Yes, you must pay transportation costs to return the deceased employee's baggage to his/her official station or residence. However, you may not pay insurance of or reimbursement for loss or damage to baggage.
Code of Federal Regulations
[FTR Amdt. 76, 64 FR 2434, Jan. 14, 1999, as amended by FTR Amdt. 2010-07, 75 FR 72968, Nov. 29, 2010]