Pat and Tracy's advertising agency is a regular C-corporation which employs 10 additional individuals. Several years ago, they established a traditional 401(k) plan so they and their employees could share in saving for their retirement. The plan permits elective salary deferrals and provides a matching employer contribution of 100% of the first 3% of salary deferred.

The employees range in age from 22 to 52 and earn between $15,000 and $50,000 annually. Pat and Tracy are in their mid-50's and earn $225,000 and $150,000 respectively. Pat and Tracy know that the maximum permitted salary deferral is $20,500 but they have not been able to put away that much because of the level of employee participation in the 401(k) plan. The employees are deferring an average of 3.25% of salary limiting the owners' salary deferrals to only 5.25% of salary.