VA pays Dependency and Indemnity Compensation to surviving spouses, children, and parents. The surviving spouse of a veteran may qualify for this compensation if the veteran died on or after January 1, 1957, (1) from a service-connected disability, or (2) after being rated as totally disabled due to service-connected conditions for a continuous period of 10 years, or for at least 5 continuous years after discharge from military service. The surviving spouse of a servicemember qualifies for this compensation if the servicemember died while on active duty. Some children aged 18 and older may receive separate DIC payments if they are in school or are unable to care for themselves. Parents may receive these benefits if they were dependent on the veteran or servicemember for financial support. Veterans, servicemembers, and federal employees may receive disability benefits from various sources including VA, DOD, and the Social Security Administration. These disability benefits terminate upon the death of the disabled person. Veterans may receive disability compensation payments through VA. A veteran's qualification for, and amount of, disability compensation is not dependent on the veteran's military rank or current income. If a veteran has one or more service-connected disabilities--conditions incurred or aggravated by military service--VA assigns a disability rating. This rating is intended to represent the average earnings loss the veteran would experience in civilian occupations due to the disabling conditions. Ratings range from 0 to 100 percent, in 10 percent increments. Basic monthly payments for a veteran with a spouse range from $123 for a 10 percent rating to $2,823 for a 100 percent rating (i.e., totally disabled or unemployable). A veteran rated at 60 to 90 percent also can receive VA compensation at the 100 percent level if also determined to be unable to work. The veteran may receive additional compensation if he or she meets certain other criteria; for example, loss of a limb or requiring assistance in performing the functions of everyday living. For a veteran with a spouse, total compensation may be as much as $7,800 per month. DOD also provides disability retirement payments to servicemembers who are separated from service because they are unfit to continue to serve, provided that their disabilities were incurred in the line of duty. Some veterans may receive disability retirement pay and VA disability compensation simultaneously; for example, if their VA disability rating is 50 percent or higher. In addition, servicemembers who are enrolled in the military's life insurance program, Servicemembers' Group Life Insurance (SGLI), may also receive financial assistance for certain losses resulting from certain traumatic injuries. Disabled servicemembers receive lump-sum payments, ranging from $25,000 to $100,000, depending upon the nat the qualifying loss. Disability benefits for federal employees are provided through their retirement and workers' compensation programs, and payment amounts are generally tied to the employee's salary. The Civil Service Retirement System (CSRS) generally covers employees who began federal employment prior to 1984. The Federal Employees' Retirement System (FERS), established to eventually replace CSRS, generally covers federal employees who began their term of employment in 1984 or later. The Federal Employees' Compensation Act (FECA) provides the workers' compensation program for federal employees who suffer injuries or illnesses while on the job, or whose preexisting conditions are aggravated by their jobs. An eligible employee may elect to receive disability retirement benefits under CSRS or FERS instead of under FECA, but cannot receive both. Additionally, servicemembers and federal employees are eligible for Social Security disability benefits. As part of its Old Age, Survivors, and Disability Insurance program, the Social Security Administration pays Social Security Disability Insurance (SSDI) benefits to individuals who are unable to work. To be eligible for SSDI, an individual must have a condition that will last at least one year or will result in death, and meet certain age and work requirements, which may include military service. SSDI benefit amounts are calculated on average earnings indexed to national wage levels. SSA also pays Supplemental Security Income (SSI) to qualifying adults with limited income and resources who have disabilities or are blind, or are age 65 or older, and to children who have disabilities or are blind. In addition to DIC benefits, survivors of servicemembers and veterans can receive cash payments and other types of benefits. DOD provides a lump sum death gratuity of $100,000 to the survivors of a servicemember who dies on active duty or in training, or due to a service-related disability. DOD also provides up to $8,800 for burial expenses. The deceased may have had Servicemembers' Group Life Insurance (SGLI) coverage, which can pay surviving family members a lump sum of up to $400,000. A surviving spouse and children may also receive monthly payments after the death of an active duty or retired servicemember through the Survivor Benefit Plan (SBP). These payments equal 55 percent of the servicemember's retirement pay. In addition to cash payments, survivors may also be eligible for health care, housing assistance, and education benefits. Survivors of federal employees can receive benefits through retirement programs, workers' compensation, and life insurance. CSRS provides benefits to the surviving spouses of retired employees. The maximum CSRS survivor benefit is 55 percent of the retired employee's monthly payment. CSRS also provides payments to the survivors of covered employees who die while employed, with survivors receiving a percentage of the employee's calculated retirement annuity. FERS offers similar survivor benefits, but the maximum is 50 percent of the retired employee's monthly payment. Under FECA, the federal workers' compensation program, benefits may be provided to the survivors of federal civilian employees who die as a result of work-related injuries and illnesses. Payment amounts are based on the deceased's last salary and, unlike other federal employee programs, FECA provides additional benefits to the spouse for dependent children. A surviving spouse is eligible to receive 50 percent of the deceased's salary, or 45 percent plus 15 percent for each dependent child, up to a maximum of 75 percent. Survivors of federal employees who die of a work-related injury or disease may receive benefits under either FECA or the employee's retirement program, CSRS or FERS, but if eligible for more than one benefit, survivors typically choose the more generous FECA benefit. FECA benefits are not subject to federal income taxes. Survivors also may receive a lump sum benefit from the employee's Federal Employees' Group Life Insurance policy. Survivors may also collect Social Security benefits through the Old Age, Survivors, and Disability Insurance program. These benefits are paid to the surviving spouse, children, and dependent parents of any worker with a qualifying work history, including military servicemembers and federal employees under FERS. Survivor benefits may also be paid to the survivors of veterans and some CSRS-covered federal employees, if the veteran or federal employee had sufficient Social Security earnings credits. For the surviving spouse, eligibility for full benefits may occur at the spouse's normal retirement age, while partial benefits can be paid as early as age 60. Also, a surviving spouse can receive survivor benefits at any age if caring for a child who is receiving Social Security benefits and is younger than age 16 or disabled. Unmarried children may receive benefits if they are under age 18. For more than half the survivors who began collecting benefits in fiscal years 2004-2008, DIC replaced between 35 and 55 percent of the VA disability compensation or military pay previously paid to the veteran or servicemember. Most of the DIC recipients in this group survived a totally disabled veteran or a low- to mid-grade enlisted servicemember, such as an Army sergeant. Overall, the most common DIC recipient was a woman over the age of 50 with no minor children who was the widow of a In this most common case, the totally disabled totally disabled veteran. veteran would have received $2,823 per month in VA compensation in 20 and, after his death, the surviving spouse would have received $1,154 month--the basic flat-rate DIC payment--for a replacement rate of 41 percent. Under DIC, survivors receive benefits without regard to the veteran's or servicemember's prior income. This prior income can include VA disability compensation and military pay, which cease upon the death of the veteran or servicemember. Because DIC benefits are generally paid at the same flat rate, the replacement rate depends upon the amount of prior income. While survivors of 6 out of 10 veterans and servicemembers received 35 percent to 55 percent of prior compensation, there are examples of DIC recipients at both ends of the replacement scale (see fig. 3). On the low end of the replacement scale, for about 1 of 10 survivors DIC replaced less than 35 percent of the veteran's prior disability compensation or the servicemembers' military pay. Many were survivors of veterans who received special compensation in addition to disability compensation due to the seriousness of the disability, for example, the loss of a limb. Some of the survivors of these veterans experienced a large drop in monthly compensation. For example, a severely disabled veteran could receive as much as $7,800 per month in disability and special compensation prior to death, but the surviving spouse would receive $1,400 per month in DIC, or 18 percent of the prior amount (see fig. 4). Another group which sees a large drop is survivors of higher ranked servicemembers, such as officers. DIC's flat rate replaces less of their military pay than it does for servicemembers in lower pay grades. A Navy lieutenant, for example, earned about $6,000 per month in 2009. If the lieutenant died on active duty, the surviving spouse would receive the basic DIC benefit--$1,154--which replaces about 19 percent of the lieutenant's pay. On the high end of the replacement scale, about 3 out of 10 survivors received DIC payments that replaced more than 55 percent of previous disability compensation or military pay, with many receiving 100 percent or more of the prior compensation. Many were survivors of veterans who received relatively low VA compensation prior to their death because they were considered partially disabled. For example, a veteran with a spouse and a 30 percent rated disability received $421 per month in VA disability compensation in 2009. Upon the veteran's death, the surviving spouse received the DIC basic payment of $1,154 per month, which represented well over 200 percent of the prior compensation (see fig. 4). Some survivors of active duty servicemembers also fell into this group. Generally, these were servicemembers in lower pay grades whose survivors received additional DIC benefits to support children or parents. While DIC serves to replace some of the financial support lost due to a service-connected death, the law does not define a specific percentage of income that DIC should replace. In contrast, laws governing some other types of survivor benefits establish set replacement rate percentages. For example, a provision in federal law stipulates that most employment-based pensions must provide surviving spouses with 50 percent of the deceased's pension payment, unless both the employee and spouse opt out. However, DIC is not a pension program, and there is no consensus among experts on an adequate or ideal replacement ratio for survivors. The amount paid by DIC to survivors of disabled veterans and servicemembers is generally higher than the amount paid by CSRS and FERS retirement programs to survivors of comparably paid federal employees. Such comparisons are difficult, however, because DIC provides a flat rate payment while CSRS and FERS survivor payments are determined by the salary and years of employment of the deceased employee. As a result, there is a range of payment amounts for survivors of federal employees. The monthly payment to a survivor of a federal employee with more years on the job and a higher salary will be larger than that to a survivor of a federal employee with fewer years or a lower salary. When we looked at veterans/servicemembers and federal employees with comparable pay and experience, we found that for most survivors, DIC provides higher benefits than the federal retirement programs because it gives more money to survivors of lower-paid individuals. About 82 percent of veterans or servicemembers whose survivors receive DIC were lower ranked during their time of service. Personnel in these lower ranks made less than $63,000 a year in 2009, and their survivors would have fared better under the DIC program than they would have under the federal retirement survivor programs. The following examples illustrate how DIC generally provides higher payments to the survivors of those who die after a period of disability than CSRS for a majority of its recipients. Under DIC, the surviving spouse of an Army sergeant who was disabled for a prolonged period before dying in 2009 would be eligible for a monthly payment of $1,400. In contrast, the surviving spouse of a federal employee, also disabled before his or her death and with the same years of experience and salary as the Army sergeant, would be eligible for a monthly CSRS payment of $606. The surviving spouses of a private first class, a sergeant first class, and a captain would also receive higher payments under DIC than would the surviving spouses of federal employees with comparable pay and experience under CSRS. Although they represent a small portion of DIC recipients, survivors of higher-paid servicemembers would likely receive less compensation than their federal employee counterparts. In 2009, for example, the survivor of an Army lieutenant colonel who was totally disabled for a prolonged period would receive the same DIC payment of $1,400 per month, but the survivor of a comparable federal employee would receive over $1,700 per month. (See fig. 5.) (See fig. 5.) The following examples illustrate how DIC generally provides higher payments than FERS for a majority of its recipients. For instance, the spouse of an Army sergeant who died in 2009 after a period of disability would receive the flat DIC payment of $1,154 a month. The spouse of a federal employee with equal pay and years of employment who died in 2009 would receive $732 a month under FERS. Similarly, the surviving spouses of a private first class and a sergeant first class would receive higher payments under DIC than the surviving spouses of comparable federal employees would under FERS. This trend generally holds true for both employees who die while employed by the government and those who die after a period of disability: DIC survivor benefits are higher than FERS for the majority of individuals. Although they represent a small portion of DIC recipients, survivors of higher-paid servicemembers may receive lower payments than their federal employee counterparts. While the spouse of a higher-paid Army captain would still receive the basic DIC payment of $1,154 per month after the captain's death in 2009, the spouse of a federal employee with equal amounts of pay and years of employment would receive nearly $1,300 under FERS. (See fig. 6.) In contrast to CSRS and FERS, DIC survivor payments are generally lower than payments to survivors of comparably paid federal employees under the federal workers' compensation program known as FECA. FECA provides survivor benefits to the families of federal employees who die as a result of injuries sustained on the job. FECA survivor payments are generally higher than those under CSRS or FERS and, like DIC, are not subject to federal income tax. A surviving spouse receives the equivalent of half the federal employee's salary at the time of death. This payment would be larger than the basic DIC payment if the employee had an ending salary of at least $27,697 in 2009. Almost all servicemembers earn more than this salary in military pay, so their survivors would receive less under DIC than their civilian federal counterparts would receive under FECA. For example, under DIC, the surviving spouse of an Army sergeant who died while on active duty would receive DIC's basic payment of $1,154 per month. The surviving spouse of a comparably paid federal employee would receive $1,722 under FECA for a death due to a work-related injury. Similarly, the spouse of a federal employee with pay comparable to an Army captain would receive over $3,000 per month under FECA compared to DIC's $1,154. (See fig. 7.) g. 7.) Survivors of both veterans/servicemembers and civilian federal employees may draw on other government benefits and additional sources of income concurrently. For example, Social Security may allow spouses of veterans, servicemembers, and federal employees to collect survivor benefits based on the deceased's employment earnings, and also may provide survivor payments to the deceased's unmarried children. In addition, past reports on DIC indicate that some DIC benefit recipients also receive survivor payments from the Survivor Benefit Plan, a survivor benefit available to those collecting a military pension. Military survivors may also receive burial assistance, and health and education benefits. Finally, survivors of both military personnel and civilian federal employees may draw income from their own employment and receive life insurance payments. We provided a draft of this report to VA for its review and comment. The agency provided comments that were technical in nature and we incorporated them as appropriate. We are sending copies of this report to relevant congressional committees, the Secretary of Veterans Affairs, and other interested parties. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-7215 or at bertonid@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II. Our review focused on (1) the extent to which Dependency and Indemnity Compensation (DIC) replaces Department of Veterans Affairs (VA) disability compensation or active duty military pay lost due to the death of a veteran or servicemember, and (2) how DIC benefits compare to benefits for survivors of civilian federal employees. To address these objectives, we obtained and analyzed data on DIC benefits, VA disability compensation, and military pay. We also obtained information on programs that provide survivor benefits to federal employees and compared these survivor payments to DIC payments. To obtain additional context, we reviewed past evaluations of DIC and interviewed officials at VA and several organizations representing veterans, servicemembers, and their survivors. We conducted this performance audit from February 2009 to November 2009, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings based on our audit objectives. We obtained and analyzed data from VA's Benefits Delivery Network (BDN) data system on all survivors who received DIC payments in September 2008, the last month of fiscal year 2008. These data included information on individual DIC recipients, such as the recipient's age and the level of DIC payments the recipient received. To determine the extent to which DIC benefits replaced prior VA disability compensation, we obtained additional data on survivors who began receiving DIC payments during a 5-year period: fiscal years 2004-2008. Specifically, we obtained data on the amount of monthly VA disability compensation received by the disabled veteran prior to death. We focused on those who recently began collecting DIC benefits due to VA's limited historical data on disability compensation payments to veterans. For these recent recipients, we compared their monthly DIC payments with the amount of VA disability compensation received by the veterans. To determine the extent to which DIC replaces military pay lost due to the death of a servicemember on active duty, we estimated the pay of the servicemember prior to death. VA's data included the servicemember's last military grade, but not his or her last military pay rates. To estimate pay rates, we obtained military pay information from DOD and used the midpoint in the pay ranges for the servicemember's grade in the year he or she died, including the basic pay and housing and subsistence allowances applicable to the servicemember's grade. We compared this estimated pay with the actual amount of DIC benefits received by the servicemember's survivors. For purposes of this analysis, when referring to survivors, we mean one or more persons (family members) surviving a single veteran or servicemember. We assessed the reliability of the VA data we used and judged them to be sufficiently reliable for our purposes. We identified data limitations that did not significantly impact the results of our data analysis, or our findings. For example, 314 of the cases were missing from our data because VA is transitioning from BDN to a new data system. Additionally, we found 31 cases where the recipient's award amounts were incorrect. According to VA officials, this was likely due to data entry errors. We excluded these 345 records--about 1/10 of 1 percent of the entire September 2008 beneficiary file--from our analysis. Our comparisons of DIC with survivor benefits for federal employees focused on three programs: the Civil Service Retirement System (CSRS), the Federal Employees' Retirement System (FERS), and the federal workers' compensation program established by the Federal Employees' Compensation Act (FECA). We chose these programs because they cover the majority of federal employees and, like the DIC program, provide ongoing survivor benefits in the event of the employee's death. Additionally, these programs provide disability benefits to federal employees who suffer an injury or illness, mirroring, to an extent, VA compensation for veterans with disabilities related to their military service. It is difficult to compare DIC benefits to survivor benefits under these programs because DIC generally provides flat payments to survivors regardless of their past incomes, while these federal programs base benefit amounts on prior income levels. Additionally for CSRS and FERS, the employee's length of service and age affect benefits calculations. Therefore, to compare benefits, we constructed several scenarios to examine the DIC benefits available to various veterans and servicemembers, and those available to federal employees with pay and experience equivalent to those veterans and servicemembers. For CSRS and FERS, we developed examples in which the individuals started their careers in time periods in which the federal employees would have been covered by the respective programs. We obtained information on the military pay applicable to a veteran or servicemember in the last year he or she served and assumed that the federal employee would have a high-three average salary equal to this amount. We used these salary amounts to calculate the federal employees' disability benefits to which they were entitled, and used the appropriate cost of living adjustments to determine what their disability benefits would have been in 2009 before dying, and their survivor's benefit after their death in 2009. Similarly, we calculated survivor benefits for servicemembers who died on active duty and for federal employees with comparable years of service and pay at the time of death. To compare FECA benefits with DIC benefits, we constructed several scenarios in which a servicemember died in 2009 and compared these scenarios to a federal employee with an equivalent salary. We assumed that the federal employee died of a job-related injury that was covered by FECA. To provide context for our analysis of DIC benefits, we reviewed previous evaluations of DIC benefits. These included: Past GAO reviews of DIC and other survivor benefits; A program evaluation report prepared for VA in May 2001; and The CNA Corporation's 2007 report prepared for the Veterans' Disability Benefits Commission on VA disability compensation and DIC benefits. To gain an understanding of DIC, its benefit levels, and related issues, we interviewed VA officials, and officials of several veterans and military service organizations. The organizations included the American Legion, the Disabled American Veterans, the Iraq and Afghanistan Veterans of America, The Military Officers Association of America, the National Association for Uniformed Services, the National Military Family Association, the Paralyzed Veterans of America, the Retired Enlisted Association, the Society of Military Widows, the Gold Star Wives of America, Inc., The Military Coalition, and the Tragedy Assistance Program for Survivors. Finally, to provide background on the various disability and survivor benefits identified in this report, we reviewed literature from several agencies' Web sites, including VA, the Department of Defense (DOD), the Social Security Administration (SSA), the Department of Labor, and the Office of Personnel Management. We also reviewed related GAO and Congressional Research Service reports, and relevant federal laws and regulations. Melissa H. Emrey-Arras (Assistant Director), Paul R. Schearf (Analyst-in- Charge), Daniel R. Concepcion, and Gregory D. Whitney made major contributions to this report. In addition, Kirsten B. Lauber and Walter K. Vance assisted in developing the study's methodology; Beverly Ross analyzed VA data; Kyle C. Adams assisted with the calculation of survivor benefits; Susan L. Aschoff and Charles E. Willson provided writing assistance; James E. Bennett helped develop our graphics; and Craig H. Winslow provided legal support. Joseph Applebaum, Timothy J. Carr, Cynthia C. Heckmann, David E. Moser, and Patricia Owens provided additional support and guidance.

Summary:
The Dependency and Indemnity Compensation (DIC) program provides monthly payments to the survivors of those who died as a result of a service-connected disability or while on active duty in the military. In fiscal year 2008, the Department of Veterans Affairs (VA) paid over $4.7 billion to about 354,000 survivors, replacing a portion of income lost with the death of the veteran or servicemember. The Veterans' Benefits Improvement Act of 2008 directed the Government Accountability Office (GAO) to study the DIC program and the levels of payments it provides. This report addresses (1) the extent to which DIC replaces VA disability compensation or active duty military pay lost due to the death of a veteran or servicemember, and (2) how DIC benefits compare to benefits for survivors of civilian federal employees. GAO obtained and analyzed data on DIC payments, VA disability compensation, and military pay rates. GAO also obtained information on survivor benefits under federal employee retirement and workers' compensation programs. GAO did not include in its analysis other sources of income survivors may receive, such as Social Security, private pensions, and life insurance. Lastly, GAO interviewed officials from VA and groups representing veterans, servicemembers, and their survivors. For more than half of survivors who recently began collecting DIC, the benefit replaced between 35 and 55 percent of the VA disability compensation or estimated military pay lost due to the death of a veteran or servicemember. Because DIC provides generally flat payments, the rate at which it replaced lost income varied according to the amount of prior income, such as VA disability compensation. The most common survivor was an older female spouse of a totally disabled veteran who, in 2009, received $1,154 per month--the base DIC payment--compared with $2,823 per month paid in VA disability compensation to the disabled veteran prior to death. In these cases, DIC replaced 41 percent of prior compensation. There were, however, DIC recipients at the far ends of the scale. For example, for surviving spouses of mid-ranked officers who died on active duty, the flat rate DIC payment represented 19 percent of prior military pay; for survivors of partially disabled veterans who had received relatively low VA disability compensation, the flat rate DIC payment sometimes represented more than 100 percent of prior compensation. When comparing survivor benefits for DIC with those for comparably paid civilian federal employees, DIC benefits are generally higher than survivor benefits paid by federal retirement programs, but lower than those paid by federal workers' compensation. The DIC program's flat payment structure differs from federal programs in which payment amounts are based on employee salaries and years of employment. We found that for most survivors, DIC provides higher benefits than the federal retirement programs because it gives more money to survivors of lower paid individuals, who comprise the majority of DIC recipients. In contrast, DIC payments are almost always less than workers' compensation payments for survivors of federal employees who die as a result of job-related injuries. For comparable employees, the salary levels of nearly all servicemembers in 2009 would result in higher survivor payments under workers' compensation than under the DIC program.