This income is money on which you presumably have not previously paid taxes, so it becomes taxable when paid to you. If the Form 1099-R includes code 1 in box 7 it indicates that the taxable amount is also subject to an early-distribution penalty unless you have a specific penalty exception that you have not yet mentioned. That's the law.
If this was a pension qualified under section 401 of the tax code and offered you a buyout of the pension as seems to be the case since you were able to choose a cash distribution, the company was required by law to provide you the option to directly roll the distribution over to another qualified retirement plan of your choice. Section 402(f) of the tax code requires the company to provide you with an explanation of these options unless you explicitly waive that requirement. The IRS provides a standardized explanation statement that almost all companies use to meet this legal requirement.
Even with a distribution from a qualified retirement plan paid to you in cash, you had the option to roll it over to another retirement account like an IRA to continue to defer the income and to avoid the early-distribution penalty. Presumably you did not do that so the result is a distribution that is subject to income tax and to an early-distribution penalty unless you have an exception that applies. Losing your job with the company is not an exception to the penalty.
