Mesh penetration is probably one of the biggest problems with retargeting, especially with characters of stylized shapes. I’ve tried Unreal’s new Retargeter with the spatially aware physics capsules with varying results.
I just came across a paper that does something similar, but seems to understand the relative distance of positioned spheres on the body to create a more accurate retarget. It also works with props attached to the character
Ultrafast and Controllable Online Motion Retargeting for Game.pdf (16.5 MB)
I wonder if it would be worth trying to convert this into an Unreal Plugin.
You can find the source of the paper here, along with a video explaining it.