[Federal Register Volume 67, Number 188 (Friday, September 27, 2002)]
[Rules and Regulations]
[Pages 60867-60869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24390]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 3

RIN 2900-AK95


Recoupment of Severance Pay From VA Compensation

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: This document amends the Department of Veterans Affairs (VA) 
adjudication regulation governing recoupment of military severance pay 
from service-connected disability compensation to conform to the 
statutory provision that, effective September 15, 1981, requires the 
recoupment of any severance pay from VA compensation. VA is also 
amending these regulations to reflect the statutory provision that 
excludes Federal income tax withheld from payments of separation pay, 
severance pay, and readjustment pay made after September 30, 1996, from 
VA recoupment.

DATES: Effective Date: September 27, 2002.
    Applicability Dates: The changes will be applied retroactively to 
conform to statutory requirements. For more information concerning 
dates of applicability, see the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: John Bisset, Jr., Consultant, 
Regulations Staff, Compensation and Pension Service, Veterans Benefits 
Administration, 810

[[Page 60868]]

Vermont Avenue, NW., Washington, DC 20420, telephone (202) 273-7213.

SUPPLEMENTARY INFORMATION: VA regulations at 38 CFR 3.700(a)(3) 
currently state that there is no prohibition against payment of 
compensation if a veteran received nondisability severance pay from the 
military.
    In a precedent opinion (VAOPGCPREC 12-96), VA's General Counsel 
held that the portion of 38 CFR 3.700(a)(3) which states that there is 
no prohibition against payment of compensation to a veteran who 
received nondisability severance pay is of no effect because it is 
inconsistent with 10 U.S.C. 1174(h)(2), which as added in 1980 by 
Public Law 96-513, section 109(c), 94 Stat. 2835, 2870 (1980), 
requires, effective September 15, 1981, recoupment of nondisability 
severance pay from VA compensation. Therefore, VA is amending 38 CFR 
3.700(a)(3) to conform to the governing statute.
    Public Law 104-201 amended 10 U.S.C. 1174(h)(2) to exclude Federal 
income tax withheld from payments of separation pay, severance pay and 
readjustment pay made after September 30, 1996, from VA recoupment. VA 
is amending 38 CFR 3.700(a)(2)(iii), (a)(3), and (a)(5)(i) to conform 
to this governing statute. In addition, VA is making nonsubstantive 
changes to 38 CFR 3.700 for purposes of clarity.
    Except with respect to the amendment relating to income tax, this 
rule applies to disability compensation paid after September 14, 1981; 
the amendment relating to income tax applies only to payment of 
separation pay, special separation benefits under 10 U.S.C. 1174a, 
severance pay, and readjustment pay made after September 30, 1996.
    While this document updates VA regulations concerning statutes 
enacted in 1981 and 1996, VA procedures have adhered to these statutes 
since their enactment. This document brings VA regulations into 
conformance with VA practice and will not create overpayments in any 
existing claims.

Administrative Procedure Act

    Changes made by this final rule merely reflect the statutory 
requirements in title 10, U.S.C. or are nonsubstantive changes made for 
purposes of clarity. Accordingly, there is a basis for dispensing with 
prior notice and comment and delayed effective date provisions of 5 
U.S.C. 552 and 553.

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 final rule would have no 
consequential effect on State, local, or tribal governments.

Paperwork Reduction Act

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

Executive Order 12866

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

Regulatory Flexibility Act

    The Secretary hereby certifies that this final rule will 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. This amendment would not directly affect any small entities. Only 
individuals could be directly affected. Therefore, pursuant to 5 U.S.C. 
605(b), this final rule is exempt from the initial and final regulatory 
flexibility analyses requirements of sections 603 and 604.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program number is 
64.109.

List of Subjects in 38 CFR Part 3

    Administrative practice and procedure, Claims, Disability benefits, 
Individuals with disabilities, Pensions, Veterans.

    Approved: August 16, 2002.
Anthony J. Principi,
Secretary of Veterans Affairs.

    For the reasons set forth in the preamble, the Department of 
Veterans Affairs amends 38 CFR part 3 as follows:

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 3.700 is amended by:
    A. In paragraph (a)(2)(iii), removing ``of the total amount'; 
adding two sentences and revising the authority citation at the end of 
paragraph (a)(2)(iii).
    B. In paragraph (a)(3), in the first sentence, removing ``severance 
pay is granted,'' and adding, in its place, ``severance pay is granted, 
or where entitlement to disability compensation was established on or 
after September 15, 1981,''; removing the fifth sentence; in the six 
sentence, removing ``Compensation'' and adding, in its place, ``Where 
entitlement to disability compensation was established prior to 
September 15, 1981, compensation''; adding three sentences at the end 
of paragraph (a)(3); and revising the authority citation at the end of 
the paragraph.
    C. In paragraph (a)(5), revising the paragraph heading.
    D. In paragraph (a)(5)(i), removing ``A veteran'' and adding, in 
its place, ``Where entitlement to disability compensation was 
established on or after September 15, 1981, a veteran'; removing 
``total amount received as''; adding two sentences at the end of 
paragraph (a)(5)(i).
    E. Revising the authority citation at the end of paragraph (a)(5).
    The revisions and additions read as follows:


Sec.  3.700  General.

* * * * *
    (a) * * *
    (2) * * *
    (iii)* * * Where payment of readjustment pay was made on or 
before September 30, 1996, VA will recoup from disability 
compensation an amount equal to the total amount of readjustment 
pay. Where payment of readjustment pay was made after September 30, 
1996, VA will recoup from disability compensation an amount equal to 
the total amount of readjustment pay less the amount of Federal 
income tax withheld from such pay.
    (Authority: 10 U.S.C 1174(h)(2) and 1212(c))
* * * * *
    (3) * * * Where entitlement to disability compensation was 
established on or after September 15, 1981, a veteran may receive 
disability compensation for disability incurred or aggravated by 
service prior to the date of receipt of the severance pay, but VA must 
recoup from that disability compensation an amount equal to the 
severance pay. Where payment of severance pay was made on or before 
September 30, 1996, VA will recoup from disability compensation an 
amount equal to the total amount of the severance pay. Where payment of 
severance pay was made after September 30, 1996, VA will recoup from 
disability compensation an amount equal to the total amount of the 
severance pay less the amount of Federal income tax withheld from such 
pay.

[[Page 60869]]

    (Authority: 10 U.S.C. 1174(h)(2) and 1212(c))
* * * * *
    (5) Separation pay and special separation benefits. (i) * * * Where 
payment of separation pay or special separation benefits under section 
1174a was made on or before September 30, 1996, VA will recoup from 
disability compensation an amount equal to the total amount of 
separation pay or special separation benefits. Where payment of 
separation pay or special separation benefits under section 1174a was 
made after September 30, 1996, VA will recoup from disability 
compensation an amount equal to the total amount of separation pay or 
special separation benefits less the amount of Federal income tax 
withheld from such pay.
* * * * *
    (Authority: 10 U.S.C. 1174 and 1174a)
* * * * *
[FR Doc. 02-24390 Filed 9-26-02; 8:45 am]
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