The Department of Veterans Affairs (VA) is withholding monthly disability payments from veterans until they repay any separation pay they have received. This action is based on 38 U.S.C. 5304(a), which prohibits veterans from receiving both disability payments and separation pay simultaneously. According to 38 CFR 3.700, the VA must collect the separation pay before restoring disability payments. This regulation has caught many disabled veterans by surprise, as the VA is required to withhold disability payments until the full amount of the separation pay has been recouped.

38 CFR 3.700 prohibits the VA from paying compensation to a veteran who has also received separation benefits from the Department of Defense. The statutory basis for this regulation, 38 U.S.C. 5304(a), states, “…not more than one award of … compensation… shall be made concurrently to any person based on such person’s own service…” This prohibition against the duplication of benefits is interpreted in the Code of Federal Regulations (CFR) to prevent the VA from awarding disability benefits to a veteran who has received readjustment pay, disability or non-disability severance pay, and various forms of separation pay.

On July 4, NBC News published an article highlighting the plight of veterans caught in this bind. Vernon Reffitt, who received a lump sum of $30,000 as a separation payment to leave the Army in 1992, stopped receiving his monthly disability check in May this year. He was informed that he would not receive any more money until the $30,000 separation payment was returned. At the age of 62, this would take Reffitt about 15 years to pay back.

The NBC News article indicated that between 2013 and 2020, at least 79,000 veterans lost their disability benefits due to this law, according to a study by the RAND Corporation. In 2023 alone, the VA recouped separation pay from about 9,300 veterans.

A similar article on Military.com quoted VA press secretary Terrence Hayes, who stated that the VA has not increased the rate of seeking recoupment. According to VA data, about 8,500 veterans annually face the need to repay their separation pay, amounting to about one percent of veterans receiving disability payments.

The VA acknowledged it should have contacted Reffitt sooner. NBC News reported, “It (the VA) caught the error recently when Reffitt filed a claim under the PACT Act, a law enacted in 2022 that expanded benefits to millions of veterans exposed to toxic substances.” The VA claims that their forms explain that “separation pay may be recouped from VA benefits,” but Reffitt was unaware of this until May.

Separation pay is given based on military service, while disability pay is for injuries and illnesses sustained during service. An executive with DAV (formerly Disabled American Veterans) commented, "The two payments have nothing to do with each other. They are two separate buckets of money."

There is an exception to the rule. According to TheMilitaryWallet.com, “The VA will not deduct compensation pay if the military disability severance pay was received for disabilities incurred in line of duty in a combat zone or incurred during performance of duty in combat-related operations as designated by the Department of Defense (DoD).” This exception requires a Line of Duty designation by the DoD and only applies to members separated from the Armed Forces on or after January 28, 2008.

Military members cannot receive disability pay and separation pay simultaneously if they have a VA service-connected disability. However, they can serve again later if marked as having a disability, typically when a former military member decides to return to service.

To avoid placing more soldiers in this predicament, clearer communication on forms and by those administering them about how these payments can and cannot be received is essential.