Explanation

Let's analyze each option:

Option A: "A pension plan's total VaR is equal to the sum of its policy-mix VaR and active management VaR." - Incorrect

• Total VaR is not simply the sum of policy-mix VaR and active management VaR because these components may be correlated. The correct relationship involves considering the covariance between them.

Option B: "Pension fund risk analysis does not consider performance relative to a benchmark." - Incorrect

• Pension fund risk analysis absolutely considers performance relative to benchmarks, as tracking error and benchmark-relative risk are key metrics in pension fund management.

Option C: "In most defined-benefit pension plans, if liabilities exceed assets, the shortfall does not create a risk for the plan sponsor." - Incorrect

• In defined-benefit plans, the plan sponsor bears the risk of funding shortfalls. If liabilities exceed assets, the sponsor must make additional contributions to cover the deficit.

Option D: "From the plan sponsor's perspective, nominal pension obligations are similar to a short position in a bond." - Correct

• This is accurate because pension obligations represent future liabilities that must be paid, similar to being short a bond where the sponsor owes fixed payments. The sponsor is effectively short the liability stream and long the assets that fund those liabilities.

The correct answer is D.