Honor needs to also grant chests..sitting at almost 30 keys zero chests

We're talking about the Honor system, not the Loot system.

The Honor system is being modified to give extra key fragments per Capsule, something that only motivates the part of the community which has extra chests. The part of the community swimming in keys is basically being told "there's no rewards for you here", which contradicts the idea of having rewards to motivate good behavior.

I could not get another key fragment for a year and I would still be able to open every chest I get as soon as I get it, additional key fragments have zero appeal. A system smart enough to know what your missing (keys or chests) and give you that as a reward would suit everyone.

You're missing the point.

Honor Rewards are designed to be incentives for all players. However, they're making a significant portion of the Rewards keys, something some players have in over abundance. I've got 12 full keys and have unlocked 14 chests this year. A player in my shoes could get demoted to Level 0 Honor and not notice any draw backs for over a year. That doesn't make sense for a system that's trying to provide incentives to the whole community.