A little-known law has forced more than 120,000 veterans to return payouts they received to leave the military, new data shows

A federal law has forced nearly 122,000 disabled veterans in the last 12 years to return payouts — some totaling tens of thousands of dollars — they received to leave the military when it needed to downsize, according to new data obtained by NBC News.

The statistics come amid renewed calls to change the little-known law, which prohibits veterans from receiving both disability and special separation pay, which are one-time, lump-sum incentives offered to service members when the U.S. had to reduce its active-duty force.

“Nobody realizes that they are doing this to so many people,” said Vernon Reffitt, who was recently told to repay the $30,000 he got to leave the Army more than 30 years ago.

The clawbacks have thrown many veterans into sudden hardship. One said it would take him nearly 15 years to pay back what he owes. Another said he has to cut out expenses that are not a necessity, as his wife, who works full-time, is considering taking on another job to make ends meet. 

The U.S. Department of Veterans Affairs said it had to recoup special separation payments from more than 17,000 veterans in the 2018 fiscal year — the highest annual amount so far. That total swelled from about 12,400 the previous year, although it’s unclear why.

The number of recoupments fell nearly each following year until the PACT Act, a measure that expanded benefits to millions of veterans exposed to burn pits and other toxic substances during their service, was signed into law in August 2022, VA statistics show. The recoupments demanded from vets in fiscal year 2023 grew to nearly 9,300, from 7,940 in 2022. 

VA press secretary Terrence Hayes said the agency cannot speculate on why numbers rise or fall. He said the VA is legally bound to recover special separation benefits from veterans before those eligible can begin receiving disability payments. 

At least two veterans who had long been receiving both benefits said the VA caught its own error only after they submitted PACT Act claims.

Shawn Teller accepted a one-time gross payment of about $10,700 to leave the Army in 1996, when the U.S. had to reduce its active-duty force. Then in 2012, the veteran, who served about eight years, including in operations Desert Storm and Desert Shield, began receiving monthly disability compensation for an old knee injury.

He filed a PACT Act claim for asthma in the summer of 2023, which the VA granted, slightly increasing his disability rating. But the benefit was short-lived. Months later, the VA sent him a letter, saying he should not have been receiving both disability and separation benefits without penalty for the last dozen years. 

“It was something somebody overlooked at the time, and then they caught it now,” said Teller, 55, who lives in Walnut Creek, California. 

Beginning in July, the VA wrote, it would start withholding Teller’s monthly disability payment of about $586 until he repays the amount of his separation pay.

“I rely on this pay every month,” Teller said. “It’s not right.”

Similarly, NBC News previously reported that Reffitt, the Army veteran, began receiving disability compensation in 1992, the same year he took the special separation pay.

But after Reffitt filed a PACT Act claim for chronic obstructive pulmonary disease — which was denied — the VA began withholding his monthly disability pay in May until he repays the $30,000. It would take the 62-year-old nearly 15 years to do so.

“This is wrong,” the Twin City, Georgia, resident said. 

In fiscal year 2013, the earliest year with available data, the VA said it had to recoup separation pay from about 6,700 veterans — the lowest amount in the last dozen years. The total inched up slightly to about 7,500 in fiscal year 2014, data shows. It held steady around 12,000 for the next three fiscal years before surging to more than 17,000 in fiscal year 2018.

The VA had to recoup separation pay from 8,130 veterans in fiscal year 2020 and 8,550 in 2021. 

The number of recoupments dropped even lower in fiscal year 2022 before surging in 2023. As of the end of June, the VA said it had already initiated recoupments for more than 8,920 veterans so far this fiscal year.

While Hayes said he cannot speculate on reasons for dips and spikes in annual tallies, the VA press secretary said there has been a rise in disability claims. In fiscal year 2023, when the VA had to recoup separation pay from nearly 9,300 veterans, Hayes said the agency received a total of 2.3 million compensation claim applications —  a 42% increase over 2022.  

“Fiscal year 2023 was a record-breaking year for VA,” he said. “There is no concerted effort to increase recoupment. Instead, it is a part of the normal, legally required process during completion of the initial claim application which asks claimants if they received a separation bonus and the amount received.”

Hayes said the number of recoupments the VA has processed over the last five years has consistently been less than 1% of the total applicants or recipients of disability compensation. In 2023, more than 5.6 million veterans received compensation, he said.

Hayes said veterans who apply for PACT Act benefits are far more likely to receive an increase in benefits rather than any decrease.

It’s unclear how many recoupment errors like Teller’s and Reffitt’s were caught since the PACT Act was enacted. The VA said it does not track those cases.

In Reffitt’s case, the VA said it erroneously allowed him to receive both benefits without penalty for more than 30 years because it was “unaware of the amount” of his separation pay when he began receiving disability compensation in 1992.

The VA said it caught the error when Reffitt filed a PACT Act claim and that it should have followed up on attempts to determine the separation amount and initiated recoupment earlier. 

The agency said Teller’s severance pay remained undetected until 2023 because he did not previously indicate in VA forms that he had received separation pay or follow through with submitting a claim within a year of filing an intent to submit one.

In 2021, the Veterans Benefits Administration began scanning all veterans’ service and medical records into electronic files, which “reduces the likelihood of this situation reoccurring,” Hayes said.

Veterans have a chance to pursue a waiver of their recoupment responsibilities for only certain special separation benefits under the law. Even then, the standards are high and have been confusing.

To get a waiver for voluntary separation pay, the VA said the secretary of the applicable branch of service must determine that “recovery would be against equity and good conscience or would be contrary to the best interests of the United States.”

At least six have been granted so far, officials said.

The Air Force said some of its members signed “erroneous” statements of understanding when they separated from active duty between 2007 and 2014. The paperwork incorrectly told them recoupment would be waived if they subsequently became eligible for disability compensation benefits, ​​Air Force spokesperson Lt. Col. Erika Yepsen said.

The Air Force said it has granted at least five waivers to veterans affected by the error since fiscal year 2016 — the year the Air Force said it changed how it tracked its data.

It denied 17 other requests, but in those five cases, Yepsen said, “it was determined that waiving recoupment was in keeping with equity and good conscience standards.” 

The Air Force also approved a waiver request for a sixth veteran “based upon the individual’s disability precluding them from earning an income,” Yepsen said.

The Navy, Marine Corps and Coast Guard said they are not aware of anyone who has requested a waiver for recoupment. In 2023, the Navy authorized reducing the amount of disability pay that is withheld while voluntary separation pay is recouped, Navy spokesperson Charlie Spirtos said.

The Army did not respond to requests for comment.

Advocates say the law not only blindsides veterans, but it robs them of earned benefits that should not be linked financially.

While special separation pay is based on a service member’s military career and calculated by years of active duty, disability pay solely relates to illnesses or injuries sustained during service, according to Marquis Barefield, an assistant national legislative director with DAV, an advocacy group formerly known as Disabled American Veterans.

“The two payments have nothing to do with each other,” Barefield said. “They are two separate buckets of money.”

Veterans have had an average of $19,700 to $53,000 withheld for recoupment from 2013 to 2020, according to a study published in 2022 by the RAND Corporation, a nonprofit research group. 

In 2022, Rep. Ruben Gallego, D-Ariz., introduced a bill that would change the recoupment law, but the legislative progress has been slow. “It is costly,” he said, “and that’s kind of been the biggest hindrance of why I can’t get it through.”