I had this problem once (I think, it's been awhile). Check that the folder named exists, and if it doesn't create it manually. It seems to me like the problem I had was the folder I was archiving to didn't exist. I just double checked and mine archiving correctly.
The best thing is log to into webmail (i.e. webmail.youdomain.com) and look at the left column and make certain you have a subfolder of INBOX named Archive, If you don't create Archive as a sub-folder of Inbox. (note the folder names are case sensitive.)
(for what it's worth, I change my "Archive" folder every year and I include the year in the folder name i.e. Archive-2015. I also have 14 days where you have 365.. other than that pretty much what you have for settings. I still keep all the old archived folders I just find search is better and faster if I break up the archive folders into years.)