The unusual name of this type of retirement plan comes from the section of the tax code that established it. Specifically, section 401, subsection k.

The Revenue Act of 1978 inserted some new codes to deal with the tax requirements for profit-sharing programs. Section 401(k) was a provision that permitted employees to avoid taxes on some of their income, as long as they chose to receive the money at a later time. Instead of direct pay, it would be considered deferred compensation, and as such, would not be taxable.