[Senate Hearing 112-542]
[From the U.S. Government Publishing Office]








                                                        S. Hrg. 112-542

  PENSION POACHERS: PREVENTING FRAUD AND PROTECTING AMERICA'S VETERANS

=======================================================================

                                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











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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
                              ----------                              
                 Chad Metzler, Majority Staff Director
             Michael Bassett, Ranking Member Staff Director
















                         C  O  N  T  E  N  T  S

                              ----------                              

                                                                   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

                              ----------                              


                        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










                                  
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