customers. So this, this type of account is fairly new in the marketplace, but it is so that a lot of vendors, um, are out there and can help you administer. So if you've already got those relationships in place, awesome, you're likely gonna be able to leverage your vendor to support the administration if you don't have those types of vendors in place. And I know a lot of the accounting firms, you know, they may be smaller in size and they may do some of this type of administer themselves for their flex accounts, um, and dependent accounts. So they could administer themselves if they're doing that as well. It really depends on the size of your organization, number of employees on whether you wanna take that on internally or look for an external partner,
Dan Hood: (
Right. So there's help available if they want to. Uh, they might also look at doing themselves. It's a very cool idea. I'm, uh, we're gonna have to have you back in, uh, at the end of the year, you can tell us all about the trends in the, uh, uh, in spending in these accounts over the course of the year. Cause it is, it'll be fascinating to see how, uh, how people use it. Particularly once we get past the, uh, once everyone's new year's resolutions, uh, you know, die that
Lou Ann Hutchison: (
Yeah, we'll see what else they
Dan Hood: (
Use it for. We'll see what they're really gonna use it for over the course of the year. It'll be that it'd be fascinating. I's a fascinating insight into, into what really matters to, to your team. Right? You get a sense of, they really care about, and that can allow you to, to, to sharpen your benefits offerings in a lot of other ways, boost, retention, that's all that sort of stuff. It's a, it's a really neat idea.
Lou Ann Hutchison: (
Yeah. Thank you, Dan. And I really, I would look forward to coming back and talking more about this and what we're seeing in our trends and whether they're to your point, are there other things that we're gonna be doing in our broader benefit offerings to really zone in on areas that are of height in trust in our employee base? Right.
Dan Hood: (
Very cool. Excellent. All right. Lou Ann, Hutchison, grand Thornton. Thank you so much for joining us.
Lou Ann Hutchison: (
Thank you.
Dan Hood: (
And thank you all for listening. This episode on the air was produced by accounting today with audio production by Kellie Malone. Great to review us on your favorite podcast platform and see the rest of our content on accounting today. Dot com. Thanks again to our guests. Thank you for listening.