For an IdP at the scale of Yahoo, the can adopt something as complicated as supporting versioned passwords and migrating credentials to the latest secure algorithm upon successful login. You have the clear text password at that point. You can store metadata such as the version (or algorithms) used to hash the credential.
It's easy as hell. Even PHP, so often flamed for "bad security" these days supports EASY functions for this (and polyfills are available, if you're running PHP < 5.5, which you should't do anyway):
- password_hash, which creates a salted hash (the returned value consists of a type/strength spec, the hash, and the salt)
- password_verify, which verifies a password with a hash in a timing-safe manner
- password_needs_rehash, which tells you if you should update the hash in the database
password_hash and password_needs_rehash take a parameter for the hash function (currently only bcrypt is supported, quite likely to keep people from using md5/sha1), and for the cost (the amount of hash function calls).
I believe any reasonable programming language these days has such functions.
What I am NOT so sure about is how the various LDAP server implementations, which many people use for SSO and "normal" account management (because it's easier to connect a new software to LDAP than to migrate existing user db's into LDAP), handle password storage. I mean, having an LDAP server for the credentials prevents any form of password leakage, but in case someone breaches both servers/the LDAP daemon is running on the same host as the webserver?
