Veterans Financial Security and Recoupment Reform Act of 2025

This bill ends the requirement that the Department of Defense recoup separation pay, special separation benefits, or voluntary separation incentive payments from a former member of the Armed Forces who later becomes eligible for disability compensation from the Department of Veterans Affairs. The prohibition applies to all disability claims filed after the date of enactment, and it specifically restores any amounts previously recouped from veterans whose claims were filed within the last five years before enactment. To prevent double-dipping and preserve fiscal discipline, the bill limits recoupment when a former member later receives military retired or retainer pay. Recoupment is prohibited entirely if the veteran's disability rating is 50 percent or higher, or if the retirement is based on a service-connected disability. In all other cases, recoupment of separation pay is allowed but only on a pro-rated basis, reducing the amount owed by 10 percentage points for each disability rating point above 0, so that a veteran with a 30 percent rating repays only 70 percent of the original separation pay. Funding for this reform comes from a transfer of up to $600 million per fiscal year from the Department of Defense's Operation and Maintenance account to the Department of Veterans Affairs, specifically to the Veterans Benefits Administration. This transfer is capped at $3 billion over five years. The Secretaries of Defense and Veterans Affairs shall jointly issue regulations within 180 days of enactment, and the Comptroller General shall conduct an annual audit and report to Congress on the number of veterans affected, amounts restored, and any identified instances of fraud or double-dipping. These provisions sunset after five years unless Congress reauthorizes them by a new law. During the sunset period, the Comptroller General shall evaluate the fiscal impact and recommend whether to extend, modify, or terminate the policy. Any veteran who believes recoupment was taken in violation of this act may file a claim under the Administrative Procedure Act in federal court, and the court may award reasonable attorney's fees.