I wasn’t able to investigate this issue much further. If I recall, it was an issue that was specific to StaticMesh scene geometry, whereas skeletal meshes like characters seemed to behave correctly with this feature.
The only workaround I’ve found is to simply convert a static mesh into skeletal mesh like in the demo scene. It may work for things like pickups, but it isn’t really suited to doing custom depth on environments.
I’ll repost this to UDN and see if I can get some sort of response there.