70's Johnson 9.9 rev limiter block is binding on the timing

The 70's Johnson 9.9 when you shift gears and put it into forward, you have the full range of the lower rpms and then the twist grip is hard to turn. The problem is not with the twist grip, but with the part in picture 1 does not seem to be locking the gear all the way down (but it is still in gear). This causes the rev limiter block to bind/rub against the metal timing plate. Upper rpms are initially harder to get to because the twist handle will not turn. You can press down on the shift lever to avoid the issue, but you still have the issue when you want to slow down. There are two nuts that seem to hold it on. I thought about removing it, but I would be removing a safety feature. Any thoughts on how to fix this without turning it into a major job?