So, he actually going to be 2 years behind the other kids his age. He needs to be with the kids his age, you are being too cautious.
He is always going to be behind other kids. He was born this way and it won't go away and the school system will just have to work with that. Unless they put him in a special needs class where they stay year after year until they turn 21 and give them a diploma then he needs to be with kids his age or he will soon be too big to fit in and will really be made fun of.
It sounds like you have the best interest of your child in your heart. Being overly cautious is a natural instinct. I think if it were me I would insist he progress with his class. If he isn't "getting" the work then he may need to have an hour or so a day in a special class like you were talking about, with the resource room teacher. Another alternative would be a facility like ones that I have worked with in Oklahoma and Kansas. I have worked as a CHTS, a Community Habilitation Training Specialist and went into the clients home and helped them to reach goals. I have taught people who have goals to keep their own check books, to live independently, to brush their teeth, to get dressed, etc.... If you need to get him help with school work, or some other things, the agencies in your area may be able to offer assistance.
My soapbox:
I have worked in the field for over 12 years and one of the biggest thing that case managers and house parents come across is parents who thin their children are not smart enough to do anything for themselves. One guy is an adult and works full time at a grocery store, he stocks shelves, checks in the truck, runs a register, etc...his mom won't let him have more than $10 a week allowance because she thinks he can't manage money, "He's retarded you know" is her excuse. So many parents that are elderly now had such limited options with children with learning issues or developmental disabilities. We have many more choices now and keeping the children in their peer group is vital. Their self image, self esteem, self worth, etc...come from their elementary school years. If you do choose to keep him back again then please just make sure if their are ANY issues of kids teasing him or belittling him that you are in that teachers face and in the Principles office the next morning. They should have a no tolerance policy for his case.
Be firm in what you decide. I can tell you my opinion till the cows come home and firmly believe what I am saying but you know your child and his needs. You have to decide what is best and decide how to handle the future issues he'll face. Best wishes to you and that you are able to feel peace about what happens.