When does a vactaion or sick day policy cross the line from a "payroll practice" to a welfare plan? Is it based strictly on whether benefits are paid from the employer's general assets, or will the complexity of the policy come into play?

It is my understanding that the method of payment is the determining factor when the question comes up. When an employer pays benefits (vacation or sick pay) from general assets they have not created an ERISA plan. See ERISA reg 2510.3-1 for more.

Janet:
You are correct that paying out of general assets is one indicator, although an employer who has a self-funded arrangement for health benefits, in which expenses are paid out of general assets does have an ERISA plan.

A good description of how the courts see this can be found in the Supreme Court decision, Fort Halifax v. Coyne, 482 U.S. 1 (1987).
In this case, a Maine statute required employers, in the event of a plant closing, to provide a one-time severance payment to employees not covered by a contract providing for severance pay.
Congress was concerned with "respect to benefits whose provision by nature requires an ongoing administrative program to meet the employer's obligation. It is for this reason that Congress preempted state laws relating to plans, rather than simply to benefits.
The Maine statute neither establishes, nor requires an employer to maintain, an employee benefit plan.
The requirement of a one-time, lump-sum payment triggered by a single event requires no administrative scheme to meet the employer's obligation.
The obligation imposed by the Maine statute thus differs radically in impact from a requirement that an employer pay ongoing benefits on a continuous basis."
Don Levit

Don, I understand how self funded H&W plans are ERISA plans and not payroll practices.

OP asked about vacation/sick policies. Those are usually based on the method of funding.

Janet:
I don't think it is the method of funding, as it is the method of payout. Vacation and sick policies are subject to ERISA. However, if the payout is considered a payroll practice, raher than a plan, then the "plan" is not subject to ERISA, for it does not meet the definition of an administrative scheme, or "plan," I provided earlier.
A payroll practice, is more along the lines of a one-time payment, or even a series of payments in which the duties are more clerical as opposed to fiduciary in nature.
Don Levit