But reporting on a students academic progress in relation to their peer group is not arbitrary at all. The criteria is set. The assessment is directly referenced to the criteria. What is in question is how to report the performance to the student and to the parents in a truthful but tactful manner.

I still think needs improvement, has not met grade level expectations, below average, etc. are all adequate. 'Fail' is too final and smacks of an inability to succeed at anything. "Deferred success" sounds like a group of non-teachers trying to solve a problem by being PC.

What is necessary is that the school report on a student's progress,and how the school will help the student achieve and indicate if there will be additional support required. It should also indicate what parents can do at home to improve learning.

Try telling parents of young children that their little darling has failed and you will soon see that the problem is communication. It is easier to stomach when you say the child has not yet met grade level expectations.   

Just because adults live in a tough world, doesn't mean that young children have to bear the consequences. Given time and/or modified instructional methods and support the failure can be turned into success. Just because a child 'fails' reading in grade 1, doesn't mean that he won't be able to read in grade 2.

Lets face it, 'fail' really means that the system has failed to provide what the child needs in a classroom setting. This isn't necessarily the fault of the teacher. There are many, many variables.