The Timken Company (USA; NYSE: TKR; 5251R9N7) announced it has reached a new four year contract with the United Steelworkers Union Local 1123, covering about 2,300 bearing and steel production workers in Canton, Ohio through the end of September, 2013. Local 1123 approved the contract by a 6-to-1 margin.

When the 2005 contract was negotiated, there were approximately 1,700 workers in the steel plant and over 1,000 in the three Canton-area bearing plants. But since then, the steel business has improved and the bearing plants have had a difficult time -- Canton Industrial Bearing closed and Gambrinus Bearing has gone on shutdown.

The new contract covers approximately 1,850 in the Canton steel plant and only 486 in the Gambrinus Roller bearing plant.

The 2005 contract had expired, but after two extensions, Local 1123 and Timken reached agreement on key sticking points -- primarily wages and benefits, but also 401(k) terms and noneconomic issues.

Under the new contract, wages will not go up the first year, then will rise 2% in each of the next three years. Most significantly, however, the new agreement introduces a two-tier wage and benefits package. New hires will be phased in to the wage and benefits package. Initially, they will be paid a lower hourly wage and receive a smaller benefits package. Over four years, they will gradually be brought into parity with older workers.

Retiring workers retained their pension benefits, and will receive a $5,000 lump sum payout when they retire. Local 1123 said approximately 650 workers will become eligible for retirement during the course of the current contract.