Thank you MTA and Alex Taylor for the answers, as this gave me a good idea of what I was looking at. I was able to take some more photos that explain what happened here and take some time this weekend to replace the shock.
Firstly, I unbolted and lifted up the upper shock mount to see that the washer on the shock rod looked like it had failed rather dramatically.

I was able to slide the busted washer up and down the shock rod, where it was never supposed to reach in the first place.
I had brought my car to a mechanic to get the same weld job done that another Volvo 850 owner had after shearing the lower rear shock stud. When I called the mechanic, they said they didn't touch the upper shock mount. So if they were doing work on the lower rear shock stud, I imagine they levered the eye of the shock off the stud. This would've put force on the upper mount, which I would guess busted the washer onto the shock rod.
I bought a new shock and was able to corroborate that thought this weekend. Ordinarily, as MTA and Alex Taylor pointed out, there's some upper mount—in this case, a washer about half-an-inch thick—that sits at the top of the shock rod and interfaces with the upper shock mount from the photo in my question. That washer shouldn't be able to slide down the rod at all, or else there is nothing keeping the rod from driving up into the trunk panel.
Below is how the shock rod is supposed to look, with the washer and dust cover removed. Notice how the shock rod is slightly thicker than the threaded part of the rod above the split-ring washer.

And this is how the busted rod looked after I removed the upper mount. Notice the damage to the ledge of the shock rod, which is where the washer broke through.

Needless to say, I had to replace the shock and find a new mechanic. Thank you all again for your help here, and let me know if any additional photos would improve this answer.