The 401(k) used to be a tool for executives interested in saving for their retirement, allowing them to salt away as much as $30,000 a year, tax deferred. That's partly why Wargo & Co. set one up in 1983. Designed as a profit-sharing program for all employees, the 401(k) also served as a mechanism by which they could make additional pretax contributions on their own. "We viewed it as an excellent way to satisfy the needs of both the owners and the employees," explains James Peters, 37, cofounder and president of the $2-million human-resources consulting firm, which is located in Waukesha, Wis.

And it worked. In the first four years of the plan, most of Wargo's 30 employees contributed their own money to the 401(k) plan. The company matched annual employee contributions by an amount as high as 10% of a person's base salary, and allowed participants to borrow against their accounts. The executives, in particular, took advantage of the plan, four of them each investing well over $7,000 a year. And two of the top people, notes Peters, have been putting in around $18,000.

Now the rules have been changed, placing a cap of $7,000 on annual personal contributions and reducing the appeal of the 401(k) as an investment vehicle for better-paid employees. "There's no question that capital accumulation will be a lot tougher," says Peters. While he does not intend to terminate the 401(k), he has recently started working with attorneys and consultants to develop an additional plan, which he considers essential for attracting and retaining talented people.

Peters says it's too early to say for sure what the new program will encompass, although one of the options under consideration is equity participation. In any event, the plan will probably be open to the entire staff. "Our success," he says, "is a function of the quality of our people. They're smart, they're motivated, they're entrepreneurial, and they want to participate in the growth of the business. If we don't recognize that, we'll lose them."