setting PLAYER_DEATH_BLOCK_PUNISHMENT to true in the server config will cause the player to drop inventory on death.
but it wont appear at the position where the character died.
in my test it did spawn to the left and bit down ... behind a core and a few blocks, out of sight.
that would look as if the character did not drop anything at all.
to reproduce
1- get two character with stuff in inventory together
2- let one kill the other
3- search for the loot drop