I've played around with this as well. The cap hit is actually...
$3.4
$3.9
$3.9
$4.6
$4.6
$5.4
$1.6
$1.6
$1.6
$1.6
$1.6
$1.6
If I'm the GM, it's not off the table. They'd save $4.3 against the cap next year. The savings get smaller as the years go along but the cap goes up as it goes along.
Ultimately, I think I would give him one more season to see if A) he improves or B) can be effective in a lesser role. If he can be a really, really good 3C, then as the cap goes up his contract will fall back in line with the rising pay scale. Plus, you can always buy him out in a year or two, and that lowers (x2) the number of years his dead money is on the books.