Another edit:

Perhaps 1.4 could be adjusted to: "If a player retires before their contract is finished, with at least two seasons remaining their team will take a cap hit each season equal to 1/3 of the player's salary for that season." That allows a one-season grace period for players who decide to retire earlier than expected, in a manner that the rule is not intended to punish. 1.4 appears to be intended to discourage GMs from signing players above Tier 4 (no max contract limit) to absurdly long contracts (Kovalchuk-style) that they don't plan on playing out. Obviously 1.2 has the HO's discretionary clause, but I think that punishing GMs for signing late-stage players to, say, a four season deal and then seeing them retire after three. Taking a cap penalty for that seems out of sync with the intent here.