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Answer: Its okay to store the encrypted passwords there. Since they are encrypted.

But does the server have the ability to decrypt?

No, for all the major / well-respected password managers (and probably for all the minor ones too), all the crypto is done client-side.

1Password, for instance, has a pretty good security doc about it: https://1password.com/files/1Password%20for%20Teams%20White%...

It is unclear if LastPass is well-respected, and if I recall correctly, at least at one point, the master key was accessible by the server.