It’s no joke when investors quip, “My 401(k) is now a 201(k).”

And it’s no surprise that 60 Minutes recently aired an alarmist piece on the subject.

Amidst all of the hullabaloo about the decline in investors’ 401(k) retirement plans and whether investors will be able to “make up” their losses in time to retire, one point is being ignored.

What the alarmists keep missing is the fact that we are talking about retirement savings accounts. The operative word here is “savings.”

Americans are notorious for their poor savings habits. I dare say that most people would never have saved anything for their retirement if they hadn’t been convinced, cajoled or forced into saving in a 401(k). The fact that their accounts still exist means that at least they have something. Otherwise, who knows where their money would have gone.

Today, the media, the public and Washington regulators are questioning not only the quality of 401(k) plans but also their value as a retirement savings vehicle.

Let’s separate the two. As for the quality of many of the investment options in many a 401(k) plan, yes, a lot of them are horrible and are burdened by lousy managers and high expenses.

No question there. Better oversight by plan administrators, and the plan participants themselves, could go a long way to rectifying that problem.

Let’s be honest. The reason we’re talking about problems in 401(k)s today has much more to do with Mr. Market than with fees.

The market break of 2008 more than overwhelmed all the other issues you can throw at 401(k) plans and their relative merits and faults. Because Congress can’t call Mr. Market in for hearings, other issues come to the fore.

But let’s get back to the 201(k) issue.

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Not All 401(k)s Became 201(k)s

First, anyone who saw the value of their 401(k) decline by 50% and is upset about their ability to retire down the road was obviously invested too aggressively, or in horrible funds, or both.

401(k) savers who were invested primarily in bonds didn’t suffer 50% declines.

Take a look at the chart below.

Vanguard, which acts as record keeper for literally millions of 401(k) participants, says that in 2008…

• About 21% of 401(k) accounts lost more than 30% of their value.
• But 36% of participants had no losses at all, and some had gains.
• The median 401(k) participant that Vanguard tracks lost 14% in 2008.

And the reason…

Allocation, for sure, but also the fact that they were continuing to invest new money in their accounts as the market was headed downhill.

Plus, I believe there’s another issue at work with all the complaints about 401(k)s.

I call it the “high-water mark assumption.” Investors have a pretty bad habit of measuring from the top. When your account hits a high, it’s assumed that this is money you “had,” and as soon as the account drops you have “lost” money.

The fact is that unless you have set a dollar-level goal that matches that high-water mark, and you sell to cash when you hit it, you never really had it to begin with.

Why do investors assume that their accounts will only go up in value? Markets don’t work that way; cash does because tiny increments of income are added each month, but it can’t keep up with inflation, which is why we invest in stocks and bonds in the first place.

Second, I believe that so long as someone continues to hold down a job and continues to save money in their 401(k) retirement plan, they will, over time, have more money for retirement than they do today.

The 401(k) is a great vehicle for forced savings. It behooves investors to separate the issue of the quality of their 401(k) investments and their own asset allocation within that 401(k) from whether 401(k)s are actually good vehicles for saving for retirement.