[Federal Register Volume 59, Number 169 (Thursday, September 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21651]


[[Page Unknown]]

[Federal Register: September 1, 1994]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 8

RIN 2900-AH03

 

National Service Life Insurance

AGENCY: Department of Veterans Affairs.

ACTION: Proposed regulation.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend its 
National Service Life Insurance (NSLI) policy loan regulation to 
provide that when an interest rate change is required on an NSLI 
variable rate loan the effective date of the new interest rate will be 
on or after the first day of October on the date the change is 
implemented through the insurance Automatic Data Processing (ADP) 
system. This action is being taken to allow sufficient time to make all 
necessary modifications to the Insurance ADP system without any adverse 
impact on NSLI policyholders or VA.

DATES: Comments must be received on or before October 3, 1994.

ADDRESSES: Interested persons are invited to submit written comments, 
suggestions, or objections regarding the proposed regulation to the 
Secretary of Veterans Affairs (271A), Department of Veterans Affairs, 
810 Vermont Avenue, NW., Washington, DC 20420. All written comments 
will be available for public inspection in the Veterans Services Unit, 
Room 119 of the above address, between the hours of 8 a.m. and 4:30 
p.m., Monday through Friday (except holidays).

FOR FURTHER INFORMATION CONTACT:
Mr. Gregory Hosmer, Senior Insurance Specialist/Attorney, Department of 
Veterans Affairs Regional Office and Insurance Center, P.O. Box 8079, 
Philadelphia, Pennsylvania 19101, (215) 951-5710.

SUPPLEMENTARY INFORMATION: Sice 1987 the loan interest rate on all new 
NSLI policy loans has been a variable rate that is tied to an economic 
indicator. The indicator is the Ten-Year Constant Maturities Index of 
U.S. Treasury Securities for the month of June of each year. Current 
regulations require rate changes to be effective October 1. 38 CFR 
8.28(c). The June 1, 1994, indicator has resulted in a need to increase 
the loan interest rate by two percentage points from 5% to 7%.
    From an administrative standpoint, in all likelihood it appears 
that VA's computer resource staff will not be able to provide the 
necessary programming support to implement this change on October 1 
without adversely affecting two major insurance ADP projects. The first 
critical project involves the expansion of the insurance master record, 
which is scheduled to be implemented in October of this year. Because 
of the current limitation of the system, the insurance personnel have 
been forced to split policies into two and in some cases three or four 
policies in order to process loans in excess of funds over $9,999.99. 
This results in the issuance of multiple policies, with separate 
billings for loan interest and premiums and separate annual statements. 
A similar situation arises when the amount payable on an insurance 
death claim exceeds $9,999.99 and the policy must be split. These split 
policies adversely affect customer service and require a substantial 
amount of clerical intervention in order to process the desired 
actions.
    The second project which would in all likelihood be delayed is the 
``rehosting'' project which will consolidate insurance ADP processing 
onto one mainframe system. Today, the insurance system runs on two 
parallel systems, and IBM mainframe which does all of the batch 
processing and a Honeywell system that handles all of the data entry 
transactions. In running parallel systems VA incurs additional 
maintenance fees as well as redundant program costs to keep two systems 
synchronized.
    In addition to our administrative concerns, the failure to program 
the ADP system by October 1 to reflect the rate change could have an 
adverse impact on certain NSLI policyholders. Implementing the interest 
rate change on October 1 without programming the ADP system to bill 
policyholders on that date would require us to bill policyholders for 
back interest, which could put some policyholders in immediate jeopardy 
of having their policies automatically cancelled. This would occur if 
the outstanding debt on the policy (the loan principal plus interest) 
exceeds the policy cash value. Amending the regulations in the manner 
proposed would allow us sufficient time to make all necessary ADP 
modifications without any adverse impact on our policyholders.
    The Secretary of Veterans Affairs hereby certifies that this 
proposed regulation will not have a significant economic impact on a 
substantial number of small entities as they are defined in the 
Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612. Pursuant to 5 
U.S.C. 605(b), this proposed regulation is, therefore, exempt from the 
initial and final regulatory flexibility analyses requirements of 
section 603 and 604. The reason for this certification is that this 
proposed regulation will effect only certain Government life insurance 
policyholders. It will, therefore, have no significant direct impact on 
small entities in the terms of compliance costs, paperwork requirement 
or effects on competition.
    The comment period for this proposed rule has been shortened from 
sixty days to thirty days. It has been determined that this is 
necessary in order to establish a final rule prior to October 1, 1994, 
when the next rate change is effective.

    The catalog of Federal Domestic Assistance Program number for 
this regulation is 64.103.

List of Subjects 38 CFR Part 8

    Life Insurance, Loan programs--veterans, Veterans.

    Approved August 23, 1994.
Jesse Brown,
Secretary of Veterans Affairs.

    For the reasons set out in the preamble, 38 CFR part 8 is proposed 
to be amended as set forth below.

PART 8--NATIONAL SERVICE LIFE INSURANCE

    1. The authority citation for part 8 continues to read as follows:

    Authority: 38 U.S.C. 502, 1901-1924, 1981-1988, unless otherwise 
noted.

    2. In Sec. 8.28(c) the second sentence is removed and the following 
is added in place thereof:


Sec. 8.28  Policy loans.

* * * * *
    (c) * * * Such loan rate shall be effective on the date on or after 
the first day of October on which the rate change is made in the 
insurance automatic data processing system, and shall remain in effect 
for not less than one year after the date of establishment. * * *

[FR Doc. 94-21651 Filed 8-31-94; 8:45 am]
BILLING CODE 8320-01-M