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Sears has agreed to set aside $3 million to compensate the beneficiaries of retired employees who died after the bankrupt retailer canceled their life insurance benefits in March.

Attorneys representing Sears Holdings and a committee of retirees presented their plan to resolve the dispute over benefits to U.S. Bankruptcy Court Judge Robert Drain at a Thursday court hearing. The deal still requires official court approval, but Drain told attorneys it appeared to be "a reasonable settlement."

Sears, which filed for Chapter 11 reorganization last October, ended the roughly 29,000 retired employees' life insurance benefits shortly after selling most of its remaining assets to Transform Holdco, an entity controlled by Sears' former CEO and largest shareholder, Edward Lampert, and his hedge fund.

The company "could no longer justify paying the significant premiums for the policies," an attorney representing Sears Holdings said in a court filing.

Attorneys representing retirees argued Sears gave up the right to end the benefits in a 2001 settlement deal after the company made cuts to life insurance coverage.

The $3 million goes to beneficiaries of retirees who died after March 15, when the company canceled life insurance benefits.

Current retirees will be able to file a claim for the amount of their benefits, up to a $10,500 limit. How much they receive depends on how much money remains to pay Sears' creditors, which could be cents on the dollar, said James Lawlor, an attorney representing the retirees. Retirees should expect to receive a notice with information on filing claims.

"I think we did about as well as we could to get a good solution to the problem, which is that Sears ended up liquidating and doesn't have that much to pay anybody," he said.

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