Hmm... Charlie, I did not notice your step:
3. enter "sudo passwd expiry USER1"
Is there a specific reason why you didn't use the standard 'passwd' command?
Could you post the log when using it? Don't even use 'sudo passwd', as it
doesn't work the same way. Does it work then?
Anyway, the gnome-system-tools don't use passwd -e since they only
support usermod...
** Changed in: gnome-system-tools (Ubuntu)
Status: Triaged => Confirmed
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Changing your password does not allow admin authentication before session is
restarted
https://bugs.launchpad.net/bugs/315002
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