Federal Register Extracts

Agency: "Department of Veterans Affairs."

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 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

--This is a summary of a Federal Register article originally published on the page number listed below--

Proposed rule.

CFR Part: "38 CFR Part 13"

RIN Number: "RIN 2900-AR11"

Citation: "86 FR 53913"

Federal Register Page Number: "53913"

"Proposed Rules"