[Senate Hearing 112-542]
[From the U.S. Government Publishing Office]
S. Hrg. 112-542
PENSION POACHERS: PREVENTING FRAUD AND PROTECTING AMERICA'S VETERANS
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HEARING
BEFORE THE
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
JUNE 6, 2012
__________
Serial No. 112-17
Printed for the use of the Special Committee on Aging
Available via the World Wide Web: http://www.fdsys.gov
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SPECIAL COMMITTEE ON AGING
HERB KOHL, Wisconsin, Chairman
RON WYDEN, Oregon BOB CORKER, Tennessee
BILL NELSON, Florida SUSAN COLLINS, Maine
BOB CASEY, Pennsylvania ORRIN HATCH, Utah
CLAIRE McCASKILL, Missouri MARK KIRK III, Illnois
SHELDON WHITEHOUSE, Rhode Island DEAN HELLER, Nevada
MARK UDALL, Colorado JERRY MORAN, Kansas
MICHAEL BENNET, Colorado RONALD H. JOHNSON, Wisconsin
KRISTEN GILLIBRAND, New York RICHARD SHELBY, Alabama
JOE MANCHIN III, West Virginia LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut SAXBY CHAMBLISS, Georgia
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Chad Metzler, Majority Staff Director
Michael Bassett, Ranking Member Staff Director
C O N T E N T S
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Page
Opening Statement of Senator Herb Kohl........................... 1
Statement of Senator Bob Corker.................................. 2
PANEL OF WITNESSES
Statement of Hon. Richard Burr, A United States Senator from
North Carolina................................................. 3
Statement of Senator Wyden....................................... 5
Statement of Dan Bertoni, Director of Disability Issues, U.S.
Government Accountability Office, Washington, DC............... 6
Statement of Senator Tester...................................... 7
Statement of Lori Perkio, Assistant Director, MEB/PEB
Coordinator, American Legion, Washington, DC................... 8
Statement of Kris Schaffer, Daughter of WW II Veteran, Billings,
MT............................................................. 10
Statement of Emily Schwarz, President, Veterans Financial, Inc.,
Villanova, PA.................................................. 14
Statement of David McLenachen, Director, Pension and Fiduciary
Service, Office of Disability Assistance, U.S. Department of
Veterans Affairs, Washington, DC............................... 16
APPENDIX
Witness Statements for the Record
The Honorable Richard Burr (R-NC), Ranking Member, U.S. Senate
Veterans' Affairs Committee.................................... 38
Daniel Bertoni, Director of Disability Issues, U.S. Government
Accountability Office, Washington, DC.......................... 40
Lori Perkio, Assistant Director, MEB/PEB Coordinator, American
Legion, Washington, DC......................................... 54
Kristi Schaffer, daughter of WWII veteran, Billings, MT.......... 57
Emily Schwarz, President, Veterans Financial, Inc., Villanova, PA 63
David McLenachen, Director, Pension and Fiduciary Service, Office
of Disability Assistance, U.S. Department of Veterans Affairs,
Washington, DC................................................. 66
Relevant Witness Reports
Veterans' Pension Benefits: Improvements Needed to Ensure Only
Qualified Veterans and Survivors Receive Benefits, U.S.
Government Accountability Office............................... 77
Additional Statements Submitted for the Record
The Honorable Dean Heller (R-NV), Committee Member............... 146
Office of Inspector General, U.S. Department of Veterans Affairs,
Washington, DC................................................. 148
Terry Schow, Executive Director, Utah Department of Veterans
Affairs, Salt Lake City, UT.................................... 152
David J. Smith, Assistant Commissioner, Tennessee Department of
Veterans Affairs, Nashville, TN................................ 157
Debbie Burak, Founder, VeteranAid.org, Virginia.................. 161
PENSION POACHERS: PREVENTING FRAUD AND PROTECTING AMERICA'S VETERANS
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WEDNESDAY, JUNE 6, 2012
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 2:05 p.m., in
Room SD-562, Dirksen Senate Office Building, Hon. Herb Kohl,
chairman of the committee, presiding.
Present: Senators Kohl [presiding], Corker, Wyden, Nelson,
Tester, and McCaskill.
OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN
The Chairman. We thank you all for being here for this
hearing to examine problems associated with the VA's pension
benefit program. Sadly, there's a growing niche industry that
profits by convincing veterans with substantial assets to hide
these assets in trusts and annuity products in an effort to
qualify for the maximum allowable pension from the aid and
attendants program.
As we will hear today, many veterans and their families are
being hurt by this practice, because their assets are being
tied up. They are forced to pay exorbitant fees and penalties
if they need to access their money, and because they are
sometimes affecting their ability to access Medicaid benefits.
This activity has also increased a backlog of pending VA
pensions, slowing the application process for veterans who
truly need assistance. All this comes at a great cost to
taxpayers who pay to process these applications and for the
needs-based pensions to individuals who are not actually in
need at the time of their application.
These problems are not isolated to one state or region.
They are a growing problem all across our country. The County
Veterans Service Officer Association of Wisconsin has submitted
a statement for the record that provides a variety of examples
in my own home state.
The Chairman. We want to thank our Veteran Affairs
Committee Chairman, Patty Murray, and Ranking Member Richard
Burr, who is here with us today, for their leadership and for
sharing responsibility of overseeing the veterans' pension
benefit. We also thank and recognize Senator Ron Wyden for his
work on this issue, and for providing a clear path to
improvement.
I know that we all support the efforts to correct the
problems that we will hear about today, and we look forward to
hearing from our witnesses. Before turning the gavel over to
Senator Ron Wyden, who will chair this hearing today, we turn
to our ranking member, Senator Corker, for any comments and
observations that you may have.
STATEMENT OF SENATOR BOB CORKER
Senator Corker. Thank you, Mr. Chairman. I rarely make
opening comments, but I will today. I want to thank you and
Senator Wyden for calling this hearing to examine this issue
affecting our veterans' pension benefits. I'd also like to
thank our witnesses, some of whom have traveled great distances
to tell their stories and offer ideas and ways to protect these
pension benefits for our veterans.
I, like I know everyone here, have the greatest respect for
our military veterans and their families. The tremendous
service and sacrifice of our men and women in uniform, past and
present, is invaluable. They are patriots, and we owe them a
great deal of gratitude for what they have done to protect and
secure our country.
When Congress created the Aid and Attendance benefit, the
goal was to assist our nation's veterans cope with healthcare
costs and to make sure they could retire with financial peace
of mind. Sadly, as our panel's members' testimonies illustrate,
some of the veterans are being targeted and financially misled.
The consequences can be severe, sometimes leaving a veteran
without a home or unable to qualify for other benefits, such as
Medicaid.
I come to this hearing today eager to hear recommendations
on how we can improve aid and attendance overall to better
serve the needs of veterans. With that in mind, I applaud
Senator Wyden and Senator Burr, our first witness, on their
joint work on this issue. I understand they plan to introduce a
bill that would establish a 3-year look-back for the Aid and
Attendance benefit, and prevent some of the harmful financial
gaming that occurs. It is refreshing to see such
bipartisanship. Thank you very much.
This committee is in a unique position to examine this
issue, as is the authority to take a look across many
jurisdictions: Judiciary, in the case of enforcement; Treasury,
in the case of financial misinformation; and Veterans Affairs,
in the case of application discrepancies and backlog. It is
often said that sunlight is the best disinfectant, and I hope
that by bringing attention to this issue, this hearing will put
an end to many of the unethical practices that are hurting our
nation's veterans.
So, Mr. Chairman, thank you very, very much for convening
this hearing.
The Chairman. Thanks, Senator Corker.
Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman. Mr. Chairman, I'm
going to defer my opening statement until after Senator Burr
has spoken, because I know he's under a tight schedule, and he
has just been an extraordinary bulldog on this issue. And it
has really been a pleasure to work with him, and, of course,
he's teamed up with Senator Murray, who is a tireless fighter
for veterans on the Veterans Affairs Committee, and Senator
Corker, as well.
I just wanted to say a word, Mr. Chairman, with respect to
your tenure as chairman of this committee. Under your
leadership, this committee has gone after a whole host of
abuses of our senior citizens, from essentially selling fake
financial products to what amounts to literally physical abuse,
what we know as elder abuse. And I just want you to know how
much we have appreciated your leadership.
You and I have talked often. I was co-director of the Grey
Panthers back in the days when I had a full head of hair and
rugged good looks, and we used to always hope that there was a
chair of the Senate Aging Committee like you, Senator Kohl. So,
I just want you to know how much we appreciate your leadership.
I'll have more to say about these issues after we've heard
from Senator Burr. But, it's pretty hard to get agreement in
one committee here in the United States Senate, and we have
been so fortunate to have Senator Corker, who also tries to
tackle these issues in a bipartisan way. So, the combination of
you, Senator Kohl, and Senator Corker here, and Senator Murray,
and Senator Burr, for those who may be listening on C-Span, it
doesn't exactly happen every single day here in the United
States Senate. So, I am really thrilled to have been able to be
a part of it, and look forward to working with you, Mr.
Chairman, in the months we have with you still here as our
chair.
STATEMENT OF HON. RICHARD BURR, A U.S. SENATOR FROM THE STATE
OF NORTH CAROLINA
Senator Burr. Good afternoon, Chairman Kohl, Ranking Member
Corker, Senator Wyden. I've learned something new already, that
Senator Wyden used to have hair and was good looking.
[Laughter.]
I want to thank you for inviting me, and more importantly,
as the ranking member of the Veterans' Affairs Committee, I
appreciate the opportunity to discuss some of the serious
issues involving VA's pension program, and how they may be
affecting elderly disabled veterans.
This program is one way our nation expresses gratitude to
those who have answered the call to duty in a time of war. It
offers a basic level of economic security to wartime veterans
who have been disabled unrelated to their military service and
limited means to provide for their own support. The intent is
to ensure that the disabled veterans who honorably fought for
our nation will never live in poverty.
Given that noble but limited purpose, it has long been
recognized that these benefits should be available only to
those who are truly in need. But, last year it came to the
attention of the Veterans' Committee that some organizations
were marketing financial products to veterans, generally
elderly veterans, so they could move assets around in order to
artificially qualify for pension benefits. That's why our
committee asked the Government Accounting Office to look into
this issue, and we were pleased to be joined in the request by
you, Chairman Kohl and Senator Wyden. That GAO investigation,
along with the efforts of the Aging Committee, shed light on an
entire industry aimed at convincing veterans to manipulate
their assets, by using products like trusts and annuities, so
they can become eligible for VA pension benefits.
This GAO report reflects this practice can end up having a
negative impact on some veterans. For example, it appears that
these companies sometimes convince elderly veterans to buy
financial products that would not provide any income during
their expected lifetimes. Also, some are using misleading
marketing techniques to gain the trust of veterans, providing
them with inaccurate information about VA benefits, or breaking
their promise to help veterans apply for VA pensions.
On top of that, it appears that these companies often
target veterans like those with dementia, who are particularly
vulnerable, and who may charge them as much as $10,000 in fees.
All of this raises concerns that elderly veterans may be
pressured into situations that leave them without adequate
resources in their greatest time of need.
The GAO report also confirms that some individuals
receiving VA pension actually had substantial wealth. In fact,
GAO highlighted an individual who had put over $1 million into
a trust shortly before being granted VA pension. It should go
without saying that a program meant to provide a safety net for
low-income veterans should not be sending checks to
millionaires. But, regardless of the amounts involved, it
undermines the integrity of a need-based program if assets are
being hidden in order to qualify.
The bottom line is that we need to take steps to strengthen
the VA's pensions programs so that it will be there for the
wartime veterans who truly need it and will discourage
companies from preying on veterans who do not. That's why
Senator Wyden and I are planning to introduce a bill that will
require VA, in determining who's eligible for pensions, to look
at whether assets have been moved around in order for that
veteran to qualify.
In general, the bill would create a look-back period,
running for 3 years before an individual applies for a VA
pension. If the applicant repositioned assets during that
window, VA could deny pensions for up to 3 years, depending on
the value of the assets that were moved. As a safeguard, VA
would have the authority to disregard asset transfers during
the look-back period and allow a pension to be paid, if it
would avoid an undue hardship.
These new protections should help to discourage abuses,
while making sure that the benefits will be available to those
who genuinely are in need. This approach is consistent with the
GAO's recommendations; is similar to the rules already in place
for other need-based programs, like Medicaid; and is in line
with the changes VA has acknowledged are needed.
Mr. Chairman, I think this bill would be a common-sense
step in the right direction to deal with many of the issues
your committee will be discussing at today's hearing. I look
forward to working with the ranking member, the chairman, and
all members of your committee, as well as Senator Wyden, in
hopes that this bill will become law and will become law soon.
Again, I thank you for the invitation to be here and for
the attention of this committee on what I think is a very grave
issue.
The Chairman. Thank you very much.
Senator Wyden [presiding]. Mr. Chairman, I just want to say
I think Senator Burr has laid this out very, very well. We're
going to work on this in a bipartisan kind of fashion, and the
bottom line, it seems to me, is to preserve this program for
those who need it, rather than those who fleece it. And we've
got a lot of heavy lifting to do, and Senator Burr and I have
had a chance to work together often over the years, going back
to our days in the house. And I just feel I've got a really
good partner in this. I want to thank Senator Burr. I didn't
have any questions. Perhaps, colleagues do.
Senator Corker. Thank you. I think it's disrespectful to
ask a Senator questions.
Senator Wyden. Is it? All right. Fair enough.
Senator Corker. Thanks for coming.
The Chairman. Do you want to call the next panel?
Senator Wyden. Would you like me to?
The Chairman. Go ahead. It's your hearing.
Senator Wyden. Our next panel is Mr. Daniel Bertoni and Mr.
David McLenachen, if I'm pronouncing that right.
Mr. Chairman, would it be okay if I gave a brief opening
statement as our witnesses come up?
The Chairman. Go right ahead.
STATEMENT OF SENATOR RON WYDEN
Senator Wyden. Senator Burr summed this up very well, it
seems to me, and I just wanted to take a couple of minutes and
outline what I think are the essential steps, in terms of
fixing this program, and, in effect, draining the swamp. It's
pretty clear that pension poachers and bad actors have to be
eliminated from the program. And second, it's got to be clear
that veterans can almost always secure their pensions and their
needed services for free from county veterans' services
officers and congressionally chartered service organizations.
Going to a lawyer or a financial planner, based on what we have
determined, should not be the norm, and I think there are
several steps that ought to be part of the solution.
The first is education, making sure that veterans and their
families know about their rights and responsibilities, and in
that regard, Chairman Kohl and Senator Corker are moving us
forward with today's session.
Second, the nursing home and retirement industry has to be
part of the solution. The Assisted Living Federation has
submitted a statement for today's hearings, and I think that
that's very constructive. The industry is going to have to work
with the VA and veterans organizations to develop best
practices for their facilities. And in my home State, the
Oregon Healthcare Association has just sent an alert out to all
of their members to educate them about pension poachers, and I
hope that other groups follow suit.
And the third part of the solution is the legislation to
require the Veterans Administration to look back at pension
applicant finances the way that Medicare and SSI do. This
closes the loophole that the pension poachers have exploited.
So, in effect, you have education, begun here under the
leadership of Chairman Kohl and Senator Corker, in terms of
making sure that vets and their families understand their
rights. Then, we mobilize the private sector, and the long-term
care facilities, and others to step up along the lines of what
the Oregon Healthcare Association has done. And the third piece
is the legislation.
So, I appreciate the chance to mention that, Chairman Kohl.
And why don't we just hear from the witnesses, all of the
witnesses on this panel. I guess we also have Kris Schaffer,
Emily Schwarz, and Lori Perkio, and I believe that Senator
Tester will be coming to introduce Ms. Schaffer and Ms. Perkio.
The Chairman. Do you want to describe who they are?
Senator Wyden. Yes. Mr. Bertoni is Director of Disability
Issues of the Government Accountability Office, here in
Washington. Lori Perkio is the Assistant Director of the MEB/
PEB program at the American Legion. Kris Schaffer is the
daughter of a World War II veteran in Billings, Montana. And
Mr. McLenachen is Director of Pension and Fiduciary Services,
the Office of Disability Assistance, at the U.S. Department of
Veterans Affairs, in Washington, D.C.
So, why don't you proceed, Mr. Bertoni.
Mr. Bertoni. Certainly.
STATEMENT OF DAN BERTONI, DIRECTOR OF DISABILITY ISSUES, U.S.
GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC
Mr. Bertoni. Chairman Kohl, Ranking Member Corker, members
of the committee, good afternoon. I'm pleased to discuss the
Department of Veterans Affairs pension program, which provides
benefits to aged or disabled veterans with limited income and
assets. Last year, VA paid over $4 billion in benefits to over
500,000 recipients. Although the program was means tested,
concerns have been raised that some organizations are marketing
financial products and services to help veterans shelter
valuable assets to qualify for pension benefits.
In our full report, released today, we identify numerous
weaknesses in VA's processes for assessing veterans' financial
eligibility. We also note that currently there is no
prohibition in transferring assets prior to applying for
benefits.
My testimony is based on our report and focuses on what is
known about organizations that are marketing financial services
and products to veterans. In summary, we identified over 200
organizations located throughout the country that help veterans
and their survivors transfer or preserve excess assets that
could otherwise disqualify them for benefits.
These organizations consist primarily of attorneys and
financial planners who provide services and products, such as
annuities and trusts, in order to reduce veterans' income and
assets below program eligibility thresholds. Under current law,
pension claimants can transfer assets and reduce their net
worth prior to applying for benefits. And some provider web
sites openly note that they specialize in helping those with
hundreds of thousands of dollars qualify for benefits.
Others we contacted acknowledged helping millionaires
acquire these benefits. In contrast, for Medicaid and other
means-tested programs, Federal law explicitly restricts
eligibility for long-term care benefits in the event of certain
asset transfers, and requires a look-back period to identify
such transfers within 60 months of application.
During our investigative calls, all 19 organizations we
contacted noted that pension claimants can legally transfer
assets to skirt program rules, and almost all provided examples
of how to do this. It's noted in excerpts of the following
recorded conversations, where a GAO investigator posing as a
son of an 86-year-old veteran, inquired about the services and
products offered.
[Tape recording played.]
I know I'm a bit over, so I'll break. As indicated by these
conversations, various strategies can be used to help claimants
stay below income and asset thresholds, including transferring
assets that VA would normally count when determining
eligibility to family members via trusts or purchasing some
type of annuity to reduce monthly income to acceptable levels.
Despite the advantages of these transactions to applicants,
some products, such as deferred annuities, may not be suitable
for aged veterans, because they often cannot access all needed
funds within their expected lifetime without incurring
substantial penalties or fees. Such transactions could also
cause some pensions to run afoul of Medicaid asset transfer
rules, and risk an eligibility for long-term care benefits.
And finally, we found that the majority of the 19
organizations charged fees, ranging from a few hundred dollars
for benefits counseling, to $10,000 to establish a trust. While
Federal law prohibits charging fees for completing VA benefit
applications, veterans groups and others we interviewed are
concerned that some organizations are finding ways around this
prohibition, such as charging veterans fees for benefits
counseling. One organization we spoke with charged $850 for an
attorney to work on processing a case, a $225 analysis fee, and
$1,600 for establishing a trust.
In conclusion, the VA pension program provides a critical
benefit to veterans with limited resources. However, as
currently designed, claimants with significant assets can
easily qualify for benefits. This arrangement clearly
circumvents the intent of the program and wastes taxpayer
dollars. Thus, we believe a look-back and penalty period is
needed, and have asked the Congress to consider this.
Mr. Chairman, this concludes my statement. I am happy to
answer any questions you have. Thank you.
Senator Wyden. Thank you very much, Mr. Bertoni. And you've
certainly, at your agency, have gone after this issue
aggressively, and one of the questions we're going to be asking
is why, particularly, the VA IG's office, they didn't do some
of the work that you've been doing. So, I really appreciate it.
We have a very strong advocate for veterans with us now.
Senator Tester. He's my neighbor, and he can often be out back
at night, and then he tells me, ``We better get on these
veterans' issues.'' He said, ``We've got to do something about
these rip-offs.'' And he's here to introduce two Montanans, our
next witnesses. I hope I'm pronouncing it right. Lori Perkio
and Ms. Kris Schaffer. And we're happy to welcome Senator
Tester for your remarks.
STATEMENT OF SENATOR JON TESTER
Senator Tester. Yes. Thank you, Senator Wyden, and I want
to thank Senator Kohl, Ranking Member Corker. It's always a
pleasure to be with you two gentlemen on the committee dais.
Look, we all know what America's veterans have done for
this country. This country would not be the place it is today
without the sacrifice of our service members. Make no mistake
about it. You compound that with the deplorability of folks who
want to go after our elderly disabled veterans, I can tell you
that, well, it will make the enamel on your teeth chip. Let's
just put it that way.
I appreciate Mr. Bertoni's testimony and the video. And I
think that the look-back is definitely something that we should
be considering in doing, probably sooner rather than later, but
after we get done getting to the bottom of all of this.
I'm going to introduce Lori and Kris before you speak, and
I will just tell, Lori is here on behalf of the American
Legion. She is a Montanan who worked for the Legion in Montana
for 15 years as a veteran service officer, and eventually made
her way to D.C. I don't know if that's a step up or not for
you, Lori, but it is very, very good to have you here
advocating for veterans on a national level.
And then if I may, Senator Wyden, Kris Schaffer is a small
business owner from Billings, Montana, a proud daughter of a
veteran. Kris's father served in the Navy during World War II.
She is here to tell us about the problems that he faced when he
was scammed by an organization that submitted his VA claim. And
after moving into a retirement home, Kris's father, a navy
veteran, found out that he was not eligible for the VA benefits
promised to him by this organization, and now he may be forced
to move, because he cannot afford to remain in the facility.
She can tell you more about the financial impacts of all this.
But, bottom line is this, folks who are trying to mislead
the VA, on behalf of people who serve this country, is
unacceptable, and leaving them out in the cold makes it doubly
unacceptable.
So, thank you all for being here, and I'll turn it back to
you, Senator Wyden.
Senator Wyden. Thank you, Senator Tester, and particularly
for your advocacy of veterans. And I think now it's going to be
Montana's turn. We're going to start with you, Ms. Perkio, and
then you, Ms. Schaffer, and we'll make your prepared remarks a
part of the record in their entirety. And just go ahead with
your comments.
STATEMENT OF LORI PERKIO, ASSISTANT DIRECTOR, MEB/PEB
COORDINATOR, AMERICAN LEGION, WASHINGTON, DC
Ms. Perkio. Thank you, Mr. Chairman. Thank you for the
opportunity for the American Legion to provide the views on
Department of Veterans Affairs Aid and Attendance Program. The
American Legion is deeply concerned regarding the poaching of
our wartime veterans and their widows who apply for Veterans
Administration pensions with aid and attendance benefits.
Our permanently disabled wartime veterans and their widows
have become the victims of individuals, law firms, and in some
cases, assisted living facilities through misrepresentation of
the VA Aid and Attendance program. One law firm on the internet
advertises recession proof your law practice with VA pension
planning. It goes into detail on how lawyers charge fees for
services. Some of those services that were listed were analysis
of options available concerning the income, gift, and estate
tax consequences, new legal documents, administrative trusts,
review of investments, and specifically stating, ``If trust is
needed for qualifications, fees are generally two to four times
the average planning fee.'' The fees result in thousands of
dollars from the responses we are seeing from our field
offices.
Upon this issue being brought to my attention here in
Washington, D.C., I sent out a request to all of our field
offices across the United States asking for their input. Most
of the responses were identical, in that these law firms, the
American Legion department services officers were aware, but
they didn't know how to stop them. So your participation in
creating assistance to protect our veterans is greatly
appreciated.
On the internet, also, it talked about one lawyer
advertised a kit for sale for $99 to hide assets. Another web
site, how to hide assets to receive pension. And there's many,
many more web sites that are out there like that, you know, to
advertise their--to take advantage of our veterans.
One scenario is a poacher set up an elaborate presentation
intentionally to lure veterans and the widows of veterans to
the probability of being eligible for up to $24,000 a year to
pay for assisted living. The victims were told they qualified
for VA aid and attendance benefits, and until the benefit was
actually paid, they could go ahead and sign a one-year contract
at the assisted-living facility at the reduced rate until the
VA benefit was actually received.
The VA received a less than complete application, which
required written correspondence from the VA to the veteran to
obtain all relevant information, resulting in discovered
unclaimed assets. The veteran reported he was told, his lawyer
told him not to claim these assets on the application. The VA
determined the assets exceeded the maximum annual pension rate
and benefits were denied.
The assisted-living facility then charged the veteran the
full rate of fees, to include penalty fees if the 1-year lease
had been broken. The veteran no longer owned his home. His
assets were put into a trust he could not access, and was
charged over $80,000 by the attorney who created the trust for
him.
The pension claims being submitted by these poachers often
omit actual amounts of assets, and the victims are constantly
told, ``You don't need to claim that.'' One veteran whose
assets exceeded $655,000 was told he only needed to claim
$25,000 of those on the application itself. A widow of a
veteran submitted a claim through one of these law firms for
pension, with aid and attendance, while in possession of $1.1
million in land assets. These were not listed on the original
claim form. When the VA had submitted correspondence to this
widow, then it was discovered that she had these assets and did
not qualify.
An 80-year-old veteran applied for pension with aid and
attendance through an attorney. During the VA exam it was
determined that due to his severe Alzheimer's that he was
incompetent to handle his own VA monetary benefits. A VA field
examiner contacted the veteran to appoint a fiduciary. During
the interview, the field examiner discovered the attorney had
created a 12-year annuity.
As part of my investigation of this poaching issue, a
request was sent to all of our department service officers and
department adjutants requesting information. The unanimous
response was poachers submitted the VA claim form for pension,
and when VA requested more information, the attorney directed
that veteran to a service organization, and would no longer be
able to assist that veteran at that point.
The American Legion conducts service officer training twice
a year. At each training session, we have a beginner course in
pension training. This class is conducted by a national
American Legion staff who work at our three pension maintenance
centers. The importance of submitting a claim the first time is
stressed. A complete claim is stressed to expedite that VA
claim process. In addition, all assets are to be counted to
determine the net worth, and the VA will determine which are
counted and which are exempt.
The American Legion is also creating an information
pamphlet specific to VA pension benefits. The pamphlet will be
distributed to our 2,000 accredited service officers to get
information into the hands of our wartime veterans and their
widows, and we're going to, as much as we can, to make sure
that the claims processes are being done correctly to support
our veterans.
The American Legion greatly appreciates your attention to
this issue to protect our veterans and their widows.
Senator Wyden. Ms. Perkio, thank you. And I think what the
Legion has uncovered here, in terms of these practices, is
exceptionally important. It's shameful what you have described.
There is no other way to describe it, and I really appreciate
your perseverance and the professionalism that the Legion
brings to these veterans' issues.
We've been joined by Senator Nelson. He's from Florida. He
represents a great many elderly persons, many elderly veterans,
and he and I have worked together on senior issues since our
House days, a very strong advocate for seniors and veterans.
And Senator Nelson, we are, in effect, in the middle of
hearing from Montana. If it would be acceptable to you, let's
hear from Ms. Schaffer, and we so appreciate having you here.
And then at that point, we'll recognize Senator Nelson, if
that's all right, for his opening statement.
Ms. Schaffer.
STATEMENT OF KRIS SCHAFFER, DAUGHTER OF WWII VETERAN, BILLINGS,
MT
Ms. Schaffer. Thank you. I thank you very much for the
opportunity to be addressing you today. My name is Kris
Schaffer. I am the owner of a small print shop, Accent Print
Shop, in Billings, Montana. I am a wife and a mother. I have
been asked to come here today to provide testimony as to my
experience with the VA Aid and Attendance pension program.
During the spring of 2011, only one short year ago, I was
growing increasingly concerned about my mother's health. Both
of my parents were still living, but her health seemed to be
deteriorating rapidly, and providing her care was more than my
father could manage, and more than I could, too.
My father served in the Navy in World War II in the South
Pacific. I heard about the VA Aid and Attendance pension
program, and it seemed that it might be the answer to our
prayers. But I'm always a person who wants to get the
particulars. This tendency of mine serves me well in my
business and in my personal life. I am not a person who tends
to be duped by a fast talker. I attended a seminar on the VA
Aid and Attendance pension program, along with my father, put
on by an independent living facility, which I had understood
was well thought of in our community, Aspen View.
My understanding was that it was a separate facility from
the nearby nursing home facilities, but the nursing home
services could be provided when and if they were needed.
Providing information on the VA Aid and Attendance pension
program was the sole purpose of the seminar my father and I
attended. The speaker was an attorney, Douglas F. Ocker, who
said he was an attorney and counselor-at-law in an elder caring
law firm in Corpus Christi, Texas. He had been brought in by
the independent living facility. The speaker represented
himself as being accredited by the Veterans Affairs. His web
site even was www.seniorveteransusa.com.
Each attendee was given a very official looking
presentation folder with information and requirements on the VA
Aid and Attendance pension program. The first question the
attorney put forth was something he wanted to clarify. Why
should I use a VA-credited attorney when some people fill out
my applications for free? We then received 11 reasons why, such
as insurance agents disguise themselves as veterans officers,
attorneys are licensed to draft legal documents for assets and
income restructuring. Medicaid is a time bomb. The attorney is
licensed to represent clients in VA court, and so forth.
We were told that if we decided to use the VA Aid and
Attendance pension program we needed to use an attorney to fill
out this complicated paperwork. We were also advised not to use
the local VA Department, because they were not familiar with
this particular program. I feel very stupid now for believing
him, but I did.
It all seemed so very much on the up and up, a program of
our government showing us appreciation at the end of their
lives for the dedication of our veterans in preserving our
freedoms.
At the end of the seminar, all attendees were invited to
visit with the attorney to see if they would qualify for the VA
Aid and Attendance pension program. My father and I set an
appointment and visited with Mr. Ocker himself. When we came,
we had all my father's paperwork and necessary information.
As the attorney reviewed the paperwork, he guaranteed us
that my father would qualify. Then he told us that we needed to
have $4,000 to fill out the paperwork. That was the first that
we had heard of that requirement, and my father informed him
that he did not have the $4,000 to pay for the service, and
that we did not realize that there was a charge for filling out
VA paperwork.
The attorney told us that he would do us a favor by calling
in the manager of the independent living facility and
explaining our situation. The manager came into the meeting and
the attorney told him that my father did not have the funds to
pay him to fill out the VA paperwork. The manager asked the
attorney if my father would qualify for the VA Aid and
Attendance pension program. The attorney responded, ``Most
certainly.''
With that being said, the manager of the facility told my
father that he and my mother could move into Aspen View in
Billings. They told me that I should fill out the paperwork,
since we already knew from the attorney that they qualified and
would not be turned down. We were told the amount of the
monthly rent. We were told that the VA Aid and Attendance
pension program would pay $1,949, the amount for a married
couple, and that my parents would pay the remaining monthly
balance which was $1,638, a very large financial commitment to
my parents.
In order for my parents to afford even their portion of the
independent living facility rent, they needed to sell their
home, which was their primary asset. They made that big and
difficult decision, sold their beloved home in order to make
the whole thing possible, the provision of care for their
remaining years, and my parents would moved into the facility
July 7, 2011.
I filled out the paperwork required by the VA for my
parents. I did not find the paperwork terribly complicated, and
went through all the written requirements, and my father
appeared, to me, to meet them all. I have provided copies of
the presentation documents that were given to me for the use of
the committee.
One of the requirements was that I needed to send a letter
to the VA from the independent living facility. I remember
picking up this letter from the facility. I read it prior to
sending it in with the rest of the paperwork. I did see for the
first time, when I read the letter, ``Our staff is available 24
hours a day to assist Henry with any emergency that may arise.
In addition to providing meal preparation, transportation,
weekly housekeeping, and any other medical needs that are
prescribed, numerous healthcare providers work with our
residents in providing medication monitoring, assisting with
bathing, dressing, feeding, and et cetera.'' It had certainly
been my understanding that those services would be provided
when they were needed.
I discovered later, as my mother grew more ill, that the
independent living facility actually does not supply any
medically necessary help for its residents. If the residents
need help, they're required to search out companies as sources
for a supply of such services.
In the end, I had very little time to cope with these
issues, because my dear mother only lived for 5 days when she
left her home and moved into the facility that we thought would
be providing her necessary care before passing away.
At that time, I forwarded all documents to the VA, so that
they knew that from that time forward only my father would be
needing the benefit and continuing to live in the institutional
independent living facility. Shortly after I sent those
documents, my father received a letter of denial. Only after my
father received the letter of denial were we told that in order
to qualify for VA Aid and Attendance pension program, the
person needed to require daily assistance in dressing, feeding
himself, and bathroom chores. It was never addressed or set
forth as a requirement in the seminar that we attended, in the
written paperwork, or any other forms that I filled out for my
parents.
My father's relatively healthy condition was clear when we
met with the attorney and when the independent living
facilities staff person was called to discuss the $4,000 fee.
It was clear to both the attorney and the staff person that my
father would be selling my parents' house in order to be able
to pay their portion of the monthly rent.
As I speak to you before you today, my father, heartbroken
at the loss of his life partner, to whom he was married for 57
years, is also in limbo, or worse, not knowing how to proceed.
My father has worked hard his whole life. He has never asked
for a handout from anyone. He thought he was doing right by his
beloved wife, as well as making certain that he would not
become a burden on his children with his eventual health
decline. By selling his home and moving into this facility as
part of the VA Aid and Attendance pension program, he made this
decision based on the advice of someone who held himself out as
an attorney certified by the VA Aid and Attendance pension
program, and was provided independent reliable advice.
When I received the information of denial, I was horrified.
I informed Aspen View that I would be appealing. Then I went
directly to Senator Tester's office, in Billings, for
assistance. He was here, together with Senator Kohl, Senator
Corker, and Senator Wyden who asked me to appear here today to
tell my story and that of my family. The staff at Aspen View
has not yet approached my father and demanded that the balance
of the difference of what the VA was understood by them and by
me to be paid. But I know that they will. In fact, some friends
of my parents, in their nineties, are in this very same
situation with the VA Aid and Attendance pension program, have
been ousted from what they thought was their final residence
for their declining years.
It appears to me that Aspen View does not actually comply
with the requirements of the VA Aid and Attendance pension
program. It also appears to me that senior citizen veterans are
being lured into disposing of their limited assets by paying
exorbitant amount for services and then only after it is too
late, being denied any benefits, whatsoever, by the VA and are
being left with no place to live.
I do not know fully who is at fault. I only know that for
my father this is a terrible miscarriage of justice. I have
come all the way from Montana to Washington, D.C., to the most
powerful institution in the world, to ask for help for my
father and others in this situation. I ask that you get to the
bottom of what has happened, discover who is at fault, and set
things right for the remaining years of the veteran whose
stability has been so threatened.
I thank you so very sincerely for allowing me to appear
today on behalf of those who tend to be so much older than I
and so much less able to travel to meet with you and speak with
you themselves. I will be honored to answer any questions that
you may have.
Senator Wyden. Ms. Schaffer, thank you very much for a very
powerful statement. I heard you early on say, I think in your
words, you said you felt stupid. You were dealing with your
mom, and your dad, and your mom passed away just a few days
after she was forced to leave her place, and I sure would like
to make it clear, not only do I not think you've been stupid,
your folks have been very lucky to have you, because it's clear
your love and your commitment to them can be seen by everybody
up here on this side of the dais.
You asked at the end of your statement that this committee
stay on it until we get to the bottom of this and get it fixed,
and I can tell you, your Senator, John Tester, and the other
members of the committee, that's exactly what we're going to do
for Montana families and Montana veterans until we get this
corrected. So, thank you for an excellent statement. I've
worked in the aging field a lot of years, and what you've said
is going to make a big, big difference, and I thank you.
Let's hear from Senator Nelson.
Senator Nelson. Mr. Chairman, what we've heard is an
outrage. There's no other commentary that can be applied. And
so what I want to know, is the Department of Veterans Affairs
asleep at the switch? And I'm looking forward to that, and I
don't want to take more time. I want to hear the rest of the
testimony. I will insert some remarks later on.
Senator Wyden. Thank you, Senator Nelson. And we are going
to hear from the Veterans Affairs Department here in the next
few minutes, but our next witness is Ms. Emily Schwarz. She's
the President of Veterans Financial, Incorporated, in
Villanova, Pennsylvania. And she's expanded into one of the
largest companies making presentations on aid and attendance
nationwide.
Ms. Schwarz, please proceed.
STATEMENT OF EMILY SCHWARZ, PRESIDENT, VETERANS FINANCIAL,
INC., VILLANOVA, PA
Ms. Schwarz. I'd like to start by taking a moment to thank
the Special Committee on Aging, including Senator Bob Casey,
from my great State of Pennsylvania, who, unfortunately, is not
here today, for inviting Veterans Financial, Incorporated, to
address the GAO's veterans' pension benefits report. While I
concur with many of the issues and concerns raised, as well as
some of the recommendations, I believe my testimony will give
the Senators a better understanding of how private companies
are playing a key role in educating veterans about this VA
benefit to which they are entitled.
Let me first give you a brief background on my company,
Veterans Financial. We're a national organization, as Senator
Wyden mentioned, working throughout the country. To date, we
have educated just over 69,000 families about the VA's Aid and
Attendance pension from the Department of Veterans Affairs.
Callers are referred to our 800 number from a variety of
sources, but primarily assisted living directors, other care
professionals, workshops, and the internet. All 69,000 families
have been helped at no cost to the family or any third party,
and without regard for their need of financial planning
services.
The majority of families we come in contact with did not
know there were VA benefits available to pay for long-term care
expenses prior to being referred to our company. Yet, it has
always been Veterans Financial's belief that the VA wants all
who are entitled to aid and attendance to receive it. Veterans
Financial and the 200 other companies and attorneys surveyed
for today's report are creating an awareness that wouldn't
exist. However, as with any industry, there are those who
perform their duties with responsibility and diligence, and
others who are more concerned with what is in their best
interests rather than their client's.
Several such examples are referenced in the GAO's report,
including advising claimants to report erroneous care expenses,
failing to submit an application once the VA--failing to submit
an application to the VA, because the family did not take the
planner's advice, and charging astronomical fees for trusts or
other work. This behavior is despicable and embarrassing to
companies like mine who go to great pains to ensure that things
were done ethically and in compliance with VA regulations.
I trust that you have selected my company to testify today,
because you believe we have acted in good faith with our
marketing efforts, promise of genuine assistance, and excellent
follow-through to all veteran families. You can see today's
exhibits, for example, the full disclosure in our marketing
materials.
While I cannot speak to the experiences of other
organizations and attorneys, the typical caller to Veterans
Financial is not similar to those referenced in the GAO report
that transferred $500,000 or $1 million prior to applying for
benefits. Our typical caller is the child of a veteran or
surviving spouse who's begun the search for assisted living or
home care, and realized the monthly fees far exceed their
parents' income, and have savings significantly lower than the
VA's arbitrary threshold of $80,000.
For these families, Veterans Financial becomes a source of
invaluable information, and a great relief when they learn mom
or dad may be eligible for aid and attendance, and, therefore,
can afford the care they need without going into a Medicaid
nursing home, somewhere they don't currently belong.
To this point, we have countless letters of thanks and
praise from people in all walks of life. The GAO's report
suggests that the type of financial planning my firm does, as
well as trust creation by attorneys, is a rampant practice. The
reality is the average assisted-living resident is 87 years
old, with $1,583 of monthly income, according to data provided
by ALFA. At the same time, they're paying $3,300 a month for
assisted living, according to Genworth's 2012 cost of care
survey, which does not include Medicare supplements,
prescription medications, co-pays, and other expenses, while
having long since diminished or exhausted whatever savings they
had when they retired at 65.
Of the tens of thousands of families we have spoken with,
less than 2 percent transfer assets out of their name in order
to become eligible. The other 98 percent were financially
eligible without transferring assets or had significant assets
and elected not to apply for benefits.
I also see that the report references attorneys who promote
the use of trusts for VA planning, while warning that annuities
make people ineligible for Medicaid. It is necessary to point
out to the committee that a transfer to an annuity into the
children's names starts the same 5-year look-back that a
transfer to a trust does. Those strategies create a period of
ineligibility, and in both cases, the family has to wait no
longer to become Medicaid eligible than had they done no
planning at all.
It is also key to understand that permitting families to
receive aid and attendance as early as possible allows seniors
to remain private pay significantly longer. Forcing them to
wait until they're nearly destitute will mean that aid and
attendance is too little too late. Social Security and VA
pension is not enough to pay for care. Without adequate savings
to supplement their expenses, most will have no care options
other than a Medicaid facility.
It seems as if in this conversation Medicaid is seen as the
optimum alternative to private pay assisted living, when in
reality, the cost of skilled care is nearly double that of a
private pay assisted living. Changes to the current system will
not save the government money, but instead cause more seniors
to join the Medicaid rolls, adding additional stress to our
current budgetary constraints.
I would propose to the committee that the VA work with the
private sector to develop a best practices policy which will
ensure our nation's veterans receive only ethical accountable
assistance, as well as to level the playing field from provider
to provider. Families should not have to search to find a
company or attorney charging the lowest fees, as if they were
shopping for a new car. I would personally offer my experience
and time to work with the Office of General Counsel in
developing such a system and means for implementation across
the United States.
One final thought. All veteran benefits, including
compensation, pension, housing, healthcare, job training, and
education programs have been set in place to prevent our
nation's veterans and their families from becoming destitute.
As John Gingrich, Department of Veterans Affairs Chief of
Staff, expounded in his reply last month to the GAO, ``VA's
improved pension program was designed by Congress to promote
economic security to financially disadvantaged wartime veterans
and their surviving spouses without delay.'' Be very cautious
about turning this valuable pension into a welfare program,
with an arduous approval process that only helps those
completely impoverished. Our veterans, who risk their lives for
this country and our freedom, deserve better than that.
Senator Wyden. Ms. Schwarz, thank you. I know we'll have
some questions for you in a moment. We appreciate your
testimony.
Mr. McLenachen, we appreciate your coming. We've already
introduced you, and I'll look forward to your testimony. And I
will tell you, I think the committee is especially interested
in what Senator Nelson was talking about, and that is how it
was that the number of these firms, these pension poachers, has
mushroomed into several hundred, and where was the VA in terms
of trying to address these issues. So, we welcome your
testimony.
STATEMENT OF DAVID MCLENACHEN, DIRECTOR, PENSION AND FIDUCIARY
SERVICE, OFFICE OF DISABILITY ASSISTANCE, U.S. DEPARTMENT OF
VETERANS AFFAIRS, WASHINGTON, DC
Mr. McLenachen. Yes, sir. Thank you.
Chairman Kohl, Ranking Member Corker, and members of the
committee, thank you for the opportunity to discuss the
Department of Veterans Affairs' pension program. The VA's
pension program provides supplement income to wartime veterans
who are either 65 years of age and older, or permanently and
totally disabled, due to non-service-connected disabilities,
and meet certain income and net worth requirements.
From its inception in 1979, VA's improved pension program
has been designed to provide economic security to financially
disadvantaged wartime veterans and their survivors by paying
pension benefits quickly, and without the extensive development
of evidence often required with VA's disability compensation
program.
The VA paid over $4.5 billion in pension benefits to almost
314,000 veterans and 202,000 survivors in 2011. During that
year alone, VA completed nearly 50,000 original claims for
veterans' pension and over 60,000 for survivor's pension, while
maintaining an accuracy rate of nearly 98 percent.
In addition to the basic rates, pension program provides
for enhanced rates, which have become known by the type of
disability required to establish an entitlement for each, aid
and attendance and housebound. These are not unique benefits,
but rather increased monthly pension amounts paid to veterans
and surviving spouses, based on additional disability. VA
provides pension at the aid and attendance rate to persons who
require assistance with activities of daily living, are
bedridden, a patient in a nursing home, or have severe vision
disability. Between 2007 and 2011, VA granted over 144,000
veterans' claims and over 137,000 survivors' claims for pension
at the aid and attendance rate.
In its recent report, titled, ``Improvements Needed to
Ensure Only Qualified Veterans and Survivors Receive
Benefits,'' GAO concluded that the design and management of the
pension program did not limit pension to only those with
financial need, and that many organizations helped pension
claimants transfer assets in order to meet the net worth
limitations for pension. VA generally agrees with the GAO's
conclusions.
GAO's first recommendation was that VA modify its pension
application and eligibility verification report forms to ensure
that claimants and beneficiaries have space to report transfers
of assets and to specify the type of assets transferred. VA
concurred with this recommendation, and has already begun the
process to revise the relevant forms. GAO's second
recommendation was that VA verify financial information during
the initial application process by requesting additional
supplementing documentation, such as bank statements or tax
returns, or using automated databases.
VA's priority goal is to decide claims within 125 days,
while maintaining 98 percent accuracy. Accordingly, VA concurs
in principle with this recommendation, but believes that
further analysis is required to determine the best way to
conduct additional upfront verification of income and assets
without delaying the adjudication of claims or unnecessarily
burdening pension claimants and beneficiaries, many of whom are
elderly.
VA also concurred with GAO's third recommendation that VA
improve coordination between its pension and fiduciary programs
to identify unreported assets, but requested that VA close the
recommendation, because current procedures require VA's
fiduciary field examiners to report to the Veterans Benefits
Administration Pension Management Centers any credible net
worth and income information that would affect a beneficiary's
pension benefit.
Finally, GAO's fourth recommendation was that VA should
revise its procedures manual regarding the types of assets,
such as annuities and trusts that should be counted as part of
net worth, and establish criteria for spending down net worth
before becoming eligible for pension benefits. VA concurs with
GAO's recommendation, but disagrees with the proposed method of
implementation. VBA's adjudication procedures manual interprets
VA regulations and establishes non-substantive policies and
procedures for personnel to follow in adjudicating benefit
claims.
Unlike regulations, manual provisions are not binding on
the agency or claimants, and cannot be used to impose
obligations on claimants. For this reason, we began drafting
proposed regulations in March, which would address the effect
of pre-filing asset transfers on pension eligibility. Upon
completion of this rulemaking, we will amend our manual
provisions consistent with the new regulations.
In conclusion, I want to affirm VA's commitment to
improving customer service for our pension beneficiaries, while
also improving the integrity of the program. Before GAO issued
its report, VA began work to revise the program integrity
measures needed to ensure that only veterans and their
survivors with demonstrated financial need receive the benefits
and services they have earned. The interest in our program
expressed by GAO and this committee reflects the importance of
this effort.
Mr. Chairman, this concludes my prepared remarks. I would
be happy to address any questions or comments regarding my
testimony here today.
Senator Wyden. Mr. McLenachen, thank you very much for your
testimony. I want to let my colleagues ask questions before I
do. I will tell you, Mr. McLenachen, I did read that you agree
with the Government Accountability Office's recommendations,
but I'm still puzzled about why we had to get to the point
where the Government Accountability Office had to make
recommendations to clean up this program that you-all run. And
I'm going to ask you some questions about that after my
colleagues have had a chance. And we'll start with Senator
Corker.
Senator Corker. Thank you, Mr. Chairman, and thanks for
your leadership, and all of you on this issue, and certainly,
the witnesses provide quite a context here, and I thank you.
And I'm certainly sorry, Ms. Schaffer, for the experiences your
family have been through.
Ms. Schwarz, I know that you run a company that's a
national company. You mentioned that, you know, you do not
charge an upfront fee to talk with veterans and talk to them
about what services might be available. How does your company
make money? What are the products that you offer?
Ms. Schwarz. We're incredibly upfront about how we make
money, and so that's a very valid question. My company is a
private financial services company. So, we do sell the
annuities that are mentioned in the report, but responsibly.
So, we are selling immediate and deferred annuities, under VA
guidelines, to help families become eligible, but not the
typical $500,000 or $1 million that were referenced in the GAO
report.
Senator Corker. So, you were talking about the gaps, I
think, between what the cost of the services are, not
counting--not services. I'm talking about being able to stay in
a home, not counting all the costs of prescriptions and
everything else to go with it.
So, explain the typical structure of a deal that, where
someone comes in, you take application, you sell them annuity
that fills the gap, I guess, by using their existing assets, is
that correct?
Ms. Schwarz. Uh-huh.
Senator Corker. Walk us through that.
Ms. Schwarz. Sure.
Senator Corker. Just so we understand it.
Ms. Schwarz. So, let's say you have a typical client,
typical person who wants to apply. They probably have $200,000.
They have the $200,000, because, like Ms. Schaffer's family,
they sold a home, and that's where the primary amount of the
assets come from. They're moving into an assisted living, as
opposed to an independent living.
Senator Corker. Right.
Ms. Schwarz. With those $200,000, we would recommend that
they put some of it in a reserve account, obviously, for
additional expenses, some in a reserve account, typically, a
money market account or a checking account, easily accessible,
in the children's name as well, probably do an immediate
annuity that would provide them some additional income, which
you reference as that gap. They need to bring in another $1,000
or $2,000 a month to pay their assisted living, because $3,300
is the average. However, we see it more in the $4,000 or $5,000
range, depending on the level of care that somebody moves into,
or starts at. And then whatever was left will put into a
deferred annuity, in the children's name, which would, yes,
make them eligible.
The products that we choose to use have a lot of liquidity,
and there was reference in the GAO report that people are not
able to get in any of their funds until after the veteran is
deceased. That would be irresponsible planning. And so, I am in
total agreement that there are planners that are doing that,
and I would recommend that that does get looked at. However,
that's not my company.
Senator Corker. So, the annuity is liquid, because once
it's not being utilized by the senior, you can then sell it. Is
that what you're saying?
Ms. Schwarz. No. If you use correct products, that have a
10 percent withdrawal, penalty-free, there are products that
have up to 50 percent withdrawal, penalty-free, cumulative up
to 5 years. So, in the fifth year, someone can actually take 50
percent of their annuity out.
The other thing that a financial planner should do, to be
responsible, is look at what the person's needs are for the
next 5 years. We've talked about Medicaid briefly. That is the
look-back for Medicaid, and to move forward with planning if
there are not enough liquid assets or ways to tap into the
annuity during those 5 years, if the care expense increases, is
irresponsible.
Senator Corker. And you are aware then, though, there are
practices out there by companies that apparently don't operate
the same way that you do, that are ripping off senior veterans.
Ms. Schwarz. Absolutely. I think they're looking at
annuities that are in the agent's best interest, higher
commissions. They're not focusing on the long-term plan, a
five-year plan, or longer. Yes.
Senator Corker. And what would be the best way to keep the
kind of thing that happened to Ms. Schaffer from happening?
Ms. Schwarz. Well, as I was proposing, it would be
wonderful if companies like us could contract with the VA, work
under some certification program through the VA. An analogy to
that would be the VA contracts with homecare agencies. Homecare
agencies provide aids to veterans that need homecare. They're
paid by the VA. They're contracted with the VA. That would be a
great way for private companies to continue working in this
arena, and have oversight by the VA.
Senator Corker. And do you have to have some kind of
agreement with the VA to provide the kind of services that you
do right now to veterans?
Ms. Schwarz. Currently, there's nothing available such as
that. No.
Senator Corker. So, let me ask you this. Why is it that so
many entities are springing up, and why is there such a need
for seniors to have this kind of financial advice? I mean is
there something that we're not doing right on our side of the
equation, as it relates to making these services available in
such a way that seniors don't have to go outside the norm to
have them provided?
Ms. Schwarz. I think that's a two-part question, so let me
answer the first. I think it's springing up, because it seems
like it's an easy way to earn a dollar. Quite frankly, it's
not. You need to really pay attention to these families year-in
and year-out, and have a staff that's happy to support them.
That's how we're structured. Some people are doing it, because
they think it's a one-time fill out an application, do the
annuity, and then you're done. Make the commission.
Senator Corker. To your knowledge, whose responsibility is
it to make sure these shady operators are not doing what
they're doing?
Ms. Schwarz. I think the only body that could probably do
that would be the VA. I don't know who the responsible body
would be to weed out the shady operators. I think if we were
allowed to be certified or contracted, checked out, audited. My
office is always open. People are welcome to come and visit.
That would be a way.
Senator Corker. If I could ask maybe one more question.
Senator Wyden. Of course.
Senator Corker. From our VA representative, is that you-
all's responsibility, to weed out shady operators?
Mr. McLenachen. Sir, the problem with that suggestion is,
VA is in the business of delivering benefits to our veterans.
We're not in the business of regulating the healthcare
industry, the financial services industry, and I think that's
the one thing that we have to understand here, is that, you
actually asked a very good question, is who should be
responsible for monitoring the type of activity that we're
talking about today.
If there are people in the financial services industry, the
legal services industry, anyone else involved in this that are
basically violating the law that's established by the State in
which they're doing it, they should be prosecuted, or charged,
or some kind of civil penalties should be provided for that
activity.
Senator Corker. But, you believe that to be external to the
charge, if you will, that you're given at the VA?
Mr. McLenachen. Yes, sir. With this one exception. The
Department of Veterans Affairs does accredit individuals to
provide representation, claims assistance type services for our
veterans and their survivors. So, individuals that have been
accredited for that purpose are authorized by VA to provide
that type of service.
If they violate the standards of conduct that we have in
place for providing that type of service, we can suspend or
cancel their accreditation. That program is run by the Office
of General Counsel. But, with that exception, our focus has to
be on delivering benefits in a timely and efficient manner to
our veterans and beneficiaries.
Senator Corker. Mr. Chairman, thank you for the time. And I
would say to Ms. Schwarz, as we move ahead with this, I would
certainly love to have input as to how to weed out slackly
operators. I assume by virtue of you being here you may not be
considered one of those. I have no knowledge of that, by the
way. But I know that for people who do conduct themselves in a
responsible way, assuming that's who you-all are, I know having
people who don't candidly hurts tremendously, and I welcome
your input, and the input of any of you if you move ahead. So,
thank you.
Senator Wyden. Thank you, Senator Corker.
Senator Nelson.
Senator Nelson. Thank you, Mr. Chairman. Mr. McLenachen?
Mr. McLenachen. Yes, sir?
Senator Nelson. Are you a veteran?
Mr. McLenachen. Yes, I am.
Senator Nelson. Do you have immediate family that are
veterans as well?
Mr. McLenachen. Yes, I do.
Senator Nelson. I would assume since you're a veteran and
you would have immediate family, that to hear a story like Mrs.
Schaffer's, you would be outraged.
Mr. McLenachen. I am. Yes, I am.
Senator Nelson. And yet, this happened, and it is one of
the reasons that this committee has been called to examine. So,
you have seemed to put some distance between the department and
the responsibility to see that these veteran benefit programs
are being conducted so that the veteran is getting the benefit.
Why do you think that the department doesn't have a
responsibility to check these programs?
Mr. McLenachen. Well, Senator, let me clarify it. I'm glad
you're giving me that opportunity, if I was unclear. Let me say
that I'm very pleased that the committee is holding this
hearing. And the reason why I say that is that I'm proud to
have the opportunity to take on this position, because one of
the issues I really wanted to address when I took this position
on was this very issue that we're discussing today. I was aware
of it when I took this position, and just to be clear, we did
not wait for the GAO to come out with its report.
As I stated in my testimony, we've been working on this
issue, and we already have draft regulations that we're looking
at now that deal with these very issues.
Senator Nelson. Okay. Please clarify. The question is: Do
you think it's the responsibility of the department to make
sure that these programs are working?
Mr. McLenachen. Yes, sir. To make sure that the programs
are working, yes, sir, it is.
Senator Nelson. And so you said that you've addressed these
problems through formulating regulations, because does that
mean that you recognize that some of these programs are not
working?
Mr. McLenachen. We recognize, sir, that there are
individuals who may have been granted benefits. We don't have
good information either from GAO or from us internally how much
that has occurred, but we agree that it has occurred. And to
the extent it has occurred, that's not the purpose of this
program. And that is what we have recognized, and that's what
we're addressing.
My comment earlier was, to the extent that the problem is
that financial planners are taking advantage of veterans, or
facilities are taking advantage of them, VA doesn't have any
authority to regulate those industries. What we do have
authority to do, sir, is to make sure that we close what was
referred to earlier as a loophole, to close that up, so that
everybody out there knows that there is a look-back period,
that there are rules against transferring assets to qualify for
the benefits.
Now, there's been some discussion about attorneys who are
advising individuals to structure their assets. Well, if
there's a clear regulation or statute on the books that
identifies the rules regarding those transfers, I would feel
pretty good about saying that attorneys are not going to be
advising people, hey, transfer your assets, because that will
help you apply for benefits.
Senator Nelson. I'm going to interrupt you, because time is
running out. And you're talking about rules and regulations,
and so forth. What about just plain communication?
Mr. McLenachen. Yes, sir.
Senator Nelson. What is the VA doing to communicate
sufficiently for veterans so that they're not taken advantage
of.
Mr. McLenachen. Sir, there's a number of steps we're
taking. As, I believe it was Senator Wyden mentioned, that the
important element is education. I agree with that completely.
The number of steps that were taken, for example, is even
something down to as basic as the COLA letters, the cost of
living adjustment letters that we're sending out. We're putting
information in those letters about enhanced pension benefits.
We're making contact with industry groups, professional groups
that work in the healthcare industry, to go out and meet with
them, do presentations about our benefit program.
Senator Nelson. And is part of that communication, be on
the lookout for crooks?
Mr. McLenachen. Yes, sir. And we think that that's a
critical component, is to tell people about what's required for
the benefit, who can represent you, who can charge fees,
whether you can transfer assets. We think that's an important
component of it. So, all of our outreach activities are going
to be geared toward delivering that type of message.
We have a benefits assistance service that is helping us
develop products for doing that, so it's not just going out and
meeting people face to face, but developing things like short
video clips that explain this information that could be
distributed nationally to nursing homes and other facilities.
What we really need to do is reach family members.
Senator Nelson. Ms. Schaffer, and I'll conclude with this,
what do you think the VA could have done that would have
alerted your family so that your father would not have been
taken advantage of?
Ms. Schaffer. First of all, one of the reasons that we
actually went with this program was because the attorney
represented himself as being accredited by the VA. We took that
at heart, saying that it had been looked at, that it was okay.
It was something that we could follow-through with. Maybe
looking into more how people are accredited, and how they take
that accreditation and present it to the public.
Senator Wyden. Thank you, Senator Nelson.
Senator Tester.
Senator Tester. Yes. Thank you, Mr. Chairman. I will start
out with you, Mr. McLenachen. Thank you for your service. We
appreciate your service to this country.
Mr. McLenachen. Thank you.
Senator Tester. You said you agreed with the GAO
recommendations. Can you tell me when they'll be implemented?
Mr. McLenachen. I can't give you an exact date, sir, but I
can tell you that right now we're working on the forms that
they recommended that we revise. That's a critical component of
this. My staff has draft regulations ready.
Senator Tester. Okay.
Mr. McLenachen. We have draft regulations all ready. We've
been working on them for months.
Senator Tester. Okay. What I just need to know from you is,
if you could get back to Chairman Wyden on when you anticipate
those recommendations, a timeline for them to be implemented,
that would be great.
Senator Tester. I assume you're working on it. It sounds
like you are.
Mr. McLenachen. Yes, sir.
Senator Tester. Claim assistance. Ms. Schaffer talked about
the fact that they dealt with an organization that had been
accredited in claims assistance. I don't know if you've had a
chance to look at her testimony or not, but did the VA accredit
the outfit that took her dad and mom to the cleaners?
Mr. McLenachen. I can't answer the question of whether, I
believe it was an attorney, was the testimony, and actually,
yes, sir, I did. Before I came to testify, I checked the
general counsel's web site, and that attorney is accredited by
VA.
Senator Testers. Okay. What are the ramifications of that
attorney now? What process do you go through to determine if
Ms. Schaffer's accusations are accurate? And then what do you
go through to determine what you're going to do with him?
Mr. McLenachen. The Office of the General Counsel has
authority to suspend or cancel that attorney's accreditation.
Senator Tester. Is there anything else other than that?
Mr. McLenachen. Other than that, no sir. That's the limit
of VA's authority.
Senator Tester. Okay. So, what you are saying is, a person
could go out and make a claim that they were accredited to a
veteran, and not be accredited, or be accredited, and be a
crooked person that's accredited, and the only thing that
happens to them is they just pull their accreditation?
Mr. McLenachen. That's the limit of our authority right
now.
Senator Tester. Who gives you that authority?
Mr. McLenachen. Congress does, sir.
Senator Tester. Okay. We might want to look at that. Ms.
Schwarz, you talked a little bit about 98 percent, and I'm just
kind of quoting by the notes I got off your testimony. Thank
you-all for being here, by the way. All of you. 98 percent are
financially eligible right away. That means when they walk
through the door to your organization, or you walk through
their door, representing your organization, whichever it may
be, that 98 percent of the folks don't have to have a reserve
account, immediate annuity, or deferred annuity. They're
already eligible.
Ms. Schwarz. Yes. Most of our seniors, the average amount
of savings, excuse me, median liquid assets of a senior 87
years old living in a facility, is $125,000.
Senator Tester. Yes. So, you don't have to do a darn thing.
Ms. Schwarz. Correct.
Senator Tester. They're ready to go.
Ms. Schwarz. Yes.
Senator Tester. So, you're basically saying out of the
69,000 families that you've dealt with, 1,380 of them are ones
that you've had to really work with.
Ms. Schwarz. Yes. We have not done--as I was making my
statement, it's not as rampant----
Senator Tester. So, the rest of them, you're not
recommending to get into annuities or anything.
Ms. Schwarz. Right.
Senator Tester. You're just helping them access the
program. Is that correct?
Ms. Schwarz. Absolutely. Yes.
Senator Tester. Okay. Could you give me any idea, Mr.
McLenachen, have you been in contact with the veteran service
organizations, as far as letting them know about the programs,
and what's out there, and potential rules out there.
Mr. McLenachen. Yes, sir. We regularly attend veteran
service organization conferences. They meet with us at VBA
headquarters. Just yesterday, I was up in Atlantic City.
Senator Tester. So, this is regular communication with the
VSOs, right?
Mr. McLenachen. Yes, sir.
Senator Tester. Ms. Perkio, from your perspective, does the
VA work with the American Legion so that you can educate
veterans? And I don't want to get you two in a fight here. Just
tell me what's going on.
Ms. Perkio. This was not brought to my attention. When I
put out my request throughout the American Legion, this was not
brought up that it had been put out there. So, it may just be a
communication issue on my part, but it wasn't--this was not
anything that I had heard before.
Senator Tester. Okay. Well, I want to go back with what
Senator Nelson said, and that is, I think, communication is
critically important. And the VSOs, by the way, I believe, are
an untapped group of folks out there that just have an
incredible opportunity to do outreach and let people know
what's going on.
I had a question for Ms. Schwarz. Are you accredited as
claim assistance?
Ms. Schwarz. The company is not. Private companies are not
yet allowed to be accredited. No.
Senator Tester. Well, hold it. Lawyers aren't exactly,
they're not public entities. They're private entities. You're a
credit lawyer, right?
Ms. Schwarz. I'm not.
Senator Tester. So why don't they accredit you.
Ms. Schwarz. They're not allowing companies to become
accredited.
Senator Tester. Talk to me about this.
Mr. McLenachen. Sir, let me explain. Congress has given us
authority to recognize veteran service organizations. Those are
the only organizations that we accredit. However, individuals
can be accredited, non-attorneys, to be claims agents. So, Ms.
Schwarz could apply to be a claims agent and represent veterans
in the process.
Senator Tester. Why haven't you? By your testimony, you're
one of the good guys.
Ms. Schwarz. Uh-huh. I have.
Senator Tester. You have.
Ms. Schwarz. And I have not been approved.
Senator Tester. You've been turned down.
Ms. Schwarz. Correct.
Senator Tester. When did you apply?
Ms. Schwarz. I don't have the date off the top of my head.
I don't want to give you misinformation. I'd be happy to
provide it to you.
Senator Tester. A month ago? Six months ago? Year ago?
Ms. Schwarz. Year ago. Years ago. Yes.
Senator Tester. Years ago?
Ms. Schwarz. I have a file. I could give it to you.
Senator Tester. Typically, how long does it take to get
accredited, Mr. McLenachen?
Mr. McLenachen. I don't have that information with me, sir,
but it depends on whether it's an attorney, a claims agent. A
claims agent actually has to take a test and pass a test to be
accredited.
Senator Tester. Okay. Just real quick in closing, and I
want to thank the chairman. I went over time, and I don't even
belong in this committee, but I appreciate your guys'
flexibility to allow me to ask some questions.
I don't care what happens in life, it seems like there's
people who play by the rules and there's people who don't. And
if you're unfortunate enough to get hooked up with somebody who
doesn't play by the rules, you can lose, in your case, a
lifetime, your parents' lifetime of savings. We've got to
figure out how to fix it.
I, quite frankly, think that you ought to have greater
authority than just pulling their accreditation, if, in fact,
somebody you accredit does something that's inherently bad to
our veterans, because that's not the trust you place in them
initially, and I think that that's not a big enough penalty to
stop people from doing stuff, if they're inherently crooked.
And so, I appreciate the work this committee is doing, Mr.
Chairman. I just think that it's good, and I think that the
fact you had Senator Burr here earlier, Senator Murray, the
chairman of VA Committee, if there's things we can do to work
with you, since I'm a member of that committee, too, to make
sure that we minimize this, in fact, wipe it out, count me in.
Thank you-all for your testimony.
Senator Wyden. Thank you, Senator Tester. And we talked
earlier, when Senator Burr was here, I mean the fact that under
the leadership of Senator Murray and Senator Burr, the Veterans
Committee and this committee are teaming up. As we know, you
don't see this kind of cooperation all the time here in the
United States Senate, and we really appreciate your leadership.
Let me begin with some questions, particularly for you, Ms.
Schaffer, and you, Ms. Perkio, and we'll just get all of you
involved in the discussion. Obviously, Ms. Schaffer, you now
are very much aware of the eligibility requirements for aid and
attendance. The pension poacher, in your particular case, in
effect, that was Mr. Ocker, as I understand it, guaranteed
acceptance for your father. Do you think there is any way he
could have filled out the paperwork to get your father that
benefit without providing inaccurate or misleading information?
Ms. Schaffer. I personally cannot answer for what Mr. Ocker
would have done. I do know that he wanted the $4,000. My father
did not have $4,000 to give him. But, his personal guarantee,
and the fact that he brought in the gentleman from the facility
and told him that my father did qualify, like I say, I cannot
answer how he would have done it, but he did tell us that we
had everything there, my father passed all of the eligibilities
that he would need to, and that he definitely would have
qualified.
Senator Wyden. My sense was, as I listened to you and heard
from the staff, was that he would have had to lie to qualify
your father for aid and attendance. Do you think that's by and
large correct?
Ms. Schaffer. To be honest with you, I would hate to think
that someone would lie in order to get benefits of any sort. I
cannot, once again, speak for him, whether or not he would
have, but sitting in the meeting with him and the manager from
the facility, and he said that my father would qualify, I don't
know how he would have--what he would have done in order to
assure that.
Senator Wyden. Okay. Ms. Perkio, you all, at the Legion, do
a terrific job for the vets, and, of course, your service, in
terms of assisting these veterans, is free of charge. What do
you think of this practice of charging fees for financial
instruments like deferred annuities and that sort of thing?
What do you-all think of that there at the Legion?
Ms. Perkio. The American Legion finds that abhorrent. It's
taking advantage of a system that is designed to work for our
permanently disabled and elderly veterans who are wartime, and
their widows. The American Legion does not agree with being
able to basically hide an asset to qualify.
Senator Wyden. What I said, I ran the legal aid program for
senior citizens for a number of years before I came, you know,
to the Congress, and listening to all of you just reaffirmed
that it seemed to me that the work you do and other
congressionally chartered organizations ought to be the norm.
Now, there may be exceptional circumstances and the like for
going to some of these financial planners and paid firms, but
I'm certainly going to do everything I can to get across the
principle to the VA and others that your kind of services that
you do day-in and day-out for veterans, and have for many
years, ought to be the norm. That ought to be the standard. And
under general rule, we want veterans to pursue that.
Now, Mr. Bertoni, I'd like to turn to you and go to an
example from your testimony and your report. You said your
investigators contacted suspected pension poachers, posing as
the adult child of an 86-year-old veteran with enough assets to
be disqualified for the Aid and Attendance pension. You
referenced a company that proposed the purchase of a deferred
annuity that would likely not generate payments during the
veteran's lifetime. Can you give us the name of the company in
this particular example?
Mr. Bertoni. That's correct. It was Veterans Financial, Ms.
Schwarz's company. We had between $350,000 and $500,000 in
assets.
Senator Wyden. Okay. Ms. Schwarz, you provided us a timely
response with respect to our initial request for information.
We do have, as you know, additional questions, based on the
original response. We have not, to date, gotten answers to
those questions. We would hope that you'd commit to providing
us a response for the record. And there are a couple of
questions that I just need to ask to get into the issues that I
think are appropriate this afternoon.
Business records indicate that Veterans Financial, Inc. was
established in 2008 by Emily Newmark. Is that you?
Ms. Schwarz. Yes.
Senator Wyden. Okay. What is your relationship with Brian
Newmark, who founded Veterans Financial Services, Inc. in 2004
and is currently incarcerated for fraud?
Ms. Schwarz. Why is that relevant to the conversation that
we're having about asset transfer today?
Senator Wyden. Well, I'll make my own judgments about why
something is relevant. And if you would just answer the
question that I posed, that would be helpful this afternoon.
Ms. Schwarz. I think my marital status is a protection by
privacy, and I don't feel that I should have to answer my
marital status.
Senator Wyden. Besides Victoria Larson, and John White, and
Mary Chiaveroli, are there any other Veteran Financial
employees or associated independent contractors who have been
indicted for fraud or named in class action lawsuits?
Ms. Schwarz. I don't know the answer. To be specific, we do
have a few employees from the prior company, but I can't tell
you, to be exact. I'd be happy to provide you that answer, but
I don't have it at the moment.
Senator Wyden. We would like that. And when would you be
able to provide that?
Ms. Schwarz. I could provide it this week to you.
Senator Wyden. Very good. Thank you.
Ms. Schwarz, I'd now like to refer to an enlarged version
of a promotional material from your company, where it's
highlighted, it says, and I quote, ``With proper planning, most
can become eligible, and Veterans Financial, Inc. specializes
in this type of planning.''
You stated in your written testimony that, ``Charging
astronomical fees for trusts or other work is despicable and
embarrassing behavior.'' Yet, you've reported to this committee
4-year earnings on commissions from annuity sales of over $9
million, based on sales of 479 annuities or other insurance-
type products. This type of planning, your specialty, according
to your own ad, averages just over $19,000 per sale, according
to your firm's numbers, and that is almost double the highest
fees mentioned in the GAO report.
Now, you have said your company provides full disclosure.
Do the veterans who come to you for help, based on advertising
like this, know how much you are likely to gain from your
business with them?
Ms. Schwarz. Are you asking if we give them our commission
statements?
Senator Wyden. Yes.
Ms. Schwarz. We would give them our commission statement,
if they asked for it, yes. We're not trying to hide that we are
earn an insurance commission from doing an annuity sale.
Senator Wyden. Would they understand before the sale--the
reason I feel strongly about this is that we have so many
organizations who do this for free. Do these veterans have a
sense, prior to doing business with you, what kind of money
you're likely to make off of them? You've said that you'll give
it to them if they ask.
Ms. Schwarz. I think I need to make something clear,
though. An annuity commission does not come out of the senior's
assets. If they put $100,000 in the account, the company is
compensated approximately 6 percent. 3 percent of that goes to
the agent. 3 percent stays with the company. There's not 6
percent taken out of that $100,000. There's nothing coming from
the senior. So, we do not charge them fees, as I stated.
Senator Wyden. Well, the Government Accountability Office
talks about fees that are charged, and the type of specialty
that you offer, according to your ad, averages just over
$19,000 per sale, according to your numbers. And it just seems
to me that a veteran ought to know what you're likely to make
off them.
Now, let's go to another visual, again, with a page from
your web site. This page titled ``Assisted Living Community
Staff Training'' lists training available from your company.
The highlighted section includes the offering, ``How to Use the
Benefit as a Marketing and Sales Tool.'' Now, you heard Mr.
Bertoni's testimony earlier on the intent of this program, and
the VA's policy on estate preservation and asset protection.
Now, your own web site shows that you specialize, you
specialize in moving assets to make financially over-qualified
veterans eligible, and offer training on how to advertise aid
and attendance to maximize enrollment rates at assisted living
facilities. And I'm just trying to figure out how that is in
the spirit of the aid and attendance, you know, program.
This is a program for very frail, vulnerable seniors who
served our country. We've heard from the American Legion that
they can provide these services free. We've asked experts at
some length that the norm ought to be for a veteran to get
these services free of charge. And I'm just trying to get a
sense of how what you-all do is consistent with the intent of
the program.
The intent of the program, I don't see anything in this
program that talks about how to be a specialist, a specialist
in moving assets around to make financially overqualified
veterans eligible, and offer training on how to advertise aid
and attendance to maximize enrollment rates. So, tell me how
what you-all do is consistent with the spirit of this program.
Ms. Schwarz. So, I think it's a two-part question, or a
multiple-part question. First of all, the training that we have
offered for senior living professionals is about the VA
benefit, about the four criteria and the eligibility. It's not
training on marketing on how to get people to move in with the
benefit. It's about the four criteria, which unfortunately is
not being provided to them by any other sources.
They're coming to us, asking for information about the
criteria, because a lot of the people in the assisted living
industry are new to the industry, and they're not familiar with
it. It is a short presentation about how to understand the
benefit, so they can explain it to a senior.
I'm trying to think of the rest of your question.
Senator Wyden. Well, the rest of the question, ma'am, deals
with the fact that on your web site you say you specialize in
moving assets to make financially over-qualified veterans
eligible.
Ms. Schwarz. I think the web site is exactly what my
testimony said. We do understand how to make families, whose
asset level is not destitute, eligible for VA benefits, under
the current regulations. If the regulations are changed and you
do a 3-year look-back, as was testified by Senator Burr, we're
going to have to work within the regulations.
Senator Wyden. Ms. Schwarz, that's simply not accurate. Let
me just read you from their policy manual, or as it's been
cited in the----
Ms. Schwarz. Okay.
Senator Wyden [continuing]. GAO report. ``VA's policy
manual specifically states that the VA pension program is not
intended to protect substantial assets or preserve an estate
for a beneficiary's heirs.'' And that's the policy manual.
Ms. Schwarz. The GAO's report just stated that it was legal
to do ----
Senator Wyden. Right.
Ms. Schwarz [continuing]. The planning, and if the Senators
choose to change that, we will absolutely abide by it.
Senator Wyden. But, the GAO says that the pension program
is not intended to do what you say you specialize in, and
that's what concerns me. And I guess I'm just going to wrap it
up.
You heard what Mr. Bertoni said about their investigators,
looking at suspected pension poachers, posing as the adult
child of an 86-year-old veteran, with enough assets to be
disqualified for the aid and attendance pension. And he said it
was your company. Any reaction to that?
Ms. Schwarz. My honest reaction is, I don't understand why
my company is sitting here, being asked these questions,
without attorneys, 8,000 accredited attorneys doing trusts,
usually of much larger value than anything that we're writing,
are not sitting on this panel. That would be an objective
panel. I am the only person from this side of the table
discussing this. I know we do a good job for our families. I
know my staff is very proud of the work we do, and we have a
lot of very happy people. It sounds like there are other very
unhappy people. But, those folks that have done that are not
here.
Senator Wyden. Well, Ms. Schwarz, when the Government
Accountability Office describes particular situations, that
certainly generates interest on my behalf and others, and
that's why you were asked to come.
Let me ask you a question, if I might, Mr. McLenachen. The
VA IG has been getting complaints about this for years. Is it
correct that the agency has known about this problem for some
time? I mean we've heard about that from those at the agency.
Is that correct?
Mr. McLenachen. Sir, I know that in my former position,
before I came to this position in the General Counsel's office,
we became aware of this issue, and I would say that it was
within the year or two before I came to this new position we
first started hearing about this, probably related to the
change in law that allowed attorneys and claims agents to
charge fees at an earlier point in the process. I imagine
that's probably about the time where this started popping.
Senator Wyden. So, you're saying that the agency knew about
it a couple of years before it began to take steps, or you
weren't in the position that you hold now, so you have
authority to take these steps. Because, I will tell you, we
have heard from those who are very familiar with this program
that the VA had known about these complaints for years before
action was taken. Is that right?
Mr. McLenachen. Sir, what I can tell you is what I have
knowledge of, and what I have knowledge of is when we got these
type of complaints forwarded to us by the Veterans Benefits
Administration, and when I was in the General Counsel's office,
was our policy to advise the attorney general, the State where
the incident occurred, of this issue, and to have them look
into it. That was our policy at that time.
Senator Wyden. Senator McCaskill has arrived, and I just
want to make it clear to all of you that it's my view that this
program has become a magnet for sleazy con men and rip-off
artists who would exploit frail and vulnerable veterans. And
there are two consequences of this.
First, you know, veterans get hurt, and we saw that with
this really shameful example that you've given us this
afternoon, Ms. Schaffer, with respect to your folks. And that
was just about as outlandish as anything I've heard about over
the years. And as you've heard me say, this has really been an
area that I focused on. So, you see veterans hurt.
And second, it seems to me that when the Federal budget is
facing what's ahead, with budget sequestration and all of these
tough decisions, the Federal Government and the Senate has a
special obligation to protect a program that ought to be a
lifeline for the needy. That's what this program is all about.
This program is for people who need it, rather than people who
fleece it, and as I listen to these accounts and people trying
to manipulate these assets to qualify people who are not going
to be qualified under normal circumstances, and sell products
like deferred annuities that the American Legion thinks are
simply, you know, a rip-off, this has got to get corrected,
because if it's not, in this kind of financial climate, you're
going to see people say, ``Well, maybe this is a program we
shouldn't have, shouldn't have it, because it's going to be
ripped off.''
We want to help needy people, but we don't want to see
taxpayers ripped off. So, it's time to drain the swamp. And we
are very fortunate here that one of our best investigators, and
a strong advocate for veterans, who has been doing this kind of
work for a number of years, has joined us, Senator McCaskill,
and we welcome any comments you'd like to make, any questions
you'd like for the panel.
Senator McCaskill. Thank you, Senator Wyden, and thank you
for spearheading this effort. I think there's a special place
in hell for companies that take advantage of veterans in this
way. And they are taking advantage of veterans, because I have
to believe--and let me ask the American Legion representative,
Ms. Perkio, do you think these veterans understand that they're
being asked to hide things, because if they didn't hide them
they wouldn't qualify for these benefits. Do you think the
veterans understand that they're being asked to commit a form
of fraud?
Ms. Perkio. No. No, ma'am. From my investigation, in
looking into this, veterans don't realize--they're taking the
word of that lawyer, or whoever they're dealing with, and when
they're told they don't need to report it, they don't think
that they've done anything wrong. And then when they get
contacted by the VA, asking for more information, because the
claim was typically incomplete, that's when it comes out that
it should have been reported, and then they end up in the
situation that we've heard about today. But I don't believe
that they know that they're doing something wrong.
Senator McCaskill. So, the United States Government, and
those of us who are privileged to serve it, in whatever
capacity that we serve it, and you certainly serve it, and the
folks at GAO certainly serve it, and obviously, no one serves
it better than our veterans, we're trying to make sure that we
honor these people by making sure that when they're old, they
are not destitute. And some sleazy folks have figured out that
they can make money off of it. And in the process, they are
compromising the integrity of these very, very proud men.
And this is a generation that I'm very familiar with. My
dad was in World War II, and he didn't talk much about it. We
didn't even know he had a bronze star until after he died,
because he was not somebody who thought that it was special. He
was very humble about it. And I guarantee you, the people, I'm
sure, Ms. Schaffer, that the description I'm doing right now, I
think probably sounds familiar to you.
Ms. Schaffer. Yes, ma'am, it does. My father doesn't speak
of it very often.
Senator McCaskill. So, let me ask GAO--first of all, good
work.
Mr. Bertoni. Thank you.
Senator McCaskill. As you know, I'm a weirdo. I love
auditors. In fact, when I first came to Washington, David
Walker teased me, because I have a place that looks over your
building, and he said, ``Let me see if I can get this straight.
It was as close as you could get to being a government auditor
without being a government auditor,'' by where I located my
residence here in D.C. This is a good report.
Let me ask you about whether or not we should look at
criminalizing this behavior with some more specificity. It
seems to me this is really a kissing cousin of criminal fraud,
if it isn't out and out fraud. Could you speak to that?
Mr. Bertoni. Sure. Fraud is very difficult to prove. It's a
high bar. Right now, the financial planners and attorneys are
working within--they're playing the edges. They're playing the
fine lines in this program. And they're very clear in their web
sites and in recorded conversations, the 19 recorded
conversations that we had, to signal that this is allowed under
the current framework, and that they're accredited, and that
gives them some additional authority or reason for you to trust
them, but it's skirting the lines of sort of credibility, and
they're still able to work within those confines.
I really do think that VA needs to look at its
accreditation process to weed out those folks who are not
providing the products that they should be. Criminality is
being pursued at the State level. We know the State attorneys
general are looking at this on an individual level. But, it
really is on an individual basis.
Right now, it is legal. I think statutorily, if you put a
look-back period, and write this into the law, you could
prevent a lot of the money-driven transactions and sometimes
scams that are happening now.
Senator McCaskill. Have you got legislation drafted,
Senator Wyden? Do we criminalize it?
Senator Wyden. What we're going to propose, and we would
very much like to work with the Senator from Missouri, because
you spent so much time on these issues, Senator Burr and I have
been working on trying to put forward a look-back approach to
make sure that people are trying to gain these assets. And, you
know, the pension poachers, who try to take people who are
overqualified, and dupe them into signing up for these
investments, that we'd have a chance to look back and unravel
some of these rip-offs. That, of course, is what's done in
Medicaid.
Senator McCaskill. Right. Isn't there a criminal penalty
for someone who knowingly tries to hide assets for purposes of
qualification for a government program in many of our other
government programs?
Senator Wyden. There is, and you bump up against exactly
what Mr. Bertoni was talking about with respect to proving
intent and this high bar for fraud. But, if anybody can figure
out how to make sure----
Senator McCaskill. Let's work on it.
Senator Wyden [continuing]. That we take the toughest, most
aggressive approach to these pension poachers, it will be the
Senator from Missouri, and if you would like to pursue this,
we'll talk to Senator Burr, and we're getting ready to put that
in.
Senator McCaskill. Well, and also, I think if we draft this
appropriately, so that we would have to have a ``knowing''
standard. You would have to knowingly, and I'm not talking
about the veteran being criminalized here. I'm talking about
the adviser who is advising someone that they need to transfer
assets or buy these certain products in order to qualify for a
government benefit. If we can draft that carefully enough, I
think typically the bar is fairly high in these cases. It might
not be quite as high in these cases, because at the end of the
day the people who decide if the evidence is there beyond a
reasonable doubt are 7, or 10, or 12, depending on the State,
how many jurors there are in a criminal case or in a Federal
case.
These are the kinds of facts that infuriate people. I mean
it's like veterans who lie and say they're disabled veterans,
in order to get advantages in the law. You know, people do
that, also. The fact that the class of people that's being
taken advantage of here, as it relates to accessing these
benefits, are these veterans, I think make these very powerful
cases. And I think the deterrent effect would be enormous, if
we could criminalize some of this behavior.
Mr. Bertoni. If I could add just one thing. Right now,
because it is such a high bar, I think that's going to be a
difficult thing to do. I really do think that if you keep this
in the arena of the look-back period, you can allow folks
financial planning for estate planning, for retirement
purposes, to have an income stream going forward. We all should
be doing that. It's when you are doing it for the sole purpose
of qualifying for a benefit where it becomes very abusive. And
we have cases where individuals are going into trusts,
converting into annuities weeks and just a month before
applying for benefits. Those are the cases where I think you
can make the case for fraud.
Senator McCaskill. Well, I think that you could. And by the
way, we went through a lot of these same issues in the same
hearing room on reverse mortgages, when you had people out
hawking reverse mortgages and to the very same person they sold
a reverse mortgage to, that was 80-some years old, they sold
him a lifetime annuity at the age of 82 or 83. You know,
obviously, an inappropriate financial product for that person,
but it was done in connection with marketing the reverse
mortgage, because it doubled up the commission for the people
that were selling the reverse mortgages.
So, I thank all of you for being here. I thank the Senator
and Senator Burr, both, for doing this, and I congratulate GAO
on a strong audit. And you given me two or three good under-
covers, and you've give me some of these people that are
selling this stuff, and I know what GAO got on tape, I think
some under-covers could do a really good job of exposing even
more of this, if we looked at whether or not, in the most
egregious circumstances, we could put some criminal behavior in
association with this, to protect these veterans.
Senator Wyden. Look, pension poachers better look out,
because Senator McCaskill is going to be coming after them.
Senator McCaskill. Well, I think the United States Senate
should be coming after them. It's not me. This is really about,
I hurt for the men and women who might be taken advantage of
here, because the last thing in the world they want to end
their life with is being accused of taking something they don't
deserve. And that's what this is really about. I mean this
program is supposed to be for poor people, not for people who
transfer assets. I just hate it, for the integrity of these men
and women who have served our country that they would have, at
the end of their life, the notion that somehow they cheated.
It's just not fair to them, because most of them, I don't
think, would even be interested in doing it for the extra money
if they hadn't been told that it was appropriate.
And thank you for sharing the story of your family.
Sometimes it's embarrassing to say, when your family, in many
ways, has been taken advantage of, but I thank you, Ms.
Schaffer, for doing it. And I thank you all for being here.
Senator Wyden. Senator, you just touched on a point that
ironically in 2-and-a-half hours never really got made, and it
deals with this question of this being a program for people who
need it. What's striking about this is seniors who have assets,
they have no problem at all finding reputable financial
planners, and lawyers, and counselors. What this has been about
is essentially a pattern of abuse by people who aren't either
well off, you know, financially, under, you know, general
circumstances, or have access to these professionals. These are
about people who are vulnerable, and they're being ripped off,
and you've made that distinction, and I appreciate it.
I've only one other question for you, Mr. Bertoni, at the
GAO. One of the practices we heard about fairly late in our
inquiry struck me as, again, really outlandish, and that was,
we heard discussion of those who went to pension poachers, of
course, and basically said to the senior, ``You ought to sign
up right now, because this is what you're going to have to do
to get a good deal. You're going to get a discount.'' They, in
effect, made up this, you know, deadline, or hyped a
particular, you know, promotion, and, in effect, it's sort of a
twofer, you know, abuse. Again, it's misrepresentation, but it
also discourages veterans from going to the legitimate service
organizations, such as Ms. Perkio's and the folks at the
Legion.
Did you find that kind of a problem when you-all were doing
your inquiry?
Mr. Bertoni. At least in regard to our 19 calls, we weren't
getting to sort of get the deal of the day to sign up. We are
aware in our travels and our interviews where folks have been,
I don't want to say coerced, but sort of pressured to, you
know, do this quickly, especially if you want to apply quickly,
we can get this done, we can have you apply for benefits the
next day.
We do know that some of these organizations have very
official sounding names. They oftentimes don't acknowledge that
they are not representative of the government, and people can
be led to believe they are. Again, aggressively promoting the
accreditation, which lends an aura of trust to what they are
telling you, and I think it's a vulnerability in the program.
As far as deals or sort of what they're telling clients, we
don't know. We're not privy to those conversations, but we do
know that the facilities, as well as the providers, are
developing relationships, and there are referrals going back
and forth both ways, from the facilities to the providers, to
the providers, to the facilities, and we know in some cases
that there are finders' fees going back and forth. So, there's
clearly a relationship, and the independence here is becoming a
bit murky.
Senator Wyden. The slide that the staff is holding up is
essentially one of people pretending to be part of the VA, and
obviously, these kinds of misrepresentations, people, you know,
pretending to offer these services that would be of real value
to veterans, rather than these deferred annuities are exactly
what we want to deal with.
We thank you all. We've had a good hearing. We appreciate
all of the witnesses. And with that, the Committee on Aging is
adjourned.
[Whereupon, at 4:00 p.m., the hearing was adjourned.]
APPENDIX