Third, there should (personal opinion) be a fairer distribution of initial Merit than just the current forum level. Seems unfair otherwise, since there is a huge variation already just within a forum level. Perhaps a combination of current activity, time on the forum, how long the account has been in the current level, and other relevant variables.
The distribution of merit was only to provide the absolute minimum for people to have the rank that they currently have. Since merit isn't actually used for anything than determining that, I think this is fine. What matters more is the distribution of sMerit, the stuff that people actually give away. For that, the formula was based on both rank and activity in the past year.
I respectfully disagree with the first part. Someone who is a week away from becoming a legendary member, for example, will now have to compete for the same 500 Merit points as someone who just became a hero member, in order to reach the legendary member status. It is this distribution that seems unfair. At the very least, I'd distribute Merit based on Activity numerical values in a stepped manner, e.g. 500-700 activity = 600 Merit, 700-900 activity = 800 Merit, etc. or something along those lines. The bands for activity are too wide, in my opinion.