I recently did a test:
* sent myself some test emails
* placed them in sub-folders of my Inbox
* waited for the sync job overnight
* confirmed that they were in the BMA in the sub-folders
* created a saved search targeting these emails
* removed the emails via a retention policy
* confirmed that they were removed correctly
So far, so good.
I have noticed however that the old sub-folders of my Inbox, which were Deleted from the Exchange Server and which now have no emails in them in the BMA, still remain in the BMA.
Is it possible to target these folders for removal as well? No point keeping them if there is no mail in them.