Dependency and Indemnity Compensation: Surviving Spouse's Rate; Payments Based on Veteran's Entitlement to Compensation for Service-Connected Disability Rated Totally Disabling for Specified Periods Prior to Death, 72211-72221 [05-23541]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 70, Number 231 (Friday, December 2, 2005)]
[Rules and Regulations]
[Pages 72211-72221]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-23541]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Parts 3 and 20

RIN 2900-AL86


Dependency and Indemnity Compensation: Surviving Spouse's Rate; 
Payments Based on Veteran's Entitlement to Compensation for Service-
Connected Disability Rated Totally Disabling for Specified Periods 
Prior to Death

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) is amending its 
adjudication regulations concerning payment of dependency and indemnity 
compensation (DIC) for certain non-

[[Page 72212]]

service-connected deaths and the rate of DIC payable to a surviving 
spouse for either service-connected or non-service-connected deaths. 
The purpose of this final rule is to clarify VA's interpretation of two 
similar statutes that provide for payments to the survivors of veterans 
who were, at the time of death, in receipt of or entitled to receive 
disability compensation for service-connected disability that was rated 
totally disabling for a specified period prior to death. This rule also 
reorganizes and revises the regulations governing surviving spouses' 
DIC rates and revises the Board of Veterans' Appeals rule concerning 
the effect of unfavorable decisions during a veteran's lifetime on 
claims for death benefits by the veteran's survivors.

DATES: Effective Date: This rule is effective December 2, 2005.
    Applicability Date: VA will apply this rule to claims pending 
before VA on the effective date of this rule, as well as to claims 
filed after that date.

FOR FURTHER INFORMATION CONTACT: Maya Ferrandino, Consultant, 
Compensation and Pension Service, Policy and Regulations Staff, 
Veterans Benefits Administration, 810 Vermont Avenue, NW., Washington, 
DC 20420 (202) 273-7211.

SUPPLEMENTARY INFORMATION:

Background

    In the Federal Register of October 25, 2004 (69 FR 62229), VA 
proposed to revise its DIC regulations to clarify and harmonize VA's 
interpretation of two statutory provisions. We further proposed to 
reorganize and restate existing regulations to make them easier to 
understand and apply.
    DIC is a benefit paid to survivors of veterans in cases of death 
due to service-connected disability or certain cases of death due to 
non-service-connected disability. Section 1318(b) of title 38, United 
States Code, provides in effect that, if the veteran's death is not 
caused by a service-connected disability, DIC is payable only if the 
veteran was in receipt of or ``entitled to receive'' compensation at 
the time of death for a service-connected disability that was 
continuously rated totally disabling for a period of 10 or more years 
immediately preceding death, or for a period of not less than five 
years from the date of the veteran's discharge or release from active 
duty, or for a period of not less than one year immediately preceding 
death if the veteran was a former prisoner of war. VA has implemented 
this provision through regulations at 38 CFR 3.22, paragraph (b) of 
which explains that the phrase ``entitled to receive'' refers to 
circumstances in which the veteran, at the time of his or her death, 
had service-connected disability that was rated totally disabling by 
VA, but was not receiving compensation for one of seven specified 
reasons, including the fact that the veteran had applied for 
compensation during his or her lifetime but had not received total 
disability compensation due to a clear and unmistakable error (CUE) in 
a VA decision.
    We proposed to revise Sec.  3.22(b) in two respects. First, we 
proposed to revise ambiguous language in Sec.  3.22(b) to clarify that 
the correction of CUE may establish that a veteran was ``entitled to 
receive'' benefits ``at the time of death'' irrespective of whether the 
CUE is corrected before or after the veteran's death. We explained that 
the statutory requirement that the veteran have been entitled to 
benefits ``at the time of death'' would be satisfied in such cases 
because 38 U.S.C. 5109A and 7111 mandate that decisions correcting CUE 
must be given full retroactive effect as a matter of law.
    Second, we proposed to add an eighth circumstance in which a 
veteran may be found to have been ``entitled to receive'' compensation 
at the time of death for a disability that was continuously rated 
totally disabling for the specified period preceding death. We proposed 
to state that service department records that existed at the time of a 
prior final VA decision but were not previously considered by VA 
(hereinafter referenced as ``newly identified service department 
records'') may support a finding that the veteran was ``entitled to 
receive'' compensation at the time of death for a disability that was 
rated totally disabling for the specified period. We explained that the 
proposed rule would apply to such service department records received 
by VA before or after a veteran's death, if the records established a 
basis for assigning a total disability rating for the retroactive 
period specified in 38 U.S.C. 1318(b). We stated that, similar to 
awards based on correction of CUE, awards based on such newly 
identified service department records may be made retroactive as a 
matter of law, as provided in long-standing VA regulations at 38 CFR 
3.156(c) and 3.400(q)(2).
    Under section 1311(a)(2) of title 38, United States Code, if a 
veteran's survivor is entitled to DIC based on either service-connected 
or non-service-connected death, the basic monthly rate of DIC payable 
to the survivor may be increased by a specified amount if the veteran 
at the time of death was in receipt of or was ``entitled to receive'' 
compensation for a service-connected disability that was rated totally 
disabling for a continuous period of at least eight years immediately 
preceding death. VA previously implemented this provision through 
regulations in 38 CFR 3.5(e)(1). Unlike Sec.  3.22, however, Sec.  
3.5(e)(1) did not define or elaborate upon the phrase ``entitled to 
receive.''
    In view of the substantially similar language and common derivation 
of 38 U.S.C. 1311(a)(2) and 1318(b), VA has concluded that the statutes 
should be given a similar construction, and the United States Court of 
Appeals for the Federal Circuit (Federal Circuit) upheld that 
determination in National Organization of Veterans' Advocates, Inc. v. 
Secretary of Veterans Affairs, 314 F.3d 1373, 1378 (Fed. Cir. 2003) 
(``NOVA''). In its NOVA decision, however, the Federal Circuit 
criticized VA for not elaborating the meaning of the phrase ``entitled 
to receive'' in Sec.  3.5(e)(1), as VA had done in Sec.  3.22. NOVA at 
1381. The court ordered VA to undertake further rulemaking to harmonize 
those regulations.
    In our October 2004 proposed rule, we proposed to remove the 
provisions in 38 CFR 3.5(e) and to replace them with new 38 CFR 3.10. 
We proposed to reorganize and restate more clearly in new Sec.  3.10 
several provisions specifying the amounts of DIC payable to surviving 
spouses of veterans. We also proposed to include in new Sec.  
3.10(f)(3) a definition of the phrase ``entitled to receive'' that 
would parallel the definition set forth in Sec.  3.22(b), as revised by 
this rule.
    VA also proposed to revise 38 CFR 20.1106, which provides generally 
that claims for death benefits by a veteran's survivor will be decided 
without regard to decisions rendered during the veteran's lifetime. The 
rule historically has contained an express exception for claims under 
section 1318, but not for claims under section 1311. To ensure that 
those two statutes are applied consistently, we proposed to revise 
Sec.  20.1106 to exempt claims under either section 1311 or 1318.
    Finally, the Federal Circuit's order in NOVA directed VA to 
address, in this rule, whether a survivor may establish entitlement to 
DIC under 38 U.S.C. 1311(a)(2) and 1318 by submitting new and material 
evidence after a veteran's death in order to reopen a claim filed by 
the veteran during his or her lifetime. NOVA at 1380-1381. The Federal 
Circuit stated that VA's current regulation at 38 CFR 3.22 reasonably 
recognizes the correction of CUE as a basis for revisiting final 
decisions made during a veteran's lifetime and

[[Page 72213]]

satisfying the durational disability requirement in 38 U.S.C. 1318(b). 
NOVA at 1380-1381. However, the court stated that the correction of CUE 
is only one of the two statutory bases for revisiting final decisions, 
and that VA had failed to explain whether the durational disability 
requirements could be met under the other exception, which involves the 
submission of new and material evidence to reopen a previously denied 
claim. NOVA at 1380-1381.
    Our notice of proposed rulemaking explained that the submission of 
new and material evidence (other than newly identified service 
department records) after a veteran's death could not establish that 
the veteran was ``entitled to receive'' benefits for any past period. 
We explained that there were fundamental differences between the two 
statutory exceptions to finality and that those distinctions were 
significant in the context of claims under 38 U.S.C. 1311(a)(2) and 
1318(b), which depend upon whether a veteran was ``entitled to 
receive'' benefits for past periods. The correction of CUE is a remedy 
for error committed by VA in a prior final decision. By statute, a 
decision correcting CUE has full retroactive effect irrespective of 
when the CUE claim is brought. Accordingly, a CUE claim brought after a 
veteran's death may establish that the veteran was entitled as a matter 
of law to have received benefits during his or her lifetime.
    In contrast, a reopening based on new and material evidence (other 
than newly identified service department records) is not a retroactive 
correction of a prior final decision, but is instead a means for 
establishing prospective entitlement to benefits despite a prior final 
denial. Pursuant to 38 U.S.C. 5110(a), the effective date of an award 
based on a reopened claim ``shall not be earlier than the date of 
receipt of application therefore.'' Accordingly, the Federal Circuit 
has held that VA regulations reasonably provide that reopening with new 
and material evidence of a previously denied claim generally may not 
operate retroactively. See Sears v. Principi, 349 F.3d 1326, 1330 (Fed. 
Cir. 2003), cert. denied, 124 S. Ct. 1723 (2004). The United States 
Court of Appeals for Veterans Claims (CAVC) has explained that a 
reopening ``is not a reactivation of the previous claim, based upon the 
original application for benefits'' and that ``even upon a reopening, 
the prior claim is still `final' in a sense'' because any award based 
on the reopening can be effective no earlier than the date of the 
application to reopen. Spencer v. Brown, 4 Vet. App. 283, 293 (1993), 
aff'd, 17 F.3d 368 (Fed. Cir. 1994). Accordingly, even if new and 
material evidence could show as a factual matter that any veteran was 
totally disabled due to service-connected disability during prior 
periods, such evidence could not establish that the veteran was 
entitled to receive benefits from VA for such past periods.
    We concluded that, because awards based on new and material 
evidence generally cannot establish retroactive entitlement to 
benefits, a survivor seeking DIC under section 1311(a)(2) or 1318(b) 
generally cannot rely upon new and material evidence for the purpose of 
showing that a veteran was ``entitled to receive'' VA compensation for 
past periods. As noted above, the only exception to this general 
principle relates to circumstances in which newly identified service 
department records are submitted after a claim was finally denied. 
Because long-standing VA regulations authorize retroactive benefit 
entitlement based on such service department records, the proposed rule 
explained that new service department records submitted after a 
veteran's death may show that the veteran was ``entitled to receive'' 
total disability compensation for periods prior to death.
    Although the Federal Circuit's NOVA decision refers to the 
possibility of a DIC claimant ``reopening'' a deceased veteran's claim 
based on either CUE or new and material evidence, we note that a 
survivor's DIC claim is not actually a ``reopening'' of the decedent's 
claim for disability compensation because a veteran's claim does not 
survive his or her death. See Richard v. West, 161 F.3d 719, 721-22 
(Fed. Cir. 1998). Rather, the survivor's claim is a new and distinct 
claim that the survivor is entitled to DIC in his or her own right 
based on a showing that the veteran was ``entitled to receive'' certain 
benefits during the veteran's lifetime. Thus the fact that CUE and new 
and material evidence both provide grounds on which the veteran could 
have ``reopened'' or otherwise revisited a previously denied claim 
during his or her lifetime does not, in itself, provide any basis for 
applying those remedies to a survivor's DIC claim. Rather, the 
conclusion that a showing of CUE could establish a survivor's 
entitlement to DIC is based on factors unique to CUE. First, because 
CUE may be corrected retroactively, a showing of CUE may bear directly 
upon the issue of whether a veteran was truly ``entitled to receive'' 
benefits that were wrongly denied due to VA error during his or her 
lifetime. Second, the legislative history of 38 U.S.C. 1318 clearly 
expressed Congress' intent that ``the existence of clear and 
unmistakable VA administrative error would be a basis for entitlement 
to DIC benefits when such administrative error is the only bar to 
entitlement otherwise.'' S. Rep. No. 97-550, at 17 (1982), reprinted in 
1982 U.S.C.C.A.N. 2877, 2880. Neither of those considerations applies 
to the submission of new and material evidence.

Analysis of Public Comments

    We received comments from the Paralyzed Veterans of America (PVA) 
and the National Organization of Veterans' Advocates, Inc. (NOVA), both 
of which were parties to the above-referenced NOVA litigation. NOVA 
suggested a change to the terminology used in proposed 38 CFR 3.10(c)-
(f) to describe the benefits authorized by 38 U.S.C. 1311(a)(2). The 
remaining comments from PVA and NOVA all relate to the issue of whether 
DIC claimants may rely on new and material evidence other than newly 
identified service department records to show that the veteran was 
``entitled to receive'' total disability compensation for the specified 
statutory period. We address these comments below.

I. Terminology in Sec.  3.10(c)-(f)

    We proposed to state in 38 CFR 3.10(a) that the rate of DIC payable 
to a surviving spouse would consist of a basic monthly rate and any 
applicable increases specified in Sec.  3.10(c) and (e). We proposed, 
in Sec.  3.10(c), (d), (e), and (f), to describe the additional DIC 
amount payable under 38 U.S.C. 1311(a)(2) as the ``veteran's 
compensation increase'' because the survivor's eligibility for that 
increase was conditioned upon the veteran's entitlement to compensation 
during his or her lifetime. NOVA states that the term ``veteran's 
compensation increase'' is misleading because the increase is payable 
to the surviving spouse rather than the veteran and suggests that we 
change the term to ``surviving spouse's compensation increase.'' We 
note that the provisions of proposed Sec.  3.10(a) and (c) make clear 
that the increase pertains solely to the rate of DIC payable to a 
surviving spouse and does not authorize any payment to a deceased 
veteran. Nevertheless, we are changing the proposed term ``veteran's 
compensation increase'' to the more specific term ``section 1311(a)(2) 
increase.'' We do not believe that the term suggested by NOVA 
(``surviving spouse's compensation increase'') is sufficiently 
specific, because Sec.  3.10(e) refers to other increases that are also 
payable to surviving spouses as dependency and indemnity compensation.

[[Page 72214]]

II. New and Material Evidence

    NOVA and PVA both assert that survivors seeking DIC under sections 
1311(a)(2) and 1318(b) should be allowed to submit new and material 
evidence after a veteran's death for the purpose of establishing that 
the veteran was, at the time of death, ``entitled to receive'' 
disability compensation for a disability that was rated totally 
disabling for the specified statutory period immediately preceding the 
veteran's death. NOVA and PVA both argue that the proposed rules are 
arbitrary insofar as they allow claimants to rely upon newly identified 
service department records but not on other types of new evidence 
submitted after a veteran's death. The organizations present a number 
of specific arguments in support of this assertion, which we address 
below.
A. Interpretation of ``Entitled To Receive''
    Although not expressly stated in the comments, it appears that each 
of the comments from PVA and NOVA rest upon a disagreement with VA 
concerning the meaning of the phrase ``entitled to receive'' as it is 
used in 38 U.S.C. 1311(a)(2) and 1318(b). Because we believe the 
interpretation of that statutory phrase is relevant to all of the 
comments, we address that issue as a preliminary matter, even though it 
is not expressly discussed in the comments.
    The statutory requirement that the veteran have been ``entitled to 
receive'' certain benefits at the time of death is ambiguous, and two 
possible interpretations of that language have been suggested. It may 
be construed to mean that the veteran had a legal right to the 
specified benefits and that VA had authority to grant such benefits to 
the veteran under the statutes and regulations giving VA authority to 
award benefits for the period required by sections 1311(a)(2) and 
1318(b). This has been VA's consistent interpretation of the statute. 
However, in a series of decisions finding ambiguity in prior VA 
regulations implementing section 1318(b), the CAVC suggested that the 
phrase ``entitled to receive'' may also be construed to mean that the 
veteran was ``hypothetically'' entitled to have received total 
disability compensation for the period required by sections 1311(a)(2) 
and 1318(b), irrespective of whether the claimant had satisfied the 
statutory requirements necessary to actually obtain such benefits, such 
as the requirements pertaining to the filing of applications and those 
specifying the effective dates of awards based on such applications. 
See Wingo v. West, 11 Vet. App. 307, 311 (1998). Under this 
interpretation, a survivor would be required to submit evidence showing 
that the veteran was totally disabled due to a service-connected 
disease for the period specified in section 1311(a)(2) or section 
1318(b), but would not need to establish that the veteran had any legal 
right to compensation for the disability for that period or that VA had 
any legal authority to pay such benefits to the claimant under the 
statutes governing VA's authority to pay benefits. The two commenters 
have advocated the latter interpretation in the NOVA litigation and 
their comments on this rule appear to be predicated upon that 
interpretation.
    The distinction between the two interpretations is significant 
because, with the exception of newly identified service department 
records, new and material evidence submitted after a veteran's death 
could not establish that the veteran had a legal right to receive total 
disability compensation for a retroactive period preceding the 
veteran's death or that VA had authority to pay such benefits to the 
veteran for that retroactive period. This is a function of the finality 
of VA decisions, the limited nature of reopenings based on new and 
material evidence, and the corresponding limitations on VA's authority 
to grant benefits in such reopened claims. As a general matter, once VA 
denies a claim, the decision is final and VA cannot thereafter consider 
the claim or award benefits except as otherwise provided by law. See 38 
U.S.C. 7104(b), 7105(c). Congress has established two exceptions to 
this finality. One exception permits VA to correct CUE in a prior final 
decision and to award benefits retroactive to the date of the prior 
claim. See 38 U.S.C. 5109A, 7111. The other exception permits VA to 
reopen a previously denied claim when new and material evidence is 
received. See 38 U.S.C. 5108. However, Congress has provided that an 
award based on a reopened claim may be effective no earlier than the 
date VA received the claim for reopening. See 38 U.S.C. 5110(a). 
Accordingly, except with respect to newly identified service department 
records, new and material evidence submitted after a veteran's death 
could not show that a veteran had any legal right to benefits for 
periods prior to death. The commenters' assertion that DIC claimants 
may rely upon new and material evidence to establish that a veteran was 
``entitled to receive'' benefits for past periods necessarily reflects 
the view that the phrase ``entitled to receive'' means hypothetical 
entitlement rather than entitlement under applicable statutory and 
regulatory provisions.
    As stated in the notice of proposed rulemaking, as well as in 
several prior rulemaking documents published in the Federal Register 
(67 FR 16309 (2002); 66 FR 65861 (2001); 65 FR 3388 (2000)), the phrase 
``entitled to receive'' is most reasonably construed to mean that the 
veteran had a legal right to total disability compensation for the 
specified period under the statutes governing entitlement to such 
benefits and that VA had authority to grant such benefits to the 
veteran under the statutes giving VA authority to award such benefits. 
There are several reasons why this interpretation best effectuates 
congressional intent.
    First, VA's interpretation comports logically with the language of 
sections 1311(a)(2) and 1318(b) viewed in their entirety. Although the 
statutory language alone evinces no clear meaning, it may provide 
evidence of congressional intent for consideration in connection with 
other interpretive tools. Section 1311(a)(2) requires that the veteran, 
``at the time of death,'' have been ``entitled to receive'' 
compensation for a service-connected disability ``that was rated 
totally disabling for a continuous period of at least eight years 
immediately preceding death.'' Section 1318(b) similarly requires that 
the veteran, ``at the time of death,'' have been ``entitled to 
receive'' compensation for a service-connected disability that ``was 
continuously rated totally disabling'' for a specified period 
immediately preceding death. The requirement that the disability have 
been ``rated totally disabling'' for a specified period is consistent 
with an intent to require that the veteran have held a total disability 
rating assigned by VA under the statutes and regulations governing 
disability ratings for the specified period. By statute, a veteran is 
entitled to receive total disability compensation only during periods 
in which the disability is rated totally disabling by VA. See 38 U.S.C. 
1114(j). If Congress intended to authorize benefits without regard to 
whether the veteran had obtained, or taken the steps necessary to 
obtain, a total disability rating from VA, it would have been more 
logical to require only that the veteran ``was totally disabled'' for 
the specified period, rather than requiring that the veteran was 
``rated totally disabled'' for such period.
    Second, VA's interpretation comports with the purposes indicated by 
the legislative history of sections 1311(a)(2) and 1318(b). In 
providing for payment of DIC based on the veteran's entitlement to 
total disability

[[Page 72215]]

compensation during his or her lifetime, Congress explained that its 
purpose was to replace the source of income the veteran's family would 
otherwise lose when the veteran died and his or her compensation 
payments ceased. The Senate Committee on Veterans' Affairs explained 
this purpose by stating:

    The appropriate Federal obligation to these survivors should, in 
the Committee's view, be the replacement of the support lost when 
the veteran dies. For example, assume that a veteran who is totally 
blind from service-connected causes dies at the age of 55 from a 
heart attack, having been so disabled from the age of 22--a period 
of 33 years. During that period, his wife and he depended upon his 
disability compensation for income support, but, because his death 
is not service connected, she would not receive DIC.

S. Rep. No. 95-1054 at 28 (1978), reprinted in, 1978 U.S.C.C.A.N. 3465, 
3486. Permitting survivors to rely on new and material evidence or on 
CUE to establish a veteran's entitlement to benefits that were not 
actually awarded during the veteran's lifetime would be contrary to the 
stated purpose to replace income that veterans and their families had 
come to depend on by virtue of having received total disability 
payments for a prolonged period prior to death. While Congress 
subsequently explicitly amended the 1978 legislation in 1982 to allow 
for recovery of DIC benefits in cases of CUE, as indicated below, 
significantly, it made no similar express provision for recovery in 
cases where new and material evidence is presented to establish a 
veteran's entitlement to benefits that were not actually awarded during 
the veteran's lifetime and could not have been awarded to the veteran 
retroactively if he or she had survived.
    In 1982, Congress expanded the criteria for DIC eligibility under 
what is now 38 U.S.C. 1318, by authorizing DIC in cases where the 
veteran would have received total disability compensation for the 
specified period prior to death but for CUE committed by VA in a 
decision on a claim submitted during the veteran's lifetime. The stated 
purpose of that change was ``to provide that the existence of a clear 
and unmistakable error should not defeat entitlement to the survivors' 
benefits.'' S. Rep. No. 97-550, at 35 (1982), reprinted in 1982 
U.S.C.C.A.N. 2877, 2898. The legislative history further explained 
that, ``[u]nder the amendment, a veteran would not need actually to 
have been `in receipt' of total disability benefits for the requisite 
period of time in order to provide eligibility to the survivors if a 
clear and unmistakable error had been made that resulted in a shorter 
period of receipt than should have been provided.'' Id.
    Permitting survivors to rely on new and material evidence to 
establish a veteran's entitlement to benefits that were not actually 
awarded during the veteran's lifetime would go well beyond the stated 
purpose to provide DIC in cases where CUE resulted in a shorter period 
of entitlement than should have been provided. As noted above, new and 
material evidence generally does not have retroactive effect and could 
not establish a longer period of compensation entitlement for any 
veteran, as correction of CUE may do. The legislative history of the 
1982 statute reasonably reflects the principle that veterans and their 
families should not be penalized in cases where the veteran did 
everything necessary to establish entitlement to a total disability 
rating for the required period, but VA's error prevented the timely 
assignment of such rating. The purpose of that amendment was clearly 
remedial, in the same way that the general authority to correct CUE 
retroactively is remedial. In contrast, the authority to reopen and 
grant claims upon receipt of new and material evidence (other than 
service department records that were previously in the government's 
possession) is not remedial, in that it does not correct any past 
error, but merely permits a new adjudication informed by new evidence.
    In view of the stated congressional purpose, we believe it is 
appropriate to recognize the distinction between statutory procedures 
that may result in the retroactive assignment of a total disability 
rating for periods prior to death (i.e., correction of CUE; 
readjudication based on newly identified service department records) 
and those that may not (i.e., reopening based on new and material 
evidence other than service department records). It is, further, 
appropriate to recognize a distinction between procedures designed to 
remedy governmental error (i.e., correction of CUE; readjudication 
based on newly identified service department records) and those that 
are not (i.e., reopening based on new and material evidence). Newly 
identified service department records are considered ``lost or 
mislaid,'' 38 CFR 3.400(q)(2), presumably by the government, and 
therefore belong conceptually with CUE, rather than with new and 
material evidence. In view of Congress's stated purpose to allow DIC 
where VA's error was the only obstacle to the veteran's receipt of 
benefits, we find no basis for extending DIC to circumstances where 
there was no VA error and, moreover, where VA would have no statutory 
authority to award retroactive entitlement to the veteran if the 
veteran were still alive.
    A third basis for our interpretation of the statutory language is 
our conclusion that, when Congress conditioned a survivor's DIC 
eligibility on the extent and duration of a veteran's entitlement to 
benefits, it intended that VA would apply the existing statutory 
provisions governing the extent and duration of the veteran's 
entitlement, including those prohibiting VA from according retroactive 
effect to decisions based on new and material evidence. As a general 
rule, new statutes enacted as part of an established statutory scheme 
must be construed to fit logically within the statutory scheme. See 
United States v. Jefferson Electric Mfg. Co., 291 U.S. 386, 396 (1934) 
(``As a general rule, where the legislation dealing with a particular 
subject consists of a system of related general provisions indicative 
of a settled policy, new enactments of a fragmentary nature on that 
subject are to be taken as intended to fit into the existing system and 
to be carried into effect conformably to it, excepting as a different 
purpose is plainly shown.'') When Congress enacted statutes authorizing 
DIC in cases where a veteran was ``entitled to receive'' a specific 
type of benefit at a specific level for a specific time period, it is 
reasonable to assume that Congress intended VA to apply the established 
statutory and regulatory scheme then in place governing entitlement to 
benefits, including those statutes and regulations that delimit the 
duration and level of entitlement. As discussed above and in the notice 
of proposed rulemaking, those provisions permit retroactive 
determinations of entitlement only in limited circumstances, involving 
CUE or newly identified service department records.
    Finally, we note that an alternate interpretation--i.e., requiring 
VA to ignore the statutory and regulatory provisions governing a 
veteran's entitlement to benefits and the level and duration of such 
entitlement--would result in a process fraught with uncertainty. Under 
the effective date provisions of 38 U.S.C. 5110 and corresponding VA 
regulations, the duration of any veteran's entitlement to benefits may 
be determined with relative ease and certainty, most often by reference 
to the date of the claim that resulted in the award of benefits. 
Although the effective date of entitlement may not correspond to the 
date the veteran actually became disabled or attained a particular 
level of disability, the statutory procedure promotes certainty and 
administrative efficiency. However, if determinations regarding a 
veteran's entitlement to

[[Page 72216]]

benefits are to be made without regard to the statutes expressly 
governing the effective dates of entitlement, there would be no clear 
basis for determining when a veteran's entitlement to a total 
disability rating began. Even assuming that the veteran's 
``hypothetical'' entitlement would begin on the date he or she became 
totally disabled due to a service-connected disability, such a 
determination ordinarily would be exceedingly difficult, highly 
speculative, and would lend itself to prolonged evidentiary disputes, 
potentially involving medical opinions or lay testimony rendered many 
years after the events in question. The difficulty of such 
determinations would be compounded by the need to evaluate the 
decedent's condition over a prolonged continuous period of many years 
prior to death. In view of Congress' practice of imposing clear and 
definite effective-date rules for VA benefit awards and limiting 
retroactive awards and the complex issues they involve, we believe it 
is reasonable to conclude that Congress did not intend to impose a much 
more complex and uncertain process for determining a veteran's 
entitlement to benefits for purposes of sections 1311(a)(2) and 1318. 
This conclusion is underscored by the stated purposes of those statutes 
to authorize benefits in cases where the veteran's entitlement can be 
simply and readily established--i.e., where the veteran was actually 
receiving total disability compensation at the time of death or would 
have received such benefits but for a VA error that is clearly and 
unmistakably shown by the record created during the veteran's lifetime.
    NOVA presents three comments regarding the foregoing analysis. 
First, it asserts that the congressional purpose to replace income lost 
when a totally-disabled veteran dies would apply equally in 
circumstances in which the veteran held a total-disability rating for 
less than the specified statutory period. We do not dispute nor 
diminish the hardship that any family may face following the death of a 
veteran family member and the resulting termination of VA benefit 
payments. However, Congress has specified by statute the period of a 
veteran's entitlement to total disability compensation that is 
necessary to vest survivors with DIC entitlement under section 
1311(a)(2) and 1318(b). The difficult task of drawing lines governing 
benefit entitlement is a policy matter entrusted to Congress and VA is 
not at liberty to alter the statutory standards Congress has adopted. 
See Mathews v. Diaz, 426 U.S. 67, 83-84 (1976). Accordingly, we make no 
change based on this comment.
    Second, NOVA asserts that allowing survivors to rely upon any type 
of new and material evidence submitted after a veteran's death would 
serve a ``remedial purpose'' similar to the correction of CUE and would 
be consistent with the congressional intent to authorize DIC where VA 
error prevented the veteran from receiving benefits during his or her 
lifetime. We do not agree. The statutory and regulatory provisions 
relating to CUE and newly obtained service department records are 
unique not merely because they can fairly be described as having a 
``remedial'' purpose, but also because they effectuate that purpose by 
expressly authorizing retroactive awards of entitlement to benefits. 
There is no similar authority for retroactive awards based on new and 
material evidence, and the mere assertion that the reopening of claims 
serves a remedial function cannot provide such authority in view of the 
effective-date rules in 38 U.S.C. 5110(a). Moreover, it is not accurate 
to say that a reopening based on new and material evidence provides a 
remedy for VA error. As the Federal Circuit stated in Sears v. 
Principi, VA's effective-date regulations reasonably differentiate 
between reopening based on previously unobtained service department 
records, which provides a remedy for ``government errors or 
inattention,'' and reopening based on other evidence, which encompasses 
``situations outside the control of the government,'' such as where the 
new evidence was not provided earlier ``either due to inattention by 
the veteran or his representatives or subsequent advances in medicine 
and science.'' Sears, 349 F.3d at 1331. Accordingly, we make no change 
based on this comment.
    Third, NOVA asserts that interpreting sections 1311 and 1318 to 
permit reopening based on new and material evidence would have no 
significant practical effects on VA claim processing. NOVA asserts that 
DIC claimants alone would be responsible for developing evidence 
relevant to their claim and that VA would have no need to conduct any 
evidentiary development unless it were for the improper purpose of 
trying to refute the survivor's DIC claim. VA does not agree with this 
comment. If new and material evidence submitted after a veteran's death 
could potentially establish a survivor's entitlement to DIC under 
section 1311(a)(2) and 1318(b), VA would be required by statute and 
regulation, to assist the claimant in obtaining evidence necessary to 
substantiate the claim. 38 U.S.C. 5103A; 38 CFR 3.159(c). Such 
assistance would be necessary if the claimant needed help obtaining 
allegedly new and material evidence or if evidence submitted by the 
claimant was insufficient to permit fair adjudication of the claim. The 
assertion that VA's assistance could serve no purpose other than to 
refute the claim is factually incorrect and is contrary to law and to 
longstanding VA policy.
    Further, the practical concerns we discussed were not based merely 
on the fact that VA would need to assist claimants in developing 
evidence, as VA routinely does. Rather, the burdens unique to NOVA's 
suggested interpretation of sections 1311(a)(2) and 1318(b) would 
involve the difficulty of resolving medical issues regarding the 
duration and degree of a veteran's disability many years after the 
events in question and the difficulty of ascertaining a specific period 
of the veteran's ``entitlement'' to total disability benefits in the 
absence of an applicable statutory standard defining the period of 
entitlement. As noted above, 38 U.S.C. 5110(a) provides a definite and 
specific mechanism for measuring the beginning date of any individual's 
entitlement to benefits. If, as NOVA suggests, that provision is 
inapplicable in determining the period of a veteran's entitlement to 
total disability benefits for purposes of section 1311(a)(2) and 
1318(b), there would be no clear basis for defining the period of a 
veteran's entitlement. Assuming the matter involved a purely factual 
determination as to when the veteran's total disability began, 
resolution of that question would often be a matter of significant 
uncertainty and speculation, compounded by the remoteness of the events 
and the unavailability of the veteran. There potentially would be equal 
difficulty in determining whether the veteran was totally disabled 
throughout the specified statutory period, as sections 1311(a)(2) and 
1318(b) require, in the absence of clear and contemporaneous disability 
evaluations throughout that period. See 38 CFR 4.1, 4.2 (discussing the 
need for thorough medical reports to support disability evaluations).
    We do not suggest that these problems are entirely insurmountable. 
Rather, as stated in the notice of proposed rulemaking, the extent of 
the burdens and uncertainty that would be associated with this 
interpretation of sections 1311(a)(2) and 1318(b) lends support to our 
conclusion that Congress did not intend that interpretation. The 
legislative history reflects that Congress intended to authorize these 
DIC benefits in at least two circumstances in which

[[Page 72217]]

the extent and duration of the veteran's entitlement to benefits can be 
readily established by the record of proceedings during the veteran's 
lifetime, i.e., where the veteran actually received total disability 
benefits for the specified period or would have received such benefits 
but for a VA error that is clear and unmistakable on the existing 
record. Viewed against these definite and efficient standards, it is 
unlikely that Congress intended to impose the much more complex, 
uncertain, and hypothetical adjudicative actions that would be 
necessary in determinations based on new and material evidence. For the 
foregoing reasons, we make no change based upon this comment.
B. Comments Based on 38 U.S.C. 5110(a)
    As explained above, VA concluded that the submission of new and 
material evidence following a veteran's death could generally not 
retroactively establish that the veteran was ``entitled to receive'' 
compensation for periods prior to the veteran's death, because 38 
U.S.C. 5110(a) prohibits retroactive awards based on new and material 
evidence. NOVA asserts that this statutory limit on retroactivity is 
irrelevant because section 1311(a)(2) or 1318(b) would not require VA 
to pay any retroactive benefits to a veteran. Rather, NOVA asserts, VA 
would be required only to pay prospective DIC benefits to survivors in 
a manner consistent with section 5110(a).
    VA does not agree with this comment. NOVA is correct that VA would 
not be required to pay retroactive benefits to a deceased veteran or to 
the DIC claimant. However, a survivor's claim for benefits under 
section 1311(a)(2) or section 1318(b) is predicated on the veteran's 
entitlement to benefits insofar as the statutes authorize benefits only 
if the veteran was ``entitled to receive'' total disability 
compensation for a specified period prior to death. In order to 
determine whether a veteran was ``entitled to receive'' benefits for 
past periods, VA necessarily must consider section 5110(a), which 
imposes limits on a veteran's entitlement to receive, and VA's 
authority to award, benefits for specific periods. If a veteran whose 
claim was denied ten years ago were to submit new evidence establishing 
that he was totally disabled due to service-connected disability, 
section 5110(a) would permit VA to award compensation only from the 
date the claim was reopened, even if the total disability may have 
arisen at an earlier date. The veteran's reopened claim could not 
establish a right to receive benefits for any prior periods. New and 
material evidence submitted after a veteran's death could no more 
establish the veteran's retroactive entitlement to benefits than could 
evidence submitted by the veteran himself during his lifetime. Although 
an adjudication under section 1311(a)(2) or section 1318(b) based on 
new and material evidence would not require VA to actually release 
payment to a deceased veteran, such a claim could prevail only if VA 
were to find that the veteran was entitled to receive payment from VA 
for periods prior to the date VA received the new and material evidence 
establishing such entitlement. Such a finding would be contrary to the 
requirements of section 5110(a). Accordingly, we make no change based 
on this comment.
    NOVA also states that, although section 5110(a) limits the 
effective date of awards based on claims reopened after a final 
adjudication, the statute refers separately to the effective date of 
claims for DIC and provides that the effective date of such awards 
``shall be fixed in accordance with the facts found.'' NOVA asserts 
that it is improper for VA to rely on the statute's reference to 
reopened claims because effective-date issues in claims under section 
1311(a)(2) and 1318(b) are governed by section 5110(a)'s reference to 
DIC claims.
    VA does not agree with this comment. Section 5110(a) states a 
single effective-date rule applicable to ``an original claim, a claim 
reopened after final adjudication, or a claim for increase, of 
compensation, [or] dependency and indemnity compensation'' and provides 
that the effective date of any such award ``shall be in accordance with 
the facts found but shall not be earlier than the date of receipt of 
application therefor.'' In the context of a claim for DIC benefits 
under section 1311(a)(2) or 1318(b), there are potentially two 
effective-date issues to which section 5110(a) may apply. First, as 
explained above, section 5110(a) would govern the effective date of any 
compensation award to the veteran and thus would determine the date, if 
any, on which a veteran became ``entitled to receive'' total disability 
compensation. The duration of the veteran's total disability 
compensation, if any, would determine whether the survivor was entitled 
to DIC under section 1311(a)(2) or 1318(b). Second, if the survivor is 
entitled to DIC, section 5110(a) would again operate to determine the 
effective date of the survivor's entitlement. The issue of the 
effective date of a survivor's DIC award, if one is made, is both 
logically and sequentially distinct from the issue of the effective 
date of any benefits the veteran was entitled to receive during his or 
her lifetime. Accordingly, the fact that section 5110(a) would govern 
the effective date of a survivor's DIC award does not conflict with our 
conclusion that section 5110(a) also applies in determining whether and 
to what extent the veteran was ``entitled to receive'' benefits from 
VA. We therefore make no change based on this comment.
C. Comments Based on 38 U.S.C. 5108
    PVA asserts that the proposed rules are inconsistent with 38 U.S.C. 
5108 insofar as they provide that newly identified service department 
records may provide a basis for establishing that a veteran was 
``entitled to receive'' benefits for past periods but that other types 
of new evidence submitted after a veteran's death may not establish 
that fact. Section 5108 provides that, ``[i]f new and material evidence 
is presented or secured with respect to a claim which has been 
disallowed, the Secretary shall reopen the claim and review the former 
disposition of the claim.'' PVA asserts that this statute unambiguously 
requires VA to reopen a previously denied claim when new and material 
evidence is received. PVA further asserts that, because this statute 
does not limit the form of acceptable new and material evidence, there 
is no basis for VA's conclusion that newly identified service 
department records, but not other types of records, submitted after a 
veteran's death, may establish that a veteran was ``entitled to 
receive'' benefits for periods prior to death. NOVA similarly asserts 
that there is no rational basis for distinguishing between newly 
identified service department records and other types of new evidence.
    VA does not agree with these comments. Section 5108 allows 
claimants to reopen their benefit claims after a final denial. It is 
well established, however, that a veteran's claim for disability 
compensation does not survive the veteran's death. See Richard v. West, 
161 F.3d 719, 721-22 (Fed. Cir. 1998). Section 5108 thus provides no 
general authority for survivors to ``reopen'' a deceased veteran's 
claim with new and material evidence. A survivor's claim for DIC under 
section 1311(a)(2) or section 1318(b) is not a ``reopening'' of the 
deceased veteran's compensation claim within the meaning of 38 U.S.C. 
5108, but instead is a distinct claim for DIC benefits by the survivor.
    Insofar as the proposed rule allows survivors to submit newly 
identified service department records after a veteran's death, the rule 
is not based upon 38 U.S.C. 5108, but upon the provisions of 38 U.S.C. 
1311(a)(2) and

[[Page 72218]]

1318(b), viewed in the context of the overall statutory scheme in title 
38, United States Code. Although a veteran's claim does not survive his 
or her death, sections 1311(a)(2) and 1318(b) are most reasonably 
construed to permit examination of decisions on a veteran's claim to 
the extent necessary to determine the survivor's entitlement to DIC. 
Because a survivor's entitlement to DIC under section 1311(a)(2) and 
1318(b) may depend upon whether the veteran was ``entitled to receive'' 
total disability benefits for a specified number of years prior to 
death, it is reasonable to conclude that Congress intended to permit VA 
to examine prior claims or decisions under limited circumstances to 
determine whether the veteran was ``entitled to receive'' total 
disability benefits for the specified statutory period. This 
congressional intent is made clear by the legislative history stating 
an intent to allow DIC under sections 1311(a)(2) and 1318(b) if it is 
shown that the veteran would have received the specified compensation 
benefits but for CUE in a decision on a claim during the veteran's 
lifetime. As explained above, a veteran's retroactive entitlement to 
benefits may be established by a showing that prior decisions contained 
CUE or by newly identified service department records that establish 
entitlement to benefits. However, new and material evidence, if 
submitted after a veteran's death, could not establish such retroactive 
entitlement. Accordingly, the distinction in the proposed rule between 
newly identified service department records and new evidence submitted 
after death merely reflects the distinction between circumstances that 
may satisfy the eligibility requirements of section 1311(a)(2) and 
1318(b) and circumstances that could not as a matter of law satisfy 
those eligibility requirements.
    PVA and NOVA are correct that 38 U.S.C. 5108 does not distinguish 
between newly obtained service department records and other types of 
new evidence. However, the other statutory and regulatory provisions 
upon which the proposed rule was based do reflect a material 
distinction between the retroactive effect of awards based on newly 
obtained service department records and awards based on other types of 
new evidence. As explained above, 38 U.S.C. 5110(a) makes clear that 
entitlement to benefits based on a claim reopened with new and material 
evidence generally may be effective no earlier than the date VA 
received the reopened claim, and thus cannot establish retroactive 
entitlement for periods prior to the reopening. See also 38 CFR 
3.400(q)(1). VA regulations recognize an exception to this general rule 
in cases where a previously denied claim is reopened with newly 
obtained service department records. In such cases, VA's regulations 
state that the effective date of entitlement to benefits will ``agree 
with evaluation (since it is considered that these records were lost or 
mislaid) or date of receipt of claim on which prior evaluation was 
made, whichever is later.'' 38 CFR 3.400(q)(2); see also 38 CFR 
3.156(c).
    The Federal Circuit has acknowledged and upheld the distinction 
between the retroactivity of awards based on newly obtained service 
department records and awards based on other types of new evidence. In 
Sears, the court stated:

[A] claim that is reopened for new and material evidence in the form 
of missing service medical records dates back to the filing of the 
veteran's original claim for benefits. 38 CFR 3.400(q)(2) (2003).
    Section 3.400(q)(1)(ii) applies to other instances of new and 
material evidence, situations in which the new evidence was not 
presented earlier, either due to inattention by the veteran or his 
representative or subsequent advances in medicine and science. We 
conclude that section 3.400, which differentiates between government 
errors or inattention, and situations outside the control of the 
government, is not unreasonable.

349 F.3d at 1331. As the Court noted, the rules permitting retroactive 
awards based on newly identified service department records reflect the 
judgment that the failure to establish benefit entitlement at an 
earlier date would, in such cases, be a result of ``government errors 
or inattention.'' In this respect, the rules governing awards based on 
such service department records serve a remedial function similar to 
the rules governing the correction of CUE in prior decisions. In 
contrast, as the Federal Circuit noted, awards based on other types of 
new evidence do not remedy past government error, but merely permit 
consideration of new evidence that was not previously submitted for 
reasons outside the government's control. This distinction is also 
supported by the CAVC's decision in Spencer, 4 Vet. App. at 293, which 
stated that, generally, ``even upon a reopening, the prior claim is 
still `final' in a sense,'' because ``[a]ny award of benefits made upon 
a claim reopened under section 5108 on other than service department 
reports will have an effective date no earlier than the date of the 
filing of the claim to reopen.'' The CAVC noted that VA's regulations 
according retroactive effect to awards based on service department 
records were rooted in VA regulations dating back to the 1930s and were 
consistent with prior statutory provisions.
    For the reasons stated above, the distinction in the proposed rules 
between awards based on newly identified service department records and 
awards based on other types of new evidence is reasonable and is not 
inconsistent with 38 U.S.C. 5108. Accordingly, we make no change based 
upon the referenced comments.
D. Other Comments
    NOVA asserts that VA should not distinguish between claims 
involving newly obtained service department records and claims 
involving other new evidence submitted after a veteran's death, because 
the function of either type of evidence would be the same, i.e., to 
provide a factual basis for determining that the veteran met the 
criteria for a total disability rating for the specified period prior 
to death. This comment is based on the assumption that a survivor is 
entitled to DIC under section 1311(a)(2) and 1318(b) whenever current 
evidence shows that the veteran was totally disabled due to service-
connected disability for the specified period, irrespective of whether 
the veteran was entitled to receive any payments from VA for that 
period under the statutes and regulations governing awards of VA 
benefits. That assumption is incorrect, for the reasons set forth 
above. Because new evidence other than newly identified service 
department records cannot retroactively establish that a veteran was 
``entitled to receive'' benefits for past periods, we make no change 
based on this comment.
    NOVA also asserts that the regulation is arbitrary insofar as it 
permits new evidence only in the form of newly identified service 
department records because, in NOVA's view, service department records 
could not provide any information supporting the claim. VA does not 
agree. Service department records may be highly relevant in some 
circumstances, such as where the fact of the veteran's total disability 
was established, but VA had previously denied service connection for 
the disability due to the absence of evidence that the disability arose 
in service. Moreover, the reference in the proposed rules to service 
department records is not arbitrary, but properly reflects the existing 
statutory and regulatory scheme, which makes clear that service 
department records are the only form of new evidence that potentially 
may establish that a veteran was ``entitled to receive'' total 
disability compensation for past periods.

[[Page 72219]]

III. Section 20.1106

    We proposed to revise 38 CFR 20.1106 in two respects. First, we 
proposed to add a reference in that rule to 38 U.S.C. 1311(a)(2), to 
clarify that claims under that statute are exempt from the general rule 
that issues in a survivor's claim for death benefits will be decided 
without regard to any disposition of the same issues during the 
veteran's lifetime. Second, we proposed to revise the regulation to 
state that VA would disregard only ``unfavorable'' dispositions during 
the veteran's lifetime. We explained that the second change would 
reflect VA's traditional practice of disregarding only unfavorable 
decisions and would resolve an ambiguity existing by virtue of 
differing language in the caption of Sec.  20.1106, which refers to 
``unfavorable'' decisions during a veteran's lifetime, and the text of 
Sec.  20.1106, which more broadly states that VA will decide a 
survivor's claims without regard to ``any prior disposition.''
    We received no comments on the proposed revisions to Sec.  20.1106. 
Upon further consideration, however, we have concluded that the second 
change discussed above would be misleading and potentially inconsistent 
with statutory requirements in some instances. In a precedential 
opinion designated as VAOPGCPREC 11-96, VA's General Counsel noted that 
VA's traditional practice under Sec.  20.1106 had been to disregard 
only unfavorable dispositions on a veteran's claim and, 
correspondingly, to accept favorable findings of service connection 
made during a veteran's lifetime. The General Counsel concluded that 
this practice was inconsistent with the requirements of a statute 
limiting VA's authority to grant service connection for a veteran's 
death for purposes of a survivor's DIC claim, even if VA had correctly 
granted service connection to the veteran during his or her lifetime 
for the condition that eventually caused the veteran's death. The 
General Counsel noted that Congress had enacted a statute that 
prospectively prohibited VA from granting service connection for 
disability or death due to an injury or disease caused by the veteran's 
abuse of alcohol or drugs. 38 U.S.C. 105. The General Counsel concluded 
that, even if VA had properly granted service connection to a veteran 
prior to the enactment of this statute, the statute precluded VA from 
granting service connection for the veteran's death if the death was 
caused by an injury or disease resulting from the veteran's abuse of 
alcohol or drugs. The General Counsel concluded that VA's traditional 
practice under Sec.  20.1106 must yield in the face of statutory 
provisions requiring a different result.
    A similar concern exists with respect to 38 U.S.C. 1103(a), which 
prohibits VA from establishing service connection for disability or 
death on the basis that it resulted from injury or disease attributable 
to the veteran's use of tobacco products during the veteran's service. 
In Kane v. Principi, 17 Vet. App. 97 (2003), the CAVC held that section 
1103(a) prohibits VA from establishing service connection for a 
veteran's death due to an injury or disease related to the veteran's 
tobacco use even if VA had properly granted service connection for that 
injury or disease during the veteran's lifetime based on then-existing 
law.
    Although there may be relatively few instances in which the Board 
would be required by statute to disregard a favorable decision during a 
veteran's lifetime, the proposed unqualified reference to disregarding 
only ``unfavorable'' decisions would be misleading and inaccurate with 
respect to such cases. Accordingly, we are not adopting that proposed 
change to Sec.  20.1106. We recognize that Sec.  20.1106 currently is 
ambiguous as to whether it requires the Board to disregard only 
unfavorable decisions. However, the revision we proposed would not be 
legally accurate or sufficiently informative with respect to all 
potential applications of that rule. A clarification of the applicable 
law and VA policy with respect to this matter would require 
consideration of matters beyond the scope of the proposed rule and, 
therefore, would more properly be the subject of a separate rule 
making.
    We are, however, adopting as final the proposal to revise Sec.  
20.1106 to specify that claims under 38 U.S.C. 1311(a)(2) are among the 
types of claims exempt from the general rule that issues in a decision 
on a survivor's claim for death benefits will be decided without regard 
to any prior disposition of those issues during the veteran's lifetime. 
That proposed change is consistent with our determination that claims 
under sections 1311(a)(2) and 1318(b) should be addressed in the same 
manner. As noted above, we received no comments on that proposed 
change, which we now adopt as final.
    For the reasons stated above and in the notice of proposed 
rulemaking, VA will adopt the proposed rules as final, with the changes 
discussed above.

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 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 (adjusted annually for 
inflation) in any given year. This proposed amendment would have no 
such effect on State, local, or tribal governments, or the private 
sector.

Executive Order 12866

    The Office of Management and Budget has reviewed this document 
under Executive Order 12866.

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 regulatory amendment 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 reason for this certification is that these 
amendments would not directly affect any small entities. Only VA 
beneficiaries and their survivors could be directly affected. 
Therefore, pursuant to 5 U.S.C. 605(b), these amendments are exempt 
from the initial and final regulatory flexibility analysis requirements 
of sections 603 and 604.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program numbers and 
titles are 64.109, Veterans Compensation for Service-Connected 
Disability; and 64.110, Veterans Dependency and Indemnity Compensation 
for Service-Connected Death.

List of Subjects

38 CFR Part 3

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

38 CFR Part 20

    Administrative practice and procedure, Claims, Veterans.

    Approved: August 1, 2005.
R. James Nicholson,
Secretary of Veterans Affairs.

0
For the reasons set forth in the preamble, 38 CFR parts 3 and 20 are 
amended as follows:

[[Page 72220]]

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.


Sec.  3.5  [Amended]

0
2. Section 3.5 is amended by removing paragraph (e).

0
3. Section 3.10 is added to read as follows:


Sec.  3.10  Dependency and indemnity compensation rate for a surviving 
spouse.

    (a) General determination of rate. When VA grants a surviving 
spouse entitlement to DIC, VA will determine the rate of the benefit it 
will award. The rate of the benefit will be the total of the basic 
monthly rate specified in paragraph (b) or (d) of this section and any 
applicable increases specified in paragraph (c) or (e) of this section.
    (b) Basic monthly rate. Except as provided in paragraph (d) of this 
section, the basic monthly rate of DIC for a surviving spouse will be 
the amount set forth in 38 U.S.C. 1311(a)(1).
    (c) Section 1311(a)(2) increase. The basic monthly rate under 
paragraph (b) of this section shall be increased by the amount 
specified in 38 U.S.C. 1311(a)(2) if the veteran, at the time of death, 
was receiving, or was entitled to receive, compensation for service-
connected disability that was rated by VA as totally disabling for a 
continuous period of at least eight years immediately preceding death. 
Determinations of entitlement to this increase shall be made in 
accordance with paragraph (f) of this section.
    (d) Alternative basic monthly rate for death occurring prior to 
January 1, 1993. The basic monthly rate of DIC for a surviving spouse 
when the death of the veteran occurred prior to January 1, 1993, will 
be the amount specified in 38 U.S.C. 1311(a)(3) corresponding to the 
veteran's pay grade in service, but only if such rate is greater than 
the total of the basic monthly rate and the section 1311(a)(2) increase 
(if applicable) the surviving spouse is entitled to receive under 
paragraphs (b) and (c) of this section. The Secretary of the concerned 
service department will certify the veteran's pay grade and the 
certification will be binding on VA. DIC paid pursuant to this 
paragraph may not be increased by the section 1311(a)(2) increase under 
paragraph (c) of this section.
    (e) Additional increases. One or more of the following increases 
may be paid in addition to the basic monthly rate and the section 
1311(a)(2) increase.
    (1) Increase for children. If the surviving spouse has one or more 
children under the age of 18 of the deceased veteran (including a child 
not in the surviving spouse's actual or constructive custody, or a 
child who is in active military service), the monthly DIC rate