What action is appropriate when co-authors admit that the first author committed plagiarism?
Retract the article.

That's what editors of reputable journals do when an author spontaneously asks for it for reasons of plagiarism.

What other options were you considering? Adding a note saying "The authors admitted to have plagiarized large portions of this article but since our system did not detect it, we publish it anyway."?

It's the duty of the editorial board to execute the retraction, possibly with the support of the publisher. But surely your journal has a standard procedure to handle retraction...  

It certainly would help to notify PubMed that will publish the retraction notice in lieu of the article. I suspect this is part of the information that your journal is providing to PubMed by default...