Agent Orange Payment Program Update

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2 Copyright 1990 by National Clearinghouse for Legal Services. All rights Reserved. 24 Clearinghouse Review 690 (November 1990) Agent Orange Payment Program Update by the National Veterans Legal Services Project, Inc., 2001 S Street, NW, Suite 610, Washington, DC 20009, (202) I. Introduction As a result of the settlement of the class action lawsuit by Vietnam veterans and their families against the chemical companies that manufactured the herbicides used in Vietnam, the United States District Court for the Eastern District of New York established the Agent Orange Veteran Payment Program (Payment Program) by order and opinion dated July 5, /1/ The Payment Program began disbursing payments from the Settlement Fund (Fund) to eligible veterans and survivors in February Over the past year, a number of significant events have occurred that affect the program and payment recipients. II. Court Eased Payment Program Rules The July 5, 1988, court order prescribed eligibility criteria for obtaining benefits from the Payment Program. In establishing the eligibility criteria, the court noted that the guidelines were subject to revision, depending on claims experience. /2/ In an order dated November 15, 1989, federal district court Judge Jack B. Weinstein noted that the Payment Program had been operating for over one year. /3/ Because of recommendations submitted by the court-appointed Special Master, the court concluded that the Payment Program should be modified in light of the program's claims experience during the preceding year. The first modification stated as follows: "The current requirement that all applications to the Payment Program must have been filed by March 1, 1989 or 120 days after the occurrence of a death or disability is hereby abolished. The Claims Administrator is authorized to process all applications, regardless of the date of filing, so long as the application is received before the Payment Program ceases operation on December 31, This modification shall be retroactive." /4/ This modification was intended both to remove an unnecessary barrier to obtaining benefits from the Payment Program and to reduce unnecessary administrative costs. The only date that

3 persons seeking benefit payments from the Payment Program need to be concerned with is December 31, All applications for benefits must be received by that date. Some veterans may not have completed their claims for payments because they would have been filed late under the old eligibility rule. Other veterans, for various reasons, did not respond to the letter from the Claims Administrator asking why their claims were filed late. These persons may now reapply or complete their applications for payments. The second modification stated as follows: "The current rule requiring that compensation for the death of a veteran be distributed only to surviving spouses and dependent children of the deceased veteran shall be modified to allow the distribution of survivor payments to the veteran's parents, adult children and siblings, as set forth in the Special Master's recommendation. This modification to the eligible survivor rule shall be applied retroactively." /5/ The Special Master found that the prior rule was "unduly restrictive," because it "prevent[ed] the distribution of funds in compensation for the death of most unmarried veterans." /6/ An actuarial study of the applicant population revealed that the expansion of the members of this class of eligible beneficiaries would not have a significant effect on the amount of money available to the plaintiff class. /7/ As recommended by the Special Master, the court added new classes of eligible survivors and established a new order of priority. /8/ The survivor benefit goes first to the surviving spouse. If there is no surviving spouse, the payment is divided equally among all dependent children. /9/ If there are no dependent children, the survivor benefit is divided equally among the veteran's surviving parents. If there are no parents, the payment is divided equally among all adult children. Finally, in the absence of adult children, the survivor payment is divided equally among all of the veteran's siblings. The Claims Administrator was directed to contact individuals whose applications for survivor benefits were denied because they were not considered eligible survivors under the prior rule, in order to tell them of the expansion of the definition of "eligible survivor" for Payment Program payment purposes. In addition, if an applicant is denied survivor's payments for failure to meet the definition of an eligible survivor, he or she may appeal the denial to the Special Master, who will decide these applications on a case-by-case basis. The third modification stated as follows: "The current system of distributing payments to disabled veterans on an annual basis shall be modified as follows: All disabled veterans who have been issued a payment by the Claims Administrator as of November 15, 1989, shall receive an additional payment in 1989, which consists of that portion of the veteran's total award attributable to the period of disability up to December 31, 1989, less any amount previously paid. This limited modification of the payment structure is made possible because an analysis of claims processed to date reveals greater than expected funds available for distribution." /10/

4 Under the earlier rules, payments to eligible veterans were to be disbursed annually throughout the life of the program, as long as the veteran remained disabled. The amount of each annual payment was calculated in the following manner: After a determination of total disability by the Claims Administrator, the number of months of disability (from the month in which disability began through December 31, 1994) was multiplied by the amount of money credited for each month. /11/ The annual payment was determined by dividing the total award by the number of years remaining in the program at the time that the application was approved. This rule modification provides eligible veterans more "up front" money than under the prior rule, though future annual payments to these veterans will be reduced. However, this is a positive change, because the sooner deserving class members receive their money, the better off they are. The court will review the status of the fund again in 1990 to determine whether sufficient funds are available for another partial lump sum payment. III. Payments Excluded in Determining Eligibility for Federal Assistance On December 6, 1989, the President signed the Agent Orange Exclusion Act, /12/ which prevents the federal government from counting Settlement Fund payments in determining eligibility or benefit amounts for all "means-tested" federal programs. The programs involved are any programs funded in whole or in part by the United States government and under which an individual's income or resources are considered in determining eligibility for assistance. Such programs include Medicaid, SSI, child support, food stamps, the Low Income Home Energy Assistance Program (LIHEAP), low-income housing assistance programs under HUD, and student grants and loans administered by the Department of Education. This new law was significant because the court had extended the deadline to apply for payments from the Fund. The law is retroactive to January 1, 1989, so that veterans who have already established their eligibility and received payments from the Fund will be protected. Therefore, veterans or their survivors may be entitled to assistance or benefits back to that date if payments from the Settlement Fund were the reason given for denying, reducing, or terminating assistance. Congressman Hochbrueckner, the author of the bill, also sponsored similar legislation that has been enacted that prohibits the Department of Veterans Affairs (VA) from counting Agent Orange Settlement Fund payments as income for any purposes, including, for instance, determining eligibility for nonservice-connected pension benefits. /13/ Advocates representing individuals entitled to payments from the Payment Program should carefully review the income that these clients have reported to "means-tested" federal benefit programs. If any of these clients reported payments from the Payment Program to a federal "means-tested" program and the payments were counted against them, the advocate should contact the local office of the federal benefit program to request an appropriate adjustment in benefit rates.

5 Veterans entitled to VA nonservice-connected pension do not have to report payments received from the Payment Program on the annual Eligibility Verification Report (EVR) that VA pension recipients must complete each year, even though the form asks for all income received. To ensure that the VA does not incorrectly characterize these payments as income for VA pension purposes, veterans should simply not report this income. IV. Settlement Fund Payments Are Not Taxable One question frequently asked about payments received from the Agent Orange Settlement Fund was whether they were considered taxable income. The Internal Revenue Code provides that damages received as a result of personal injuries or sickness are not countable in gross income. /14/ Therefore, any part of any payment from the Fund that was clearly attributable to the Fund's principal was not taxable. However, because the question remained whether any amount that could be attributed to interest earned by the Fund was taxable, the Special Master filed a formal request with the IRS for a ruling that no portion of any payment would be considered taxable income. On May 16, 1990, the IRS issued the requested ruling. /15/ Payments made by the Payment Program are not subject to federal income tax. Any recipient who has already filed an income tax return reporting a payment from the Fund should file an amended return. In addition, it is important to remember that the ruling applies only to federal income tax and that state rules may vary. footnotes 1. In re "Agent Orange" Prod. Liab. Litig., 689 F. Supp (E.D.N.Y. 1988) (Clearinghouse No. 30,873). 2. Id. at In re "Agent Orange" Prod. Liab. Litig., M.D.L. No. 381 (E.D.N.Y. Nov. 15, 1989) (Order Regarding Modifications to the Agent Orange Veteran Payment Program). 4. Id. at Id. 6. In re "Agent Orange" Prod. Liab. Litig., M.D.L. No. 381 (letter from Special Master Kenneth R. Feinberg to Judge Jack B. Weinstein (Nov. 14, 1989)). 7. Id.

6 8. The July 5, 1988, order established the initial order of priority for eligible survivors mandating that payments could go only to a surviving spouse, or to dependent children if there was no surviving spouse. 9. Under eligibility criteria previously approved by the court, a "dependent child" is a veteran's child who is under age 19, who is in college full-time, or who became disabled before age In re "Agent Orange" Prod. Liab. Litig., M.D.L. No. 381, at 2-3 (Nov. 15, 1989, order). 11. The current rate for a month of disability is $42.67 and no money is credited for months of disability before January 1, This rate is subject to change, depending on claims experience. 12. Agent Orange Exclusion Act, Pub. L. No , 103 Stat (1989). 13. Veterans' Judicial Review Act, Pub. L. No , Sec. 1203, 102 Stat. 4105, 4125 (1988). 14. I.R.C. Sec I.R.S. News Release IR (May 16, 1990).