Are they actually touching? Maybe if it can't find any contact it defaults to no penetration.
Can you reproduce the behavior in a separate, new test part?
I tried toggling the setting in a test part and did not have any problems.
Can you post the file to this forum so everybody can look at it?
The issue could be related to incompatible / compatible meshes, since no-pen contacts suffice with incompatible meshes and bonded contacts do better with compatible meshes.