Ever since the recession began, everyone from media outlets to industry gurus have deemed 401(k) a failure.

When the stock market plunged in 2007 and 2008, it took many American's retirement savings that had been tucked away in employee-sponsored plans down with it—and the effectiveness of the long revered retirement savings vehicle came into question.

One recent study, however, is directly disputing that argument.

The 11th Annual Transamerica Retirement Study, which surveyed 3,598 full- and part-time for-profit workers between Dec. 3, 2009 and Jan. 18, 2010, shows that not only do 401(k) plans help Americans save for retirement, they also increase plan participants’ knowledge regarding retirement saving.

For instance, 71% of the survey respondents say they have access to a 401(k) or other employee-sponsored plan at work, of which 77% currently contribute to the plan. They begin saving at a median age of 28. Forty-one percent have saved more than $50,000 for retirement so far, 29% have saved more than $100,000.

Nearly 30% of survey participants, meanwhile, said they were not offered a plan at work; of those, only 22% have saved more than $50,000 for retirement and just 16% have saved more than $100,000. The median age to begin saving for retirement for this group was 30. Nearly half of private sector workers—or roughly 54 million workers—don’t currently have access to a retirement plan at work, according to Transamerica.

“If [401(k)s are] drawing 77% participation rate, there’s something right going on here,” says Catherine Collinson, president of the Transamerica Center for Retirement Research.

“The plans offer convenience of payroll deduction, a range of investment options that may not be available to them—especially new investors—because of account minimum requirements and education. Those are three very compelling reasons to save with 401(k) plans.”

But having an employee-sponsored retirement plan benefits Americans in ways beyond these plans, as well.

According to the report, for example, 66% of those with access to a plan also save for retirement outside of the plan, as compared with only 57% of those without access to a plan. That means, of course, that more than 40% of those who are not saving with a plan at work aren’t doing so with another type of retirement savings vehicle either.

Those with access to a plan are also more likely to have a retirement planning strategy —61% of workers with a plan, compared with 40% of those without one. There is room for improvement in both categories however, Collinson insists, since nearly no participants (9% of those with a plan, 5% of those without a plan) have actually written the plan down somewhere. Even more frightening, 39% of those with a plan and 60% of those without one have no retirement strategy at all.

Participants in 401(k) plans are clearly more educated about retirement, as well. Workers without a plan are more than twice as likely as workers with a plan to state “not sure” when asked how their retirement savings is invested. Those with a plan, meanwhile, are more likely to be currently managing and monitoring their accounts and actively be thinking about saving for retirement.
They’re more knowledgeable, too.

According to the study, education regarding asset allocation principles, catch-up contributions and the saver's credit rises with an individual’s plan participation rate. Plan participants are even more realistic—both about the amount they will need to live comfortably in retirement and the age they will retire at.

But even with all this success, Collinson admits that America has a long way to go in its preparedness for retirement. The 401(k) plans is by no means a silver bullet.

For instance, those with a plan estimate they will need a median of $800,000 to live comfortably in retirement, as compared to the $500,000 those without a plan estimated. While $800,000 is certainly a more realistic number, Collinson points out that most Americans will need far more than either of these amounts.

The report did not break these estimates out by household income, a factor that is sure to affect the numbers as those with higher incomes will likely estimate needing more for retirement.
“In the last of couple years, clearly the risks of 401(k) investing were revealed,” Collinson says. “I wouldn’t call 401(k) plans a failure, but I think we’ve learned there’s still opportunity for improvement in enhancing 401(k) plans, as well as the participation rates. Part of it is education and gaining a better understanding of asset allocation and risk profiles and fee disclosure and workers’ understanding of fees. Since fee disclosure became a very hot topic a few years ago, the industry has moved aggressively—even without new regulation—to do a much better job to disclose fees. However, regardless , awareness still remains very low among workers. It’s important for workers, if they’re not aware of the fees being charged to their account. that they ask so they can make informed decisions.”