NINE hundred Marylanders live at Rosewood, the state's oldest and largest institution for the mentally retarded. They are the beneficiaries of a settlement reached between the state and the federal government in a suit filed under the Civil Rights of Institutionalized Persons Act of 1980. The law was characterized then, by an opponent, as "a major expansion of coercive powers of the Justice Department that does serious violence to the principals behind our federal-state system." But it has proved to be an effective tool for improving conditions in state institutions. Assistant Attorney General William Bradford Reynolds specifically praised state officials for their cooperation in this agreement.

Litigation involving conditions at Rosewood began in 1974 when the federal government first filed suit to correct conditions there. The suit was dismissed on the grounds that the Justice Department did not have the statutory authority for the action. The 1980 law corrected that by giving the federal government the right to sue states in order to protect the rights of persons confined in state institutions -- jails, juvenile detention facilities, mental hospitals. A new investigation of Rosewood began and, though the negotiations took four years, an agreement has been reached, and protracted litigation has now been avoided.

The settlement requires improved staff-to-patient ratios that will result in the hiring of more physicians, psychologists, nurses and direct-care workers. It requires the state to improve resident training, care and medical treatment, record-keeping systems, prescription of drugs, restraint and isolation of residents and fire safety. If the state decides to reduce the number of patients at Rosewood, community residences for them must be provided. There is a catch: no one can guarantee that the state legislature will appropriate enough money to put this agreement into effect. But Gov. Hughes has pledged to fight for the funds.

The Justice Department is now investigating conditions at nine other state institutions for the mentally retarded. This is important work, for, as the Rosewood case demonstrates, federal pressure and cooperative efforts can produce improvements. Society has a special responsibility to those in institutions, especially to those who, by accident of birth, are unable to assert their own rights. The mentally retarded need and deserve the protections the federal government is acting to secure.