This sounds like a defined benefit plan, which is typically a qualified retirement plan. This means it meets the requirements set by the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA) unless it was designed specifically for you as a highly compensated employee. If this was the case, then it's a non-qualified plan because it isn't offered to all employees.
Normally, distributions are reported on a 1099R, but there may have been special circumstances why it was reported on a W2. If this was reported on a 1099R, It would have been recognized as retirement income and non-taxable in PA.
Yes, you are correct by leaving Box 11 blank, it is reported on Line 1 as a wage but then an offsetting entry is made in Schedule ! line 8T thus negating the income rendering non-taxable for Federal and PA tax purposes.
@btrout
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