suneetk/investopedia_terms huggingface dataset:
# Vested Benefit Obligation (Vbo): What It Is, How It Works

![Vested Benefit Obligation (VBO)](https://www.investopedia.com/thmb/uVuW-n4OREmVmdDr2CC-kaTUluw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/VestedBenefitObligationVBO_v1-f296f1a3afea410bad1ab211e4c6d648.jpg)

*— Investopedia / Jake Shi*

## Definition of Vested Benefit Obligation (VBO)

Vested benefit obligation (VBO) refers to the actuarial present value of the [pension plan](https://www.investopedia.com/terms/p/pensionplan.asp) that has been earned by employees and is one measure of a firm's pension fund liability.

## Understanding Vested Benefit Obligation (VBO)

Vested benefit obligation (VBO) is one of three approaches firms use to measure and disclose pension obligations as well as the performance and financial condition of their plans at the end of each accounting period — as they are required to under FASB Statement of Financial Accounting Standards No. 87. The other two measures are the firm’s [accumulated benefit obligation](https://www.investopedia.com/terms/a/accumulated-benefit-obligation.asp) and [projected benefit obligation](https://www.investopedia.com/terms/p/pbo.asp).

The VBO is the portion of the accumulated benefit obligation that employees will receive regardless of their continued participation in the company's pension plan. This is the benefit that has [vested](https://www.investopedia.com/terms/v/vesting.asp) in employees — as opposed to the accumulated benefit obligation, which represents the present value of any benefits, whether vested or not.

The [Employee Retirement Income Security Act](https://www.investopedia.com/terms/e/erisa.asp) (ERISA) of 1974 requires companies to vest benefits using one of the following two approaches:

*   Pension benefits must fully vest in five years or less; alternatively
*   A company can choose to vest 20% of the employee's pension benefits in three years or less, then vest another 20% per year until the employee is 100% vested in the program after seven years of service.

Since minimum vesting requirements are generally five years, the values of the vested benefit obligation and accumulated benefit obligation are very close in most pension plans. While the ABO and VBO values are required to be disclosed at fiscal year-end, in cases where the values are almost similar, companies' [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp) show the ABO value and state that the VBO and ABO values are not materially different.

> **Article Sources**
>
> 1.  Financial Accounting Standards Boards. "[Statement of Financial Accounting Standards No. 87](https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220127991&acceptedDisclaimer=true)," Page 12. Accessed March 10, 2021.
>     
> 2.  U.S. Department of Labor Employee Benefits Security Administration. "[FAQs about Retirement Plans and ERISA](https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/retirement-plans-and-erisa-compliance.pdf)," Page 4. Accessed March 10, 2021.
# Voting Trust Certificate

![Voting Trust Certificate](https://www.investopedia.com/thmb/WGq9qJ7lGBEMNOdrLuRu7rBanZc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/voting-trust-certificate.asp-final-4b74afa59d5b409b9398093bfc158072.png)

*— Investopedia / NoNo Flores*

## DEFINITION of Voting Trust Certificate

A [voting trust](https://www.investopedia.com/terms/v/votingtrust.asp) certificate is a document issued by a limited-life trust of a corporation established to give temporary voting control of a corporation to one or a few individuals. A voting trust certificate is issued to a stockholder in exchange for his or her common stock, and represents all of the normal rights of a shareholder (e.g., receiving [dividends](https://www.investopedia.com/terms/d/dividend.asp)) except the [right to vote](https://www.investopedia.com/terms/v/votingright.asp). The life of a voting trust certificate in many cases ranges from two to five years, at which point the common stock, with voting rights, is returned to the shareholder.

## BREAKING DOWN Voting Trust Certificate

A voting trust certificate allows one or a small number of individuals, known as voting trustees, to gain control and make decisions regarding the corporation without interference. A majority of shareholders must accept the voting trust certificates for the voting power arrangement to become effective. The purpose is typically to allow reorganization when a corporation needs to overcome a short-term financial challenge. By handing over control to a group of trustees, a majority of shareholders express confidence that the trustees can more quickly and efficiently execute the changes necessary to rectify a problematic situation that threatens their financial interest in the company. Voting trust certificates are more common among smaller firms than larger ones, as it is easier in terms of administration and practice to issue them to shareholders.

## Terms of a Voting Trust Agreement

Voting trust agreements must be filed with the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC). The legal document will contain, among other terms, the duration of the agreement; the rights of shareholders (other than voting rights); procedures in the event of a merger, consolidation or [dissolution](https://www.investopedia.com/terms/w/windingup.asp) of the company; and duties and rights of trustees. Another term in the contract is trustee compensation, which by standard is normally none, unless the majority of shareholders allows for a nominal amount.
# Voyage Policy: What it Means, How it Works

![Several shipping containers float in the ocean after falling off a cargo ship](https://www.investopedia.com/thmb/_r8xd1jnxc6EEeQLhxH5fD4FZj4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/VoyagePolicyGettyImages-1342487849-a6bf8eb777284e9eb0230e1164c2295e.jpg)

*— Bet Noire / Getty Images*

## What Is a Voyage Policy?

A voyage policy is marine [insurance coverage](https://www.investopedia.com/terms/i/insurance-coverage.asp) for risks to a ship's cargo during a specific voyage. Unlike most [insurance policies](https://www.investopedia.com/insurance/insurance-policies-everyone-should-have/) it is not time-based but expires when the ship arrives at its destination. It covers only the cargo, not the ship that carries it.

A voyage policy is also known as marine cargo insurance.

### Key Takeaways

*   A voyage policy, or marine cargo insurance, covers losses incurred to a ship's contents during a journey.
*   A voyage policy is used mainly by exporters who need to ship only occasionally or only in small amounts of cargo.
*   Exporters who ship routinely generally use open cover marine insurance.

## Understanding a Voyage Policy

Voyage policies are commonly used by exporters who need marine shipping only occasionally or for relatively small amounts of cargo. Large [exporters](https://www.investopedia.com/terms/e/export.asp) who ship by sea routinely tend to prefer [open cover](https://www.investopedia.com/terms/o/open-cover.asp) marine insurance, which covers all cargo shipped by the policyholder for a specified time period.

A voyage policy covers unforeseen risks but not preventable risks. For a voyage policy to be valid, the vessel transporting the cargo must be in good condition and capable of making the journey, and the vessel's crew must be competent.

> **Important**
>
> A voyage policy is in effect only while the ship is at sea; additional insurance is needed to cover losses during loading and unloading of cargo.

Voyage policies generally cover accidental damage and [collisions](https://www.investopedia.com/terms/b/both-to-blame-collision-clause.asp) as well as natural disasters. Losses due to delays may be covered as well. Voyage policies may specifically exclude losses caused by willful misconduct, ordinary leakage, ordinary wear and tear, improper or inadequate packaging, and labor strikes. Acts of war and terrorist activity also are usually excluded.

The policyholder may need to purchase additional [insurance to cover](https://www.investopedia.com/terms/f/free-particular-average-fpa.asp) the cargo during the entire transport process as voyage policies typically exclude losses that occur during the loading and unloading of the cargo.

The policy is in place for the duration of the voyage, however long it takes. If there are unanticipated delays en route, the coverage remains in place. This allows for factors such as inclement weather at sea or a shortage of docking at the destination port.

Because each policy is specific to a particular cargo and voyage, all details of both are recorded in the policy contract.
# Wasting Trust

![Wasting Trust](https://www.investopedia.com/thmb/dEx-ItE0mvKynv27TIDoAPAuz8w=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/wasting-trust.asp-Final-b017fbaddc5e413a85212ae7d46b730a.png)

*— Investopedia / Ryan Oakley*

## What Is a Wasting Trust?

A wasting trust is a fund whose assets have been depleted over time as plan participants receive their required payouts and no new money is paid in. The term may also be applied to income trusts which hold depleting assets, such as oil and gas.

In either case, the principle held in the trust is declining in value. The trust will continue to pay out until its assets are exhausted.

### Key Takeaways

*   A wasting trust is a fund with declining assets.
*   With new contributions to the trust frozen, the trustee of a wasting fund may be forced to dip into the principle held in trust in order to meet regular payments due to plan participants.
*   The wasting trust may be a private inheritance, a pension fund, or a closed-end fund.

## Understanding a Wasting Trust

A wasting [trust](https://www.investopedia.com/terms/t/trust.asp) holds assets after a qualified plan is frozen. That is, once the plan has stopped accepting new contributions, a wasting fund holds the remaining assets.

Companies that offer pension plans use a wasting trust to phase out a traditional pension plan when they switch to a 401(k) or another type of company-sponsored retirement plan. The trust stays in existence long enough to pay out the remaining assets, while current employees contribute to the new plan.

Wasting trusts are also common in [estate planning](https://www.investopedia.com/terms/e/estateplanning.asp). A will may set aside a sum of money to be used by one or more beneficiaries until the money is exhausted.

The [trustee](https://www.investopedia.com/terms/t/trustee.asp) may use part of the principal held in trust to maintain the payments to [beneficiaries](https://www.investopedia.com/terms/b/beneficiary-of-trust.asp) that are required under the plan.  

## Example of a Wasting Trust

If a company switches its employee retirement benefit from a pension fund to a 401(k) plan, it will create a wasting trust to hold the assets in its pension fund.

The pension fund is frozen. New employee contributions are going into the 401(k) fund, not the pension plan.

The company will continue to pay its obligations to its retired employees until the funds in the plan are exhausted.
# Wealth Added Index (WAI): What It is, How It Works

![Wealth Added Index (WAI)](https://www.investopedia.com/thmb/iyJNHoHJeq7tAT4kGkNSy-g9v-c=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/wai.asp-final-4acf2af6808d45d29f2f95a586047fa6.png)

*— Investopedia / Laura Porter*

## What Does Wealth Added Index Mean?

Wealth Added Index (WAI) is a metric designed by Stern Value Managament, a consulting firm, that attempts to measure value created (or destroyed) for shareholders by a company. According to this calculation method, wealth is created only if the returns of a company, inclusive of share price gains and dividends, exceed its [cost of equity](https://www.investopedia.com/terms/c/costofequity.asp).

## Understanding Wealth Added Index (WAI)

The conceptual foundation of the Wealth Added Index is that the cost of equity for a company should be greater than the return available on risk-free securities such as government bonds because a company is riskier (the greater the risk an investor assumes, the greater the return required). If a company's returns do not exceed its cost of equity, then shareholders should invest their money elsewhere. In other words, according to the WAI, if the return is less than the cost of equity, the company is actually destroying shareholder value; if the return exceeds the cost of equity, the company is adding wealth for its shareholders. 

WAI is similar to [Economic Value Added](https://www.investopedia.com/terms/e/eva.asp) (EVA), another Stern Value Management measure, in that the cost of capital is compared to returns. Traditional accounting return metrics like [Return on Equity](https://www.investopedia.com/terms/r/returnonequity.asp) (ROE) and [Return on Assets](https://www.investopedia.com/terms/r/returnonassets.asp) (ROA) do not consider the other side—the cost of capital to achieve these returns over a certain period. A company can show a high ROE, for example, but if the cost of capital to achieve that ROE was even greater, then the value was destroyed by the company.

But there are two key differences between WAI and EVA. First, and most important, EVA is backward-looking, calculating only results that have already transpired. WAI, by contrast, takes into account both past share price performance and prospective performance. Because equity value of a company is the present value of all _future_ cash flows, the current share price of a company's stock will reflect the future prospect of value creation, or wealth added. Second, EVA is limited in providing cross-border comparisons because it relies on accounting methodologies within individual countries. Therefore, for instance, EVA of a utility company in the U.S. will not be directly comparable to the EVA of a utility company in Spain because different accounting standards are used to derive reported profits. With a focus on the movement of the share price and dividends, readily available for calculation anywhere, WAI is able to overcome this limitation.
# Wealth Psychologist

## What Is a Wealth Psychologist?

A wealth psychologist is a mental health professional who specializes in issues relating specifically to [wealthy individuals](https://www.investopedia.com/terms/u/upper-class.asp). Wealth psychologists are also called money psychologists or wealth counselors. Wealth psychologists help their ultra-rich clients deal with issues such as the guilt they feel about being wealthy, or advise on [inheritance](https://www.investopedia.com/terms/i/inheritance.asp) issues and counsel parents on how to raise children who are not spoiled by money.

## Wealth Psychologist Explained

Wealth psychologists assist many modern wealthy families, most of which built their wealth in one generation. They may not be comfortable with all aspects of being rich, and may have a lot of guilt associated with it. Even for those people who find themselves financially prepared, more are beginning to realize they may not be psychologically or emotionally prepared to cope with wealth. Ample evidence points to the notion that the more people are prepared in this way, the happier they are throughout their remaining life stages. The younger people are when they begin to work toward full preparation, the more productive their lives.

## Wealth Psychology’s Role in Holistic Planning

Financial planning that emphasized the quantitative side of life has given way to a practice intended to broaden the scope and clarity of one’s vision of the future, and the values that drive the commitment to living a full and complete life. Expectations of longer lives, uncertainty over a frail economy, fear of market risk, disillusionment with government and concerns over world chaos are contributing factors to new attitudes about money and happiness.

Some private [wealth management](https://www.investopedia.com/terms/w/wealthmanagement.asp) and financial services firms retain wealth psychologists to train their financial advisors or provide individual counseling to clients. Wealth psychologists are increasingly included as a part of a client’s advisory team engaged in a holistic financial planning process. Their focus is on helping clients better understand their values, attitudes, and beliefs about money to better cope with self-limiting or self-destructive behaviors at the center of their relationship with money or with a family of wealth.

## Preparing Future Generations for Wealth

Wealth psychology is becoming more prominent in [legacy planning](https://www.investopedia.com/terms/l/legacy-planning.asp), preparing family members and future generations for the emotional transfer of wealth. While the precepts for effectively maximizing the transfer of assets are well established within the traditional wealth management community, the guiding principles for preparing family members and future generations for the emotional transfer of values and beliefs are often minimized or ignored. The role of the wealth psychologist is to help families bridge the communication and trust gap for building solidarity of vision and purpose among disparate family members and generations.
# Understanding the Weighted Average Rating Factor (WARF) in Credit Quality

## What Is Weighted Average Rating Factor (WARF)

The weighted average rating factor (WARF) is a crucial measure used by credit rating companies that aggregates credit ratings into a single indicator of credit quality. It's used especially for [collateralized debt obligations](https://www.investopedia.com/terms/c/cdo.asp) (CDOs). WARF's calculation process involves the notional balance of assets and their corresponding rating factors. The result represents a portfolio's probability of default.

### Key Takeaways

*   The Weighted Average Rating Factor (WARF) is used by credit rating companies to assess the credit quality of investment portfolios.
*   WARF aggregates individual credit ratings into a single score, commonly used for collateralized debt obligations (CDOs).
*   To compute WARF, agencies multiply asset balances by their rating factors and divide by the total portfolio balance.
*   Numerical rating factors correspond to the probability of default and are influenced by the underlying assets' quality ratings.

## How Is the Weighted Average Rating Factor (WARF) Calculated?

To find the WARF on a CDO, agencies first determine a credit rating for each instrument in the CDO. In [Fitch Ratings](https://www.investopedia.com/terms/f/fitch-ratings.asp), this rating ranges from very high quality (AAA) to low quality (CCC) to default (D). These letter ratings match numerical factors, which relate to the 10-year probability of default. The WARF is found by averaging these numerical factors based on their weights. To find the weighted average, multiply the asset's balance by the rating factor, then add up the values. This sum is then divided by the total notional balance of the portfolio.

## The Bottom Line

The Weighted Average Rating Factor (WARF) is used by credit rating companies to assess the credit quality of investment portfolios, such as a [collateralized debt obligation](https://www.google.com/search?sca_esv=1c57431be9b2745b&cs=0&q=collateralized+debt+obligation&sa=X&ved=2ahUKEwjK76zmpo2QAxVUKVkFHXkFE44QxccNegQIAxAD&mstk=AUtExfBEm7OH0gtjoey9MMkzq9eSCWna_rQy4CdTJ_wHsHu6OZL1DXpnaePfoao8vIZX64eUJ3NhWnUtPx3f3kAhMAE369ufmqhghuhymY1S441B0kRAutrGRb57vBoLc2t9wCloE8UWfpaP74-i0ixgPyeOysdnNma7kKUK0-NggW4bxkthYJvTUbaF1eqfj_ABiTFtztJyBUQESUbJXE5b55XuCA&csui=3) (CDO). The WARF aggregates individual credit ratings (by e.g., Fitch's and S&P's) into a single score, which is commonly used for collateralized debt obligations (CDOs). The WARF is calculated by multiplying the notional balance of the asset by each rating factor and then adding up those values. Next divide that sum by the total notional balance of the portfolio.
# Write-Up: Examples of the Opposite of Write-Downs

![Write-Up](https://www.investopedia.com/thmb/oF59NYbh_QbeKX1U38xGbAMe-4M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Write-Up-FINAL-285859c1ee0a40fea6a125b031ecfa85.png)

*— Investopedia / Jiaqi Zhou*

## What Is a Write-Up?

A write-up is an increase made to the [book value](https://www.investopedia.com/terms/b/bookvalue.asp) of an asset because its [carrying value](https://www.investopedia.com/terms/c/carryingvalue.asp) is less than fair market value. A write-up generally occurs if a company is being acquired and its assets and liabilities are restated to [fair market value](https://www.investopedia.com/terms/f/fairmarketvalue.asp), under the purchase method of M&A accounting. It may also occur if the initial value of the asset was not recorded properly, or if an earlier write-down in its value was too large. An asset write-up is the opposite of a [write-down](https://www.investopedia.com/terms/w/writedown.asp), and both are non-cash items.

## Understanding Write-Ups

Because a write-up impacts the balance sheet, the financial press does not report on more mundane instances of businesses initiating a write-up of asset values. In contrast, sizable write-downs do spark investor interest and make for better news cycles.

Whereas a write-down is generally considered a red flag; a write-up is not considered a positive harbinger of future business prospects — since they're generally a one-time event.

During an asset write-up, special treatment for intangible assets and tax effects are considered. With an asset write-up, the [deferred tax liability](https://www.investopedia.com/ask/answers/052915/what-are-some-examples-deferred-tax-liability.asp) is generated from additional (future) depreciation expense.

## Example of a Write-Up

For example, assume Company A is acquiring Company B for $100 million, at which point the book value of Company B's net assets was $60 million. Before the acquisition can be completed, Company B's assets and liabilities have to be marked-to-market to determine their fair market value (FMV)[.](https://www.investopedia.com/terms/f/fairmarketvalue.asp)

If the FMV of Company B's assets is determined to be $85 million, the increase in their book value of $25 million represents a write-up. The difference of $15 million between the FMV of Company B's assets and the [purchase price](https://www.investopedia.com/terms/p/purchaseprice.asp) of $100 million, is booked as [goodwill](https://www.investopedia.com/terms/g/goodwill.asp) on Company A's [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp).