The client's auditor is questioning the assumed rate of return on plan assets for the calculation of the net periodic benefit cost. Does anyone have suggestions on how to justify the use of the rate the client has selected?

Personally, we always required the auditor to select the interest rate assumption. We would perform the calculations and comment on the appropriateness of the assumption but they selected them.

Go back to first principles. See paragraph 45 in FAS87, and Q&A62 in the FAS87 Guide to Implementation. To quantify, you can use the "building block" approach, by identifying the expected rate of return for each asset class, and then weight those by the actual amounts in each class. Note that this usually produces a range, rather than a single number. The goal is not "...to justify the use of the rate the client has selected", but to select a rate that is reasonable, based on actual investments.

Make sure both the plan sponsor and the auditor do not think of this rate as "what you expect to earn in the next 12 months."