Fiduciary Bond, 53913-53915 [2021-21177]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 86, Number 186 (Wednesday, September 29, 2021)]
[Proposed Rules]
[Pages 53913-53915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21177]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 13

RIN 2900-AR11


Fiduciary Bond

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend its 
regulations that govern fiduciary activities. More specifically, the 
proposed amendments would revise specific procedures to exempt a VA-
appointed fiduciary who is also serving as a court-appointed fiduciary 
from posting multiple bonds and to also exempt a VA-appointed fiduciary 
that is also a State agency with existing, State-mandated liability 
insurance or a blanket bond from having to obtain an additional bond 
payable to the Secretary of Veterans Affairs.

DATES: Comments must be received by VA on or before November 29, 2021.

ADDRESSES: Comments may be submitted through www.Regulations.gov. 
Comments should indicate that they are submitted in response to RIN 
2900-AR11_Fiduciary Bond. Comments received will be available at 
www.regulations.gov for public viewing, inspection or copies.

FOR FURTHER INFORMATION CONTACT: David Klusman, Lead Program Analyst, 
Pension and Fiduciary Service (21PF), Veterans Benefits Administration, 
Department of Veterans Affairs, 810 Vermont Ave. NW, Washington, DC 
20420; (202) 632-8863. (This is not a toll-free number).

SUPPLEMENTARY INFORMATION: VA administers a fiduciary program for 
beneficiaries who, as a result of injury, disease, the infirmities of 
advanced age, or being less than 18 years of age, cannot manage their 
own VA benefits. Under this program, VA oversees these vulnerable 
beneficiaries, and appoints and oversees fiduciaries who manage these 
beneficiaries' benefits. VA's current statutory authority for this 
program is in 38 U.S.C. chapters 55 and 61.
    VA is authorized to issue payments to and supervise fiduciaries 
acting on behalf of beneficiaries under 38 U.S.C. 5502. In 2004, 
Congress amended 38 U.S.C. chapters 55 and 61 to add new provisions 
which, among other things, authorize VA to conduct specific 
investigations regarding the fitness of individuals to serve as 
fiduciaries and reissue certain benefits misused by fiduciaries. In 
relevant part, the law provides that any certification of a person as a 
fiduciary shall be made on the basis of ``the furnishing of any bond 
that may be required by the Secretary.'' 38 U.S.C. 5507(a)(3). On its 
face, this statutory language provides VA with authority to decide 
whether to require a bond.
    Under certain circumstances, if a fiduciary misuses benefits, the 
law requires that the Secretary pay the beneficiary an amount equal to 
the amount of benefits that were misused. 38 U.S.C. 6107. In 2018, VA 
amended its fiduciary program regulations to implement current law. 
Fiduciary Activities, 83 FR 32716 (July 13, 2018).
    As stated above, in some cases, fiduciaries are required to obtain 
a surety bond in order to protect the beneficiaries' benefits. However, 
there is conflicting information in VA regulations pertaining to bond 
requirements for fiduciaries. Specifically, 38 CFR 14.709 provides that 
VA's general policy is to require a surety bond that follows State laws 
and court rules from a court-appointed individual fiduciary. Further, 
the regulation indicates approved alternative methods to a corporate 
surety bond and authorizes the acceptance of a lesser degree of 
protection of funds under certain circumstances. However, 38 CFR 
13.230, which was promulgated in 2018 when VA amended its fiduciary 
program regulations, requires that any bond furnished by a fiduciary 
``[c]ontain a statement that the bond is payable to the Secretary of 
Veterans Affairs.'' 38 CFR 13.230(d)(3)(ii). VA's final rule that 
amended 38 CFR part 13 went into effect on August 13, 2018. 83 FR 
32716. When it was promulgated, VA explicitly stated that ``[w]e intend 
to issue uniform rules for all VA-appointed fiduciaries, such as 
allowable fees, surety bond requirements and appropriate investments, 
to include fiduciaries who also serve as court-appointed guardians for 
beneficiaries.'' Id. at 32727. The rule noted that ``VA's fiduciary 
regulations will result in a gradual discontinuance of the current 
practice of recognizing a court-appointed guardian or fiduciary for 
purposes of receiving VA benefits on behalf of a VA beneficiary'' and 
that, ``VA will establish a national standard for appointing and 
overseeing fiduciaries.'' Id. at 32735. VA noted in the final rule 
that, ``[b]ased on our experience in administering the program, the 
risks of not requiring all fiduciaries, with the [general] exception of 
spouses, to furnish a surety bond significantly outweigh any burden on 
a prospective fiduciary.'' Id. at 32727. VA set forth a number of 
factors that weigh in favor of requiring a bond: (1) It serves as a 
screening tool for VA to use in confirming qualification for 
appointment--in other words, if a fiduciary cannot obtain a bond 
because the bonding company considers the risk of fund exploitation too 
high, VA will not appoint the prospective fiduciary; (2) it is 
consistent with VA's oversight obligations, which include deterring 
fiduciary misuse of benefits; and (3) it puts a fiduciary on notice 
that he or she is liable to a third party for any payment on the bond. 
Id. With the 2018 amendment, VA also promulgated additional bond 
requirements under Sec.  13.230(d) in order to protect a beneficiary's 
interests if a fiduciary misuses funds, including a requirement that 
the bond be payable to the Secretary. More recently, in January 2021, 
Congress enacted Public Law 116-315, which amended 38 U.S.C. 6107(b), 
to require VA to reissue misused funds to all beneficiaries, regardless 
of whether VA negligence was involved.
    Under current Sec.  13.410(c), VA must attempt to recoup any 
misused benefits, either from the surety company or, if no bond is in 
place, from the fiduciary directly. VA then must reissue any recouped 
benefits to the beneficiary's fiduciary successor to the extent they

[[Page 53914]]

were not already reissued. Under Sec.  13.230(g), bond expenses may be 
deducted from the beneficiary's account so that the fiduciary does not 
have to pay for them out of pocket. Although this cuts into the amount 
of benefits the beneficiary ultimately receives, VA noted that this 
provision is ``consistent with the protection of funds in guardianships 
under state and uniform laws.'' 79 FR 430, 442 (Jan. 3, 2014). While it 
seems redundant for VA to require a separate bond from a VA-appointed 
fiduciary who also is serving as a court-appointed fiduciary, VA 
instituted uniform surety bond requirements as an additional safeguard 
to ``protect the beneficiary's funds.'' 83 FR 32727. In theory, 
requiring that a VA-appointed fiduciary obtain a bond that is payable 
to the Secretary ensures that VA will be able to recoup any misused 
funds from the surety company rather than having to initiate a 
collections action against an individual fiduciary. Moreover, in 
instances where a court-appointed fiduciary already has a bond in 
place, the bond typically would be payable to the state where the court 
is located, so VA could not make a direct claim against that bond. If 
the state-court bond were enough to cover the misused VA benefits, the 
state would be able to make a claim against the bond to make the 
beneficiary whole. Thus, at least in some cases, a state-court bond 
would provide adequate protection for the beneficiary. We note, 
however, that, in the event that VA reissues benefits and the 
beneficiary later receives funds recovered from the state-court bond, 
it is not apparent that VA would have any basis to recoup the excess 
funds paid to the beneficiary, even though it would amount to double 
recovery on the part of the beneficiary. A potential problem with VA's 
practice of requiring multiple bonds is that if a surety company 
already paid out on a misused-benefits claim under a state-court bond, 
another surety company would not pay out on the VA bond for the same 
misconduct. That would therefore defeat the purpose of requiring a 
second bond made payable to the Secretary. If the purpose of the second 
bond is to ensure that the beneficiary is made whole in the event of 
misuse, it does not make sense to burden the beneficiary with paying 
for a second bond where there already is adequate protection in place. 
As a result, VA proposes to amend Sec.  13.230 of its part 13 
regulations as described below.

13.230 Protection of Beneficiary Funds

    VA proposes to amend 38 CFR 13.230 to exempt a VA-appointed 
fiduciary who is also serving as a court-appointed fiduciary with a 
bond sufficient to protect both VA and non-VA funds from posting 
multiple bonds and to exempt a VA-appointed fiduciary that is also a 
State agency with existing, State-mandated liability insurance or a 
blanket bond from having to obtain an additional bond payable to the 
Secretary of Veterans Affairs. The proposed amendment is within VA's 
general rulemaking authority under 38 U.S.C. 501(a) and implements VA's 
authority under 38 U.S.C. 6107. The proposed amendment would eliminate 
duplicative fees from being charged against a VA beneficiary's funds 
for an additional, unnecessary bond. Additionally, VA beneficiaries who 
are victims of misuse of their benefits by their VA fiduciaries would 
not experience undue delay in the reissuance of their misused benefits. 
Further, the bond requirement in 38 U.S.C. 5507(a)(3) gives VA 
discretion to determine whether to require a bond.
    Under current rules, 38 CFR 13.230, does not include an exception 
to the bond requirement for court-appointed fiduciaries. Further, Sec.  
13.230 specifically requires that any bond furnished by the fiduciary 
``[c]ontain a statement that the bond is payable to the Secretary of 
Veterans Affairs.''
    VA proposes to amend Sec.  13.230 to add an exception for posting 
an additional bond for an individual serving as a court-appointed 
fiduciary, where a bond is in place under State law and court rules and 
is sufficient to protect both VA and non-VA funds and to add another 
exception for a VA-appointed fiduciary that is also a State agency with 
existing, State-mandated liability insurance or a blanket bond to not 
have to obtain an additional bond payable to the Secretary of Veterans 
Affairs. This amendment is authorized by VA's general rulemaking 
authority in 38 U.S.C. 501, and by the discretion conferred by 38 
U.S.C. 5507(a)(3).

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
The Office of Information and Regulatory Affairs has determined that 
this rule is not a significant regulatory action under Executive Order 
12866. The Regulatory Impact Analysis associated with this rulemaking 
can be found as a supporting document at www.regulations.gov.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (at 44 U.S.C. 3507) requires 
that VA consider the impact of paperwork and other information 
collection burdens imposed on the public. Under 44 U.S.C. 3507(a), an 
agency may not collect or sponsor the collection of information, nor 
may it impose an information collection requirement unless it displays 
a currently valid OMB control number. See also 5 CFR 1320.8(b)(3)(vi).
    The information collection requirement in Sec.  13.230 is currently 
approved by OMB and has been assigned OMB control number 2900-0804. The 
proposed rule includes provisions involving a revised collection of 
information under the Paperwork Reduction Act of 1995 that will require 
approval by OMB. The proposed rule would not involve a substantive or 
material modification of the approved collection.
    Title: Protection of beneficiary funds.
    Type of Information Collection: Modification of a currently 
approved information collection.
    OMB Number: 2900-0804.
    Summary of collection of information: The amendment to the 
collection of information in proposed Sec.  13.230(c)(1) would 
eliminate the requirement for a VA-appointed fiduciary who is also 
serving as a court-appointed fiduciary to post multiple bonds and would 
also eliminate the requirement for a VA-appointed fiduciary that is 
also a State agency with existing, State-mandated liability insurance 
or a blanket bond to obtain an additional bond payable to the Secretary 
of Veterans Affairs. The proposed amendment to Sec.  13.230(c)(1) would 
decrease the estimated annual number of respondents and consequently 
reduce the estimated total annual reporting and recordkeeping burden.
    The estimated annual burden for the revised collection of 
information would be determined as follows:
    Description of need for information and proposed use of 
information: There would be no change in the need for information nor 
the proposed use of information collected for OMB-approved Control 
Number 2900-0804. The information is needed to facilitate VA's 
oversight regarding the funds under management protection

[[Page 53915]]

requirements prescribed in proposed Sec.  13.230.
    Description of likely respondents: Certain fiduciaries appointed by 
VA who manage VA benefit funds in excess of $25,000. As stated, the 
proposed rule would exempt a VA-appointed fiduciary who is also serving 
as a court-appointed fiduciary from posting multiple bonds and would 
also exempt a VA-appointed fiduciary that is also a State agency with 
existing, State-mandated liability insurance or a blanket bond from 
having to obtain an additional bond payable to the Secretary of 
Veterans Affairs. This change would reduce the number of respondents.
    Estimated number of respondents per year: 9,634 annually.
    Estimated frequency of responses per year: Once per year.
    Estimated number of responses per year: 9,634 annually.
    Estimated average burden per response: The estimated average burden 
per response for OMB-approved Control Number 2900-0804 has not changed 
and remains at 1 minute.
    Estimated total annual reporting and recordkeeping burden: 161 
hours.
    Estimated total annual respondent burden cost: $4,358.
    VA estimates that the proposed rule would reduce the number of 
respondents in 2021 by 366 (from 10,000 to 9,634); however, it would 
increase the current annual respondent burden costs from $4,008 to 
$4,358, resulting in an estimated information collection burden costs 
increase of $350 (161 burden hours x $27.07 per hour). The Bureau of 
Labor Statistics (BLS) gathers information on full-time wage and salary 
workers. According to the latest available BLS data, the mean hourly 
wage is $27.07 based on the BLS wage code--``00-0000 All Occupations.'' 
This information was taken from the following website: https://www.bls.gov/oes/current/oes_nat.htm.

Regulatory Flexibility Act

    The Secretary certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-
612. This regulation has the potential to impact all 2,350 small 
entities within the North American Industry Classification System Code 
524126 (casualty and bonding companies). There is a projected loss of 
revenue of $66,989 per firm which yields a 0.16% revenue loss to each 
entity. Based on this analysis, we conclude that this regulation will 
not have a significant economic impact on a substantial number of small 
entities. Therefore, pursuant to 5 U.S.C. 605(b), the initial and final 
regulatory flexibility analysis requirements of 5 U.S.C. 603 and 604 do 
not apply.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This proposed rule would have no such 
effect on State, local, and tribal governments, or on the private 
sector.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program number and title 
for this proposed rule are as follows: 64.104, Pension for Non-Service-
Connected Disability for Veterans; 64.105, Pension to Veterans 
Surviving Spouses, and Children; 64.109, Veterans Compensation for 
Service-Connected Disability; and 64.110, Veterans Dependency and 
Indemnity Compensation for Service-Connected Death.

List of Subjects in 38 CFR Part 13

    Surety bonds, Trusts and trustees, and Veterans.

Signing Authority

    Denis McDonough, Secretary of Veterans Affairs, approved this 
document on September 24, 2021, and authorized the undersigned to sign 
and submit the document to the Office of the Federal Register for 
publication electronically as an official document of the Department of 
Veterans Affairs.

Luvenia Potts,
Regulation Development Coordinator, Office of Regulation Policy & 
Management, Office of General Counsel, Department of Veterans Affairs.

    For the reasons set forth in the preamble, VA proposes to amend 38 
CFR part 13 as follows:

PART 13--FIDUCIARY ACTIVITIES

0
1. The authority citation for part 13 continues to read as follows:

    Authority:  38 U.S.C. 501, 5502, 5506-5510, 6101, 6106-6108, and 
as noted in specific sections.
    Source: 83 FR 32738, July 13, 2018, unless otherwise noted.

0
2. Revise Sec.  13.230(c)(1) to read as follows:


Sec.  13.230   Protection of beneficiary funds.

* * * * *
    (c) * * *
    (1) The provisions of paragraphs (a) and (b) of this section do not 
apply to:
    (i) A fiduciary that is a trust company or a bank with trust powers 
organized under the laws of the United States or a state;
    (ii) A fiduciary who is the beneficiary's spouse;
    (iii) A fiduciary in the Commonwealth of Puerto Rico, Guam, or 
another territory of the United States, or in the Republic of the 
Philippines, who has entered into a restricted withdrawal agreement in 
lieu of a surety bond;
    (iv) A fiduciary that is also appointed by a court and has obtained 
a state-court bond, as referenced in 38 CFR 14.709, sufficient to cover 
both VA and non-VA funds; or
    (v) A fiduciary that is also a State agency with existing, State-
mandated liability insurance or a blanket bond sufficient to cover both 
VA and on-VA funds.
* * * * *
[FR Doc. 2021-21177 Filed 9-28-21; 8:45 am]
BILLING CODE 8320-01-P