From what I can tell with foliage, it bases LOD on screen size of cluster and not individual instance. To get LOD working properly, I turned my max cluster radius under clustering in Show Instance tab under foliage tool down to 100, rather than default of 10000. I tested and it works great. It should also work if you set Max Instances to 1 under Clustering but I have not tested that. Hope this helps.
Edit
I couldn’t help myself. I changed Max Instances to 1 and Cluster Radius back to 10000 and that works as well.
I’m assuming clusters are used instead to determine screen size because it’s less computationally expensive. It’s probably best to have a cluster radius of 100 - 1000 and max instances set to what fits based on density.
Edit 2
After thinking about it further, it all really depends on a bunch of factors. If you use instance clusters but need same measure of LOD, you’ll need to go into your static mesh and adjust it accordingly. With that said, that approach won’t work well if you have single instances of mesh on map.
Now it makes more sense why this tool is getting an update. It just doesn’t scale well.