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IRS doesn't care about leaving a state choice of law provision blank because IRS only regulates the tax law. Every ptype /individual plan I have reviewed designates a state law because sponsor wants a law that it is familiar with, e.g, state of incorporation, which will not disrupt its operations. Most financial institutions designate NY because they know the state laws and they do not have to deal with anti business laws in other states which could cause a conflict. If plan does not designate a state law under a choice of law provision then it runs the risk that a court will select a state law that will be detrimental to the plan sponsor's interest.

Preface: I am not a lawyer, and the following may be entirely wrong. Assuming that we are talking about a corporation, every corporation is incorporated in a particular state. I would expect that every action taken by that corporation would, to the extent not subject to overriding federal rules, be subject to the laws of the state of incorporation. Failure to explicitly specify that state in the plan document is unlikely to affect the relevant jurisdiction to which the plan is subject (to the extent not preempted by federal law). I would not expect that failing to clearly specify in the plan document which state's laws would apply to situations in which federal law's preemptive powers do not apply would be a federal qualification issue. However, it might complicate any litigation issues that may arise with respect to the plan. Wouldn't specifying the applicable state in the plan document foreclose lawsuits attempting to subject the plan to the laws of other states?

I do not work on cafeteria plans, but absent a sufficient change of status, isn't the employee required to continue having amounts withheld from pay through the end of 2015? I agree that closing the account into which they were being put would not change that. Also, are their rules requiring the employee to either use the funds for approved expenses or keep them in an account unavailable for normal personal use? There aren't hardship rules or any other rules that would allow an employee to just take the money back, are there?

This makes no sense. The deducted amounts were sent to a closed account, which means that they were never accepted or credited to the named account (now closed). The money is either still in the employer's Accounts Payable (Payroll Payable), just like any uncashed check, or it is in a Suspense Account at the entity which provided the HSA account. This is just like any other check that is not received or is not cashed. The audit trail is similar and there should be no problem in finding out where the money is, since the are only 2 places where it could be. Since this is a salary reduction done through your cafeteria plan and subject to those change of election rules. Closing the account to which the funds are to be deposited does not cause a change in election. The salary reductions continue for the election period. Where do the funds go, now that the original account is closed? I suggest that you inform the employee, in writing, of the requirement of an account for the deposits. Usually, I see an agreement between the HSA holder and either an HSA Bank or Administrator. This agreement would give instructions regarding what to do in a case such as this. Usually, an account can be opened on behalf of the HSA holder. Have you seen any such Agreement? Have you informed the HSA Administrator of the situation?