Sixty million Americans face retirement over the next two decades, yet few have prepared for the financial realities of the twilight years. According to the American Savings Education Council, the life expectancy of Americans at birth in 2001 was a record high of 77.2 years. In addition, according to The 14th Retirement Confidence Survey 2004, very few workers have a firm financial grasp on retirement needs. Only about 4 in 10 have been taking steps to calculate how much they need to save to live comfortably by the time they retire, and one third of those say they don't know or can't remember the result of the calculations.

Even worse, due to recent market downturns, many with investments saw dramatic decreases in the size of their nest egg. Social Security is in disarray and it's clear - individuals need to do more to take control of their financial future. How can employees improve their chances of having enough gold for their golden years? How and why should an employer help them with retirement planning?

What is an employee to do?

The average employee has four options for retirement investment planning. They can engage a financial planner, go to a brokerage firm, go it alone, or get help through their employer's 401(k) plan.

Engaging a financial planner can provide useful and timely advice for future retirees. This option usually requires an investment of time on the part of the planner with the client to understand the goals of the client and the current status of existing retirement accounts. If the employee can find a financial planner that works within their asset range, the cost associated with the building of a financial plan can run $1,000 - $2,000 (over and above the cost of the commissions) just for the initial plan. That doesn't include financial tune-ups which should happen several times a year. As an alternative to this cost, the financial planner might offer the client mutual funds for which they receive a commission.

Brokerage firms can't always service individual investors with small account balances. Many have account minimums of $200,000-$250,000 before they will advise the employee. In many cases they may represent only certain fund companies, limiting the breadth of solutions available to the client.

Those that go it alone can find general educational materials and guidance to help them make intelligent and productive investment decisions. But it takes a high level of knowledge and investment of time to ensure proper investment for maximum retirement results.

Many investors depend on the employer's 401(k) plan for guidance. In 2001, there were more than 700,000 private sector defined contribution plans (mainly 401(k)s) with 57 million people investing in those plans, according to Vanguard Group's How America Saves 2002 Survey. Employees look to their employers as a trusted source for retirement advice and consider it a major employee benefit.

The employer's role

Over the last several years a number of studies have been published that show a direct relationship between quality HR practices and strong corporate financial performance. These studies indicate that companies with good HR practices excel in such specific indices as return on investment (ROI), return on assets employed (ROA), sales per employee, and retention.

Good HR practices include providing the employee with a tax-deferred means to save for their retirement. Especially since the costs of their implementing them have declined, 401(k) plans have become a staple in the benefits basket provided by many companies, small and large. But companies that provide 401(k) plans also have a fiduciary responsibility to their employees as defined in the Employee Retirement Income Security Act of 1974 (ERISA). Employers are required to follow a prudent approach to selecting and monitoring investments that go into a plan, ensuring they offer the best funds to their employees. And while they are required to provide information to employees, they are legally prohibited from providing specific investment advice.

More and more employers are recognizing their role in retirement planning, especially since it may help to define a quality HR practice, just as the availability of the 401(k) did in the 1970's. According to the Society of Human Resource Management’s 2004 Benefits Survey Report, 35 percent of companies provide some form of retirement planning as a benefit. Most frequently the advice is very general, such as describing basic asset allocations or providing simple retirement calculators. While the demand for greater and more specific advice grows, other changes are taking place that provide greater sophistication for the average employee. The Internet and declining cost of technology have combined to provide solutions that can now be delivered at low costs to larger numbers of employees, once only available to high-net-worth investors.

Web-based retirement planning, supported by active call center support, has become a reality. These solutions go beyond just the 401(k) component and can now include an employee's other resources (e.g., Social Security, IRAs, and their spouse's retirement assets). The ability to have a more encompassing plan provides much greater perspective than was available before or was available through relatively expensive personal financial counselors. These solutions can greatly reduce the employer's ERISA-required fiduciary responsibilities for retirement issues if the advice offered comes from an independent source.

The solution

Unlike employers in other countries, US companies have been saddled with the responsibility (and the attendant liabilities) for providing many critical employee benefits. Despite this, it is not unreasonable to expect employees to take responsibility for their financial future. The ability to do so can be very much enhanced by the employers' willingness and ability to provide their workers with a cost-effective solution. The solution is adding a significant benefit at low cost and to have it become a recognized addition to quality HR practices while at the same time reducing potential current and future liabilities.

To do this, employers should provide independent retirement advice that goes beyond simple online tools and calculators. Employees need a comprehensive, yet easy-to-use, independent solution that enables them to look at their portfolio as a whole and enables them to update their investment plan on a regular basis as markets move and change. Solutions are available and this is a great time for employers and employees to work together and address this very important need.

[Ed. Note: This article was previously published in slightly different form on NEHRA.com.]

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Sunil Bhatia is President and CEO of LTSave, an investment advisory company focused on retirement planning. He is also a NEHRA member and can be reached at .