I got it to work using plane strain elements. Most interesting to me was that I have to use the following contact parameters that I evolved from this post (Convergence issue in 2D contact problem):
** --------- Contact ---------
*SURFACE INTERACTION,NAME=DEFAULT
*SURFACE BEHAVIOR,PRESSURE-OVERCLOSURE=LINEAR
1000000000,0.1,0.01
*friction
0.3,1000000
link to files: Rotor_with_magnet_all_files - Google Drive