The basic benefits of 401(k) plans are not being fully understood or utilized by plan participants, according to an MFS Investment Management survey.

Plan participants struggle to make sense of complicated investment menus, with 74 percent of participants saying that having a little bit invested in each option of a 401(k) plan is the best way to diversify. Fifty-two percent were not aware of the tax impact that a $100 contribution would have on their take-home pay. And 46 percent believe that money saved in a retirement plan is a good source of funding for paying off debt or saving for college.

Investors often contribute just enough to receive the employer match, says MFS. Twenty-three percent of respondents believe that there is no additional benefit to contributing more.

Many investors do not have a clear understanding of target date funds and index funds, the survey revealed. Only 18 percent of participants believe that investing in target date funds is the ideal way to diversify a 401(k) account. Sixty-five percent incorrectly believe index funds are safer than the overall stock market, and 49 percent believe index funds have better returns than the stock market.

The survey also highlights options that participants don't necessarily value, such as 401(k) loans. Only 4 percent of those polled said they would not participate in their 401(k) plan if their employer did not allow them to take a loan.

"Often, retirement plans leave too many decisions up to participants, many of whom are ill-equipped to make well-informed decisions," said Ravi Venkataraman, global head of consultant relations and defined contribution at MFS. "Plan sponsors have a number of tools at their disposal that can help participants better invest for retirement. Creating simplified investment menus, implementing auto-enrollment and auto-escalation contribution plans and offering professionally managed, diversified investment options will give participants the greatest chance of successfully investing for retirement."

Research Collaborative conducted the online survey of 1,000 defined contribution plan participants in the U.S. between the ages of 20 and 69 in February.  All survey participants were employed and had at least $1,000 in a plan with their current employer.