It works like this:
A pgren squad has 2 schrecks and will then only drop schrecks if there is less than 2 soldiers in the squad.
A guard squad has 6 soldiers and 4 droppable weapons. So if there is less than 4 soldiers remaining, weapons will be dropped or destroyed.
A grenadier squad with LMG has only 1 droppable weapon, so it can only drop on a squad kill. If they had 2 LMGs, the extra LMG will drop or be destroyed if the 3rd soldier in the squad dies.
It makes perfect sense the way it is now.
Jup this is how it works, only the drop doesn't always happen, it is a certain chance (would need to look up how high).
On topic: I think this is a horrible idea.