On 2G Bandit 1200s there is a four wire connector to the gearshift switch under the left hand sprocket cover. One wire is ground (Black/White), one of for the neutral light (Blue) and it is grounded by the switch when in neutral. The other two (Red/Black and Green/Black) are used to tell the ignition module which gear you're in. I don't know which of these is grounded in which gear, but you could easily find out with an ohmmeter. With the transmission in each gear measure from each of the colored wires with a black stripe to see which is grounded in which gear.
On my Kawasaki W650 a similar arangement was used. In fourh and fifth gears none of the wires were grounded, in the lower gears (1st - 2nd - 3rd) there was one which was grounded.
I'm pretty sure this ground acts to inform the ignition module what advance curve to use with a default curve used when none of the wires are grounded. I doubt it's a simple retard. rather it determines the "shape" of the advance curve to provide clean running and minimum emissions.