Retirement. It's a word that saturates the imagination with things like globe trotting, sunlit days on viridian fairways, white sand beaches, densely wooded forests or fly-fishing streams that mirror summer skies. Although everyone holds variations of the American dream, for roughly 40 million individuals with more than $1.5 trillion invested, their personal vision comes wrapped in 401(k) plans.

Unfortunately for many individuals, their efforts at saving may fall significantly short of their target ‹ if they even have a target. Research shows that despite plenty of opportunities to do so, almost a third of American workers aren't setting aside money for retirement at all. On one end of the spectrum, more than 27 percent under the age of 25 don't have knowledge as to their retirement needs. While on the other, over half of those 65 and older still don't know how much they need to preserve their pre-retirement lifestyle.

According to a 2000 Quicken survey (www.plansponsor.com; Jan. 30, 2001) about 30 percent of Americans don't know how much they need for retirement."We see less than 50 percent of participants on track with their 401(k) savings to retire with enough money to enjoy their current lifestyle," says Christopher Prevette, sales and marketing director for J.S. Walker & Company.

The twelve-year-old Matthews-based company develops custom software applications and offers systems consulting with a concentration in the financial services industry. "To aid plan participants in their investment strategies, 401(k) providers commonly offer Internet-based advice engines," Prevette explains. 

"The idea is that employees can log in to the company information, fill out a questionnaire with their investment parameters and the advice engine will tell them what to invest in and how much money to invest."

It's a great tool, the trouble is that studies show that while enjoying the option of Internet statements, when given a choice participants prefer traditional paper mail. Employees often don't take the time to look at their 401(k) plans. They aren't sure what they are looking at when they see the company-provided information on the plan and as a result often ignore it, not taking advantage of the investment education or enrollment meetings or logging onto available web sites.

"We found the issue here is the use of the Internet and how people are responding to it," Prevette continues. "We're not as Internet driven as we'd like to think. Advice engines seem to be a great selling feature for providers and advice engines provide a great service for the participants who use them, but beyond that they are not moving the levers for enrollment and contributions. Very few people opt for investment advice from the Internet."

When First Union began taking a closer look at 401 (k) contributions and advice engines, they found this scenario to be familiar among their clients. "We saw a significant majority of our clients didn't understand when they could retire, what they would need financially and if their current rate of savings would achieve that goal," says Joe Ready, senior vice president and manager of First Union's Benefit Services Group. "We needed something that would get our clients enrolled in 401(k) plans and then increase the rate of contributions to achieve a positive retirement for them."

To address the problem, First Union began partnering with J.S. Walker & Company about two years ago. Walker developed a one-page personal retirement planning report called GAP Analysis that shows clearly where the client will need to be financially at the point of retirement and where they will actually be based on their current 401(k) investment strategy. It highlights the gap between the two and with a few easily understood graphs can provide a clear wake up call.

Creating the report doesn't require any action on the part of the participants. By taking information from the 401(k) provider and from the plan sponsor, the individual's personal information can be plugged into a calculation engine. A report is produced in a form that is easy to understand and sent directly to members in the privacy of their home.
Once the report identifies the gap, it leads the participants through a logical decision process. It shows them where they are currently invested and what their projected rate of return will be. It offers enough information about their investments that they could make some investment decisions on their own. Their human resource person can tell them how much they contribute and their provider can assist them in changing their mix.
On average, after a GAP Analysis delivery for First Union clients, there was a 10 percent increase in contributions and 15 percent increase in enrollment. Activity also increased on their advice engine sites.
"GAP Analysis is a simple but powerful tool-powerful because it usually causes an immediate action," Ready says. "There are all types of sophisticated information and education out there but they fall short of motivating people."

Bradley Dixie Companies in Savannah, Georgia has provided the GAP Analysis report to their employees for the past two years and plans to do so again."GAP Analysis has proven to be effective in heightening our employees' awareness of their financial needs upon retirement," says Paul McMillan, director of administration for Bradley Dixie. "It is simple to read, yet informative and provides all levels of employees a good snapshot of their progress toward achieving their retirement goals."

"We've found that transaction activity with our plan administrator actually increases after receiving these reports. This provides evidence that investment modifications are occurring as a result of the feedback provided. In our opinion, the GAP Analysis provides a good foundation upon which the employee can build a more customized personal financial plan. Our plan administrator also benefits from a stronger relationship with better informed plan participants."

For those inclined to use the Internet, there is the ability to create their own highly personalized web-based GAP Analysis report by combining all their investment information with their 401(k) information.

"It allows the flexibility to change the main assumptions and recalculate, producing a report that offers them a complete and personalized financial picture," Prevette explains.

Participants can make full use of their tax-deferred savings and enjoy the satisfaction of knowing they are securing their future. With more employees participating and contributions increasing, plan sponsors can easily satisfy their ERISA (Employee Retirement Income Security Act requirements for balanced contributions. However, Prevette feels the service they offer clients, extends far beyond retirement plans.

"There are a lot of positive effects when employees get involved and make decisions for themselves. The experience of securing their retirement not only gives them confidence and satisfaction as a participant but also as an employee." "When employees are satisfied with their retirement plan, retention goes way up," Prevette emphasizes.