On troubleshooting I found a few solutions to overcome this:
1. add extra layers into the illustrator file before importing (min 2 layers).
2. open a legacy illustrator file and import it into after effects, or save the ai file that isn't working as a legacy format.
I couldn't identify exactly what it was in the ai file that was causing the bug in CC - but it seems that by saving the ai file as an older version the ai file becomes usable and retain layer size starts working again. Also an ai file with a single layer will not be able to be imported as retain layer size.
