Sorry, we see so few pensions that are that old, this does not jump to mind.
For your dad, we need to go to Pub 575: "Qualified plan annuity starting before November 19, 1996.
If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract)) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the 3-year Rule. If you used the 3-year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable."
So, your dad should use the General Rule, unless his annuity qualified for the 3-year rule.
I believe (having never seen one of these) that under the 3-year rule, distributions are not taxable until the total amount that you have contributed has been distributed back to the taxpayer (after that, it is all taxable). Another IRS webpage helpfully said, "If the taxpayer used the 3-year rule, the annuity is fully taxable. If they used the general rule, refer the taxpayer to a professional tax preparer."
In other words, take all the old tax returns and papers to a tax preparer to try to figure out how much of the cost or basis (after-tax dollars contributed to the annuity while he was still working) has already been paid out.
I suspect that no mater what, all of the distribution will be taxable.
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