[Federal Register Volume 66, Number 190 (Monday, October 1, 2001)]
[Proposed Rules]
[Pages 49886-49894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24272]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF VETERANS AFFAIRS

38 CFR Parts 3 and 4

RIN 2900-AH21


Total Disability Ratings Based on Inability of the Individual To 
Engage in Substantially Gainful Employment

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Veterans Affairs (VA) is proposing to amend 
those portions of its adjudication regulations and its Schedule for 
Rating Disabilities dealing with the issue of total disability ratings 
based on inability of the individual to engage in substantially gainful 
employment in claims for service-connected compensation or non-service-
connected pension. The purpose of these proposed changes is to revise 
and clarify the procedures and substantive standards for determining 
whether a veteran's disabilities, although they do not meet the 
schedular requirements for a total rating, nonetheless prevent him or 
her from engaging in substantially gainful employment. The intended 
effect of this action is to establish clear standards for assigning a 
total rating based on the individual's inability to engage in 
substantially gainful employment and to ensure consistency of decisions 
in such claims.

DATES: Comments must be received on or before November 30, 2001.

ADDRESSES: Mail or hand deliver written comments to: Director, Office 
of Regulations Management (02D), Room 1154, 810 Vermont Ave., NW, 
Washington, DC 20420; or fax comments to (202) 273-9289; or e-mail 
comments to [email protected]. Comments should indicate that 
they are submitted in response to ``RIN 2900-AH21.'' All comments 
received will be available for public inspection in the Office of 
Regulations Management, Room 1158, between the hours of 8:00 a.m. and 
4:30 p.m., Monday through Friday (except holidays).

FOR FURTHER INFORMATION CONTACT: Janice Jacobs, Consultant, Regulations 
Staff, Compensation and Pension Service (211), Veterans Benefits 
Administration, Department of Veterans Affairs, 810 Vermont Ave., NW., 
Washington, DC 20420, (202) 273-7223.

SUPPLEMENTARY INFORMATION: It is a long-standing VA policy to assign a 
total (100 percent) rating for an individual veteran who is unable to 
engage in a substantially gainful occupation because of his or her 
disabilities. When the veteran does not meet the requirements for a 
total rating under the Schedule for Rating Disabilities, 38 CFR part 4, 
but because of unusual individual circumstances, he or she is 
nonetheless prevented from engaging in substantially gainful employment 
because of disability, VA may assign a total rating.
    The regulations governing these extra-schedular ``individual 
unemployability'' ratings are scattered throughout part 3 and subpart A 
of part 4 of 38 CFR. (See 38 CFR 3.321, General rating considerations; 
Sec. 3.340, Total and permanent total ratings and unemployability; 
Sec. 3.341, Total disability ratings for compensation purposes; 
Sec. 3.342, Permanent and total disability ratings for pension 
purposes; Sec. 4.15, Total disability ratings; Sec. 4.16, Total 
disability ratings for compensation based on unemployability of the 
individual; Sec. 4.17, Total disability ratings for pension based on 
unemployability and age of the individual; and Sec. 4.18, 
Unemployability.) The United States Court of Appeals for Veterans 
Claims (the Court) has characterized these regulations as ``a confusing 
tapestry for the adjudication of claims.'' Hatlestad v. Derwinski, 1 
Vet. App. 164, 167 (1991); see also Talley v. Derwinski, 2 Vet. App. 
282 (1992). In addition to being scattered and confusing, the current 
regulations neither define the terms used nor clearly state specific 
requirements for entitlement to a total rating based on inability of 
the individual to engage in substantially gainful employment.
    In order to address these problems and make the provisions clearer 
and more uniform, we propose to make a number of changes throughout 
Secs. 4.15 through 4.18. The current regulations use the various terms 
``secure and follow,'' ``secure or follow'' and ``follow'' 
substantially gainful employment. We propose to employ a single term, 
``engage in'' substantially gainful employment. We propose to define 
terms used and outline specific requirements for these special ratings. 
We propose to make the regulations in 38 CFR part 3 (Secs. 3.321, 
3.340, 3.341,

[[Page 49887]]

and 3.342) consistent with the proposed provisions of part 4, subpart A 
and in both part 3 and part 4, remove redundant or otherwise 
unnecessary material, i.e., material which neither prescribes VA policy 
nor establishes procedures decisionmakers must follow. We also propose 
to make other changes to both part 3 and part 4 for purposes of clarity 
and to amend authority citations as appropriate.
    A portion of the current Sec. 4.15 repeats the purpose of the 
rating schedule already contained in Sec. 4.1, stating that the rating 
is based primarily upon the average impairment in earning capacity. It 
also states, among other things: that the ability to overcome the 
handicap of disability varies widely among individuals; that full 
consideration must be given to unusual physical or mental defects in 
individual cases that might prevent the usual amount of success in 
overcoming the handicap of disability; that total disability will be 
considered to exist when there is present any impairment of mind or 
body sufficient to render it impossible for the average person to 
follow a substantially gainful occupation; and that specific 
disabilities are considered permanently and totally disabling. Some of 
this information is also contained in Sec. 3.321, which provides for 
approval of extra-schedular ratings for those cases where the 
percentage evaluation provided by the rating schedule does not reflect 
the actual limitations imposed by the service-connected disabilities.
    We propose to eliminate as unnecessary the portions of Sec. 4.15 
that are stated elsewhere and to rewrite the section so that it will 
clearly state VA's long-standing policy to assign a total rating in 
individual cases where permanent physical or mental impairment results 
in an inability to engage in substantially gainful employment.
    Since the specific disabilities listed in Sec. 4.15 as permanently 
and totally disabling (i.e., permanent loss of use of both hands (DC 
5106, 5109); both feet (DC 5107, 5110); one hand and one foot (DC 5104, 
5105, 5108, 5111); and sight of both eyes (DC 6061-6063, 6067, 6071)) 
all warrant a 100 percent schedular rating under subpart B of the 
Schedule for Rating Disabilities, it is redundant to designate them as 
permanently and totally disabling here.
    Section 4.15 also provides that permanent helplessness or 
permanently-bedridden status will constitute permanent total 
disability. In service-connected compensation claims, those provisions 
are superfluous because 38 U.S.C. 1114(l) and (m) provide for 
compensation amounts greater than those payable for 100 percent 
disability in cases where a veteran is, due to service-connected 
disability, permanently bedridden or so helpless as to be in need of 
regular aid and attendance. For purposes of pension entitlement, 
although permanent helplessness or permanently-bedridden status may 
provide sufficient evidence of permanent and total disability, there 
may be cases where such status would not establish the existence of 
permanent and total disability (such as where the veteran is employed 
and earning significant income from employment). Accordingly, in our 
judgment, it is preferable to establish a uniform standard for 
determining whether a claimant whose disabilities are rated less than 
100 percent disabling is unable to engage in substantially gainful 
employment, rather than to presume such inability based on helplessness 
or bedridden status. (See 38 CFR 3.351, 3.352.)
    Section 4.16 currently states that a total rating for compensation 
purposes may be assigned if the schedular rating is less than total 
but, in the judgment of the rating activity, the veteran is unable to 
secure or follow a substantially gainful occupation due to service-
connected disabilities. However, the factors that would trigger rating 
activity consideration and the specific requirements for these total 
``extra-schedular'' ratings are not specified. We propose to reorganize 
and rewrite this section to establish clear requirements.
    In proposed section 4.16(a) we provide that a total rating based on 
individual unemployability may be assigned only if the veteran's 
disabilities do not warrant a total schedular rating. Because these 
extra-schedular provisions are for application only when a total 
schedular rating cannot be established, a decision to assign an extra-
schedular rating always requires review of the particular circumstances 
in that case. Disability ratings are to be based as far as practicable 
on the rating schedule. Current regulations in Sec. 4.16(a) make clear 
that total disability ratings based on individual unemployability are 
intended only to ensure appropriate compensation to persons who are 
unemployable due to disability but do not meet the schedular 
requirements for a total disability rating. Consequently, when a 
veteran is entitled to a total schedular rating, the justification for 
a total disability rating based on individual unemployability ceases to 
exist. We therefore propose to state in Sec. 4.16(a) that a total 
schedular rating cancels an existing rating that was assigned based on 
inability to engage in substantially gainful employment. The 
cancellation of a total rating based on individual unemployability 
under these circumstances will not result in a reduction of benefits, 
and the procedural provisions concerning the reduction or 
discontinuance of benefits are not applicable. We propose to amend 
Sec. 3.343(c) to make clear that the procedural provisions to which it 
refers for reduction of benefits are not applicable when a total 
disability rating based on individual unemployability is replaced by a 
total schedular rating.
    In Sec. 4.16(b), we propose to clarify that a total disability 
rating based on individual unemployability will not be assigned if the 
veteran already has a total schedular rating. A total disability rating 
based on individual unemployability could not result in any additional 
benefits to a veteran who already has a total service-connected rating. 
This provision is not a change, but merely a clarification of 
principles established by existing regulations.
    Claimants may establish entitlement to a total rating based on 
inability to engage in substantially gainful employment if 
circumstances unique to their individual situations cause the effects 
of their disabilities to be more severe than they would be in the 
average person. We propose to specifically state in Sec. 4.16(b) that a 
total rating for compensation purposes assigned because of inability of 
the individual to engage in substantially gainful employment 
encompasses all service-connected disabilities existing at the time the 
total rating is assigned. The intent of this change is to ensure that 
the overall effect of the service-connected disabilities and their 
impact upon one another is fully considered in determining if those 
disabilities prevent the individual from engaging in substantially 
gainful employment.
    We propose to state in Sec. 4.16(d) that a determination as to 
whether a veteran is unable to engage in substantially gainful 
employment due to service-connected disability or disabilities will be 
based upon evidence of the veteran's ability to perform the activities 
normally required for substantially gainful employment with the 
regularity and for the duration required for substantially gainful 
employment. We propose to include a list of specific factors which the 
rating activity must address in every claim for a total rating for 
compensation purposes based on inability of the individual to engage in 
substantially gainful employment.
    In Moore v. Derwinski, 1 Vet. App. 356, 359 (1991), the Court 
suggested that VA regulations on this issue address what a veteran can 
and cannot do in a practical rather than a theoretical

[[Page 49888]]

manner. In Sec. 4.16(d)(1), we propose to require that the rating 
activity consider medical evidence describing the veteran's service-
connected disabilities and the extent to which they limit the veteran's 
ability to perform ``activities normally required for substantially 
gainful employment.'' This phrase, as defined in proposed 
Sec. 4.16(g)(2), means both exertional and non-exertional activities 
that, as a group, affect the ability to engage in any form of 
employment. Exertional activities would include, but would not be 
limited to, the ability to sit, stand, walk, push, pull, use hands, 
reach, lift and carry. Non-exertional activities would include, but 
would not be limited to, the ability to communicate, remember, follow 
instructions, use judgment, adapt to changes, and deal with people, 
including supervisors, co-workers, and the public. Requiring the rating 
decision to be based upon the veteran's ability to perform these 
specific activities would assure that each decision would be based on 
more objective findings rather than merely on the evaluator's 
interpretation of the subjective term ``unemployable.''
    In Sec. 4.16(d)(2), we propose to require that the rating activity 
consider evidence of any other unusual limitations imposed by the 
service-connected disabilities, such as that they require 
uncharacteristically frequent periods of hospitalization, or that there 
are unusual effects of medication, etc. We believe that these factors 
could affect an individual's ability to perform activities necessary 
for employment and thus should be part of any unemployability 
determination.
    Under current provisions of Sec. 4.16, entitlement to a total 
rating for compensation purposes because of inability of the individual 
to engage in substantially gainful employment is based solely on 
service-connected disability or disabilities without considering age 
and non-service-connected disabilities in making the determination. 
(See Secs. 4.19 and 3.341.) We propose to include at Sec. 4.16(e) a 
list of factors that VA would disregard in determining entitlement to 
this rating. In addition to age and non-service-connected disabilities, 
we propose that VA would disregard: the veteran's training or lack 
thereof unless service-connected disabilities would impede further 
training; the state of the economy in the veteran's community; and the 
fact that prior employment may have been terminated due to such factors 
as employer relocation or technological advances that make a prior job 
obsolete. In our judgment these factors have no bearing on the effect 
of service-connected disability on the claimant's ability to perform 
activities deemed necessary for employment.
    We propose to state at Sec. 4.16(e)(3) that VA will not consider a 
veteran's training or lack thereof in the rating decision because 
training in one field does not preclude employment in some other area, 
nor does lack of training preclude a veteran from being successfully 
trained to engage in some form of substantially gainful employment. 
However, if further training is not feasible because of service-
connected disabilities, that is a factor VA should take into account in 
assessing the veteran's ability to engage in substantially gainful 
employment.
    Similarly, neither the state of the economy in the veteran's 
community nor the fact that a job the veteran previously held has been 
eliminated because of technological advances or employer relocation 
renders the veteran incapable of performing other substantially gainful 
employment. We propose to exclude these factors from consideration at 
Sec. 4.16(e)(4) and (e)(5) in order to focus the determination on 
whether a veteran can perform activities necessary to engage in 
substantially gainful employment rather than on whether he or she is 
unemployed.
    We propose that Sec. 4.16(f)(1) will state the percentages required 
for a rating activity to assign a total evaluation without referral to 
any other VA official. Current regulations in Sec. 4.16(a) provide that 
a rating board may assign a total rating without referral to any other 
official if the veteran has a single service-connected disability rated 
at least 60 percent disabling or has a single service-connected 
disability rated at least 40 percent disabling and sufficient 
additional service-connected disability to result in a combined rating 
of at least 70 percent. Current Sec. 4.16(a) also states that certain 
combinations of disabilities may be considered as a single disability 
for purposes of this determination. We are proposing to retain the 
current requirement of a 60 percent evaluation for a single disability 
now contained in Sec. 4.16(a). However, we propose to reduce the 
threshold for combined ratings from 70 percent to 60 percent and to 
eliminate the requirement that one of the disabilities must be rated at 
least 40 percent disabling. In our view, multiple service-connected 
disabilities combining to a 60 percent evaluation are no less likely to 
result in total disability based on individual unemployability than 
single service-connected disabilities evaluated as 60 percent or 
higher. We also believe that disabilities resulting in a combined 
rating of 60 percent may have approximately the same effect on a 
veteran's ability to engage in substantially gainful employment, 
regardless of whether one of the disabilities is rated at 40 percent or 
more. The proposed rule would, therefore, apply the same standard to 
all veterans having a combined rating of 60 percent or more.
    Because the proposed rules would eliminate the different percentage 
thresholds applicable to single disability ratings and combined 
ratings, there is no need to retain the provisions in current 
Sec. 4.16(a) stating that certain combinations of disabilities (e.g., 
multiple disabilities incurred in combat or in a single accident) may 
be treated as a single disability for purposes of applying those 
threshold requirements. Accordingly, we are not including those 
provisions in the proposed rules.
    Consistent with current regulations, we propose to require that if 
the specified percentage ratings are not met, but in the judgment of 
the rating activity the evidence shows that the veteran is unable to 
engage in substantially gainful employment due to service-connected 
disabilities, the rating activity will prepare an extra-schedular total 
rating for the approval of the Director of the Compensation and Pension 
Service.
    The Court has held that, under the current regulation, the Board of 
Veterans' Appeals (BVA) is precluded from assigning an extra-schedular 
rating in the first instance. (See Floyd v. Brown, 9 Vet. App. 88 
(1996).) In our judgment, requiring BVA to remand such cases to a 
regional office for a decision not only serves no useful purpose, it 
significantly increases the time that a claimant must wait for a 
decision on his or her appeal. We therefore propose to state in 
Sec. 4.16(f)(3) that, in cases before BVA on appellate review, the 
authority to authorize extra-schedular ratings extends to BVA. This 
proposal would reduce the number of cases remanded by BVA for regional 
office consideration and improve timeliness of appeals.
    The current unemployability regulations provide no clear definition 
of what constitutes ``substantially gainful employment.'' The 
regulations state that marginal employment (defined, generally, as 
earned annual income below the level established by the U.S. Department 
of Commerce, Bureau of the Census, as the poverty threshold for one 
person) is not considered substantially gainful employment. The Court 
has pointed out, however, that a purely negative definition, i.e., one 
that states what is not substantially gainful employment, is not 
adequate. (See Ferraro v. Derwinski,

[[Page 49889]]

1 Vet. App. 326, 333 (1991).) We propose to: eliminate the concept of 
marginal employment; define ``substantially gainful employment''; and 
state that if a veteran is employed, earned income that exceeds an 
amount that is more than twice the Maximum Annual Pension Rate (MAPR) 
for a veteran without dependents under 38 U.S.C. 1521(b) (as increased 
under 38 U.S.C. 5312(a)) will be considered conclusive evidence that 
the veteran is engaged in substantially gainful employment.
    We propose to define ``substantially gainful employment'' as any 
work that is generally done for pay or profit that the veteran is able 
to perform with sufficient regularity and duration to provide a 
reliable source of income. This definition takes into account that 
general abilities and skills are necessary for any type of employment 
and that in order for employment to be ``substantially gainful,'' work 
must be performed with reasonable consistency and for a reasonable 
period of time.
    As noted above, we propose to state that if a veteran is employed, 
earned income that exceeds an amount that is twice the MAPR for a 
veteran without dependents under 38 U.S.C. 1521(b) (as increased under 
38 U.S.C. 5312(a)) will be considered conclusive evidence that the 
veteran is engaged in substantially gainful employment. This amount 
roughly doubles the current level used to define ``marginal'' 
employment. Although the current regulation at Sec. 4.16 defines 
marginal employment according to a level of earnings, it also allows 
exceptions. For example, employment may be held to be ``marginal,'' and 
therefore not substantially gainful, when earnings exceed the 
established level if a veteran is employed in a ``protected 
environment.'' We propose to eliminate such exceptions so that the 
standard to determine whether a veteran is able to engage in 
substantially gainful employment applies equally to all veterans in an 
objective and impartial manner.
    The MAPR reflects the reasoned judgment of Congress concerning 
levels of income which are adequate to meet the ordinary needs of 
individuals with no other income and was designed to create a national 
minimum standard necessary to meet basic needs. This judgment is 
outlined in the legislative history of the Veterans' and Survivors' 
Pension Improvement Act of 1978, Pub. L. No. 95-588 (See H.R. Rep. No. 
1225, 95th Cong., 2d Sess. 27 (1978), reprinted in 1978 U.S.C.C.A.N. 
5583, 5608-5609). The MAPR is regularly adjusted for cost-of-living 
increases pursuant to 38 U.S.C. 5312. In our judgment, it is reasonable 
to conclude that an individual earning twice that amount from 
employment is engaged in substantially gainful employment, thus making 
further inquiry under the standards of Secs. 4.16 and 4.17 unnecessary.
    Section 4.17 is currently titled ``Total disability ratings for 
pension based on unemployability and age of the individual.'' We 
propose to retitle this section ``Permanent and total disability 
ratings for pension purposes.'' While this would not be a substantive 
change, it more accurately reflects the content of the section.
    In discussing pension entitlement, Sec. 4.17 currently states 
``When the percentage requirements [in current Sec. 4.16(a)] are met, 
and the disabilities involved are of a permanent nature, a rating of 
permanent and total disability will be assigned if the veteran is found 
to be unable to secure and follow substantially gainful employment by 
reason of such disability.'' This section also provides that if the 
veteran is unemployable but fails to meet the percentage standards, the 
claim will be referred to the Adjudication Officer. The requirements 
for a permanent and total evaluation for pension purposes are further 
discussed in Sec. 3.321(b)(2), which states that if the veteran ``is 
found to be unemployable by reason of his or her disability(ies), age, 
occupational background and other related factors,'' an extra-schedular 
permanent and total rating can be approved. Neither section specifies 
the manner in which these various factors will be considered.
    We propose to retain the basic provisions of the current Sec. 4.17 
but revise the language governing pension determinations to make it 
clear that the rating activity is authorized to approve a permanent and 
total disability rating if the veteran has either a single disability 
rated at 60 percent or more, or a combination of disabilities resulting 
in a combined rating of 60 percent or more. For the reasons stated 
above with respect to compensation claims, this would eliminate the 
difference in current regulations between the threshold requirements in 
claims based on a single disability and those based on a combination of 
disabilities. Current regulations require that a permanent and total 
disability rating will be referred for approval by the Adjudication 
Officer if the evidence establishes that the veteran is unable to 
engage in substantially gainful employment, but his or her disabilities 
do not meet basic percentage requirements necessary for the rating 
activity to assign a total rating for pension purposes. We propose to 
retain this requirement, but to designate the Service Center Manager as 
the approving official. As part of its Business Process Reengineering 
efforts, the Veterans Benefits Administration has merged the 
traditional Adjudication and Veterans Services functions within its 
regional offices and replaced Adjudication Officers with Service Center 
Managers. This provision incorporates that change in title. We also 
propose to state in Sec. 4.17 that, in cases before the Board of 
Veterans' Appeals on appellate review, the authority to authorize 
extra-schedular ratings extends to BVA. This is consistent with the 
previously-explained provisions of proposed Sec. 4.16.
    In rating the disability levels under Sec. 4.17, we propose to 
require that all permanent disabilities that are not due to misconduct 
be considered. We propose to require that if the rating assigned for 
the veteran's disabilities does not satisfy the requirements for a 
total schedular rating, the determination of permanent and total 
disability will be based on evaluation of the veteran's ability to 
perform the specific employment-related activities outlined in proposed 
Sec. 4.16. We have previously explained these proposed provisions. 
Their adoption here will assure that all ratings are based on the same 
standard.
    As discussed above, the current provisions of Sec. 3.321(b)(2) 
allow a total rating for pension purposes if the veteran is 
unemployable by reason of disability, age, occupational background, and 
``other related factors.'' Because the regulations do not specify how 
these factors will be considered, we propose to replace the general 
term ``other related factors'' with the more specific term ``training 
or education'' in Sec. 4.17(e) and state that we will consider age, 
occupational background, training and education only to the extent that 
they limit further training and adaptation in a veteran. In our 
judgment, this will clarify that the basic requirement for a permanent 
and total disability rating is that the veteran is unemployable because 
of disability and will eliminate any implication in the current rule 
that a permanent and total rating may be assigned where the veteran is 
unemployable primarily due to age and factors other than disability.
    Similarly, we propose to state in Sec. 4.17(f) that in determining 
whether the veteran is entitled to a permanent and total rating, VA 
will disregard the state of the economy in the veteran's community and, 
if applicable, the fact that the veteran's previous employment has been 
eliminated due to such factors as technological advances or employer 
relocation. We have previously explained our reasons for disregarding

[[Page 49890]]

these factors in Sec. 4.16, and we believe adopting this provision here 
will properly focus the decision on whether the veteran is prevented 
from engaging in substantially gainful employment because of 
disability.
    In Sec. 4.17 we propose to define substantially gainful employment 
as any work generally done for pay or profit that the veteran is able 
to perform with sufficient regularity and duration to provide a 
reliable source of income. This definition is consistent with 
compensation requirements in proposed Sec. 4.16, and our rationale for 
this definition has already been explained. Again, for consistency with 
the compensation regulations, we propose to state that if a veteran is 
employed, earned income greater than an amount equal to twice the MAPR 
for a veteran with no dependents is conclusive evidence that the 
veteran's employment is substantially gainful.
    Section 4.17a, Misconduct etiology, currently states that a 
permanent and total disability rating under the provisions of 
Secs. 4.15, 4.16, and 4.17 is not precluded by the existence of a 
disability that is due to the veteran's own willful misconduct when 
there is also separate, innocently acquired disability rated as 100 
percent disabling, or if there are separate innocently acquired 
disabilities which themselves cause inability of the individual to 
engage in substantially gainful employment. The principles pertaining 
to willful misconduct are contained in VA's regulations at Secs. 3.1 
Definitions (in paragraphs (m) ``in line of duty'' and (n) ``willful 
misconduct''); 3.3 Pension; 3.4 Compensation; and 3.301 Line of duty 
and misconduct. Since these provisions clearly state that direct 
service connection or pension may be granted only for disability not 
due to the veteran's own willful misconduct, we propose to delete 
Sec. 4.17a because its provisions are unnecessary.
    Section 4.18, Unemployability, currently states that a veteran may 
be considered unemployable upon termination of employment which made 
some accommodation for disability if he or she cannot secure further 
employment. The proposed regulations would recognize that any time a 
veteran claims inability to be employed due to disability, an 
assessment of the veteran's ability to perform activities generally 
necessary for substantially gainful employment would be the determining 
factor in assigning a total rating. For this reason, the nature of the 
prior employment and any employer concessions which enabled the veteran 
to engage in employment would be irrelevant and we propose to delete 
that statement.
    Section 4.18 also currently states that in the case of traumatic 
injuries of static character (i.e., amputations, fractures, etc.) an 
extra-schedular rating will require a finding of continuous 
unemployability from either the date of the trauma or the date the 
disability stabilized. Exceptions are allowed if employment is 
``occasional, intermittent, tryout or unsuccessful.'' We believe that 
even when the level of disability has been stable for an extended 
period, it is possible for unusual individual circumstances to develop 
at any time that could cause the effect of service-connected 
disabilities to be more severe than they are in the average person. 
Accordingly, we propose to delete the requirement for a finding of 
continuous unemployability from the date of traumatic injury or 
stabilization of such injury.
    The current Sec. 4.18 further states that when inability of the 
individual to engage in substantially gainful employment for pension 
purposes has been established based on combined service-connected and 
non-service-connected disabilities, and the service-connected 
disability has increased in severity, the rating activity must 
determine whether the veteran is unemployable under the provisions of 
Sec. 4.16. 38 CFR 3.103(a) requires VA as a matter of policy ``to 
render a decision which grants every benefit that can be supported in 
law.'' Because VA's policy as stated in Sec. 3.103(a) already requires 
consideration of a total unemployability rating under the circumstances 
in question, that portion of Sec. 4.18 is unnecessary and we propose to 
delete it. In light of all these factors, we propose to delete 
Sec. 4.18 in its entirety.
    Section 3.321 is currently titled ``General rating 
considerations.'' We propose to retitle this section ``General rating 
principles'' to more accurately reflect the content. The current 
Sec. 3.321(a), Use of rating schedule, states that the Schedule for 
Rating Disabilities will be used for evaluating the degree of 
disability in veterans' claims and repeats provisions of Sec. 4.1 
stating that the Rating Schedule will represent the average impairment 
in earning capacity resulting from disability. We propose to eliminate 
the redundant language and simply state that in claims for benefits, 
disabilities will be rated under the Schedule for Rating Disabilities, 
38 CFR part 4.
    Section 3.321(b), currently titled ``Exceptional cases,'' contains 
separate paragraphs referring to extra-schedular evaluations for 
compensation and pension and the effective dates for such evaluations. 
Much of this material is stated elsewhere in the proposed regulations. 
(See Sec. 4.16 Total disability rating for compensation based on 
inability of the individual to engage in substantially gainful 
employment; Sec. 4.17 Permanent and total disability rating for pension 
purposes; see also current Sec. 4.1 and Sec. 3.400 (governing effective 
dates).)
    We propose to rewrite Sec. 3.321 to provide separate paragraphs 
addressing (1) extra-schedular ratings where the percentage rating 
provided for a specific disability under the Schedule for Rating 
Disabilities does not adequately reflect the actual limitation imposed 
by the service-connected disability or disabilities in an individual 
case, and (2) extra-schedular ratings based on an individual's 
inability to engage in substantially gainful employment.
    We propose to title Sec. 3.321(b) ``Extra-schedular ratings in 
unusual cases'' and to state that in unusual cases, if in the judgment 
of the rating activity, the percentage rating provided for specific 
disability by the Schedule for Rating Disabilities does not adequately 
reflect the actual limitations imposed upon that individual by service-
connected disabilities, the rating activity will prepare an extra-
schedular rating for the approval of the Director of the Compensation 
and Pension Service. We propose to require that the rating specify the 
unusual limitations and the percentage rating that in the judgment of 
the rating activity adequately reflects those limitations in order to 
clearly establish the reasons and bases for an extra-schedular rating. 
The current Sec. 3.321(b) reserves approval authority to either the 
Under Secretary for Benefits or the Director of the Compensation and 
Pension Service. The Director of the Compensation and Pension Service, 
who provides technical expertise and advice to the Under Secretary for 
Benefits on a wide variety of compensation and pension issues, is well 
qualified to exercise this authority in an objective and impartial 
manner. Further, there is no need to elevate these determinations to 
the Under Secretary for Benefits. Therefore, we propose that the 
Director of the Compensation and Pension Service will have the sole 
authority to approve extra-schedular ratings in such cases. However, we 
also propose to state in this paragraph that, in cases under appeal to 
BVA, the authority to approve an extra-schedular rating extends to BVA. 
This is consistent with the previously explained provisions of proposed 
Secs. 4.16 and 4.17.
    We propose to title Sec. 3.321(c) ``Extra-schedular ratings based 
on an individual's inability to engage in

[[Page 49891]]

substantially gainful employment'' and state that the rating activity 
will prepare an extra-schedular rating in accordance with the standards 
and procedures provided in Sec. 4.16 or Sec. 4.17.
    The current Sec. 3.321(c), titled ``Advisory opinion,'' states that 
if the application of the schedule or propriety of an extra-schedular 
rating is questionable in a particular case, the field station may 
submit that case to Central Office for advisory opinion. This is a 
statement of internal agency procedure and does not affect any rights 
or obligations of claimants. In our opinion, it is inappropriate to 
include this provision in a regulation and we propose to delete it.
    Section 3.340 is currently titled ``Total and permanent total 
ratings and unemployability.'' We propose to retitle this section 
``Miscellaneous provisions pertaining to ratings based on an 
individual's inability to engage in substantially gainful employment,'' 
eliminate unnecessary paragraphs, and consolidate into Sec. 3.340 
miscellaneous provisions pertaining to inability of the individual to 
engage in substantially gainful employment currently contained in 
Sec. 3.341 ``Total disability ratings for compensation purposes.'' We 
propose to delete Secs. 3.341 and 3.342.
    The paragraphs we propose to eliminate in Sec. 3.340 are paragraph 
(a) ``Total disability ratings''; paragraph (a)(1) ``General''; 
paragraph (a)(2) ``Schedule for rating disabilities''; paragraph (a)(3) 
``Ratings of total disability on history''; and paragraph (b) 
``Permanent total disability.'' These paragraphs essentially repeat or 
would be superseded by the provisions outlined in proposed Secs. 4.16 
and 4.17 pertaining to extra-schedular ratings for compensation and 
pension claims based on inability of the individual to engage in 
substantially gainful employment. We propose to retain Sec. 3.340(c) 
``Insurance ratings'' without change, except to add an authority 
citation following it.
    We propose to move Sec. 3.341(b) ``Incarcerated veterans,'' and 
Sec. 3.341(c) ``Program for vocational rehabilitation,'' to Sec. 3.340 
and to redesignate those paragraphs as Sec. 3.340(a) and (b), 
respectively. We also propose to eliminate as redundant Sec. 3.341(a) 
``General,'' which addresses extra-schedular total ratings.
    We propose to delete Sec. 3.342 in its entirety. The current 
Sec. 3.342(a) states that permanent and total ratings for pension 
purposes are authorized for disabling conditions not the result of the 
veteran's own willful misconduct whether or not they are service-
connected, and the current Sec. 3.342(b)(1) states that disability 
pension will be authorized for congenital, developmental, hereditary or 
familial conditions. We propose to delete both of these paragraphs as 
unnecessary since they merely repeat provisions for permanent and total 
disability ratings contained in proposed Sec. 4.17(e).
    The current Sec. 3.342(b)(2) contains separate provisions that 
relate to substantive determinations of permanence and to the effective 
dates of determinations of permanence. The current Sec. 3.342(b)(2) 
states, for example, that permanence will be presumed for active 
pulmonary tuberculosis after six months' hospitalization without 
improvement, and may be presumed after six months' hospitalization 
without improvement for other types of disabilities requiring 
hospitalization for indefinite periods. It also states that the 
effective date of a determination of permanence will be the date of 
hospital admission in certain circumstances, such as when a ``waiting 
period'' is required to determine if a condition is permanent. We 
propose to delete the sentences in Sec. 3.342(b)(2) that relate to both 
of these issues. In our judgment, it is preferable to make decisions 
regarding permanence of disability using the uniform ``reasonably 
certain to continue'' standard in proposed Sec. 4.17(a)(3) and to 
require that the effective dates of all such decisions be governed by 
the uniform effective date provisions of Sec. 3.400(b)(1).
    Section 3.342(b)(3) relates to the question of permanence of 
disability if a veteran is under the age of 40. We also propose to 
delete this provision. In our judgment, stating that it must be 
reasonably certain that the disability will continue throughout the 
veteran's lifetime is sufficient to assure that determinations of 
permanence will be based on this uniform standard, making additional 
specifications relating to the veteran's age unnecessary.
    Section 3.342(c) is entitled ``Temporary program of vocational 
rehabilitation training for certain pension recipients.'' Under 38 
U.S.C. 1524, temporary vocational rehabilitation eligibility was 
provided for veterans who were awarded pension during the program 
period, or those who applied for vocational training under the 
provisions of this temporary program. The program period, which began 
on February 1, 1985, and ended on December 31, 1995, has now expired; 
therefore, Sec. 3.342(c) is unnecessary and we propose to delete it.
    Section 3.400(b)(1)(ii)(B), concerning effective dates in 
disability pension claims filed on or after October 1, 1984, contains a 
cross-reference to Sec. 3.342(a). Since we propose to delete paragraph 
Sec. 3.342 in its entirety, we also propose to delete this cross-
reference.

Executive Order 12866

    This document has been reviewed by the Office of Management and 
Budget under Executive Order 12866.

Paperwork Reduction Act

    This document contains no provisions constituting a collection of 
information under the Paperwork Reduction Act (44 U.S.C. 3501-3520).

Regulatory Flexibility Act

    The Secretary hereby certifies that this rule would not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-
612. The reason for this certification is that this rule would not 
directly affect any small entities. Only individuals could be directly 
affected. Therefore, pursuant to 5 U.S.C. 605(b), this rule is exempt 
from the initial and final regulatory flexibility analyses requirements 
of Secs. 603 and 604.

Unfunded Mandates

    The Unfunded Mandates Reform Act requires, at 2 U.S.C. 1532, that 
agencies prepare an assessment of anticipated costs and benefits before 
developing any rule that may result in an expenditure by State, local, 
or tribal governments, in the aggregate, or by the private sector, of 
$100 million or more in any given year. This rule would have no 
consequential effect on State, local, or tribal governments.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program numbers are 
64.104 and 64.109.

List of Subjects

38 CFR Part 3

    Administrative practice and procedure, Claims, Disability benefits, 
Pensions, Veterans.

38 CFR Part 4

    Disability benefits, Pensions, Individuals with disabilities, 
Veterans.

    Approved: May 25, 2001.
Anthony J. Principi,
Secretary of Veterans Affairs.
    For the reasons set forth in the preamble, 38 CFR parts 3 and 4 are 
proposed to be amended as follows:

[[Page 49892]]

PART 3--ADJUDICATION

Subpart A--Pension, Compensation, and Dependency and Indemnity 
Compensation

    1. The authority citation for part 3, subpart A, continues to read 
as follows:

    Authority: 38 U.S.C. 501(a), unless otherwise noted.

    2. Section 3.321 is revised to read as follows:


Sec. 3.321  General rating principles.

    (a) Use of rating schedule. In claims for benefits administered by 
the Department of Veterans Affairs, disabilities must be rated under 
the Schedule for Rating Disabilities, part 4 of this chapter.

(Authority: 38 U.S.C. 1155)

    (b) Extra-schedular ratings in unusual cases. If, in the judgment 
of the rating activity, there are unusual circumstances which cause the 
percentage rating provided for specific disability by the Schedule for 
Rating Disabilities to inadequately reflect the actual limitations 
imposed upon an individual by the service-connected disability or 
disabilities, the rating activity will prepare an extra-schedular 
rating for the approval of the Director of the Compensation and Pension 
Service. The extra-schedular rating must include a full description of 
the unusual circumstances that warrant an extra-schedular rating and 
state what rating in the judgment of the rating activity is 
commensurate with the impairment in earning capacity due exclusively to 
the service-connected disability or disabilities. In a case under 
appeal to the Board of Veterans' Appeals, the Board is authorized to 
assign an extra-schedular rating under this section.
    (c) Extra-schedular ratings based on an individual's inability to 
engage in substantially gainful employment. If in the judgment of the 
rating activity a veteran is unable to engage in substantially gainful 
employment because of disability but does not meet the requirements for 
a total rating under the Schedule for Rating Disabilities, the rating 
activity will prepare a rating assigning an extra-schedular total 
rating in accordance with the standards and procedures provided in 
Sec. 4.16 or Sec. 4.17 of this chapter. The extra-schedular rating must 
include a full description of the unusual circumstances that warrant an 
extra-schedular rating and the factors that in the judgment of the 
rating activity prevent the veteran from engaging in substantially 
gainful employment.

(Authority: 38 U.S.C. 501(a), 512(a), 1110, 1131, 1521(a))

    Cross-references: Total disability ratings for compensation based 
on an individual's inability to engage in substantially gainful 
employment. See Sec. 4.16. Permanent and total disability ratings for 
pension purposes. See Sec. 4.17.
    3. Section 3.340 is amended by:
    a. Revising the section heading.
    b. Removing paragraphs (a) and (b).
    c. Adding an authority citation at the end of the section.
    The revision and addition read as follows:


Sec. 3.340  Miscellaneous provisions pertaining to ratings based on an 
individual's inability to engage in substantially gainful employment.

* * * * *

(Authority: 38 U.S.C. 501(a), 1110, 1131, 1502(a))


Sec. 3.341  [Amended]

    4. In Sec. 3.341, paragraphs (b) and (c) and their authority 
citations are redesignated as paragraphs (a) and (b), respectively, of 
Sec. 3.340; and newly redesignated paragraph (b) is amended by removing 
``an evaluation'' and adding, in its place, ``a rating'.


Sec. 3.341  [Removed]

    5. Section 3.341 is removed.


Sec. 3.342  [Removed]

    6. Section 3.342 is removed.
    7. Section 3.343 is amended by:
    a. In paragraph (c)(1), in the first sentence, removing ``In'' and 
adding, in its place, ``Unless the rating is replaced by a total 
schedular rating, in''.
    b. Revising the authority citation at the end of paragraph (c)(1).
    The revision reads as follows:


Sec. 3.343  Continuance of total disability ratings.

* * * * *
    (c) * * *
    (1) * * *

(Authority: 38 U.S.C. 1155, 1718(f), 5104, 5112)
* * * * *


Sec. 3.400  [Amended]

    8. Section 3.400(b)(1)(ii)(B) is amended by removing the last 
sentence.

PART 4--SCHEDULE FOR RATING DISABILITIES

Subpart A--General Policy in Rating

    9. The authority citation for part 4 continues to read as follows:

    Authority: 38 U.S.C. 1155, unless otherwise noted.

    10. Section 4.15 is revised to read as follows:


Sec. 4.15  Total disability ratings.

    Although ratings under this part are based on the average 
impairment in earning capacity resulting from disease or injury, it is 
the policy of the Department of Veterans Affairs to assign a total 
rating in any case where physical or mental disability renders an 
individual veteran unable to engage in substantially gainful 
employment. For purposes of compensation, the inability to engage in 
substantially gainful employment must be solely due to service-
connected disability. For purposes of pension, the inability to engage 
in substantially gainful employment must be due to permanent 
disability.

(Authority: 38 U.S.C. 1155, 1502)

    Cross-references: Sec. 4.16 Total disability rating for 
compensation based on an individual's inability to engage in 
substantially gainful employment; Sec. 4.17 Permanent and total 
disability rating for pension purposes; and Sec. 3.321 General rating 
principles.
    11. Section 4.16 is revised to read as follows:


Sec. 4.16  Total disability rating for compensation based on an 
individual's inability to engage in substantially gainful employment.

    (a) If a veteran's service-connected disabilities do not meet the 
requirements for a total rating under the provisions of this part, VA 
will nevertheless assign a total rating based on these disabilities, 
provided that the veteran is unable to engage in substantially gainful 
employment solely because of the service-connected disabilities. A 
subsequent total schedular rating based on service-connected 
disabilities cancels an existing rating based on inability to engage in 
substantially gainful employment.
    (b) A total rating based on inability to engage in substantially 
gainful employment encompasses all service-connected disabilities in 
existence at the time the rating is assigned. A total schedular rating 
for any service-connected disability or any combination of service-
connected disabilities precludes the assignment of a total rating based 
on individual unemployability due to service-connected disabilities.
    (c) If the veteran is employed, regardless of the nature, duration 
and regularity of employment activity, VA will consider income from 
employment that is more than twice the Maximum Annual Pension Rate for 
a veteran with no dependents under 38 U.S.C. 1521(b) (as increased 
under 38 U.S.C. 5312(a)) to

[[Page 49893]]

be conclusive evidence that the veteran is engaged in substantially 
gainful employment.
    (d) VA will base a determination as to whether a veteran is unable 
to engage in substantially gainful employment due to service-connected 
disability or disabilities upon the veteran's ability to perform the 
activities normally required for substantially gainful employment and 
the veteran's ability to engage in such activities with the regularity 
and for the duration normally required for substantially gainful 
employment. In making such a determination, VA will require:
    (1) Medical evidence which describes the nature, frequency, 
severity and duration of symptoms of the service-connected disabilities 
and the extent to which the veteran's ability to perform activities 
normally required for substantially gainful employment is limited 
solely due to service-connected disabilities; and
    (2) Evidence of unusual limitations imposed by service-connected 
disabilities, such as the nature and unusual frequency of 
hospitalizations or other required treatment, unusual effects of 
required medication, etc.
    (e) In determining whether a veteran is entitled to a total rating 
for service-connected disability or disabilities based on inability to 
engage in substantially gainful employment, VA will disregard:
    (1) Non-service-connected disabilities;
    (2) Age;
    (3) The veteran's training or lack thereof, unless the evidence 
establishes that the service-connected disability or disabilities would 
impede further training;
    (4) The state of the economy in the veteran's community; and
    (5) If applicable, the fact that the veteran's previous employment 
has been eliminated due to such factors as technological advances or 
employer relocation.
    (f) Authority to assign ratings under this section is assigned as 
follows:
    (1) If a veteran has a service-connected disability rated at 60 
percent or more or two or more service-connected disabilities resulting 
in a combined rating of 60 percent or more, the rating activity will 
assign a total rating under this section if the veteran is unable to 
engage in substantially gainful employment due to service-connected 
disability.
    (2) If a veteran's disabilities do not meet the percentages set out 
in paragraph (f)(1) of this section but, in the judgment of the rating 
activity, the veteran is unable to engage in substantially gainful 
employment due to service-connected disability, the rating activity 
will prepare a total rating under this section and submit it for the 
approval of the Director of the Compensation and Pension Service.
    (3) In a case under appeal to the Board of Veterans' Appeals, the 
Board is authorized to assign a total rating under this section.
    (g) Definitions. For purposes of this section:
    (1) The term substantially gainful employment means any work 
generally done for pay or profit that the veteran is able to perform 
with sufficient regularity and duration to provide a reliable source of 
income.
    (2) The term activities normally required for substantially gainful 
employment means both:
    (i) Exertional activities, including, but not limited to, the 
ability to sit, stand, walk, push, pull, use hands, reach, lift and 
carry; and
    (ii) Non-exertional activities, including, but not limited to, the 
ability to communicate, remember, follow instructions, use judgment, 
adapt to changes and deal with people, including supervisors, co-
workers, and the public.

(Authority: 38 U.S.C. 1155)

    12. Section 4.17 is revised to read as follows:


Sec. 4.17  Permanent and total disability rating for pension purposes.

    (a) For pension purposes, the rating activity will assign a 
permanent and total disability rating under this section provided that:
    (1) The veteran has either a disability rated at 60 percent or more 
or two or more disabilities resulting in a combined rating of 60 
percent or more;
    (2) The disability or disabilities are not due to the veteran's own 
willful misconduct;
    (3) The disability or disabilities are reasonably certain to 
continue throughout the veteran's lifetime; and
    (4) The veteran is unable to engage in substantially gainful 
employment because of such disability or disabilities.
    (b) If the veteran's disabilities do not meet the percentage 
requirements in paragraph (a)(1) of this section but, in the judgment 
of the rating activity, the evidence establishes that the disabilities 
nonetheless prevent the veteran from engaging in substantially gainful 
employment, the rating activity will prepare a permanent and total 
disability rating under this section and submit it for the approval of 
the Adjudication Officer or Service Center Manager. In a case under 
appeal to the Board of Veterans' Appeals, the Board is authorized to 
assign a permanent and total disability rating under this section.
    (c) For purposes of this section, substantially gainful employment 
means any work generally done for pay or profit that the veteran is 
able to perform with sufficient regularity and duration to provide a 
reliable source of income.
    (d) However, if the veteran is employed, regardless of the nature, 
duration and regularity of the employment activity, VA will consider 
income from employment that is more than twice the Maximum Annual 
Pension Rate for a veteran with no dependents under 38 U.S.C. 1521(b) 
(as increased under 38 U.S.C. 5312(a)) to be conclusive evidence that 
the veteran is engaged in substantially gainful employment.
    (e) VA will base a determination as to whether a veteran is unable 
to engage in substantially gainful employment due to disability upon 
the veteran's ability to perform the activities normally required for 
substantially gainful employment as defined in Sec. 4.16(g)(2) and on 
the veteran's ability to engage in such activities with the regularity 
and for the duration normally required for substantially gainful 
employment. In making such a determination:
    (1) VA will require medical evidence which describes the nature, 
frequency, severity and duration of symptoms of the veteran's 
disabilities and the extent to which the veteran's ability to perform 
the activities normally required for substantially gainful employment 
listed in Sec. 4.16(g)(2) is limited by the disabilities.
    (2) VA will also consider:
    (i) All permanent disabilities, whether service connected or non-
service connected, developmental, congenital, hereditary or familial, 
that are not due to the veteran's own willful misconduct;
    (ii) Any evidence that factors such as the veteran's age, 
occupational background, training or education limit the veteran's 
ability to learn and adapt to training necessary for employment or 
necessary to perform the activities normally required for substantially 
gainful employment listed in Sec. 4.16(g)(2); and
    (iii) Any evidence of unusual limitations imposed by the veteran's 
disabilities, such as the nature and unusual frequency of 
hospitalizations or other required treatment, unusual effects of 
required medication, etc.
    (f) However, in determining whether a veteran is entitled to a 
permanent and total rating for pension purposes, VA will disregard:
    (1) The state of the economy in the veteran's community; and
    (2) If applicable, the fact that the veteran's previous employment 
has been eliminated due to such factors as

[[Page 49894]]

technological advances or employer relocation.

(Authority: 38 U.S.C. 1155, 1502)

    Cross References: Pension. See Sec. 3.3. Period of war. See 
Sec. 3.2.


Sec. 4.17a  [Removed]

    13. Section 4.17a is removed.


Sec. 4.18  [Removed]

    14. Section 4.18 is removed.

[FR Doc. 01-24272 Filed 9-28-01; 8:45 am]
BILLING CODE 8320-01-P