The Pension Benefit Guaranty Corp. (PBGC) is in the hole for $18.1 billion dollars this year. Believe it or not, that's the good news. Last year its shortfall was $22.8 billion.

The PBGC is the government entity that takes over failing defined benefit pensions. These are the kinds of pensions that your grandfather's generation received: put in 40 years at the same job and you get a monthly stipend for life. Today most workers use defined contribution accounts--like 401ks--but a few industries still offer the old kind of pensions. And a lot of those industries have been going belly up in recent years. That's when the PBGC takes over their pension obligations.

As the article linked above reports, a good part of the reason the PBGC is in better shape this year is legislation passed earlier this year that provides more money to the PBGC from the companies operating these pensions. In fact, one specific provision is the cause of most of the improvement:

PBGC mainly attributed the shrinking deficit to a provision in the new pension law that carves out special treatment for the airline industry, giving airlines that are in bankruptcy court and have frozen their pension plans extra time for their pension plans to become financially whole.

To call this misleading would be an understatement. The new law gives airlines special treatment that could make the total cost to taxpayers of their failed pension plans even higher than before. David John explains:

The special treatment provision would allow airline pension plans to fully fund their pension promises over either 17 years or 10 years instead of the 7-year period that would be required for pension plans in other industries....

The special treatment gives the airlines two options: Either freeze the pension plan so that no new benefits are credited to employees or allow employees to build pension benefits but pay for those new benefit promises on an expedited basis. In either case, under the language that was included in the Senate bill, the current unfunded pension promises could be funded over 17 years using a much higher interest rate (8.85 percent) than the rate that other pension plans would be required to use. As a result, airline pension plans not only would have much longer to pay for the benefits, but also would have to contribute less money to be considered fully funded....

On top of that, even if airline pension plans do freeze their benefits, they will continue to pay out full promised benefits to current retirees and close to full promised benefits to employees who retire early within that 17-year period. However, their pension plans’ underfunding would not be significantly reduced for many years. Thus, if an airline filed for bankruptcy again—and many of them have filed for bankruptcy a number of times—its pension plan could be even more severely underfunded than it is now.

And even if the worst is avoided, the new law won't completely fill the PBGC's funding gap. This story isn't over yet.