(a) General rule.--In the event of the death of an active participant or inactive participant, the board shall pay to the participant's beneficiary the vested balance in the participant's individual investment account in a lump sum or in such other manner as the board may establish in the plan document.

(b) Death of participant receiving distributions.--In the event of the death of a participant receiving distributions, the board shall pay to the participant's beneficiary the vested balance in the participant's individual investment account in a lump sum or in such other manner as the board may establish in the plan document or, if the board has established alternative methods of distribution in the plan document under which the participant was receiving distributions, to the participant's beneficiary or successor payee, as the case may be, as provided in the plan document.

(c) Contracts.--The board shall contract with financial institutions, insurance companies or other types of third-party providers to allow a participant, beneficiary or successor payee who receives a lump sum distribution to receive payments and death benefits in a form and manner as provided by the contract. To the extent commercially available, any annuity option shall include an interest rate of at least 2.5% compounded annually.