Members of the Social Democratic Party must approve the agreement, Deutsche Welle reported. A mail-in vote ends Dec. 14, and Merkel could begin her new term Dec. 17.
The other parties involved are Merkel's Christian Democratic Union and their Bavarian allies, the Christian Social Union.
All three of the parties got something from the agreement and all had to give way on some issues, Deutsche Welle said. The other parties agreed to back the SDP on raising the minimum wage to 8.5 euros ($11.50) an hour, to take effect in 2015.
The SDP won a concession on pension reform, allowing people who have paid in for at least 45 years to retire at age 65. All three parties agree on increasing the pension age from 65 to 67 for other workers.
The potential partners agreed on not raising taxes, a key principle for the Christian Democrats. Since the pact also calls for spending increases in some areas, the parties said they would find savings elsewhere in the budget.
The parties also agreed Germany will get at least 55 percent of its energy from renewable sources by 2030 -- more than the Christian Democrats wanted and less than the Social Democrats hoped.
Under the agreement, the CPD will have five ministers plus Merkel as chancellor and the head of chancellery. The CSU will have three ministers and the SPD five.
Aaron Carter is still in love with Hilary Duff
Boston schools pull out free condoms over wrapping complaints