Institutional IPS risk tolerance

This is from reading #14 for a pension. The comany is a financially healthy, rapidly growing import/export company with a young workforce. The plan is fully funded and has a surplus. In accordance with pension policy, the plan discounts its liabilities at the market interest rate for bonds of the same duration. The risk objectives include a limitation on volatility of surplus.

The question asks: Discuss the risk tolerance of the plan. I said the risk tolerance is average due to the young workforce, a strong corporate sponsor, and currently has a surplus. But the volatility of surplus needs to be limited. The CFAI answer pretty much says the above, but the risk tolerance is above average. The CFAI answer did not take into consideration the volatility of surplus requirement to affect risk tolerance. Why is that not a factor?

Also seems above average to me. Is the limitation of surplus vola just an objective or is it stated that the surplus is volatile ?

Defo above average.

How tight was this limitation? The rest of the question points towards an above average risk tolerance.

If three or four aspects point to it being above-average, but one points to it being average you should say something like “the plan has above-average risk tolerance because 1, 2, 3, and 4, even though the volatility of surplus is low”

Or if they ask for the ability, willingness, and overall: ability is above-average, willingness average, and overall above-average.

One thing you also need to consider is the percentage of surplus to liabilities. If the surplus is small, say 3-6%, the request for low volatility in the surplus has little effect on the overall risk tolerance of the plan.

Thanks. That makes sense. The surplus was quite small compared to the liabilities. I did think it was above average risk as well but put down average due to the volatility limitation they stated.

If ability is above-average, willingness average , then overall should be average.

Overall Risk Tolerance = Minimum (Ability to take risk, Willingness to take risk)