Make sure that you have a data.config file in your system. In this file you should have at least two pem files, public and private. Without this, the encryption system will not work.
A password reset is done within a workflow, but that workflow needs variables in its context in order to know what to set the new password to. The following variables are needed:
"_form_loginname"
"_form_resetpassword"
From this you can gather that it is very easy to initiate a password reset. If you call the workflow from a form with at least the fields "loginname" and "resetpassword" you will have the necessary context variables.
The instructions given to the workflow are even simpler than the assigning of variables. Create a workflow node of type "ACL" and of Name "reset" and the system will look at the assigned variables and update the password.