Response from SAS:

"... I've learned that this is a known problem and will hopefully be fixed
in the next maintenance release. Until then, assigning the function return
value to a variable will work as shown below..."

proc fcmp outlib =work.funcs.validations;

function valid() $1 label="Valid Constant"; return('1'); endsub;

function testme(validcd $);
 retval=0;
 x = valid();
 if validcd EQ x then retval=1;
 return(retval);
endsub;
run;
options cmplib=work.funcs;

data test;
return=testme('1');
run;

Thank you!