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The Skeletal Mesh Reduction tool should be enabled by default when you create a new project. However, if it is not enabled, the following how-to walks you through the necessary steps to enable the Skeletal Mesh Reduction Plugin in your Unreal Engine 4 (UE4) project.
Steps
From the UE4 Editor go to the Main Toolbar and select Edit > Project Settings.
From the Project Settings window, go to the Editor section and click on the Skeletal Mesh Simplification section.
Under the General section, click on the Skeletal Mesh Reduction Plugin drop-down, and from the displayed list, select the SkeletalMeshReduction option.
Press the Restart Now button, in the lower-right corner, to restart the Editor with the SkeletalMeshReduction Plugin enabled.
End Result
When the SkeletalMeshReduction plugin has been successfully enabled, you will see a new section under LOD 0 called Reduction Settings like in the image below.