Thanks for your replies. The issue of not retracting left "arm" is solved. It was a tiny hex screw that fixes the brakes on the pivot. The screw was loose, I did not noticed that, because I did not know how deep it should be in.

But, there is another problem of brake pads slightly touching the tire although the pads are on the lowest point. LBS says that my new wheels with Kinlin 700c rims will not work with my brakes. I have stock Cannondale C4 brakes on my CAAD8.

They suggested to buy new rear brake calipers with deeper reach. I cannot find specification on reach on my current C4 brakes, is it 39-49mm or 37-47mm? There are several models with long reach like Shimano R450 or Tektro R730. The LBS says they should be compatible with my Tiagra shifters with Shimano Super SLR pull.

Is it normal that Kinlin rims will not work with normal short reach brake calipers?

Should I buy just rear brake or the set? Shimano or Tektro? Any recommendations on model will be appreciated. Thanks!