While I'm a fan of the idea, I'm not crazy about the limits. The one problem I see if for relief pitchers. At year 4, you really have a dilemma of whether to retain a relief pitcher's services. I'd probably keep productive relievers for year 4, but after that, I think I'd have to cut them loose.
Maybe it could be percentile based like extensions. It might not cut down on the amount of work that is necessary, but it would help and also help to ensure some sense of realism since that's what we are striving for here.