Age-Banded ICHRA Allowances (1:3 Ratio Rule)
Age-Banded ICHRA Allowances permit employers to vary health reimbursement by age, capped strictly at a 3:1 ratio between the oldest and youngest.
Age-Banded ICHRA Allowances: Navigating the 1:3 Maximum Ratio Rule
Age-Banded ICHRA Allowances are defined contribution structures where employers provide higher monthly reimbursement allowances to older employees to account for higher individual health insurance premium rates.
The 1:3 Statutory Ratio Limitation
Under 26 CFR § 54.9802-4(c)(3), an employer may vary ICHRA allowances based on employee age, subject to a strict statutory ceiling: the maximum allowance offered to the oldest employee in a class cannot exceed 3 times (3:1 or 300%) the allowance offered to the youngest employee in that same class.
Example: Compliant vs. Non-Compliant Allowance Scales
| Age Tier | Compliant Structure (1:3 Ratio) | Non-Compliant Structure |
|---|---|---|
| Youngest Employee (Age 21) | $250 / month | $150 / month |
| Mid-Career (Age 40) | $450 / month | $400 / month |
| Oldest Employee (Age 64) | $750 / month (Exactly 3x) | $800 / month (5.33x — VIOLATION) |
SimplyHRA includes automated allowance modeling calculators that prevent non-compliant scale configurations and verify age ratios across every active employee class.
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