Individual Accounts

[Nassau]

My client would like some help and asked if I know where exactly it says that 401(k) accounts are established under an individual's name and not as a joint account. They are looking for the specific IRC and/or Treas. Reg Section. Can someone tell me where I can find guidance on this matter (i.e., the actual Code or Regulations)

[ESOP Guy]

Maybe I am not understanding your question, but here goes the answer to the question I think you are asking:

But from a legal perspective the participant doesn’t own the account in a 401(k) plan, or any other Qualified Plan. To me this isn’t about the Code, it is about the legal form of the plan. All the assets are owned by a trust. There is both a trust document that describes the trust’s operation, and a plan document that describes the plan’s operation. Often times the plan and trust document are written as one document.

Obviously, the two documents follow the rules set out in the Code. But it is the documents that define what is going to happen.

A participant obviously has an interest in his account, he has rights under both the plan and trust document, but that person doesn’t own in the legal sense anything.

The reality is no 401(k) document is going to give a joint interest in a benefit; the company is only interested in giving an interest to their employee. The only rights a spouse is going to have are found in the rules about beneficiaries, QDROs etc.

I hope that helps.

[masteff]

I didn't even think about joint as in marital.... I was thinking pooled.

If it's a marital asset question, then the answer is that a couple is still two separate taxpayers and the tax deferral benefits are accorded on a taxpayer basis and not a couple basis. (Section 402 jumps to mind as referring to "the distributee" and "the individual". And 401(k) refers to "the employee" several times.)

If by joint, you really mean why can't all the company's 401(k) money go into one single account, the answer is that can be done, it's referred to as a pooled 401(k).

[ESOP Guy]

I saw joint and thought joint checking account.

[Nassau]

The answer to the question is - an employee accrues a benefit in a defined contribution plan by accumulating an account balance. IRC §414(i) defines a defined contribution plan as a plan which provides for an individual account for each participant and which pays benefits based solely on the value of that account. The account balance will reflect contributions, forfeitures, and investment earnings and losses allocated to the account during the employee's period of participation.

[rcline46]

Maybe that reference satisfies the client. However the account could be an FBO account. More likely it is a 'memo' account. That is all of the trust assets are held in the trustee's name, and some record keeper keeps track of the individual participant's portion of that account. The individual does not hold title to any asset (and neither do they in an FBO account!).

In fact, unless an individual actually has possession of an asset, nothing is in their name - not in a brokerage account, checking account, savings account, or anything else. Which leads back to - just what is your client asking? There seems to be a disconnect in understanding even the most fundamental concept of an account.