Something is definitely wrong, it should sit flush with the spur gear.

Most likely it's missing the washer part# Z694, or maybe even part# Z699 which is part of the flywheel...you will have to take it apart to see it.

Download the manual from the link below and go to page 26 see if any of those parts are missing...that should be the problem.
http://www.hpiracing.com/kitinfo/10401/