NQDC Participants Excluded from 401(k)

[CTipper]

I finally have an opportunity where I might be able to do a NQDC design for a prospective client.

The prospect has many employees and essentially no one, other than the HCEs, is deferring. They like the idea of restricting eligibility in the 401k plan to only NHCEs and opening up a NQDC for the HCEs.

I found the audit guidelines on the IRS website and it points to a section in 401(k) that states that eligibility can't be limited to participants who elect not to participate in the 401k.

If I read this literally this doesn't apply to my situation. These participants are not being allowed to opt out of the 401k plan. If they're an HCE, they're excluded from the 401k plan.

Am I reading this right?

Thanks