We could not convince the school to change the reading levels - DS was skipped to 1st grade reading group in K and he reached the highest level that they could go to. They simply said that the decoding level is different from comprehension level and that he should stay at a lower level for reading group because his comprehension is not so great. We provided books at his level and let him read them at home and wrote the book titles in the reading log provided by the school. In our case, we did not care that the school did nothing about this issue because my son was under challenged in every subject, so reading group was not really an exception.
What did happen was that we pulled our son out and took him to a school that would be a better fit for him and they tested him for admissions. Based on the testing (which included reading comprehension, writing essay, spelling etc) they skipped him 2 grades levels without any request from us. He is doing fine and is challenged now at this level. So, just keep doing what your son needs at home while you try to figure out how to handle lack of challenge at school.