The Montgomery County government and the county police officers' union yesterday announced a new two-year contract that includes a first-year pay raise of $850, or about 3 percent, and the union's long-sought demand for reinstatement of the four-day work week.

At the same time, the police officers dropped their demand for a 20-year-and-out retirement plan.

Both the county and the 645-member Fraternal Order of Police union announced they were satisfied with the package, handed down last week by an independent arbitrator after more than three months of collective bargaining. The agreement, effective July 1, is the county's first employe contract, other than the teachers' contracts, to be completed through collective bargaining, a right police officers won under a voter-backed 1980 ballot referendum.

The police union ratified the package in meetings Sunday and Monday. The agreement affects police ranked at master patrol officer and below, or about two-thirds of the county's 800 uniformed officers..

"We thinks this contract makes us comparable with other jurisdictions," said Walter Bader, president of Montgomery Lodge 35 of the FOP. "Those other jurisdictions were getting first pick of officers. Plus we have a higher cost-of-living in Montgomery. This pay increase makes things more equitable."

County Executive Charles W. Gilchrist, in a press release, said he accepted the recommendation of the county's bargaining team that the contract "provides a framework for cooperation between the parties and facilitates continued effective police work."

The biggest gain for police was the 10-hour-a-day, four-day work week, a goal the union has pushed since March 1981, when Chief Bernard Crooke put officers on a five-day week. That change, part of a complete reorganization, angered many officers and disrupted police morale, union leaders said.

The four-day week makes it easier for officers to take other part-time jobs. The shorter week also makes it easier to readjust to shift changes, since officers would have an average 2 1/2 days off before changing from a day shift to a midnight shift.

The negotiated pay raises amount to an average of about 3.08 percent, with first-year officers getting a slightly larger increase and more senior officers receiving less. The increase is just slightly more than other county employes will receive.

First-year wages will be $850 in the first year of the contract, and either $1,000 or 75 percent of the consumer price index in the second year. Bader, the union spokesman, said those increases will make starting officers' salaries more competitive with other jurisdictions. Current rookie officers receive a starting salary of $17,015, Bader said, compared with $17,977 in Fairfax, $17,872 in Prince George's, and $18,551 in the District. The changes will increase the starting salary of a Montgomery rookie to $17,865 by the end of the 1983.

In addition, officers who work shifts beginning after noon will receive an additional 35 cents per hour. Officers whose shifts begin after 8 p.m. will receive an additional 45 cents an hour.