[Federal Register Volume 88, Number 237 (Tuesday, December 12, 2023)]
[Rules and Regulations]
[Pages 86058-86062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27176]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 3

RIN 2900-AP86


Active Service Pay

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) amends its 
adjudication regulations to permit VA to adjust disability compensation 
payments under certain circumstances upon receipt of notice from the 
Department of Defense (DoD) that the veteran has received or is 
receiving active service pay. The effect of this action is to reduce 
overpayments and erroneous payments associated with receipt of VA 
disability compensation and DoD active service pay by allowing VA to 
make necessary adjustments as close in time to the receipt of active 
service pay as possible. Additionally, the amendments will allow VA to 
resume payments discontinued due to receipt of active service pay based 
on information received from DoD. The amendments will also clarify how 
VA adjudicates benefit adjustments based on a veteran's receipt of 
active service pay for certain types of service.

DATES: Effective Date: This rule is effective January 11, 2024.

FOR FURTHER INFORMATION CONTACT: Robert Parks, Chief, Regulations Staff 
(211C), Compensation Service (21C), Veterans Benefits Administration, 
Department of Veterans Affairs, 810 Vermont Avenue NW, Washington, DC 
20420, (202) 461-9540. (This is not a toll-free telephone number.)

SUPPLEMENTARY INFORMATION: On April 19, 2019, VA published a proposed 
rule in the Federal Register at 84 FR 16421 to amend 38 CFR 3.103 and 
3.654 to permit VA to suspend disability compensation payments upon 
receipt of

[[Page 86059]]

notice from DoD that the veteran has received or is receiving active 
service pay and to clarify how VA adjudicates benefit adjustments based 
on receipt of active service pay for certain types of service. Section 
5304(c) of title 38, United States Code, provides that pension, 
compensation, or retirement pay shall not be paid for any period in 
which a veteran receives active service pay. Currently, VA cannot take 
immediate action on DoD-provided information but rather must provide a 
veteran with notice of a proposed adverse action--such as suspension of 
disability compensation payments--and 60 days to provide evidence 
showing why the adverse action should not be taken. VA continues to pay 
benefits during this 60-day period. This becomes problematic for some 
veterans on active duty serving in remote locations, such as a combat 
zone or similarly austere environments, with infrequent mail service 
and no reasonable method for dealing with financial matters. As a 
result of this rulemaking, VA will be able to leverage technological 
advancements and process benefit adjustments based upon information 
received from DoD regarding a veteran's receipt of active service pay 
under certain circumstances, described in more detail below.
    VA invited interested persons to submit written comments on or 
before June 18, 2019. VA received four comments in response to the 
proposed rule. VA received comments from two organizations, National 
Organization of Veterans' Advocates, Inc. (NOVA) and Disabled American 
Veterans (DAV), and two members of the public. Some comments addressed 
more than one issue. In those instances, VA reviewed and considered 
each issue independently. VA also grouped all of the issues raised by 
the commenters that concerned at least one portion of the rule together 
by topic. VA organized the responses to the comments by topic. The 
responses to the comments are as follows:

I. Remove Reference to Prospective Receipt of Pay

    Two comments requested the removal of the phrase ``will receive 
active service pay,'' in the proposed regulatory text in 38 CFR 
3.103(b)(3)(v). One commenter asserted that suspending compensation 
based on notice that a veteran will receive active service pay is 
inconsistent with 38 U.S.C. 5304(c). The commenter also contended that 
active duty dates could change, or receipt of active service pay could 
be delayed, potentially creating a situation where a veteran has his/
her compensation suspended but does not receive active service pay. The 
other commenter asserted that including the language ``will receive 
active service pay'' increases the risk that someone will have benefits 
suspended before he or she is actually receiving active service pay.
    Concerning notice from DoD, VA clarifies that DoD will not inform 
VA of prospective active service pay, only past and current pay. VA 
revises Sec.  3.103(b)(3)(v) to clarify that veterans can submit notice 
concerning past, current, and future receipt of active service pay, and 
DoD notice will only pertain to past or current receipt of active 
service pay. Accordingly, changes will not be made on the basis of 
notice of prospective pay from DoD.
    Concerning notice provided to VA by a veteran, VA will continue to 
take action, without any advance notice period, based on statements by 
a veteran indicating that the veteran will receive active service pay. 
Payments, however, are discontinued effective the day preceding 
reentrance on active duty, not as of the date of receipt of the notice. 
If a veteran informs VA prior to the discontinuance of payments that 
the dates of service have changed or the veteran will no longer return 
to service, VA will make the necessary adjustments prior to the 
discontinuance if time allows and will otherwise reinstate benefits the 
same day they were discontinued. In the case of training pay, benefits 
are withheld for the number of training days in the relevant time 
period. If a veteran provides timely notice that pay was not received 
for expected training duty, retroactive payments will be authorized. 38 
CFR 3.654(c). Therefore, VA does not agree that dispensing with the 60-
day notice period in this situation is inconsistent with 38 U.S.C. 
5304(c), which precludes concurrent receipt of VA compensation and 
active service pay.

II. Expedited Review

    One comment recommended that VA provide an expedited review process 
for veterans who allege error in the suspension of compensation 
benefits based on notice of receipt of active service pay. VA points 
out that, due to the Veterans Appeals Improvement and Modernization Act 
of 2017, Public Law 115-55, veterans who disagree with a decision by VA 
have options including requesting a higher-level review if additional 
evidence is not needed to resolve the matter or filing a supplemental 
claim if additional evidence is needed. VA's goal for completing 
higher-level reviews and supplemental claims is 125 days. Therefore, 
there are avenues for review of such allegations of errors to receive 
expeditious processing in the current claims processing framework. VA 
makes no changes based on this comment.

III. General

    VA received two general comments that were not associated with 
preventive efforts to reduce the financial burden on veterans of 
overpayments due to concurrent receipt of both VA disability 
compensation and DoD active service pay. One commenter expressed 
disagreement with the proposed rule, stating that veterans should be 
compensated more, not less. This rulemaking affects the process for 
making necessary adjustments based on receipt of active service pay, 
not the amount of compensation to which a veteran is entitled. Section 
5304(c) of title 38, United States Code, clearly precludes concurrent 
receipt of VA compensation and active service pay. VA does not have 
authority to ignore this statutory command in order to provide veterans 
additional compensation. The commenter also discussed concerns for 
veterans with mental health symptoms. VA makes no changes based on this 
comment as it is beyond the scope of this rulemaking.
    The other comment consisted of a consent agreement from a banking 
institution without any accompanying text describing why the document 
was submitted as a comment or how it pertains to active service pay. 
This comment is not relevant to the rule amendment; therefore, VA makes 
no changes based on this comment.

IV. Resuming Payments Based on DoD Notice

    Based on further agency consideration, VA makes additional changes 
to the proposed rule. VA proposed amendments to allow VA to suspend 
disability compensation payments based on notice from DoD of receipt of 
active service pay, explaining that the regulatory change would reduce 
the financial impact on veterans associated with receipt of VA 
disability compensation and DoD active service pay as well as reducing 
the reporting burden on veterans in cases where VA receives information 
directly from DoD. 84 FR 16421 (April 19, 2019). VA also explained that 
VA and DoD were discussing changes to the way VA receives notification 
that a veteran has received active service pay. 84 FR at 16423. VA has 
determined that, in addition to discontinuing payments based on DoD 
notice under certain circumstances, described in more detail below, it 
will be possible in many cases

[[Page 86060]]

to resume payments based on information received from DoD. This will 
reduce the reporting burden on veterans in cases where VA receives 
information directly from DoD. There may be cases, however, where VA 
does not receive timely notice of a veteran's release from active duty 
or active duty for training from DoD. Therefore, VA revises 38 CFR 
3.654(b)(2) to allow VA to resume payments based on notice from DoD 
that a veteran has been released from active duty or active duty for 
training while maintaining the option for the veteran to inform VA of 
such release by filing a claim to recommence payments. If VA receives 
notice from DoD or a claim for recommencement of payments within one 
year from the date of release from active duty or active duty for 
training, payments, if otherwise in order, will be resumed effective 
the day following release. Otherwise, payments will be resumed 
effective one year prior to the date of receipt of a new claim. 
Resuming payments based on notice from DoD is consistent with VA's 
goal, described in the proposed rule, of minimizing the financial 
impact and reporting burdens for veterans resulting from the 
prohibition on concurrent receipt of VA benefits and active service 
pay. VA therefore considers resuming benefit payments based on notice 
from DoD to be a logical outgrowth of the proposed rule. We emphasize 
that VA considers the automatic resumption of payments based on DoD 
notice to generally be a liberalizing change that should generally 
expedite access to benefits and reduce the need for administrative 
action on the part of both the veteran and VA.
    As a corollary to this change, VA has added language clarifying 
that a claim for increase must be filed in order for additional 
benefits to be paid. This is not a change to existing requirements, as 
the relevant statute and regulation tie the effective date of an award 
of increased compensation to the date of receipt of claim. 38 U.S.C. 
5110(b)(3); 38 CFR 3.400(o)(2). Rather, VA included the clarification 
as a reminder that, even if VA resumes payments based on receipt of 
notice from DoD that a veteran has been released from service, the 
veteran must still file a claim for increase if he or she seeks an 
increased rating.
    In a similar manner, VA has revised the language regarding 
resumption of compensation payments to reflect that the resumption will 
be based on the combined evaluation in effect at the time payments were 
discontinued. If a reduction in disability evaluation is warranted that 
would not lower the combined evaluation, the reduction may be processed 
at the same time as the resumption of payments, as the overall payment 
will not be affected. If VA determines that a reduction in evaluation 
is warranted that would lower the combined evaluation, the reduction 
will be governed by 38 CFR 3.105(e), after payments are resumed at the 
level previously in effect. This will ensure that veterans receive 
notice of any proposed reductions to the compensation in effect at the 
time payments were discontinued, even if resumption of payments is 
based on notice from DoD.

V. Addressing Concerns About Notice

    Upon additional review it was determined that the proposed rule 
conflicted with the Privacy Act, specifically 5 U.S.C. 552a(p), which 
requires notice to an individual prior to an agency taking adverse 
action as a result of information produced by a matching program. To 
address this conflict, we have amended the rule so that VA will only 
suspend compensation based on information from DoD without additional 
advance notice when the veteran has previously received 30-day advance 
notice addressing concurrent receipt of compensation and payment for 
the type of service at issue as well as notice that suspension of 
compensation payments based on subsequent payments for the same type of 
service will be made without additional advance notice. We have also 
specified that in cases to which 38 CFR 3.700(a)(1)(iii) applies, in 
order for the exception to advance notice contained in Sec.  
3.103(b)(3)(v) to apply, VA must have received a waiver of VA benefits. 
A one-time advance notice with respect to the first instance of double 
payments would provide clear notice of the basis for the suspension of 
compensation payments, and an opportunity to contest the findings that 
led to the suspension, and could be applied to all subsequent payments 
of the same benefit during periods of receipt of active service pay for 
the same type of service. This change satisfies the notice requirements 
of the Privacy Act, and in particular 5 U.S.C. 552a(p)(1)(C)(ii), while 
still achieving the modernizing, pro-veteran goals of the proposed 
rule. While this solution will not eliminate the initial overpayment to 
an individual receiving both active service pay and disability 
compensation, it will eventually result in a dramatic decrease in the 
overall number of overpayments while providing each individual with the 
due process intended by the notice requirement. VA believes it is clear 
this result is a logical outgrowth of the proposed rule.
    The proposed rule would have allowed for suspension of compensation 
without advance notice to the veteran based on information from DoD as 
long as the veteran had received prior notice that receipt of active 
service pay precludes concurrent receipt of VA benefits or VA had 
received a statement from the veteran indicating knowledge of such 
preclusion. The final rule will only allow for suspension of 
compensation without advance notice based on information from DoD if 
the veteran also received, on a previous occasion of concurrent receipt 
of compensation and payment for the type of service at issue, advance 
notice of the suspension and notice that suspension of compensation 
payments based on subsequent payments for the same type of service 
would be made without additional advance notice. In other words, the 
final rule provides greater protection to the individual, in terms of 
the suspension of running compensation payments. See Veterans Justice 
Grp., LLC v. Sec'y of Veterans Affairs, 818 F.3d 1336, 1344-45 (Fed. 
Cir. 2016) (finding a final rule that adopted a different, but more 
liberal approach than the proposed rule to be a logical outgrowth of 
the proposed rule).
    We have updated the language in 38 CFR 3.103(b)(3)(v) to ensure 
that a written or electronic statement provided to VA by a veteran is 
consistently referred to as a statement. We have also updated the 
reference in 38 CFR 3.654(b)(2) to the second period of service, 
replacing that term with the most recent period of service, as veterans 
may have more than two periods of service. Finally, we made stylistic 
changes in 38 CFR 3.654, replacing references to ``1 year'' with ``one 
year.'' This document adopts as a final rule the proposed rule 
published in the Federal Register on April 19, 2019 with changes as set 
forth below.

Executive Orders 12866, 13563 and 14094

    Executive Order 12866 (Regulatory Planning and Review) direct 
agencies to assess the costs and benefits of available regulatory 
alternatives and, when regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, and other advantages; 
distributive impacts; and equity). Executive Order 13563 (Improving 
Regulation and Regulatory Review) emphasizes the importance of 
quantifying both costs and benefits,

[[Page 86061]]

reducing costs, harmonizing rules, and promoting flexibility. Executive 
Order 14094 (Executive Order on Modernizing Regulatory Review) 
supplements and reaffirms the principles, structures, and definitions 
governing contemporary regulatory review established in Executive Order 
12866 of September 30, 1993 (Regulatory Planning and Review), and 
Executive Order 13563 of January 18, 2011 (Improving Regulation and 
Regulatory Review). The Office of Information and Regulatory Affairs 
has determined that this rulemaking is not a significant regulatory 
action under Executive Order 12866, as amended by Executive Order 
14094. The Regulatory Impact Analysis associated with this rulemaking 
can be found as a supporting document at www.regulations.gov.

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). The factual basis for this certification is based on based on the 
fact that no small entities or businesses make decisions regarding 
payments or overpayments of VA service-connected disability 
compensation. Therefore, pursuant to 5 U.S.C. 605(b), the initial and 
final regulatory flexibility analysis requirements of 5 U.S.C. 603 and 
604 do not apply.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This final rule will have no such effect on 
State, local, and tribal governments, or on the private sector.

Paperwork Reduction Act

    This final rule includes provisions constituting a revised 
collection of information under the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501-3521) that require approval by the Office of Management and 
Budget (OMB). Accordingly, under 44 U.S.C. 3507(d), the collection of 
information for OMB is assigned control number 2900-0463, and must be 
paired with this rulemaking action for OMB review and approval.
    There are no provisions associated with this rulemaking 
constituting any new collection of information, but there are 
anticipated burden changes to the existing collection of information. 
The respondent population for VA Form 21-8951-2 is composed of 
individuals filing a waiver of either VA disability benefits or 
military pay and allowances. VA currently batch sends pre-populated, 
optional forms to those identified as possible dual recipients and 
receives back approximately 12.4% for manual processing (71% are 
electronically processed without a form after notice and expiration of 
the due process period and the remaining 16.6% cannot be processed by 
the batch program due to expired addresses, returns to active duty, 
death, etc.). VA expects this process to continue unchanged for 1-2 
years (with a simultaneous communication plan to spread knowledge of 
the new program), then the number of batch forms being mailed will 
significantly decrease due to the number of veterans who have responded 
(currently 12.4%) and who will no longer receive the initial letter 
with the VA Form 21-8951-2, with a concomitant reduction in the burden.
    VA estimates the total annual reporting and recordkeeping burden to 
be 207 hours. (Estimated 1,240 respondents x (multiplied by) 10 (burden 
minutes)/(divided by) 60 = 207 burden hours.) VA estimates the total 
information collection burden cost to be $6,160.32 per year (207 burden 
hours x $29.76 per hour). The Bureau of Labor Statistics (BLS) gathers 
information on full-time wage and salary workers. According to the 
latest available BLS data, the mean hourly wage is $29.76 based on the 
BLS wage code--``00-0000 All Occupations.'' This information was taken 
from the following website: https://www.bls.gov/oes/current/oes_nat.htm.
    The currently approved OMB control number 2900-0463 burden costs 
are $65,293.44 (2,194 burden hours x $29.76 per hour). The projected 
annual burden savings from implementation of this regulation are 
$55,655.87.

Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

List of Subjects in 38 CFR Part 3

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

Signing Authority

    Denis McDonough, Secretary of Veterans Affairs, approved and signed 
this document on December 6, 2023, and authorized the undersigned to 
sign and submit the document to the Office of the Federal Register for 
publication electronically as an official document of the Department of 
Veterans Affairs.

Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of 
General Counsel, Department of Veterans Affairs.

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

PART 3--ADJUDICATION

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

0
1. The authority citation for part 3, subpart A continues to read as 
follows:

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


0
2. Amend Sec.  3.103 by revising paragraph (b)(3)(v) and adding a cross 
reference paragraph to the end of the section to read as follows:


Sec.  3.103  Procedural due process and other rights.

* * * * *
    (b) * * *
    (3) * * *
    (v) An adverse action based upon a written or electronic statement 
provided to VA by a veteran that indicates that the veteran has 
received, is in receipt of, or will receive active service pay as 
defined by Sec.  3.654(a), or, in the case of compensation, written or 
electronic notice from the Department of Defense that indicates that 
the veteran has received or is in receipt of active service pay as 
defined by Sec.  3.654(a), provided that, in cases involving notice 
from the Department of Defense, the veteran has on a previous occasion 
of concurrent receipt of compensation and payment for the type of 
service at issue received the notice described in paragraph (b)(2), but 
with a period of 30 rather than 60 days to respond, as well as notice 
that suspension of compensation payments based on subsequent payments 
for the same type of service will be made without additional advance 
notice. The statement from the veteran or notice from the Department of 
Defense must include the date on which the service resulting in receipt 
of active service pay began or, in the case of a statement from the 
veteran, the date on which the service resulting in receipt of active 
service pay is expected to begin, or, in the case of training duty, the 
number of training days performed, or, in the case

[[Page 86062]]

of a statement from the veteran, the number of training days expected 
to be performed, during a specified period of time (e.g., last month, 
last quarter, last year, next month, etc.). In order for this paragraph 
to apply, the veteran must have received prior notice that receipt of 
active service pay precludes concurrent receipt of VA benefits, or VA 
must have received a statement from the veteran that indicates 
knowledge of such preclusion. In cases to which Sec.  3.700(a)(1)(iii) 
of this part applies, the Veteran must also have waived VA benefits. 
When notice provided by the Department of Defense contains information 
indicating that the monthly level of disability compensation for a 
veteran exceeds the veteran's monthly active service pay rate, the 
exception contained in this paragraph will only apply to a written or 
electronic statement provided to VA by the veteran.
* * * * *
    Cross References: Submission of statements or information affecting 
entitlement to benefits. See Sec.  3.217(a). Active Service Pay. See 
Sec.  3.654. General. See Sec.  3.700(a)(1).


0
3. Amend Sec.  3.654 by revising paragraphs (b) and (c) and adding an 
authority citation to read as follows:


Sec.  3.654  Active service pay.

* * * * *
    (b) Active duty or active duty for training. (1) Where the veteran 
receives active service pay as a result of returning to active duty 
status or active duty for training as described in Sec.  3.6(c), with 
the exception of annual active duty for training typically performed 15 
days each year by reservists and members of the National Guard and 
Active Duty for Special Work to receive training (see paragraph (c) of 
this section), the award will be discontinued effective the day 
preceding reentrance into active duty or active duty for training 
status. If the exact date is not known, payments will be discontinued 
effective date of last payment, and the effective date of 
discontinuance will be adjusted to the day preceding reentrance when 
the date of reentrance has been ascertained from the service 
department.
    (2) Payments, if otherwise in order, will be resumed effective the 
day following release from active duty or active duty for training if 
notice from the Department of Defense of such release or a claim for 
recommencement of payments is received within one year from the date of 
such release; otherwise, payments will be resumed effective one year 
prior to the date of receipt of a new claim. Prior determinations of 
service connection will not be disturbed except as provided in Sec.  
3.105. Compensation will be resumed based on the combined evaluation in 
effect at the time payments were discontinued. If a reduction in 
evaluation that lowers the combined evaluation is considered warranted, 
the provisions of Sec.  3.105(e) will apply. If a disability is 
incurred or aggravated, or a service-connected disability worsens in 
the most recent period of service, compensation for that disability or 
increase in disability cannot be paid unless a claim therefor is filed.
    (c) Training duty. Prospective adjustment of awards may be made 
where the veteran waives his or her Department of Veterans Affairs 
benefit covering anticipated receipt of active service pay because of 
expected periods of active duty for training (annual active duty for 
training typically performed 15 days each year by reservists and 
members of the National Guard or Active Duty for Special Work to 
receive training) or inactive duty training. Where readjustment is in 
order because service pay was not received for expected training duty, 
retroactive payments may be authorized if a claim for readjustment is 
received within one year after the end of the fiscal year for which 
payments were waived.

    Authority: (Authority: 38 U.S.C. 501(a) and 5304(c).)

[FR Doc. 2023-27176 Filed 12-11-23; 8:45 am]
BILLING CODE 8320-01-P