Improved Pension, 54776-54803 [E7-18745]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 72, Number 186 (Wednesday, September 26, 2007)]
[Proposed Rules]
[Pages 54776-54803]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-18745]



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Part III





Department of Veterans Affairs





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38 CFR Part 5



Improved Pension; Proposed Rule

Federal Register / Vol. 72, No. 186 / Wednesday, September 26, 2007 / 
Proposed Rules

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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 5

RIN 2900-AM04


Improved Pension

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to reorganize 
and rewrite in plain language its Improved Pension regulations. These 
revisions are proposed as part of VA's rewrite and reorganization of 
all of its compensation and pension rules in a logical, claimant-
focused, and user-friendly format. The intended effect of the proposed 
revisions is to assist claimants, beneficiaries, and VA personnel in 
locating and understanding these Improved Pension regulations.

DATES: Comments must be received by VA on or before November 26, 2007.

ADDRESSES: Written comments may be submitted through https://
www.regulations.gov; by mail or hand-delivery to: Director, Regulations 
Management (00REG), Department of Veterans Affairs, 810 Vermont Ave., 
NW., Room 1068, Washington, DC 20420; or by fax to (202) 273-9026. 
Comments should indicate that they are submitted in response to ``RIN 
2900-AM04--Improved Pension.'' Copies of comments received will be 
available for public inspection in the Office of Regulation Policy and 
Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m., 
Monday through Friday (except holidays). Please call (202) 273-9515 for 
an appointment. In addition, during the comment period, comments may be 
viewed online through the Federal Docket Management System (FDMS) at 
https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: William F. Russo, Director of 
Regulations Management (00REG), Department of Veterans Affairs, 810 
Vermont Avenue, NW., Washington, DC 20420, (202) 273-9515.

SUPPLEMENTARY INFORMATION: The Secretary of Veterans Affairs has 
established an Office of Regulation Policy and Management to provide 
centralized management and coordination of VA's rulemaking process. One 
of the major functions of this office is to oversee a Regulation 
Rewrite Project (the Project) to improve the clarity and consistency of 
existing VA regulations. The Project responds to a recommendation made 
in the October 2001 ``VA Claims Processing Task Force: Report to the 
Secretary of Veterans Affairs.'' The Task Force recommended that the 
compensation and pension regulations be rewritten and reorganized in 
order to improve VA's claims adjudication process. Therefore, the 
Project began its efforts by reviewing, reorganizing, and redrafting 
the content of the regulations in 38 CFR part 3 governing the 
compensation and pension program of the Veterans Benefits 
Administration. These regulations are among the most difficult VA 
regulations for readers to understand and apply.
    Once rewritten, the proposed regulations will be published in 
several portions for public review and comment. This is one such 
portion. It includes proposed rules that apply to VA's Improved Pension 
program. After review and consideration of public comments, final 
versions of these proposed regulations will ultimately be published in 
a new part 5 in 38 CFR.

Outline

Overview of New Part 5 Organization

Overview of This Notice of Proposed Rulemaking

Table Comparing Current Part 3 Rules With Proposed Part 5 Rules

Background Information

Content of Proposed Regulations

Improved Pension Requirements--Veterans, Surviving Spouses, and 
Surviving Children

5.370 Definitions for Improved Pension.
5.371 Eligibility and entitlement requirements for Improved Pension.
5.372 Wartime service requirements for Improved Pension.
5.373 Evidence of age in Improved Pension claims.

Improved Disability Pension--Disability Determinations and 
Effective Dates

5.380 Disability requirements and presumptions for Improved 
Disability Pension.
5.381 Permanent and total disability ratings for Improved Disability 
Pension purposes.
5.382 Improved Disability Pension--combining disability ratings.
5.383 Effective dates for awards of Improved Disability Pension.

Special Monthly Pension Eligibility for Veterans and Surviving 
Spouses

5.390 Special monthly pension for veterans and surviving spouses at 
the aid and attendance rate.
5.391 Special monthly pension for veterans and surviving spouses at 
the housebound rate.
5.392 Effective dates for awards of special monthly pension.

Maximum Annual Pension Rates

5.400 Maximum annual pension rates for veterans, surviving spouses, 
and surviving children.
5.401 Automatic adjustment of maximum annual pension rates.

Improved Pension Income, Net Worth, and Dependency

5.410 Countable annual income.
5.411 Counting a child's income for Improved Pension.
5.412 Income exclusions for calculating countable annual income.
5.413 Income deductions for calculating adjusted annual income.
5.414 Net worth determinations for Improved Pension.
5.415 Effective dates for Improved Pension awards based on a change 
in net worth.
5.416 Persons considered as dependents for Improved Pension.
5.417 Child custody for Improved Pension.

Improved Pension--Income Reporting Periods, Payments, Effective 
Dates, and Time Limits

5.420 Reporting periods for Improved Pension.
5.421 How VA calculates an Improved Pension payment amount.
5.422 Effective dates for changes to Improved Pension payments due 
to a change in income.
5.423 Improved Pension determinations when anticipated annual income 
is uncertain.
5.424 Time limits to establish entitlement to Improved Pension or to 
increase the annual Improved Pension amount based on income.
5.425 Frequency of payment of Improved Pension benefits.

Improved Death Pension Marriage Date Requirements and Effective 
Dates

5.430 Marriage date requirements for Improved Death Pension.
5.431 Effective dates for Improved Death Pension.
5.432 Deemed valid marriages and contested claims for Improved Death 
Pension.
5.433 Effective date of discontinuance of Improved Death Pension 
payments to a beneficiary no longer recognized as the veteran's 
surviving spouse.
5.434 Award, or discontinuance of award, of Improved Death Pension 
to a surviving spouse where Improved Death Pension payments to a 
child are involved.
5.435 Calculating annual Improved Pension amounts for surviving 
children.

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Non-inclusion of Other Part 3 Provisions

Endnote Regarding Amendatory Language

Paperwork Reduction Act

Regulatory Flexibility Act

Executive Order 12866

Unfunded Mandates

Catalog of Federal Domestic Assistance Numbers and Titles

List of Subjects in 38 CFR Part 5

Overview of New Part 5 Organization

    We plan to organize the new part 5 regulations so that most 
provisions governing a specific benefit are located in the same 
subpart, with general provisions pertaining to all compensation and 
pension benefits also grouped together. This organization will allow 
claimants, beneficiaries, and their representatives, as well as VA 
personnel, to find information relating to a specific benefit more 
quickly than the organization provided in current part 3.
    The first major subdivision would be ``Subpart A--General 
Provisions.'' It would include information regarding the scope of the 
regulations in new part 5, delegations of authority, general 
definitions, and general policy provisions for this part. This subpart 
was published as proposed on March 31, 2006. See 71 FR 16464.
    ``Subpart B--Service Requirements for Veterans'' would include 
information regarding a veteran's military service, including the 
minimum service requirement, types of service, periods of war, and 
service evidence requirements. This subpart was published as proposed 
on January 30, 2004. See 69 FR 4820.
    ``Subpart C--Adjudicative Process, General'' would inform readers 
about claims and benefit filing procedures, VA's duties, rights and 
responsibilities of claimants and beneficiaries, general evidence 
requirements, and general effective dates for new awards, as well as 
revision of decisions and protection of VA ratings. This subpart will 
be published as three separate Notices of Proposed Rulemaking (NPRMs) 
due to its size. The first, concerning the duties of VA and the rights 
and responsibilities of claimants and beneficiaries, was published on 
May 10, 2005. See 70 FR 24680. The second, covering general evidence 
requirements, effective dates for awards, revision of decisions, and 
protection of VA ratings, was published as proposed on May 22, 2007. 
See 72 FR 28770.
    ``Subpart D--Dependents and Survivors'' would inform readers how VA 
determines whether an individual is a dependent or a survivor for 
purposes of determining eligibility for VA benefits. It would also 
provide the evidence requirements for these determinations. This 
subpart was published as proposed on September 20, 2006. See 71 FR 
55052.
    ``Subpart E--Claims for Service Connection and Disability 
Compensation'' would define service-connected disability compensation 
and service connection, including direct and secondary service 
connection. This subpart would inform readers how VA determines service 
connection and entitlement to disability compensation. The subpart 
would also contain those provisions governing presumptions related to 
service connection, rating principles, and effective dates, as well as 
several special ratings. This subpart will be published as three 
separate NPRMs due to its size. The first, concerning presumptions 
related to service connection, was published on July 27, 2004. See 69 
FR 44614.
    ``Subpart F--Nonservice-Connected Disability Pensions and Death 
Pensions'' would include information regarding the three types of 
nonservice-connected pension: Old-Law Pension, Section 306 Pension, and 
Improved Pension. This subpart would also include those provisions that 
state how to establish eligibility and entitlement to Improved Pension, 
and the effective dates governing each pension. This subpart will be 
published as two separate NPRMs due to its size. The portion concerning 
Old-Law Pension, Section 306 Pension, and elections of Improved Pension 
was published as proposed on December 27, 2004. See 69 FR 77578. The 
portion concerning eligibility and entitlement requirements, as well as 
effective dates for Improved Pension is the subject of this document.
    ``Subpart G--Dependency and Indemnity Compensation, Death 
Compensation, Accrued Benefits, and Special Rules Applicable Upon Death 
of a Beneficiary'' would contain regulations governing claims for 
dependency and indemnity compensation (DIC); death compensation; 
accrued benefits; benefits awarded, but unpaid at death; and various 
special rules that apply to the disposition of VA benefits, or proceeds 
of VA benefits, when a beneficiary dies. This subpart would also 
include related definitions, effective-date rules, and rate-of-payment 
rules. This subpart was published as two separate NPRMs due to its 
size. The portion concerning accrued benefits, death compensation, 
special rules applicable upon the death of a beneficiary, and several 
effective-date rules, was published as proposed on October 1, 2004. See 
69 FR 59072. The portion concerning DIC benefits and general provisions 
relating to proof of death and service-connected cause of death was 
published on October 21, 2005. See 70 FR 61326.
    ``Subpart H--Special and Ancillary Benefits for Veterans, 
Dependents, and Survivors'' would pertain to special and ancillary 
benefits available, including benefits for children with various birth 
defects. This subpart was published as proposed on March 9, 2007. See 
72 FR 10860.
    ``Subpart I--Benefits for Certain Filipino Veterans and Survivors'' 
would pertain to the various benefits available to Filipino veterans 
and their survivors. This subpart was published as proposed on June 30, 
2006. See 71 FR 37790.
    ``Subpart J--Burial Benefits'' would pertain to burial allowances.
    ``Subpart K--Matters Affecting the Receipt of Benefits'' would 
contain provisions regarding bars to benefits, forfeiture of benefits, 
and renouncement of benefits. This subpart was published as proposed on 
May 31, 2006. See 71 FR 31056.
    ``Subpart L--Payments and Adjustments to Payments'' would include 
general rate-setting rules, several adjustment and resumption 
regulations, and election-of-benefit rules. Because of its size, 
proposed regulations in subpart L will be published in two separate 
NPRMs.
    The final subpart, ``Subpart M--Apportionments to Dependents and 
Payments to Fiduciaries and Incarcerated Beneficiaries,'' would include 
regulations governing apportionments, benefits for incarcerated 
beneficiaries, and guardianship.
    Some of the regulations in this NPRM cross-reference other 
compensation and pension regulations. If those regulations have been 
published in this or earlier NPRMs for the Project, we cite the 
proposed part 5 section. We also include, in the relevant portion of 
the Supplementary Information, the Federal Register page where a 
proposed part 5 section published in an earlier NPRM may be found. 
However, where a regulation proposed in this NPRM would cross-reference 
a proposed part 5 regulation that has not yet been published, we cite 
to the current part 3 regulation that deals with the same subject 
matter. The current part 3 section we cite may differ from its eventual 
part 5 counterpart in some respects, but we believe this method will 
assist readers in understanding these proposed regulations where no 
part 5 counterpart has yet been published. If there is no part 3 
counterpart to a proposed part 5

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regulation that has not yet been published, we have inserted 
``[regulation that will be published in a future Notice of Proposed 
Rulemaking]'' where the part 5 regulation citation would be placed.
    Because of its large size, proposed part 5 will be published in a 
number of NPRMs, such as this one. VA will not adopt any portion of 
part 5 as final until all of the NPRMs have been published for public 
comment.
    In connection with this rulemaking, VA will accept comments 
relating to a prior rulemaking issued as a part of the Project, if the 
matter being commented on relates to both rulemakings.

Overview of This Notice of Proposed Rulemaking

    This NPRM pertains to the Improved Pension program. These 
regulations would be contained in proposed Subpart F of new 38 CFR part 
5. Although these regulations have been substantially restructured and 
rewritten for greater clarity and ease of use, most of the basic 
concepts contained in these proposed regulations are the same as in 
their existing counterparts in 38 CFR part 3. However, a few 
substantive differences are proposed, as are some regulations that do 
not have counterparts in 38 CFR part 3.

Table Comparing Current Part 3 Rules With Proposed Part 5 Rules

    The following table shows the relationship between the current 
regulations in part 3 and the proposed regulations contained in this 
NPRM:

------------------------------------------------------------------------
                                            Based in whole or in part on
  Proposed part 5  section or paragraph       38 CFR part 3 section or
                                               paragraph (or ``New'')
------------------------------------------------------------------------
5.370....................................  3.23(a), (d)(4) and (5);
                                            3.24(a); 3.271(a), (h);
                                            3.351(b), (f)
5.371(a).................................  New
5.371(b).................................  3.3(a)(3)
5.371(c).................................  3.3(b)(4)
5.371(d).................................  3.3(a)(3)(v), (b)(4)(iii)
5.372(a).................................  3.3(a)(3)
5.372(b).................................  3.3(a)(3)(i)-(iv), (b)(4)(i)
5.372(c).................................  3.3(b)(4)(ii)
5.373....................................  3.208
5.380....................................  3.3(a)(3)(vi)(A), (B)(1) and
                                            (2)
5.381....................................  3.342
5.382....................................  3.323(b)
5.383(a).................................  3.400(intro), (b)(1)(intro),
                                            (b)(1)(ii)(A)
5.383(b).................................  3.151(b); 3.400(b)(1)(ii)(B)
5.390(a).................................  3.351(b)
5.390(b).................................  3.351(c)
5.391(a).................................  3.351(d)
5.391(b).................................  New
5.391(c).................................  3.351(f)
5.392....................................  3.401(a)(1); 3.402(c)(1)
5.400(a).................................  3.23(a); 3.24(b)
5.400(a)(1)..............................  3.23(a)(1)
5.400(a)(2)..............................  3.23(a)(3)
5.400(a)(3)..............................  3.23(a)(2)
5.400(a)(4)..............................  3.23(a)(4)
5.400(a)(5)..............................  3.23(a)(5)
5.400(a)(6)..............................  3.23(a)(7)
5.400(a)(7)..............................  3.23(a)(6)
5.400(a)(8)..............................  3.24(b)
5.400(b).................................  3.23(c)
5.400(c).................................  New; 3.23(a)(5)
5.401(a).................................  3.27(a)
5.401(b).................................  3.23(a), (c); 3.24(b);
                                            3.27(e)
5.410(a).................................  3.271(a)
5.410(b)(1)..............................  3.23(d)(4)
5.410(b)(2)..............................  3.23(d)(5)
5.410(b)(3)..............................  New
5.410(c)(intro)..........................  3.271(a)
5.410(c)(1)..............................  3.271(a)(1), 3.273(d)
5.410(c)(2)..............................  3.271(a)(3), 3.273(c)
5.410(c)(3)..............................  3.271(a)(2), 3.273(d)
5.410(d).................................  3.276(a)
5.410(e).................................  3.271(b)
5.410(f)(1), (2).........................  3.271(d)
5.410(f)(3)..............................  New
5.411(a)(1)..............................  3.23(d)(5), (6); 3.272(m)
5.411(a)(2)..............................  3.23(d)(4), (5), 3.272(m)
5.411(b).................................  3.23(d)(6) (second sentence)
5.411(c).................................  3.272(j)
5.412(a).................................  3.272(a), (l)
5.412(a)(1)..............................  3.272(b)
5.412(a)(2)..............................  New
5.412(a)(3)..............................  3.272(l)
5.412(b)(1)..............................  3.272(c)
5.412(b)(2), (3).........................  New
5.412(c).................................  3.272(d)
5.412(d).................................  3.272(e)
5.412(e).................................  3.272(f)
5.412(f).................................  3.272(n)
5.412(g).................................  3.272(s)
5.412(h)-(j).............................  New
5.412(k)(1)..............................  3.272(q)
5.412(k)(2)-(8)..........................  New
5.413(a).................................  3.272 (intro)
5.413(b)(intro)..........................  3.272(g)(intro)
5.413(b)(1)..............................  3.272(g)(1)(iii), (2)(iii)
5.413(b)(2)(i)...........................  3.272(g)(1)(i)
5.413(b)(2)(ii)..........................  3.272(g)(2)(i)
5.413(b)(2)(iii).........................  3.272(g)(3)
5.413(c)(1)(i)...........................  3.272(h)
5.413(c)(1)(ii)..........................  New
5.413(c)(1)(iii).........................  3.272(h)(1)(ii)
5.413(c)(2)(i)-(iii).....................  3.272(h)(1)(ii), (2)
5.413(c)(2)(iv)..........................  3.272(h)(1)(i)
5.413(c)(3)..............................  3.272(h)(1)(ii)
5.413(d).................................  3.272(i)
5.413(e).................................  New
5.413(f).................................  3.271(g)
5.413(g)(1)..............................  3.271(c)(1)
5.413(g)(2)..............................  3.271(c)(2)
5.413(g)(3)..............................  3.271(c)(3)
5.414(a)(1), (2).........................  3.275(b)
5.414(a)(3)..............................  3.275(c)
5.414(a)(4)..............................  3.276(b)
5.414(b).................................  3.274(a), (c)
5.414(c)(1)..............................  3.274(b), (d)
5.414(c)(2)..............................  3.274(e)
5.414(c)(3)..............................  3.275(e)
5.414(d).................................  3.275(d)
5.414(e)(1)..............................  3.275(h)
5.414(e)(2)-(5)..........................  New
5.415....................................  3.660(a)(2), (d)
5.416(a).................................  3.23(d)(1); 3.60
5.416(b).................................  3.23(d)(1)
5.416(c).................................  3.23(d)(4), (5)
5.417(a)-(c).............................  3.57(d)(1)
5.417(d), (e)............................  3.57(d)(2)
5.417(f), (g)............................  3.57(d)(3)
5.420....................................  New
5.421....................................  3.29(b); 3.273 intro, (a),
                                            (b)
5.422(a)(1)..............................  New
5.422(a)(2)..............................  3.660(a)(2)
5.422(b).................................  3.660(b), (c)
5.423(a).................................  3.271(f)(1)
5.423(b).................................  3.271(f)(2)
5.424(a)-(c).............................  3.660(b)
5.424(d).................................  New
5.425....................................  3.30 intro, (a)-(d), (f)
5.430(a).................................  3.54 intro, (a)(2)
5.430(a)(1)..............................  3.54(a)(1)
5.430(a)(2)..............................  3.54(a)(3)
5.430(b).................................  3.54(e)
5.431(a).................................  New
5.431(b).................................  3.400(c)
5.432....................................  3.52(d)
5.433....................................  3.657(a)
5.434....................................  3.503(a)(9); 3.657(b)
5.435....................................  3.24; 3.57(d)(2)
------------------------------------------------------------------------

    Readers who use this table to compare existing regulatory 
provisions with the proposed provisions, and who observe a substantive 
difference between them, should consult the text that appears later in 
this document for an explanation of significant changes in each 
regulation. Not every paragraph of every current part 3 section 
regarding the subject matter of this rulemaking is accounted for in the 
table. In some instances, other portions of the part 3 sections that 
are addressed in these proposed regulations will appear in subparts of 
part 5 that are being published separately for public comment. For 
example, a reader might find a reference to paragraph (a) of a part 3 
section in the table, but no reference to paragraph (b) of that section 
because paragraph (b) will be addressed in a separate NPRM. The table 
also does not include provisions from part 3 regulations that will not 
be repeated in part 5. Such provisions are discussed specifically under 
the appropriate part 5 heading in this preamble. Readers are invited to 
comment on the proposed part 5 provisions and also on our proposals to 
omit those part 3 provisions from part 5.

[[Page 54779]]

Background Information

    The term ``Improved Pension'' is derived from the ``Veterans' and 
Survivors' Pension Improvement Act of 1978,'' Public Law 95-588, 92 
Stat. 2508. Improved Pension is the current nonservice-connected 
disability or death pension program that VA offers to new VA pension 
applicants. The Improved Pension designation distinguishes this program 
from ``Section 306'' Pension and ``Old-Law'' Pension, the nonservice-
connected disability or death pension programs VA offered to new VA 
pension applicants before January 1, 1979. Statutes that pertain to 
Improved Pension are primarily found in chapter 15 of title 38, United 
States Code.
    The regulations in this NPRM apply only to Improved Pension. We 
recognize that in the past, some of the regulations on which these 
proposed regulations are based applied to Old-Law Pension and/or 
Section 306 Pension, as well as Improved Pension. However, claimants 
can no longer establish entitlement to Old-Law Pension or Section 306 
Pension programs. Therefore, certain regulations that once applied to 
other pension programs now apply to Improved Pension only. Examples 
include regulations pertaining to establishing wartime service, 
marriage dates, and determinations of permanent and total disability. 
Those regulations form the basis for many of the regulations in this 
NPRM.

Content of Proposed Regulations

Improved Pension Requirements--Veterans, Surviving Spouses, and 
Surviving Children

Section 5.370 Definitions for Improved Pension
    Proposed Sec.  5.370 contains definitions of certain basic terms 
used throughout the regulations governing Improved Pension benefits. 
The proposed definitions will make these regulations easier to use and 
understand.
    We propose to use the terms ``adjusted annual income'' and 
``maximum annual pension rate'' throughout part 5. The definitions of 
both of these terms are based on sections 1503, 1521, 1541 and 1542 of 
title 38, United States Code. Section 1503 provides that ``annual 
income'' for Improved Pension purposes consists of all payments, 
subject to certain exceptions. 38 U.S.C. 1503(a). We propose, rather 
than refer to ``annual income,'' to refer to ``adjusted annual 
income.'' We propose to define ``adjusted annual income'' as 
``countable annual income minus deductions described in Sec.  5.413, 
rounded down to the nearest dollar.'' Readers already familiar with the 
Improved Pension program will recognize the definition of ``adjusted 
annual income'' as synonymous with what is commonly termed within VA as 
``Income for VA Purposes'' or ``IVAP.'' The proposed definition of 
``adjusted annual income'' combines most of current Sec.  3.271 with 
paragraphs (d)(4) and (d)(5) of Sec.  3.23, and current Sec.  3.276(a).
    We also propose to standardize references to the actual amount of 
Improved Pension VA pays by using the term, ``Annual Improved Pension 
amount.'' Using standardized terms will help reduce confusion in these 
regulations. We propose to define ``annual Improved Pension amount'' as 
``the amount of Improved Pension payable to a beneficiary, calculated 
as the maximum annual pension rate minus adjusted annual income.'' This 
definition is based on current Sec.  3.23(b), which requires VA to 
calculate an award of pension by subtracting the amount of the 
countable annual income of the veteran or surviving spouse from the 
maximum annual pension rate.
    We define ``countable annual income'' as ``payments of any kind 
from any source'' unless specifically excluded. This definition is also 
consistent with current VA regulations.
    We propose to define the term ``maximum annual pension rate'' as 
the pension rate payable to a beneficiary whose income is zero. The 
term ``maximum annual pension rate,'' or ``MAPR,'' is well-known and 
understood by persons familiar with the Improved Pension program, and 
the definition reflects the common understanding of the terms. More 
importantly, we believe this term is necessary to avoid confusion. The 
authorizing statute, 38 U.S.C. 1521, refers to pension paid at one of 
several ``annual rate[s],'' which are then reduced by the claimant's or 
beneficiary's annual income in order to determine the actual annual 
amount payable. In other words, a beneficiary may receive the statutory 
``annual rate of pension'' (i.e., the MAPR) only if his or her adjusted 
annual income is zero. We believe it is essential to emphasize that 
these statutory rates are maximum rates.
    We propose to define ``payments'' as cash and cash equivalents 
(such as checks and other negotiable instruments), and the fair market 
value of personal services, goods or room and board received in lieu of 
other forms of payment. It is important that readers know that not only 
is currency considered income, but checks and money orders as well, to 
include the market value of goods or services received in lieu of cash.
    Although ``Special Monthly Pension'' is not defined in the current 
regulations, we propose to offer a definition to clarify for readers 
that Special Monthly Pension is a higher maximum annual pension rate 
applicable to a veteran or surviving spouse by reason of a disability 
or disabilities ratable at 60 percent or more, their housebound status 
or their need for the aid and attendance of another person in 
performing their daily living habits. The statutory authority for 
pension at this rate is contained in 38 U.S.C. 1521(d) and (e), and 
1541(d) and (e).
    Proposed Sec.  5.370 defines a surviving child for Improved Pension 
purposes as one who is eligible for Improved Death Pension and who is 
not in the custody of a surviving spouse eligible for Improved Death 
Pension. This definition is critical to understanding the Improved 
Pension program because a child who is in the custody of a surviving 
spouse who has basic eligibility to receive Improved Pension has no 
separate eligibility. A child in this circumstance is a dependent of 
the surviving spouse and would be included in the surviving spouse's 
award.
Section 5.371 Eligibility and Entitlement Requirements for Improved 
Pension
    Proposed Sec.  5.371 is based on current Sec. Sec.  3.3(a)(3), 
3.3(b)(4), and 3.24(a). In this regulation concerning Improved Pension, 
we provide an overview of the Improved Pension program and the specific 
criteria that must be met to receive payments under this program.
    Proposed Sec.  5.371(a) is an introductory statement intended to 
give readers a general overview of the Improved Pension program. This 
section explains that Improved Pension claimants must be both eligible 
and entitled before benefits can be paid. We propose to use the term 
``eligibility'' to refer to the age and service requirements applicable 
to Improved Pension awards, while the income and net worth requirements 
applicable to Improved Pension will be referred to as ``entitlement'' 
requirements.
    We recognize that in common usage there is little, if any, 
difference between the words ``eligible'' and ``entitled.'' Both terms 
generally mean ``qualified,'' but defining these terms will make the 
Improved Pension regulations easier to understand. A veteran is 
``eligible'' for Improved Disability Pension if he or she meets the 
basic requirements found in 38 U.S.C. 1521(a) or 1513 concerning

[[Page 54780]]

wartime service and disability or age 65. A surviving spouse is 
``eligible'' for Improved Death Pension if the veteran met the basic 
requirements found in section 1541(a) concerning wartime service and 
disability. A surviving child is ``eligible'' for Improved Death 
Pension if the veteran met the basic requirements of section 1542 
concerning wartime service and disability and if the child is not in 
the custody of an eligible surviving spouse. Veterans, surviving 
spouses, or surviving children are ``entitled'' to Improved Pension 
benefit payments only so long as their income is within statutory 
limits and their net worth does not bar payment. It is important to 
maintain a distinction between ``eligibility'' and ``entitlement'' in 
the regulations governing Improved Pension.
    We propose to refer to the pension program for veterans as 
``Improved Disability Pension'' and the program for survivors as 
``Improved Death Pension.'' Proposed Sec.  5.371(b) is based on current 
Sec.  3.3(a)(3), and describes the eligibility criteria for Improved 
Disability Pension for veterans. We recognize that the ``disability'' 
designation is a misnomer because veterans are no longer required to be 
disabled to receive Improved Disability Pension if they have attained 
age 65. A veteran having reached age 65 who meets the service 
requirements of 38 U.S.C. 1521 may be paid Improved Disability Pension 
without a documented total and permanent disability as long as the 
entitlement criteria have been met. See 38 U.S.C. 1513. However, we 
propose to retain the long-standing and statutory ``disability 
pension'' designations to distinguish it from other pension benefits.
    Proposed Sec.  5.371(c) describes the eligibility criteria for 
Improved Death Pension for a deceased veteran's surviving spouse or 
surviving child. Under 38 U.S.C. 1541 and 1542, it is not required that 
the veteran's death be nonservice-connected in order for the survivor 
to be eligible for Improved Death Pension. Therefore, instead of using 
the term, ``nonservice-connected death,'' which is used in current 
Sec.  3.3(b)(4), we propose to state in Sec.  5.371(c)(3) that a 
survivor may be eligible for Improved Death Pension regardless of 
whether the veteran's death is service-connected. This will clarify 
that even if the veteran's death is service-connected (and the survivor 
is eligible for dependency and indemnity compensation (DIC)), the 
survivor may instead elect to receive Improved Death Pension.
    Proposed Sec.  5.371(d) is based on current Sec. Sec.  3.3(a)(3)(v) 
and (b)(4)(iii), and expands on these provisions in order to clarify 
that a claimant or beneficiary is entitled to Improved Pension benefits 
only when the claimant's or beneficiary's adjusted annual income is 
lower than the applicable maximum annual pension rate and when the 
claimant's or beneficiary's net worth does not bar benefit payments.
Section 5.372 Wartime Service Requirements for Improved Pension
    Proposed Sec.  5.372 pertains to veterans, surviving spouses, and 
surviving children. The definition of a surviving spouse is contained 
in proposed Sec.  5.200, which was published in the Federal Register on 
September 20, 2006, in RIN 2900-AL94. See 71 FR 55052. Proposed Sec.  
5.200 defines surviving spouse as a person who met all of the 
requirements for being a spouse in proposed Sec.  5.190 at the time the 
veteran died, who has not remarried, and who lived continuously with 
the veteran from the date of marriage to the date of the veteran's 
death. A surviving child for Improved Pension purposes is defined in 
proposed Sec.  5.370 as a child who is eligible for Improved Death 
Pension as the surviving child of a deceased wartime veteran and who is 
not in the custody of a surviving spouse eligible to receive Improved 
Death Pension.
    Proposed Sec.  5.372 is based on paragraphs (a)(3)(i) through (iv) 
as well as paragraphs (b)(4)(i) and (ii) of current Sec.  3.3. These 
paragraphs currently provide the wartime service periods for Improved 
Pension. Proposed Sec.  5.372(a) includes a cross-reference to the 
proposed wartime service regulation in Sec.  5.20 (69 FR 4832), so that 
persons who require more specific provisions concerning wartime periods 
may easily find them. Consistent with our proposal in a prior NPRM (69 
FR 4822), we would shorten the term, ``active military, naval, or air 
service,'' to ``active military service.''
    Proposed Sec.  5.372(b)(1) is based on current Sec.  3.3(a)(3)(iii) 
and requires that at least one day during a period of qualifying 
service of at least 90 consecutive days be served during a wartime 
period.
    Proposed Sec.  5.372(b)(2) is based on current Sec.  3.3(a)(3)(i) 
and states VA's long-standing interpretation that separate periods of 
service within the same wartime period may be added together. We 
believe that this is a reasonable interpretation of 38 U.S.C. 1521(j), 
upon which current Sec.  3.3(a)(3)(i) is based.
Section 5.373 Evidence of Age in Improved Pension Claims
    Proposed Sec.  5.373 is based on current Sec.  208. No substantive 
changes are intended.

Improved Disability Pension--Disability Determinations and Effective 
Dates

Section 5.380 Disability Requirements and Presumptions for Improved 
Disability Pension
    Proposed Sec.  5.380 is based on paragraphs (a)(3)(vi)(A) and 
(B)(1) and (2) of current Sec.  3.3. We propose no substantive changes. 
We propose not to include paragraphs (a)(3)(vi)(B)(3) and (4) in part 5 
because these current paragraphs are redundant of current Sec. Sec.  
3.340 and 3.342, and those criteria would be made expressly applicable 
to part 5 Improved Pension claims by proposed Sec.  5.381.
Section 5.381 Permanent and Total Disability Ratings for Improved 
Disability Pension Purposes
    We propose to repeat most of the content of Sec.  3.342 in Sec.  
5.381 with minor technical changes, and cross reference to current 
Sec.  3.340, ``Total and permanent total ratings and unemployability,'' 
for other qualifying criteria. However, we propose not to repeat the 
provisions of Sec.  3.342(c), which concern a temporary program of 
vocational training for certain new pension recipients. This program 
was based on 38 U.S.C. 1524 and allowed veterans who were awarded 
Improved Pension to receive vocational rehabilitation and employment 
services from VA. However, Congress included a provision allowing the 
Secretary of Veterans Affairs to set a reasonable time limit for 
veterans to participate in the program. Specifically, Sec.  1524(b)(4) 
states that:

    A veteran may not begin pursuit of a vocational training program 
under this subsection after the later of (A) December 31, 1995, or 
(B) the end of a reasonable period of time, as determined by the 
Secretary [of Veterans Affairs], following either the evaluation of 
the veteran under subsection (a) of this section or the award of 
pension to the veteran as described in subsection (a)(2) of this 
section. Any determination by the Secretary of such a reasonable 
period of time shall be made pursuant to regulations which the 
Secretary shall prescribe.

    The Secretary of Veterans Affairs has not extended the period for 
beginning a vocational training program beyond December 31, 1995. 
Moreover, the Secretary has promulgated a regulation stating that no 
veteran may receive VA assistance under 38 U.S.C. 1524 after January 
31, 1998. 38 CFR 21.6042(d).

[[Page 54781]]

Because this program has expired, we believe there is no reason to 
repeat the provisions of current Sec.  3.342(c) in proposed Sec.  
5.381.
Section 5.382 Improved Disability Pension--Combining Disability Ratings
    When VA grants service connection for a disability incurred or 
aggravated by military service, VA assigns a ``disability rating'' to 
the disability according to the ``Schedule for Rating Disabilities'' 
located in part 4 of title 38, Code of Federal Regulations. In cases 
where veterans have multiple disabilities, the disability ratings 
assigned to each of these disabilities may be combined in accordance 
with 38 CFR part 4.
    Disabilities that are not service connected generally serve as a 
basis for a finding that a veteran is permanently and totally disabled 
for purposes of Improved Disability Pension. Section 1523(a) of title 
38, United States Code, authorizes VA to combine ratings for 
nonservice-connected disabilities with ratings for service-connected 
disabilities to determine whether a veteran is totally disabled for 
Improved Disability Pension purposes.
    VA has implemented Sec.  1523(a) in 38 CFR 3.323(b). Current Sec.  
3.323(b)(1) provides that for pension purposes two or more nonservice-
connected disabilities will be combined in the same manner that 
service-connected disabilities are combined, as described in Sec.  
3.323(a). Current Sec.  3.323(b)(2) provides that for pension purposes 
VA may combine nonservice-connected and service-connected disabilities 
in the same manner that service-connected disabilities are combined.
    Current Sec.  3.323(b)(2) provides that VA ``may'' combine service-
connected with nonservice-connected disability ratings. This permissive 
rule contrasts with the rules elsewhere in Sec.  3.323 for combining 
nonservice-connected disabilities on the one hand, and the rules for 
combining service-connected disabilities on the other hand, which are 
mandatory rules and are expressed using the word ``will.'' Section 
1523(a) of title 38, United States Code, provides that the ``Secretary 
shall provide that,'' for ascertaining whether an individual is totally 
disabled for pension purposes, service-connected and nonservice-
connected disabilities ``may'' be combined. In fact, VA routinely 
combines service-connected and nonservice-connected disabilities for 
pension purposes, and we can think of no circumstance wherein VA would 
decline to combine a veteran's disabilities for Improved Pension 
purposes. Proposed Sec.  5.382(b) states that VA ``will'' combine 
disabilities in such a manner because this is logical, consistent, and 
fair to veterans.
    Current Sec.  3.323(b)(2) provides for the combination of service-
connected and nonservice-connected disability ratings without apparent 
restriction. The authorizing statute requires VA to combine such 
disability ratings to determine whether a veteran is permanently and 
totally disabled for pension purposes. See 38 U.S.C. 1523(a). We 
propose to include language to this effect in proposed Sec.  5.382(b). 
Moreover, Sec.  3.323(b)(2) is under the heading of ``pension'' and VA 
has always limited the applicability of the regulation to pension 
cases. Therefore, the proposed rule would apply only to Disability 
Pension claims.
    We propose to not include the phrase in current Sec.  3.323(b) that 
requires that disabilities considered in the determination of 
eligibility for Improved Disability Pension not be ``the result of the 
veteran's own willful misconduct.'' This requirement is already 
expressed in Sec.  5.381(a) and we see no reason to repeat that 
provision in Sec.  5.382.
Section 5.383 Effective Dates for Awards of Improved Disability Pension
    Proposed Sec.  5.383 is based on current Sec. Sec.  3.151(b), 
3.400(intro) and 3.400(b)(1)(ii), which provide effective dates for 
awards of Improved Disability Pension. We propose not to include 
current Sec.  3.400(b)(1)(i), which refers to claims received before 
October 1, 1984, because we know of no such pending Improved Pension 
claims.
    The first sentence of proposed Sec.  5.383(a) states that except as 
provided in paragraph (b) of this section, the effective date of an 
award of Improved Disability Pension will be the date of receipt of 
claim or the date the veteran became eligible (by attaining age 65 or 
by becoming permanently and totally disabled), whichever is later. This 
is based on the introduction of current Sec.  3.400, which states that 
the effective date of an award of pension will be the date of receipt 
of the claim or the date entitlement arose, whichever is the later. The 
first sentence also incorporates the introductory paragraph of current 
Sec.  3.400(b)(1), which states that an award of disability pension may 
not be effective prior to the date entitlement arose. Instead of using 
the phrase ``the date entitlement arose,'' which appears in current 
Sec.  3.400, we have used the phrase ``the date the veteran became 
eligible * * * and entitled'', and we have specified that the date the 
veteran became eligible is the date the veteran attained age 65 or the 
date the veteran became permanently and totally disabled and that the 
veteran becomes entitled by meeting income and net worth requirements. 
The first sentence of proposed Sec.  5.383(a) also incorporates current 
Sec.  3.400(b)(1)(ii)(A), which states that the effective date of the 
award is the date of receipt of claim (except as provided in Sec.  
3.400(b)(1)(ii)(B), which is the subject of proposed 5.383(b), 
concerning retroactive awards).
    The second sentence of proposed Sec.  5.383(a) contains a cross-
reference to proposed Sec.  5.424, ``Time limits to establish 
entitlement to Improved Pension or to increase the annual Improved 
Pension amount based on income,'' which is based upon current Sec.  
3.660(b). Current Sec. Sec.  3.400(b)(1) and 3.660(b) are authorized by 
38 U.S.C. 5110(b)(3) and 38 U.S.C. 5110(h), respectively. We provide a 
fuller discussion concerning 38 U.S.C. 5110(h) later in this NPRM. For 
this discussion, it is sufficient to say that Sec.  5110(h) provides 
time limits to establish Improved Pension entitlement based on income 
beyond the time limits provided in Sec.  5110(b)(3) to establish 
disability.
    When it appears that a veteran's anticipated income for the 12-
month period following the date of receipt of claim will exceed the 
maximum annual pension rate, VA does not pay benefits. A decision that 
the claimant is not entitled to pension because the claimant's income 
exceeds the maximum annual pension rate often occurs without VA first 
making the disability determination necessary for pension eligibility. 
In our view, this procedure is reasonable because it would be 
inefficient for VA to make a pension disability determination when it 
cannot otherwise grant entitlement to pension. At the same time, it 
would be unfair to the claimant if VA did not assign an effective date 
based on the date the pension claim was received in those cases where 
the veteran is able to establish qualifying income within the time 
limits provided under Sec.  5110(h), even if VA had not ascertained 
that the veteran was permanently and totally disabled at that time. The 
cross-reference in proposed Sec.  5.383(a) would make it plain that the 
``date of receipt of claim'' is the date of receipt of the previous 
Improved Pension claim in these types of cases. We do not see this as a 
change, but as a clarification and a reconciliation of the two 
statutory provisions. This clarification is consistent with long 
standing VA practice and is fair to veterans.
    Paragraph (b) of proposed Sec.  5.383 clarifies current Sec. Sec.  
3.151(b) and 3.400(b)(1)(ii)(B). Current Sec.  3.400(b)(1)(ii)(B) 
states that if an

[[Page 54782]]

incapacitating disability prevented a veteran from claiming benefits 
for at least the first 30 days after becoming permanently and totally 
disabled, that veteran could be awarded pension benefits effective the 
date he or she became permanently and totally disabled, if he or she 
files a claim within one year from the date on which the veteran became 
permanently and totally disabled. We propose to define the term 
``incapacitating disability.'' We propose to clarify that the 
disability that prevented a veteran from applying for benefits need not 
be the same disability that caused the veteran to become permanently 
and totally disabled. This would conform to the law and long-standing 
VA practice. The statute merely requires that ``a'' disability 
prevented the claimant from applying for Improved Disability Pension. 
See 38 U.S.C. 5110(b)(3)(B). We propose not to include the reference to 
the ``presumptive provisions of Sec.  3.342(a),'' currently found in 
the last sentence of Sec.  3.400(b)(1)(ii)(B), because current Sec.  
3.342(a) no longer contains presumptive provisions.
    Proposed Sec.  5.383(b) retains language from current Sec.  
3.400(b)(1)(ii)(B) which states that the disability pension award may 
be effective from the date of receipt of claim or the date on which the 
veteran became permanently and totally disabled, whichever is to the 
advantage of the veteran. The phrase ``whichever is to the advantage of 
the veteran'' is utilized both in the current statute (Sec.  
5110(b)(3)(A)) and the current regulation (Sec.  3.400(b)(1)(ii)(B)). 
We have retained this phrase (slightly rewritten as ``whichever is to 
the veteran's advantage'') in the proposed regulation. It means that 
one cannot automatically assume that an earlier effective date would be 
more to the claimant's advantage than a later one. This is because the 
veteran's adjusted annual income, if considered from an earlier 
effective date, might preclude entitlement for a 12-month period, 
whereas a later effective date might not.

Special Monthly Pension Eligibility for Veterans and Surviving Spouses

Section 5.390 Special Monthly Pension for Veterans and Surviving 
Spouses at the Aid and Attendance Rate
    Proposed Sec.  5.390 is derived from current Sec.  3.351(b) and 
(c). We propose no substantive changes. In proposed Sec.  5.390(a), we 
have used the term ``significantly disabled'' to conform to the 
Veterans' Housing Opportunity and Benefits Improvement Act of 2006. 
That law amended certain sections of title 38 of the United States Code 
to eliminate the use of the obsolete term ``helpless'' to describe 
significantly disabled veterans who seek aid and attendance benefits or 
their significantly disabled dependents and survivors who seek aid and 
attendance benefits. See Pub. L. No. 109-233, Sec.  502, 120 Stat. 397, 
415 (2006) (codified at 38 U.S.C. 1502(b) (2006)). No substantive 
change was intended by these amendments. See Explanatory Statement on 
Amendment to Senate Bill, S. 1235, as Amended, 152 Cong. Rec. H2976, 
H2978 (daily ed. May 22, 2006).
    Proposed Sec.  5.390(b)(4) cross-references Sec.  3.352, which 
provides the criteria for determining need for aid and attendance or 
``bedridden.''
Section 5.391 Special Monthly Pension for Veterans and Surviving 
Spouses at the Housebound Rate
    Proposed Sec.  5.391(a) and (c) are based on current Sec.  3.351(d) 
and (f).
    Proposed Sec.  5.391(b) is a new provision. It reconciles the 
current regulations, which have not been altered since being 
promulgated in 1979, with Hartness v. Nicholson, 20 Vet. App. 216 
(2006). In that case, the United States Court of Appeals for Veterans 
Claims (CAVC) stated that current Sec.  3.315(d) does not consider the 
interpretive effects of 38 U.S.C. 1513(a), first enacted in 2001, on 38 
U.S.C. 1521(e). See Hartness, 20 Vet. App. at 221. The CAVC held that, 
according to these statutes, a veteran who is otherwise eligible for 
Improved Pension based on being age 65 or older, and who is not in need 
of regular aid and attendance, is entitled to special monthly pension 
at the housebound rate if he or she has a disability ratable at 60 
percent or more or is considered permanently housebound. See Hartness, 
20 Vet. App. at 221-22. Such a veteran, unlike a veteran who is under 
65 years old, need not have a disability that is permanent and total. 
See id. Proposed paragraph (b)(1) implements this aspect of Hartness.
    Proposed paragraph (b)(2) reconciles 38 U.S.C. 1513(b) with the 
holding in Hartness. Under section 1513(b), ``[i]f a veteran is 
eligible for pension under both [38 U.S.C. 1513 and 38 U.S.C. 1521], a 
pension shall be paid to the veteran only under section 1521.'' A 
veteran who is age 65 or older who has a permanent and total disability 
would be eligible for pension under both section 1513 and section 
1521(a). Such a veteran would then be subject to 38 U.S.C. 1513(b) and 
could receive pension only under section 1521(a). In order for that 
veteran to receive special monthly pension under section 1521(e), he or 
she would need to have a disability rated 60 percent or higher or be 
permanently housebound, in addition to being permanently and totally 
disabled. In contrast, a veteran who is 65 years or older and has a 
disability rated 60 percent or higher (but less than permanent and 
total) need not be permanently and totally disabled to receive special 
monthly pension. This is because such a veteran would not fall within 
the operation of section 1513(b) because that veteran's disability 
would not independently qualify him or her for pension under section 
1521(a). Proposed paragraph (b)(2) clarifies the different rules for 
these two groups of veterans, which we are bound to apply pursuant to 
the CAVC's Hartness decision.
    Finally, we propose to clarify in Sec.  5.391(c) that the 
definition of ``permanently housebound'' is the same for veterans and 
surviving spouses.
Section 5.392 Effective Dates for Awards of Special Monthly Pension
    Proposed Sec.  5.392 is based on current Sec.  3.401(a)(1) and 
Sec.  3.402(c)(1). Paragraph (a) of proposed Sec.  5.392 states the 
general effective date rule for special monthly pension. Paragraph (b) 
of proposed Sec.  5.392 states an exception to the general effective 
date rule. The exception is when an award of Improved Pension is 
effective retroactively. In such cases, the special monthly pension 
award may be effective retroactively as well, if entitlement to special 
monthly pension is established for any part of the retroactive period.

Maximum Annual Pension Rates

Section 5.400 Maximum Annual Pension Rates for Veterans, Surviving 
Spouses, and Surviving Children
    Proposed Sec.  5.400 is based in part on paragraphs (a), (c), and 
(d)(3) of current Sec.  3.23, and portions of Sec.  3.24(b).
    Proposed Sec.  5.400(a) restates the statutory references in 
current Sec.  3.23(a). Improved Pension rates are set by statute. 
Proposed Sec.  5.400(a) provides the statutory references to 38 U.S.C. 
1521, 1541, and 1542, which are the rate-setting statutes for Improved 
Pension.
    Proposed Sec.  5.400(b) restates current Sec.  3.23(c) without 
reference to veterans of the Mexican border period. There are no more 
pension beneficiaries of veterans who served during this period of war.
    Proposed Sec.  5.400(c) informs readers that higher maximum annual 
pension rates apply to veterans and surviving spouses with dependents.
Section 5.401 Automatic Adjustment of Maximum Annual Pension Rates
    Proposed Sec.  5.401 is based on portions of current Sec. Sec.  
3.23, 3.24, and 3.27.

[[Page 54783]]

Current Sec.  3.27 governs automatic adjustment of various types of 
benefit rates. Paragraph (a) of Sec.  3.27 deals with Improved Pension 
and requires VA to increase the maximum annual pension rates whenever 
the Commissioner of Social Security increases Social Security benefits 
in accord with annual increases in the cost of living. Proposed Sec.  
5.401(b) is based on current Sec.  3.27(e), as well as those portions 
of Sec.  3.24(b) and paragraphs (a) and (c) of Sec.  3.23 which require 
VA to publish increased maximum annual pension rates in the Federal 
Register. No substantive changes are proposed.

Improved Pension Income, Net Worth, and Dependency

Section 5.410 Countable Annual Income
    Proposed Sec.  5.410(a) clearly states that for Improved Pension 
purposes, VA does not count income received before the effective date 
of the beneficiary's Improved Pension award, nor does VA count income 
that an Improved Death Pension claimant received before the date the 
veteran died. This fact is one of the distinguishing characteristics of 
Improved Pension as opposed to VA's other need-based benefits. In the 
Improved Pension program, initial payments are made based on the 
adjusted annual income that the claimant expects to receive during the 
twelve-month period immediately following the effective date of the 
award of pension (generally the date VA receives a claim or the date of 
the veteran's death).
    Proposed paragraphs (b)(1) and (2) of Sec.  5.410 incorporate 
paragraphs (d)(4) and (5) of current Sec.  3.23 in answering the 
question, ``Whose income is countable?'' In proposed paragraph (b)(1) 
concerning the income of a veteran, we have added a phrase concerning 
the income of a veteran's spouse. We state that a veteran's income 
includes that of his or her spouse ``regardless of whether the spouse's 
income is available to the veteran.'' This addition is not a change. It 
can be inferred from the current regulations and is consistent with 38 
U.S.C. 1521(c). We believe that this important provision should be made 
clearer to readers.
    Paragraphs (b)(1) and (2) of proposed Sec.  5.410 do not include 
certain portions of paragraphs (d)(4) and (5) of current Sec.  3.23 
concerning a child's income, in order to keep this lengthy regulation 
as simple as possible. Recognizing that many Improved Pension claimants 
do not have dependent children, we propose instead to incorporate the 
provisions concerning children within proposed Sec.  5.416, ``Persons 
considered as dependents for Improved Pension.'' Having separate 
regulations will make these provisions easier to read and understand.
    Proposed paragraphs (b)(1) through (b)(3) answer the question of 
whose income is included for the three types of claimants and 
beneficiaries: veterans, surviving spouses, and surviving children. We 
believe the complete answer concerning surviving children is too 
complex to be included in this regulation, so we propose to include a 
cross-reference to proposed Sec.  5.435, ``Calculating annual Improved 
Pension amounts for surviving children,'' which is the proposed 
comprehensive provision concerning annual Improved Pension amounts for 
surviving children.
    Proposed Sec.  5.410(c) restates current Sec.  3.271(a). Current 
3.271(a) states that a payment of any kind from any source shall be 
counted as income during the reporting period in which it was received 
unless it is specifically excluded under Sec.  3.272.
    Based on current part 3 regulations, including Sec. Sec.  3.271, 
3.272, 3.273, and 3.660, current VA practice is to use the term, ``12-
month annualization period'' to describe the period for which a 
beneficiary reports income, adjustments to income, and net worth to VA. 
We propose to instead use the term ``reporting period,'' which we 
believe is more explicit and more easily understood than ``12-month 
annualization period''. We propose to use ``reporting period'' in 
Sec. Sec.  5.410, 5.413, 5.420, and 5.424 of this NPRM and throughout 
part 5 and to define that term in Sec.  5.420(a).
    Paragraphs (c)(1) through (c)(3) of proposed Sec.  5.410 are 
derived from current Sec.  3.271(a)(1) through (a)(3), as well as 
current Sec.  3.273(c) and (d). Current Sec.  3.271 describes the 
various income types and Sec.  3.273 explains how to count them. We 
believe it makes sense for the two regulations to be merged. Paragraph 
(c)(3) includes information based on long-standing VA practice 
regarding counting of irregular income which we believe should be 
included in our regulations.
    Proposed Sec.  5.410(d) restates current Sec.  3.276(a), concerning 
waived income, which should be listed in proposed Sec.  5.410 with 
other items that VA counts as income. Current Sec.  3.276(a) provides 
that VA will include for Improved Pension purposes any income that an 
individual has waived. Long-standing VA policy provides a caveat--that 
if an individual withdraws a Social Security claim after a finding of 
entitlement to Social Security benefits, so as to maintain eligibility 
for an unreduced Social Security benefit on attainment of a certain 
age, this withdrawal is not presumed to be a waiver. We propose to 
include this clarification. We note that section 1503(a) of title 38, 
United States Code, requires VA to consider as income ``all payments of 
any kind or from any source (including salary, retirement or annuity 
payments, or similar income, which has been waived * * *).'' However, 
when a person applies for and is found entitled to Social Security, but 
then waives those benefits solely for the purpose of receiving more 
benefits at a later date, the action is more accurately considered a 
deferment of payments rather than a waiver. Therefore, proposed Sec.  
5.410(d) is fair and consistent with 38 U.S.C. 1503(a).
    Proposed Sec.  5.410(f)(1) and (2) are based on current Sec.  
3.271(d), concerning income from income-producing property. In Sec.  
5.410(f)(2), we propose to clarify that if a beneficiary's income 
includes that of his or her spouse, and both the beneficiary and spouse 
are co-owners of a property which produces income, then income 
representing both co-owned shares is included as income to the 
beneficiary.
    Proposed Sec.  5.410(f)(3) is a new provision, based on long-
standing VA practice, which states that if a person transfers ownership 
of income-producing property to another person or legal entity, but 
retains the right to that income, the income will be counted. We 
believe this is consistent with 38 U.S.C. 1503 and will help avoid 
confusion by pension beneficiaries by clarifying that such income will 
be counted by VA.
    We propose not to include current Sec.  3.271(e), which states: 
``Income shall be determined by the total amount received or 
anticipated during a 12-month annualization period.'' This sentence is 
unnecessary and redundant of other provisions, such as proposed Sec.  
5.423, which explains calculation procedures, as well as current Sec.  
3.272(e), which pertains to installment income from property sales.
Section 5.411 Counting a Child's Income for Improved Pension
    Proposed Sec.  5.411 is based on various provisions concerning when 
a child's income is countable for Improved Pension purposes. These 
provisions are presently found in paragraphs (d)(4) through (d)(6) of 
Sec.  3.23, and paragraphs (j) and (m) of Sec.  3.272. We believe it 
would simplify the provisions concerning counting a child's income to 
have them in one place.
    Proposed Sec.  5.411(a) concerns the availability of a dependent 
child's income to a veteran or surviving spouse. Rather than stating 
that VA counts a

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child's income ``to the extent it is'' reasonably available (which is 
the language used in the current regulation Sec.  3.23(d)(4) and (5)), 
we propose to say that VA counts ``that portion of a child's income 
that is'' reasonably available, which is more clear. Additionally, this 
change mirrors the statutory language of 38 U.S.C. 1521(h)(1) and 
1541(g), which require VA to count as income to the beneficiary ``that 
portion of the annual income of the child.''
    Proposed Sec.  5.411(a)(1) restates the provisions of current 
paragraphs (d)(4), (d)(5), and (d)(6) of Sec.  3.23 concerning the 
presumption of availability of a child's income.
    Proposed Sec.  5.411(a)(2) is derived from current Sec.  3.23(d)(4) 
and (d)(5) relating to hardship. In addition to the current 
requirements, the proposed regulation states that a veteran or 
surviving spouse must specifically request that VA exclude all or part 
of a child's annual income because counting it would create a hardship 
on the veteran or surviving spouse. Currently, claimants are notified 
of this requirement in the VA Eligibility Verification Report form. 
Including the requirement in this regulation is consistent with VA's 
current practice, as reflected in the VA Eligibility Verification 
Report form.
    Proposed Sec.  5.411(a)(2) is also derived from current Sec.  
3.272(m) and describes the steps VA uses to calculate the amount of the 
hardship exclusion.
    Proposed Sec.  5.411(b) restates the second sentence of current 
Sec.  3.23(d)(6), which is the definition of ``expenses necessary for 
reasonable family maintenance.'' To the current list of examples (food, 
clothing, shelter) of basic necessities included in this definition, we 
propose to add healthcare, which is necessary to support a reasonable 
quality of life.
    Proposed Sec.  5.411(c) restates current Sec.  3.272(j). We propose 
to refer to title 26, United States Code, rather than to the Internal 
Revenue Code of 1954. We believe more readers are familiar with these 
citations.
Section 5.412 Income Exclusions for Calculating Countable Annual Income
    Proposed Sec.  5.412 implements 38 U.S.C. 1503, which contains the 
basic statutory provisions for determining what counts as income for 
Improved Pension. Current Sec.  3.272, ``Exclusions from income,'' is 
the part 3 regulation that implements the statute. The current 
regulation mirrors the structure of the statute in mixing two separate 
analytical categories--income received that should be excluded from 
countable annual income and expense payments that should be deducted 
from countable annual income. For example, Sec.  3.272(g), (h) and (i) 
list various types of expenses incurred by claimants; these are 
properly in a separate category from income that claimants receive. 
Because of this distinction between payments that may be excluded from 
income and payments that may be deducted from income, we propose to 
divide the current regulation into two sma