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5.14.1 Scope of Chapter

The amount of the vested dual benefit (VDB) payable in a fiscal year depends on the 

funding appropriated by Congress. This chapter consolidates the many diverse areas 

upon which the vested dual benefit has an impact. This chapter explains the rules and 

regulations which must be adhered to when making payments involving a VDB. Before 

you use the rules and regulations outlined in this chapter you must understand the 

concepts explained in 5.14.3 and 5.14.4. 

5.14.2 Principles Of Vested Dual Benefit Cutback

If a VDB is cutback for an entire fiscal year, or for any time within a fiscal year, the 

cutback percentage that applied in those months will always remain. The only way that 

percentage can be overridden is if Congress increases or decreases the funding for 

those months and overrides the previous reduction. This happened in fiscal year 1982. 

A 21 percent VDB cutback reduction was imposed due to funding. However, two 

months later Congress revised the funding so that only a 15% reduction need be used. 

They specified that this funding was retroactive to the start of the fiscal year, therefore 

cases where the 21% reduction had been applied needed to be redone, and an accrual 

paid. Later in fiscal year 1982, Congress again revised the funding to allow for no 

cutback effective July 1982 (August 2 payments). There have been several vested dual 

benefit cutbacks and restorations since 1982. A summary is included in 5.14, exhibit 1.

Unless the funds appropriated for the VDB are retroactive, a new cutback percentage 

does not override a previous reduction. This means that a previous reduction cannot be 

ignored, nor can it be changed. When different VDB reduction percentages are 

involved, this chapter will help to determine how the VDB should be considered. Each 

aspect of claims adjudication where the VDB is a factor is referred to individually.

5.14.3 Basic Philosophy Used in Payment of Vested Dual Benefit 

Accruals

When making payments involving a vested dual benefit, you must know:

• The percent of reduction in the voucher month, and

• The percent of reduction in the accrual month.

Voucher month is the month the payment is made in. Accrual month is the month for 

which the payment is due. For instance, a vested dual benefit payment is due for July 

and August 1979, and is paid in November 1982. The voucher month is November 

1982, the accrual months are July and August 1979.
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If both the voucher and accrual month are the same, there is no question that any 

vested dual benefit payment will be made at the reduction percentage that applies in 

that month. But if the voucher month and accrual month are different, our regulations 

provide that "if the application of the voucher month's reduction factor would result in a 

larger payment than would the application of the accrual month's reduction factor, the 

accrual month's reduction factor shall be applied."

In essence, this means that the reduction factors of the voucher month and accrual 

month should be compared, and the higher of the 2 factors should be used as the 

cutback percentage. This is the basic philosophy used in the payment of all vested dual 

benefit accruals.

5.14.4 Distinction Between "Retroactive Accruals" and "Replacement 

Payments"

The vested dual benefit regulations make a distinction between "accrual" and 

"replacement payment." A replacement payment is either:

• A lost check,

• A stolen check, or

• A check returned for any reason,

and reissued to (or for) the same annuitant. If such returned check prevents 

succeeding checks from being issued timely, these due payments are also considered 

replacement payments.

The regulations provide that:

• "The reduction factor imposed in the case of a replacement payment shall be that 

reduction factor which was applicable to the original payment."

5.14.5 Returned Payments and Replacement Checks

Returned payments and replacement checks which are paid out to the same payee as 

originally issued, should be paid at the rate effective at the time the original check was 

prepared. (Representative payee changes do not alter the fact that the check is 

reissued at the original rate.) In addition:

• Any payments that were not released because the returned payments suspended 

the annuity should be paid out at the cutback rate in effect at the time the check 

should have been released.
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• Substitute checks issued by Treasury in response to a claim of non-receipt, lost, 

stolen or destroyed checks should be paid in the same amount as the original check.

The reinstatement accrual must be reduced by the appropriate cutback percentage if 

the annuity rate was not correct when the returned payment suspended the annuity.

5.14.6 Payment of Retroactive Accruals

Payment of VDB accrual involves two steps:

1. Determine the amount of the VDB accrual.

2. Determine at what cutback rate the VDB must be paid.

When determining the amount of the accrual, use the cutback percentage that applied 

in those particular months for which the accrual is due. The accrual can be paid out as 

computed if the voucher month's cutback percentage is less than the cutback 

percentage that is used to determine the accrual.

However, if the voucher month's cutback percentage is greater than the cutback 

percentage used to determine the accrual, then the accrual must be further cutback. 

When this situation occurs, a percentage will be provided which when multiplied by an 

already cutback vested dual benefit, will give you the correct WAC in the voucher 

month. In remarks, multiply the vested dual benefit for this purpose, and round to the 

nearest cent. This amount should be entered in the "Deductions" section of the G-363. 

Notate this deduction "Additional Vested Dual Benefit Cutback." 

5.14.7 Accrued Annuities Due but Unpaid at Death

An accrued annuity is not considered a replacement payment, and must be paid out the 

same way a retroactive accrual is paid as explained in 5.14.6. 

5.14.8 Calculating Overpayments When a Vested Dual Benefit Cutback 

is Involved

This section is divided into four parts:

• How to determine an overpayment when the annuity includes a VDB.

• What VDB amount to use when recovering an overpayment when no VDB accrual is 

involved.

• What VDB amount to use when recovering an overpayment when a VDB accrual 

amount is involved.
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• Reinstating overpayment cases when the annuity includes a VDB.

The basic rule of thumb to remember is that:

• The VDB amount to use when determining an overpayment (O/P) is the applicable 

WAC rate in the month(s) in which the O/P occurred, and 

• The VDB amount to use when recovering an O/P is the applicable WAC in the 

months of recovery.

A. How To Determine An Overpayment When the Annuity Includes a VDB - 

Generally, overpayments are caused by one of the following three situations:

• Iincorrect payment of tier 1 and/or tier 2

• Incorrect payment of the vested dual benefit

• Incorrect payment of tier 1 and/or tier 2, and the VDB

Any overpayment caused by incorrect payment in tier 1 and/or tier 2 is 

determined by comparing the correct tiers to the incorrect tiers; the difference is 

the overpayment. If there is a VDB that was paid correctly, it has nothing to do 

with determining the O/P.

If the overpayment is caused (in part or in full) by an incorrect payment of the 

vested dual benefit, determine what the correct gross vested dual benefit is. 

Determine what the WAC rate should have been in each month the vested dual 

benefit was paid incorrectly. Do not use the current month's reduction factor. 

Use the reduction factor which actually applied in the overpaid months.

Use this vested dual benefit amount when comparing the correct annuity rate to 

the incorrect annuity rate; the difference is the overpayment.

B. VDB Amount to Use When Recovering an Overpayment When no VDB Accrual 

is Involved - Once the amount of the O/P has been determined, the method of 

recovery needs to be resolved. These methods include (but are not limited to):

• Full recovery

• Partial withholding

• Actuarial adjustment

If full recovery will be used to recover the O/P, the WAC rate applicable in the 

months the annuity is being withheld should be used for recovery purposes. The 

problem with this is, the WAC rate used to decide how many withholding months 
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are necessary can change once the annuity is in suspense. When determining 

the number of withholding months, if you know there will be a new WAC, and can 

identify when it will be effective and what it will be, use it. Otherwise, determine 

the number of withholding months on information currently available.

If partial withholding will be used to recover the O/P, use the WAC rate when 

determining the amount to withhold. If actuarial adjustment will be used to 

recover the O/P, use the full VDB before cutback (after age and/or military 

service reduction).

C. VDB Amount to Use When Recovering an Overpayment When a VDB Accrual is 

Involved - Sometimes all or part of an O/P can be recovered from an accrual due 

the annuitant. Once you have figured out the correct VDB accrual payable (See 

RCM 5.14.6), this amount can be used to offset the O/P.

D. Reinstating Overpayment Cases - If an annuity in an overpayment case was in 

suspense (to recover the O/P) during a vested dual benefit cutback adjustment, 

the overpayment recovery date and accrual must be recomputed to properly 

apply the new cutback percentage to the vested dual benefit. The cutback 

percentage to use is the one applicable in each particular month in which the 

annuity was in suspense.

Prior to reinstating the annuity, recompute the annuity rate considering the WAC 

on Form G-354.1, G-355.1 or G-364.1. Recalculate the overpayment recovery 

date using the new annuity rate on Form G-363.

1. Reinstatement Date Remains The Same - If after recomputing the 

recovery date, it remains the same but the accrual is more/less than 

previously calculated, reinstate the annuity and pay out the newly 

computed accrual.

2. Reinstatement Date Changes

a. Reinstatement Date is Later - If after recomputing the recovery 

date, it is later than stated in the overpayment letter, write a letter 

which informs the annuitant of the new cutback and explains that 

because the annuity rate is lower than originally computed, the 

annuity cannot be reinstated until a later date. Do not include any 

appeals paragraph.

b. Reinstatement Date is Earlier - If after recomputing the recovery 

date, it is earlier than stated in the overpayment letter, reinstate the 

annuity. Include a paragraph explaining the new cutback 

percentage and explain that because the annuity rate is higher than 
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originally computed, the annuity can be reinstated at an earlier 

date.

When processing the award after recovering the overpayment, be sure to 

code the G-354, G-355 or G-364 as a "Reinstate/Recert" since the rate 

after vested dual benefit cutback will not be the same as when it was 

suspended.

5.14.9 Work Deduction When a Vested Dual Benefit Cutback is 

Involved

A. Temporary Work Deductions (TWD's) - In retirement cases, the vested dual 

benefit cutback has no effect on applying TWD'S because the entire work 

deduction component is withheld all year.

When applying TWD's in survivor cases, use the monthly rate which includes the 

WAC to determine the number of months necessary to recover the excess 

earnings and when the annuity can be reinstated. If the case is being handled at 

a time when two or more WAC rates are applicable in the TWD year, consider 

the WAC rate that applies to each particular month. This will most likely happen 

in September through December, when the WAC may change due to a new 

fiscal year.

Example: If applying TWD's in March 1982, use the 15% vested dual benefit 

cutback reduction even though the percentage might change later in the year.

If applying TWD's in November 1982, use the 15% vested dual benefit cutback 

for those months for which it is applicable, and the new percentage of vested 

dual benefit cutback for those months in which the new reduction percentage 

applies.

B. Permanent Work Deductions (PWD's) - When assessing permanent work 

deductions to a previous year, use the vested dual benefit cutback percentage 

applicable in each month of that year. If the cutback percentages changes, the 

new reduction figures should be used effective with that month.

Example 1: Assessing PWD's for excess earnings in 1980:

January 1980 through December 1980 - Use the full vested dual benefit since no 

cutback was in effect during 1980.

Example 2: Assessing PWD's for excess earnings in 1981:

January 1981 through August 1981 - Use the full vested dual benefit. September 

1981 through December 1981 - Use 15% reduction.
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C. Paying the Accrual - If any accrual is due after assessing permanent work 

deductions, the vested dual benefit portion should be paid at the cutback rate 

applicable in the voucher month, the entire vested dual benefit accrual can be 

paid.

Example 3: An accrual is due for 1980 after assessing PWD's and will be paid 

out in FY-82 (10-1-81 to 9-30-82.) The vested dual benefit accrual should be cut 

back by 15%.

Example 4: An accrual is due for 1980 after assessing PWD's, and will be paid 

out in FY-83 (10-1-82 to 9-30-83). The vested dual benefit accrual should be 

paid out at the full vested dual benefit rate.

Example 5: An accrual is due for 1988 after assessing PWD's and will be 

vouched in FY-92 (10-1-91 to 9-30-92). The vested dual benefit accrual from 

3/88 through 8/88 should be cut back 5.3%.

D. Apportioning VDB Portion of Accrual for a Partial Month - In order to properly pay 

the vested dual benefit accrual in the partial month, compare the reduction factor 

in the partial month to the reduction factor in the voucher month. If the reduction 

factor in the partial month is equal to or greater than the reduction factor in the 

voucher month, the partial payment can be made without further computations.

However, if the reduction factor in the partial month is less than the reduction 

factor in the voucher month, the accrual for the partial month must be 

apportioned to the components. In order to understand this, keep in mind that 

vested dual benefit accrual is always paid out at the WAC rate applicable in the 

month of payment (month of voucher), even though work deductions are 

assessed at the WAC rate which applied in that particular month. Therefore, it 

becomes necessary to know how much of the partial payment is tier 1, tier 2, and 

vested dual benefit.