Financial Intel Monthly

Below-Market Executive Loans

Aug 23, 2011 10:12:50 AM / by The Retirement Group (800) 900-5867

                                                            Below-Market Executive Loans


Below-market executive loans are loans a nonpublicly held company makes available to its executives as a supplement to their regular compensation (publicly held companies are prohibited from making loans to executive officers and directors under the Sarbanes-Oxley Act of 2002). Typically, such loans are interest free or made at a favorable interest rate--i.e., below the applicable federal rate (AFR).


  • Business wants to attract, motivate, and retain key employees
  • These loans are restricted to specific employees

Key Strengths

  • Helps business attract, motivate, and retain key employees
  • Avoids cumbersome Employee Retirement Income Security Act (ERISA) requirements and provides flexibility
  • Provides financial benefits to executives
  • Some of these loans are exempt from the imputed interest rules

Key Tradeoffs 

  • Tax rules for these loans are complex
  • Tax treatment may be unfavorable to employee
  • Employer must bear administrative costs and risk of default

Variations from State to State 

  • There may be some state variation
  • Consult the laws of your state

How Difficult Is It to Implement? 

  • Consult an attorney to set up the program
  • Consult a certified public accountant to help set up the program

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by,,,,, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at

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