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###### Department of Veterans Affairs

          - 38 CFR Part 3
          - RIN 2900-AN25

# AGENCY:

Department of Veterans Affairs.

# ACTION:

Final rule.

# SUMMARY:

This document amends the Department of Veterans Affairs (VA) adjudication regulations to incorporate relevant statutory provisions regarding severance pay, separation pay, and special separation benefits. These amendments are necessary to conform the regulation to statutory provisions.

# DATES:

 

*Effective Date:*                         These amendments are effective June 5, 2009.                    

*Applicability Date:*                         The amendment to 38 CFR 3.700(a)(3) applies to members of the Armed Forces separated under 10 U.S.C. chapter 61 on or after January 28, 2008. The amendment to 38 CFR 3.700(a)(5) applies to payments of special separation benefits made on or after December 5, 1991.                    

# FOR FURTHER INFORMATION CONTACT:

Thomas J. Kniffen, Chief, Regulations Staff (211D), Compensation and Pension Service, Veterans Benefits Administration, Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420, (202) 461-9725.

# SUPPLEMENTARY INFORMATION:

We are amending 38 CFR 3.700 to implement statutory changes.

## 38 CFR 3.700(a)(3)—Disability Severance Pay

Section 1212 of title 10, United States Code, which authorizes disability severance pay, generally requires that the amount of disability severance pay received for a disability be deducted from any VA compensation awarded for the same disability. However, the National Defense Authorization Act for Fiscal Year 2008, Public Law 110-181, Div. A, Title XVI, Subtitle D, section 1646(b), amended 10 U.S.C. 1212 to provide that no deduction may be made from VA compensation for disability severance pay received for disabilities incurred in line of duty in a combat zone or incurred during performance of duty in combat-related operations as designated by the Department of Defense (DoD). The DoD designation of whether a disability was incurred in a combat zone or incurred during performance of duty in combat-related operations will govern only whether a deduction may be made from VA compensation paid for the disability for which disability severance pay was received. VA will continue to determine whether the disability resulted from disease or injury incurred or aggravated in line of duty in active service for purposes of determining entitlement to VA disability compensation. The amendment applies to members of the Armed Forces separated from the Armed Forces under Chapter 61 of title 10, United States Code, on or after January 28, 2008.

                    Section 3.700(a)(3) is VA's regulation governing offset of disability severance pay from VA compensation. Generally, an award of compensation will be made subject to recoupment of any disability severance pay received for the same disability. We are adding to the regulation a new provision specifying that there will be no recoupment of disability severance pay for disabilities identified by the DoD as being incurred in combat zones or during performance of duty in combat-related operations.                          ( print page 26957)    

Because of the amendments to 38 U.S.C. 1212 made by the National Defense Authorization Act for Fiscal Year 2008, the authority for § 3.700(a)(3) has changed from section 1212(c) to section 1212(d). We are making this change in the authority citation in the regulation.

## 38 CFR 3.700(a)(5)—Separation Pay and Special Separation Benefits

In Public Law 102-190, section 661(a)(1), effective December 5, 1991, Congress added the special separation benefits program to be carried out by the DoD. See 10 U.S.C. 1174a.

To avoid duplication of benefits resulting from the special separation benefits program, section 1174a(g) makes the provisions of 10 U.S.C. 1174(h)(2) applicable to special separation benefits. Section 1174(h)(2) states that a member who has received separation pay based on service in the Armed Forces shall not be deprived, by reason of his receipt of such pay, of any disability compensation to which he is entitled under the laws administered by VA, but there shall be deducted from that disability compensation an amount equal to the total amount of separation pay received. In Public Law 104-201, section 653, Congress amended section 1174(h)(2) by providing that the amount deducted from disability compensation would be the total amount of separation pay received less the amount of Federal income tax withheld from such pay (such withholding being at the flat withholding rate for Federal income tax withholding). This amendment was made applicable to payments of separation pay made after September 30, 1996.

In 1998, Congress enacted Public Law 105-178, section 8208, which extended the applicability of the amendment made by Public Law 104-201 to any payment of special separation benefits under section 1174a made during the period beginning on December 5, 1991, and ending on September 30, 1996.

In 2002, VA revised its regulation concerning concurrent benefits, 38 CFR 3.700, to incorporate the offset requirements, including the reduction of the amount of offset by the amount of Federal income tax withheld from separation pay or special separation benefits. 67 FR 60867 (Sept. 27, 2002). However, VA did not specify that the reduction for Federal income tax withheld was applicable to payments of special separation benefits made on or after December 5, 1991. Nonetheless, VA's practice has been to recoup the after-tax amount since December 5, 1991. We are now amending the regulation to conform to the statute and current practice. We are amending § 3.700(a)(5) by creating a new § 3.700(a)(5)(iii) that will address special separation benefits, and we will remove the special separation benefits references from current § 3.700(a)(5)(i).

We will also add a clarification in § 3.700(a)(5) for both separation pay and special separation benefits that the Federal income tax withholding amount is at the flat withholding rate for Federal income tax withholding, to ensure the regulations accurately reflect the statute.

## Administrative Procedures Act

This final rule merely restates statutory provisions. Accordingly, there is a basis for dispensing with prior notice and comment and the delayed effective date provisions of 5 U.S.C. 553.

## Paperwork Reduction Act

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

## Regulatory Flexibility Act

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

## Executive Order 12866

Executive Order 12866 directs agencies to assess all 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, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB), as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined and it has been determined not to be a significant regulatory action.

## 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 year. This rule would have no such effect on State, local, and tribal governments, or on the private sector.

## Catalog of Federal Domestic Assistance Numbers and Titles

The Catalog of Federal Domestic Assistance program number and title for this rule is 64.109, Veterans Compensation for Service-Connected Disability.

# List of Subjects in 38 CFR Part 3

      - Administrative practice and procedure
      - Claims
      - Disability benefits
      - Health care
      - Pensions
      - Radioactive materials
      - Veterans
      - Vietnam

Approved: April 29, 2009.

John R. Gingrich,

Chief of Staff, Department of Veterans Affairs.

For the reasons set forth in the preamble, 38 CFR part 3 is amended 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. Amend § 3.700 as follows: 

a. In paragraph (a)(3), add a sentence at the end of the paragraph and revise its authority citation. 

b. In paragraph (a)(5)(i), remove “or special separation benefits” and “under section 1174a” each place it appears, and add a sentence at the end of the paragraph. 

c. Remove the authority citation at the end of paragraph (a)(5)(ii). 

d. Add paragraph (a)(5)(iii) and an authority citation.       ( print page 26958)    

The revision and additions read as follows:

§ 3.700 

* * * * *

(a) * * * 

(3) * * *  For members of the Armed Forces who separated under Chapter 61 of title 10, United States Code, on or after January 28, 2008, no recoupment of severance pay will be made for disabilities incurred in line of duty in a combat zone or incurred during performance of duty in combat-related operations as designated by the Department of Defense.
10 U.S.C. 1174(h)(2)1212(d)
* * * * *

(5) * * * 

(i) * * *  The Federal income tax withholding amount is the flat withholding rate for Federal income tax withholding.

* * * * *

(iii) Where payment of special separation benefits under 10 U.S.C. 1174a was made on or after December 5, 1991, VA will recoup from disability compensation an amount equal to the total amount of special separation benefits less the amount of Federal income tax withheld from such pay. The Federal income tax withholding amount is the flat withholding rate for Federal income tax withholding.
10 U.S.C. 11741174a
* * * * *

[FR Doc. E9-13212 Filed 6-4-09; 8:45 am]

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