In prior editions, if your model was engaged and cast a spell targeting a model it was in melee with, your target did not receive the +4 DEF.
Re-reading the section on Arcane Attacks in the Mk4 rules, I am not seeing that exception. Am I missing it (and all spells equivalently have the “Pistol” rule) or are spells now affected by “Target in Melee” when the caster is also in the melee?
I’m not sure, I believe they are intended to suffer the accuracy penalty. I moved this to the Warmachine category to keep things organized.
Targets definitely gain the “Target in melee DEF bonus” against Arcane Attacks. See the “Arcane Attack Roll Modifiers” chart under “ Arcane Attacks.”
Now that I can easily post screenshots and quote, I shall do so! 
…And the aforementioned chart on page 30. (Apologies on the weird formatting. It was present in the most recent PDF I downloaded.)
Yup, spells still 100% suffer the model in melee penalty at all times.
Yeah. It’s painful, especially since there is no “pistol” equivalent for casters. Although they do have the flexability of casting on something they arent engaged with so it’s not as terrible as a non-pistol ranged attack.
Thanks for the answers everyone.
Also note that there is no penalty for casting OUT of melee. You can be engaged and cast spells at something behind what you are engaging. All spellcasters basically have Spell Gunfighter, but cannot gain Spell Pistol.
