you have to level them back up, but apparently recent change is they stay their max level, you just have to get all the ASC again to re-absolve them again, if they allow it.
That's correct. I had a 3* Gardin, ASC 4/4 left over from the last event that was sitting at level 1 when they introduced the new update.
Before the update when you got a 3* commander to level 40 with ASC at 4/4 and chose to absolve it for the soul, you kept the 3* commander but their ASC rating was reset to 0/4, their base level was reset to 1 and their max level was reset to 32.
Post update, when you have a 3* commander at level 40 with ASC at 4/4 and you choose to absolve it for the soul, you keep the 3* commander, their ASC rating is reset to 0/4, their base level is reset to 1, but their max level remains at 40/40. You still have to pay to raise the soul back up to max level but all future ascensions with that commander now only require 4 commanders rather than the 5 it took to ascend it the first time. However, that's only when they are at their max star rating (2/2, 3/3, 4/4, 5/5, 6/6, etc). You still lose the original commander when you ascend a 2/3*, 3/4*, 4/5* commander and get the soul.
I imagine that people that had 4* commanders at level 50 or 5* commanders at level 60 wouldn't have wanted to ascend those commanders for the soul before the update because a 4* or 5* soul certainly isn't worth losing a level 50/60 commander for (unless you had an unlimited line of credit on your credit card). The mechanic was probably changed to address the fact that under the previous mechanic, absolving the souls of the best commanders would significantly hurt your squad in the short term more than it could enhance it in the long term.