1. You should never store passwords themselves, even if encrypted, if the encryption method is reversible.
2. You should only store the result of combining the password with a per user (derived) salt and passing it through a slow, one-way encoding algorithm.
3. To authenticate, you obtain the password combine with the derived salt and encode again. If the result matches the stored value, you authorise.
4. To handle the forgotten password scenario, you generate a random password, encode and replace the encoded token in your database.

   Get the randomly chosen password to the user somehow* and then force them to change it immediately the first time they log in.

   Preferably, they should have to log in and choose their new password within a short time period; and where possible, from a previously known location/machine.

In this way, if your datastore for the encoded authentication tokens is ever stolen, the thieves would have to brute force every single token, because although the encryption method is the same for every token, and they may have also determined the derivation of the salts, the salt is different for each user. Thus they cannot just encode a dictionary of pass phrases with a single salt and search the database to see if any of the tokens match the result.

Ie. They would need to encode every word or phrase in their dictionary with the derived salt for each and every account. Choose a nice slow encryption mechanism and it becomes too time consuming to bother.