(Dow Jones) Socially responsible investments, especially faith-based mutual funds, are finding a place in more 403(b) retirement plans as nonprofit organizations and educational institutions revamp these retirement savings vehicles to comply with new, stricter standards.

The new requirements for better oversight and management don't require that 403(b) retirement plans offer more faith-based funds or similar socially responsible investment products. But, while making the needed adjustments, plan providers are responding to what they see as more demand for socially responsible investments among employees of organizations that often have a charitable or social mission. It also helps to make the 403(b) retirement plans more attractive in a competitive market.

"We've been hearing for a couple years now that investors want to align their values with their investing style," said Jamie Ohl, who heads Hartford Financial Services Group Inc.'s (HIG) Retirement Plans Group.

Hartford added several faith-based mutual funds to its 403(b) platform in May. It has almost doubled its 403(b) business since 2008, and had close to 2,500 plans with $1.99 billion in assets at the end of 2009.

The 403(b) plans are tax-deferred retirement plans available at schools, hospitals and nonprofit organizations, similar to 401(k) plans offered in the private sector. New federal regulations that went into effect last year require employers to more closely monitor investment options and movement of assets in 403(b) plans.

Demand for socially responsible investments, or SRIs, has increased in recent year as workers manage their own retirement savings plans instead of counting on pensions from their organizations. Interest also was increased by events such as the financial crisis and the Bernard Madoff scandal. Investors often perceive SRI funds as more transparent and ethically managed than traditional funds.

Faith-based funds are a kind of subset of SRIs in which investments are chosen in line with the beliefs of a religious denomination. Assets in faith-based mutual funds almost tripled to $30.4 billion by the end of 2009, from $11.5 billion at the end of 1999, according to research company Morningstar Inc. The number of faith-based mutual funds climbed to 80 in 2009 from 43 in 1999.

"I would expect it to continue to grow, assuming that a wider range of people continue to invest in mutual funds," said David Kathman, an analyst at Morningstar.

Some of these funds have higher fees because of the screening process used to avoid certain types of companies, such as those that sell alcohol, tobacco and weapons, Kathman noted. Nonetheless, some funds, such as the Amana Mutual Funds Trust, which is designed to comply with religious requirements of Muslims, are attracting an even broader following because of their strong returns.

Jeannette Pai-Espinosa, president of the nonprofit National Crittenton Foundation, said the foundation chose SRIs when it established a new 403(b) last year because of the organization's goals and the returns she had earned on other SRI investments. The new plan, provided through retirement-plan provider Social(k), includes SRI and faith-based funds.

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