Federal Employees Cash or Deferred Arrangement Act of 1985

Federal Employees Cash or Deferred Arrangement Act of 1985 - Replaces current authority for voluntary contributions and the purchase of additional annuities under the civil service retirement system with a cash or deferred arrangement whereby Federal employees or Members of Congress may contribute up to five percent of basic pay, with an equal contribution by the employing agency, to the Civil Service Retirement and Disability Fund. Prohibits distribution of such amounts before the employee's retirement, death, disability, separation from service, attainment of age 59 1/2 years, or for reasons of hardship.

Authorizes the Office of Personnel Management to permit loans to an employee from amounts such employee has contributed.

Authorizes the Office to permit an employee or survivor, at the time of eligibility for annuity, to purchase an additional annuity with amounts then held in the Fund.

Excludes from gross income of an employee or Member, for Internal Revenue Code purposes, any amount deferred and contributed to the Fund and the amount of the employing agency matching contribution.