Never mind. I figured it out (the main question that is). Seems almost all web sites kept talking about setting a bookmark. Way too hard. This way is easier.
Start with:
(text) Step 1 – Do this first

First, replace the "1" with {SEQ step}

At the end of the line, insert { TC “Step {SEQ \c step} – Do this first” \l 2}

the \c switch repeats the previous SEQ number (keeps it from incrementing again)
the \2 sets the TC to a second level entry in the TOC