UPDATE: The Android bug tracker isn’t the correct place to ask Google to fix this bug. The backup/restore feature is part of the proprietary Google apps for Android, not the open source Android project. This thread on the Google product forums is the correct place.
Earlier this week Ars Technica covered a bug report I posted on the Android issue tracker about the “Backup and restore” feature not offering encrypted backups.
Because there’s no option to encrypt your backup data on your Android device with a passphrase that you set, Google has the capability to see the plaintext data, including all your saved wifi passwords. Google can then be compelled to give up this data (and any other user data that they store) to the US government when requested to do so.
Go to your home screen, press the Menu button, select “Settings”, under “Personal” select “Backup and reset”. Is the “Back up my data” checkbox checked? If so, all of the wifi passwords that your phone remembers are being synced to your Google account.
And the passwords are in plaintext, too. When you format an Android phone and set it up on first run, after you login to your Google account and restore your backup, it immediately connects to wifi using a saved password. There’s no sort of password hash that your Android phone could send your router to authenticate besides the password itself.