I have an article today that discusses how a retirement system based on private savings is affecting the job market. In short, when the economy is contracting, and employers are trying to shrink their payrolls, older workers cling to their jobs because their nest eggs have shrunk. In other words, as Prof. Teresa Ghilarducci at New School put it, 401(k)’s act as a sort of “reverse automatic stabilizer” for the economy.

This wasn’t always the case. Once upon a time, defined benefit pensions were the norm and helped employers gracefully ease more employees into retirement during downturns (potentially by sweetening the pension deal a little). It was not until 1978 that Congress first set up 401(k)’s — private, tax-favored savings vehicles intended to supplement traditional pensions. Over time, as companies decided to shake off some of the risk associated with supporting their retirees, the defined contribution pension system grew to largely replace the defined benefit system.

Alicia Munnell, director of the Center for Retirement Research at Boston College, sent me the following data on the breakdown of pension plan coverage among those private sector employees who are covered:

Note the swing from 1980 to 2006 in the types of pension plans covered employees have. (Many employees remain uncovered by a pension plan of any kind, of course.)

Unfortunately for workers, having control over their own pensions doesn’t always end up so well. A recent study from the Employee Benefit Research Institute found that at the end of 2007, about a quarter of Americans ages 56 to 64 had 90 percent of their 401(k) account balances in stocks, instead of more conservative investments. (It seems English-speaking countries in general like to invest their private retirement savings in the stock market more than their non-English-speaking industrialized peers.) High administrative and investment fees can also erode privately managed retirement benefits.

That’s not to say that defined benefit pensions — which are still enjoyed by many more public sector employees — are a panacea. Having companies or states manage the risk associated with retirement guarantees does not make the risk disappear. Check out Roger Lowenstein’s book “While America Aged” for some cautionary tales about how retiree liabilities “Ruined General Motors, Stopped the N.Y.C. Subways, Bankrupted San Diego and Loom as the Next Financial Crisis” (that’s the book’s subtitle).