TORONTO - A tentative collective agreement ending a strike by Air Canada front counter staff includes wage increases, but it will be up to an arbitrator to settle a contentious dispute over pension plans for new hires.

Canadian Auto Workers union president Ken Lewenza said the tentative deal includes higher wages and addresses quality of life and other issues raised by workers.

But he said the agreement does not settle the issue of defined benefit pensions -- the major stumbling block in the negotiations.

Lewenza said the union agreed to send the pension issue to an arbitrator in order to minimize the strain on the 3,800 workers who were on strike.

"For us to prolong the strike as a result of future hirees would absolutely make no sense at this time but it will give us an opportunity in future years to bargain on behalf of those new hires," Lewenza told a news conference shortly after the union announced that a deal had been reached.

The tentative agreement means customer service agents and other staff who walked off the job Tuesday will return to work Friday.

The main sticking point in the dispute was over pension plans, with Air Canada (TSX:AC.A) wanting to put new hires on a defined contribution plan versus a defined benefit pension.

Defined benefit plans provide retirees with a predictable income, but they expose employers to additional costs if their pension funds doesn't have enough money to pay promised benefits.

With defined contribution plans, the company's contribution is limited to a set, negotiated amount and payouts to retirees depend on the performance of the underlying investments. It normally costs the company less money.

"Do I feel good about passing on a risk to new generations of workers that deserve our representation today? The answer is, I'm not happy about that," Lewenza said. "But at the end of the day bargaining is tough and you have to make tough decisions."

Lewenza said there would be "very slight modifications" to the current pension plan, which would become effective in 2013. Further details of the deal will not be released until a ratification vote is held in the coming days.

"We are very pleased to have reached a tentative agreement with the CAW," Duncan Dee, executive vice-president and chief operating officer of Air Canada, said in a statement. "The agreement will help ensure the long-term sustainability of Air Canada while maintaining industry-leading compensation and benefits for our employees."

Travellers had seen minor delays but no major disruptions since the strike began.

The tentative four-year settlement came less than an hour after the federal government tabled back-to-work legislation that would have forced the striking employees back on the job next week.

The airline is still facing other labour disputes. Pilots rejected a tentative agreement earlier this year that contained new rules permitting Air Canada to establish of a low-cost carrier.

Meanwhile, the Canadian Union of Public Employees -- which represents 6,800 Air Canada flight attendants -- has asked for a conciliator to assist in its contract talks.

Mechanics will be back at the bargaining table with Air Canada in July, said Dave Ritchie with the International Association of Machinists and Aerospace Workers.

But his union won't bargain any differently with the airline because Ottawa threatened the CAW with the back-to-work bill and potentially could do the same with them.

"We can't let intimidation come into the bargaining session," said Ritchie.

National Bank Financial analyst Cameron Doerksen said Thursday's deal sets a benchmark for Air Canada's other unions to come to an agreement sooner.

"With one agreement now in place ... we believe the tone has been set for better progress towards reaching new contracts with all of the unions," he wrote in a research note.

Labour Minister Lisa Raitt said the government intervention gave both sides the final push needed to reach a deal.

"We're very pleased with how it unfolded and I know that putting the legislation on the order paper ... was a tool that was needed in order to focus the parties and narrow the issues," she told reporters.

But Lewenza railed against the government's move to announce back-to-work legislation within 24 hours of the strike, even though Air Canada said there had been no significant decline in business.

The federal opposition argued there was no emergency requiring swift action and the government should have never tabled legislation.

NDP leader Jack Layton said government legislation was biased towards the employer, and Liberal leader Bob Rae accused Ottawa of interfering with the union's ability to defend pensions.

Earlier, Raitt said the country's economy would have been damaged by a prolonged strike. She said major disruptions would likely occur next week if workers did not return.

She denied the government was setting a precedent by intervening in the strike so quickly after it began and so soon after winning a majority election.

"When there's going to be a prolonged work stoppage that is going to effect the Canadian economy, and that's going to impact on Canadians, the government is going to give their intention on how we're going to react," she said.

Raitt said the decision would have been the same even in a minority government.